Priya Nadkarni is a paid preparer who completed a 2024 return claiming the Earned Income Tax Credit and the Child Tax Credit, and she completed the required due diligence checklist on Form 8867. To meet the paid preparer due diligence record retention requirement, for how long must she keep the Form 8867, the computation worksheets, and the record of the questions she asked and the client's answers?
- AThree years from the latest of the return due date, the filing date, or the date she gave the completed return to the client Correct
- BThree years from the date the return was electronically accepted by the IRS e-file system
- CSeven years from the date the client signed the preparer's engagement letter for the work
- DUntil the IRS statute of limitations on the client's return closes, however long that runs
Why A is correct: The due diligence retention rule requires keeping the checklist, worksheets, and record of inquiries and responses for three years, measured from the latest of the due date, the filing date, or the date the completed return was provided to the taxpayer.
Why B is wrong: The acceptance date is tempting because it is concrete, but the retention period runs from the latest of the due date, filing date, or date the return was given to the client, not from e-file acceptance.
Why C is wrong: Seven years is a common business record habit and the engagement date sounds relevant, but neither the period nor the starting point matches the due diligence retention rule.
Why D is wrong: Tying retention to the client's open assessment period is plausible, but the due diligence rule sets a fixed three-year period from defined dates rather than tracking each client's limitation period.