Dependency and Head of Household

[Earl]

Saw a new client today. Single person who wanted to claim her mother as a dependent and take head of household. Client stated mother was not a member of her household and owns her own home. She said that she wanted to claim dependency because she is a care giver for ther mother. Further questions led me to feel that there would not be any way that she would qualify to take either dependency or head of household. However, when looking at her tax returns for the last 2 years that were completed by a CPA and both were used on return. In addition client's father was claimed also as a dependent.

Discussed requirements with client and she felt that she was entitled. ie furnished over half mother's support and over half cost of keeping up mother's home.

In light of new preparer penalties what would be considered due diligence? Would you take the client's word that she meets qualifications? If not what other steps would be appropriate?

Personally I did not feel that she would ever be able to substantiate her claims and in the end suggested she return to person who completed return in past.

However, for future references wonder how others would handle this type situation.

[DaveO]

My next question would be why she is changing preparers. Did the previous preparer get cold feet?

[Possi]

Supporting the parents

See TTB 3-18 Flow chart for "Can taxpayer file as HOH?"

You will see that the parent does not have to live with the taxpayer. The second box has a foot note.

Why couldn't she pass the test and claim Mom and HOH?

~possi

[taxea]

Have you gone through the support worksheet with her? Usually HH is used when parent is in a nursing home which makes it the same as living with the taxpayer. If it sounds as hinky to you as it does to me, I would do the support worksheet and then explain why this isn't legal. Then I would explain why she should amend her prior year returns. There are so many questions. Do the parents live together in their own home? If so the client cannot use the payments on her own home in the support worksheet. How much income do the parents have? If she provides more than 1/2 of their support what is their income used for? taxea

[Earl]

dependency & head of household

Thanks for replys. I just did not feel that taxpayer could provide proof of her contributions to parent/parents support nor for the household expenses.

My main question was how much do you depend on taxpayer's word and when do you require receipts and such. In the past I would usually go through support items and if they felt they contributed more than half I would use the dependency exemption. Now with more emphasis on due diligence wonder if more would be rwquired from taxpayer.

[erchess]

Personally

New or existing client I don't think we need to see substantiation but we need to fill out and have them sign the support worksheet with a statement under penalty of perjury that they spent these monies and have documentation. I believe that's enough to make it their problem not ours if there is a question from the IRS.

In my mind there are three important tricks in this business. We have to know the law and communicate it to our clients. We have to understand what our clients tell us about the facts of their lives And in certain cases we have to be able to document that they told us something or we told them something or even in the cases of charitable contributions and mileage that they showed us proof in order to stay out of trouble ourselves if there is any question about their documentation in the future.

[taxea]

I agree with Erchess and I stand on my prior post. This is a perfect example of a client who deserves to be reported if she is not willing to take your advice. taxea

[newbie]

Enlighten me

Have you gone through the support worksheet with her? Usually HH is used when parent is in a nursing home which makes it the same as living with the taxpayer. If it sounds as hinky to you as it does to me, I would do the support worksheet and then explain why this isn't legal. Then I would explain why she should amend her prior year returns. There are so many questions. Do the parents live together in their own home? If so the client cannot use the payments on her own home in the support worksheet. How much income do the parents have? If she provides more than 1/2 of their support what is their income used for? taxea

I agree with Erchess and I stand on my prior post. This is a perfect example of a client who deserves to be reported if she is not willing to take your advice. taxea

Are you going to turn her in before or after she answers all your questions?

Do you have something to substantiate this statement: "Usually HH is used when parent is in a nursing home which makes it the same as living with the taxpayer."

"I would do the support worksheet and then explain why this isn't legal. Then I would explain why she should amend her prior year returns." And what if the support statement shows that she paid more than half the support? Are you going to tell her it's not legal because I said so?

"Do the parents live together in their own home? If so the client cannot use the payments on her own home in the support worksheet." What if the parents house is paid for and she pays all utilities?


"How much income do the parents have? If she provides more than 1/2 of their support what is their income used for?" What if the only income is social security and they go to the local casino once a week and blow it all and that's why taxpayer has to pay for their support?

[Davc]

What if the parents house is paid for and she pays all utilities?

Then the fair rental value of the home is considered support provided by the parents.

[taxea]

Newbie...fill out your profile and I may spend more time with your questions. Pub 17 for starters. taxea