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When the EITC is Disallowed

When the EITC is Disallowed 2025

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The document provides guidance on the Earned Income Tax Credit (EITC) and the procedures to follow when a client's EITC has been disallowed by the IRS. It details the use of Form 8862, which must be completed and attached to tax returns for clients whose EITC was denied due to deficiency procedures. The document explains the difference between errors that require Form 8862 and those that do not, outlines penalties for negligence or fraud, and includes specific instructions for completing Form 8862.

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We have answers to the most popular questions from our customers. If you can't find an answer to your question, please contact us.

What is the most common EITC error?

Your child doesnt qualify Most errors happen because the child claimed doesnt meet the qualification rules: Relationship: The child must be related to you. Residency: The child must live in the same home as you for more than half the tax year.

What is a credit recapture?

If youre in the situation where you have to file IRS Form 4255, you might have to pay back a tax credit youve earned in prior years. This process, known as recapture, occurs if you claim a creditin this case, a credit for a specific type of business investmentand then no longer qualify for that credit.

What does it mean when a claim is disallowed?

Disallowance means a denial. Some common uses of the term disallowance in a legal sense include: In the context of taxes, disallowance is a finding by the IRS after an audit that a business or individual taxpayer was not entitled to a deduction or other tax benefit claimed on a tax return .

What is the disallowance rule?

The loss disallowance rule is a rule created by the IRS that prevents a consolidated group or business conglomerate from filing a single tax return on behalf of its subsidiaries in order to claim a tax deduction for losses on the value of the subsidiarys stock.

What is credit disallowance?

DISALLOWING CREDIT Therefore, if, as a result of an examination, the credit is determined not to be allowable, then (obviously) the credit is disallowed and voila, disallowing is what the examiner does! Disallowing, then, refers to decreas- ing the allowable credit for the year under examination.

What is credits after disallowance?

Form 8862, Information to claim Earned Income Credit (EIC) after Disallowance has been expanded to include the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the American Opportunity Credit (AOC). In 2018 the Other Dependent Credit (ODC), a $500 nonrefundable credit has been added to the form as well.

When the EITC is Disallowed 2025

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