08 stimulus rebate and 1040X

[S T]

Have a t/p - parents that claimed a 17 year as a dependent (2007 Tax Return), dependent graduated in 6/08 from high school and worked over the summer and then carried full credits for college 9/08-12/08, lived at home and parents supported.

Dependent filed her own return, (I did not prepare, however, had warned the parents to check the box "can be claimed on another's return). Dependent DID NOT check the box!
Received her refund and also $300 stimulus rebate.

Now, both the parents and the dependent have received the "dreaded letter" from IRS that more than one return has claimed the same person under that social security #.

Question: We are going to file a 1040X on the dependent correcting the exemption, but what happens with the $300 Stimulus rebate that the dependent received? It should be paid back, however, there is no provision for that on the "current" 1040X.

Do I just prepare the 1040X ignoring the $300 Stimulus Rebate, and correct only the exemption amount and have the dependent pay the additional tax, and then IRS will bill her later for the $300?

I don't think this issue has been addressed, and we will probably see more of these issues between 2007 and 2008 tax filings.

Sandy

[Gene V]

Sandy,
I had the same problem last year, client claim a dependent and so did ex-spouse—ex-spouse was entitle to dependent. Did amended return- paid the tax for one less dependent, haven’t heard from the IRS about the $300 rebate. Told the client to just
Wait and see what happens.

I think with all the double rebate that is going on (same dependent with divorce parents
Claiming the dependent in alternate years and getting the rebate) nothing will probably happen.

[JG EA]

Since the parents didn't get, can you just not have them take this year. (Count the $300 as part of the stimulus they received.)

[S T]

Will Amend

Thanks,

JG, parents weren't entitled to the stimulus for the daughter as she was over 17, paying back the stimulus rebate of $300 (if IRS asks for it) plus the tax due on the daughters amended return, is far less tax due than amending the parents return and removing the dependent.

Sandy

[Corduroy Frog]

IRS foregos errors?

Sandy's case is a clear error resulting in a stimulus overpayment.

IRS has said if a stimulus payment was received based on 2007 return, and eligibility is lost in 2008, that the stimulus does not have to be paid back.

They have NOT said what should be done if based on 2007, and the 2007 return was in error. It might be that they are unwilling to spend money on unraveling the administrative process in cases such as this.

I would file the amended return, advise the client that the stimulus was not proper, and let the IRS follow up if they so desired. Advise the client that IRS may or may not recover the errant stimulus payment. Additionally, there are no mechanics on an amended return to give the stimulus back to IRS, other than mention in the narrative, which I would do.

[erchess]

Hand Amend

I submit that if you do the amend by hand or on a simple "fill in form" as opposed to doing it in tax software, then it is easy to return the Stimulus. You simply prepare the 1040X as if the Stimulus problem did not exist except that on the bottom line amount due you add the Stimulus Money you want to return. You explain in the explanations portion why the math on the 1040X does not work. You have the client enclose a check and mail it in. I could have done this in my second or third year in the business and indeed earlier had a more experienced preparer told me what to do and how to do it.

On the other hand I can't possibly be the only reader of this board who knows how to do this so there must be some reason I can't think of why it is not what should be done. Please enlighten me. The obvious advantage of my way is that it reduces penalty and interest and if the money is available now you avoid the possibility of the letter coming at a time when the client is less willing or able to come up with the money. Maybe the letter will never come but I don't like the idea of the threat hanging over my clients' heads and the possibility of the letter coming at a time when my personal life would make it painful for me to help the client.

[travis bickle]

I agree with erchess here.

I submit that if you do the amend by hand or on a simple "fill in form" as opposed to doing it in tax software, then it is easy to return the Stimulus . . . . I don't like the idea of the threat hanging over my clients' heads and the possibility of the letter coming at a time when my personal life would make it painful for me to help the client.

It seems to me that there should also be an "override" provision in every software package allowing you to enter the correct total overpayment received [L19] and then simply explain the figures in the narrative.

I do not understand how we could counsel our client to do otherwise if we know an amount was received in error.

[fliszt]

I agree with Frog

Somewhere I read that if errors are made on original return, the tp does NOT have to return the stimulas money. When I read it, I thought to myself that just isn't fair. But, whatever. I have not had to amend a return w/stimulas so do not know what the software does or doesn't do. So I too would just do the 1040X and not worry about the stimulas.
Larry

[JG EA]

Thanks,

JG, parents weren't entitled to the stimulus for the daughter as she was over 17, paying back the stimulus rebate of $300 (if IRS asks for it) plus the tax due on the daughters amended return, is far less tax due than amending the parents return and removing the dependent.

Sandy

Didn't read well. The idea I had was just to take $300 less this year to correct. But of course that is impossible if they got all they should have last year. I'm blaming this mistake on being sick. (What will I blame the others on?)

[S T]

Neither should have received

JG, its okay

Now my dilemna is how to handle the 1040X, I have already advised that the dependent daughter should not have received the $300 and would most likely have to pay it back.

About 50% of the posters on this thread say just file 1040X as per normal and the other 50% say to try to include the $300 Stimulus Rebate as an amount owed.

Has any accessed taxpayer transcripts at e-services to see if the Stimulus Rebate is indicated in 2008? Just trying to think ahead on how IRS is going to handle when they receive the 1040X.

Sandy

[Bucky]

Sandy

I have just encountered the same problem. New client. Daughter claimed herself and parents claimed also. Daughter got $600 stimulus. I was thinking about showing the $600 as a credit on 1040X and explain the situation in the information section of 1040X. Would not surprise me if they send the money back though. In this situation the daughter was 18 in 2007 although a student but in 2008 she is on her own and now has a child that qualifies for $300. She also qualifies for the $600 in 2008 that she got incorrectly for 2007. I guess if I do nothing and just claim the $300 for the child this year it all evens out. What a mess.

[S T]

Bees

Thanks everyone for your posts and suggestions.

I wonder if Bees has any guidance to suggest on this issue and how to approach.

Sandy