What due diligence applies when a client wants to claim a large business credit promoted by someone else?

Question

AcadiFi · Accepted Answer

Treat this as a business credit eligibility question, not a debate about whether a promoter estimate is enough to support a credit claim. The EA exam rewards a disciplined sequence: verify eligibility, quantify the credit from source records, consider related income tax adjustments, and explain penalty exposure if the claim is unsupported. That sequence keeps the answer anchored in tax law, records, and professional responsibility instead of in frustration, guesses, or online shortcuts.

At fictional Copper Lantern Supply is told it may qualify for a payroll-related credit, but its sales records and operating facts do not clearly support eligibility. The enrolled agent should review the statutory tests, payroll records, prior returns, and amendment consequences before signing anything. The enrolled agent should slow the facts down and separate what is known, what is missing, and what must be verified before a return position or client recommendation is made.

```mermaid
flowchart LR
  A[Client claim] --> B[Eligibility tests]
  B[Eligibility tests] --> C[Source records]
  C[Source records] --> D[Related amendments]
  D[Related amendments] --> E[Sign or decline]
```

The common exam trap is outsourcing the tax position to a promoter calculation. If the facts are incomplete, the better answer is not to invent a number; it is to request support, document the taxpayer representation, consider whether an extension or amended filing is needed, and explain the consequence in plain language. If the issue involves practice conduct, the agent should also consider competence, confidentiality, and written scope.

A strong response states that large credits need independent eligibility analysis and documentation. That framing works on multiple-choice questions because it identifies the rule first, applies the facts second, and avoids emotional shortcuts. In practice, it also gives the client a clean next step: provide records, approve an extension or payment, correct the filing, or narrow the engagement. Practice more in our EA Part 2 question bank.

What due diligence applies when a client wants to claim a large business credit promoted by someone else?

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