What penalty may be incurred for failing to comply with the EIC due diligence rules?

The penalty incurred for failing to comply with the Earned Income Credit (EIC) due diligence rules is a $100 fine for each occurrence. This fine is designed to encourage tax preparers to carefully adhere to the requirements set forth by the IRS regarding eligibility for the EIC. The due diligence rules mandate that tax preparers take specific steps to ensure that their clients qualify for the credit, which includes documenting the necessary information and verifying that all claims are legitimate.

By imposing this penalty, the IRS aims to promote accurate and fair tax filings, as the EIC is a significant benefit for low-to-moderate-income workers. This focus on due diligence helps to prevent improper claims and ensures that taxpayers receive the correct amount of credits they are eligible for, ultimately maintaining the integrity of the tax system.