Kiddie Tax - Parents Information - Need release?

[Elsyie]

I have several clients who have children between the ages of 18-24 and meet all the requirements to require filing an 8615.

The children will be signing their own return because they are over 18. However, the parents don't want the children to have their taxable income information or the information regarding their siblings.

1. Is there any way to avoid giving the children this information?

2. If not, do I need to get a release from the parents to use their tax information on the children's form?

I did call the IRS and was told that the children had the benefit of receiving assets from their parents so the parents have to give the information on the kids return. To which I replied the children received the assets from grandparents. To which the IRS replied that the parents knew about, so the same arguement applies. I'm not entirely in agreement with this logic.

Any help would be appreciated.

Elsyie

[Burke]

I have several clients who have children between the ages of 18-24 and meet all the requirements to require filing an 8615. However, the parents don't want the children to have their taxable income information or the information regarding their siblings.

1. Is there any way to avoid giving the children this information? Any help would be appreciated. Elsyie

Well, they don't have to claim the children as their dependents........

[erchess]

Elysie

Reading between the lines I picked up the impression that you also prepare the returns for the parents.

I think you do need their consent to reveal their tax information to their children. I would fire them as clients if they insist on claiming their kids as dependents and not signing the releases.

Does anyone know whether it is the Kids or the Parents the IRS will come after if the Kids are unable to comply with the tax laws because of the parents' lack of cooperation? If the kids are dependents I am thinking it is the parents who will pay the consequences but I do not have a cite.

[dsi]

FWIW, I believe theIRS would challenge the kids.

[Jiggers]

Kids are dependents and custodial parent won't supply info.

Grandparents set up investments for grandkids. Very profitable, includes bank S-Corp stock.

Grandparents want to pay the taxes owed.

Custodial mother refuses to provide her tax information.

What do I do?

Refuse to prepare the grandkids returns? I have told mother that she is responsible for the filing of their tax returns and the payment of taxes. She still refuses.

Bad feelings between her and ex-inlaws.

[Kram BergGold]

Dependency is irrelevant

Kiddie tax applies whether parents claim the kids or not. We do many returns where we choose not to claim the exemption for a college student so the kid can claim tuition credits. Kiddie Tax still applies in this case. Kiddie Tax does not apply if the kid has enough earned income to support himself or is married.
You raise a very interesting point about privacy issues between parents and children and us. Do we need a written release for these situations?

[Elsyie]

If the parents refuse to allow us to use the information, the 18-24 year old could write to the IRS and get the information that way. However, its a bit late at this point. If the parent refuses I was considering taking out all lines that give the parent information and leaving the tax calculate correctly. That way the child's tax liability would be correct even if the IRS couldn't follow the calc without pulling the parents and siblings returns.

We do prepare both the children and parents return.

[Lion]

Divorces

With all the divorces, this will become more common. I have more than one client with kiddie tax issues due to grandparents funding accounts for grandchildren. Add a divorce and custody not on grandparents' side of family -- a disaster waiting to happen. Please keep posting as you learn more, since this is bound to affect many of our clients sooner than we expect.

[Jiggers]

Custodial Parent

With all the divorces, this will become more common. I have more than one client with kiddie tax issues due to grandparents funding accounts for grandchildren. Add a divorce and custody not on grandparents' side of family -- a disaster waiting to happen. Please keep posting as you learn more, since this is bound to affect many of our clients sooner than we expect.

I advised one grandparent this morning to give the tax information to the custodial mom, let her fill out the return AND pay the tax. Custodial mom doesn't have access to the accounts set up by grandparents!

So that means custodial mom has to come up with tax.

She won't be a happy camper!

[Kram BergGold]

Estimate

One can estimate the parents income and tax. I have never done it but I know it is allowed.

[Jiggers]

Done that

One can estimate the parents income and tax. I have never done it but I know it is allowed.

I did have the income information for one year, with the tax liability. Each year after that I added 5% to the taxable income and calculated the tax based on that. I attached a statement that the custodial parent refused to provide information. Have never heard from the IRS.

However, I am unsure if this is correct. That is why I now advise the grandparents to let the custodial parent file the return and pay the tax.

[Burke]

Why can't the parents have the returns filed for the kids with all the information required, and just have the grandparents give the kids a check for the net tax? The GP's cannot determine what the parents' actual income is or how this tax was calculated without reviewing the tax return, which they don't need to see. IMO, you could provide them with a copy of the 1040-V if they insist on something which shows only the amt of tax due, and if the child allows it to be released. Since the children are not minors and signing off on the returns, they are the responsible parties. I assume that the grandparents have put the investments in the kid's names. Depending on the state, these assets may have gone to the kids at 18. Alternative now is for the grandparents to put the assets into a trust if they still have control, and let the trust pay the tax.