Exemptions - mother, daughter, and daughter's children

[Bill]

Taxpayer filed a 2008 return as single and with no dependents.

Taxpayer’s daughter filed a 2008 return as single and with two dependents. Taxpayer’s daughter had earned income and gross income of $3190. She claimed an earned income credit of $1,270.

During 2008 and 2009 daughter maintained a separate household from taxpayer.

During 2008 and 2009 taxpayer paid essentially all of the support for daughter and daughter’s two dependents.

Taxpayer wants to claim her daughter and the daughter’s two children as dependents in 2008 and 2009.

2008 - Quick calculation shows that $3500 X 3 X .25 marginal tax rate = $2625 tax savings net of $1270 EIN pay back would produce $1355 tax savings before any costs to do the aforementioned.

2009 – Daughter has no income, so tax savings would be $3650 X 3 X .25 = $2737 with no cost to daughter as daughter has no earned income. Daughter’s children are 19 and 6. Taxpayer would need to verify that eldest daughter is a full time student.

Question:
1. Can mother claim daughter and daughter’s children as dependents on amended 2008 return and the 2009 return to be filed?
2. Are there any adverse consequences to daughter filing a 2008 amended return to give up EIC?
3. Are there any adverse consequences to daughter if taxpayer claims daughter and daughter’s daughters as dependents and daughter gets job in 2010? For example, could she then claim her own dependents and EIC again in 2010?
4. If daughter was eligible to be a dependent in 2008, just not claimed as a dependent, was she wrong in claiming the EIC?

Thanks.

[erchess]

Question:
1. Can mother claim daughter and daughter’s children as dependents on amended 2008 return and the 2009 return to be filed?
2. Are there any adverse consequences to daughter filing a 2008 amended return to give up EIC?
3. Are there any adverse consequences to daughter if taxpayer claims daughter and daughter’s daughters as dependents and daughter gets job in 2010? For example, could she then claim her own dependents and EIC again in 2010?
4. If daughter was eligible to be a dependent in 2008, just not claimed as a dependent, was she wrong in claiming the EIC?

Thanks.[/QUOTE]
1. I believe so.

2. I think theoretically there is the risk daughter could be denied right to claim EIC for a while but I think that risk is tiny in any event and is lessened by her correcting her mistake.

3. Unless the daughter gets stripped of the right to claim EIC for a time I don't see any other adverse consequences. It's certainly not uncommon for dependents to move between relatives.

4 Yes the daughter was wrong to claim EIC when she could be claimed as a dependent. She was at least in theory opening herself to fraud charges and she would be lowering the maximum problem to which she is exposed by amending her return. In my judgment that more than offsets the tiny increase in the probability of some problem.

[Bill]

Thank you!

[taxea]

The daughter will have to pay back the EIC that she got. If the mother was supporting all three both years the daughter filed a fraudelent return each year.

Daughter will have to give mother 8332 for each child for each year.

[WhiteOleander]

Form 8332 can only be used between the parents of the child. Not other relatives.

[newbie]

Form 8332 can only be used between the parents of the child. Not other relatives.

And the daughter did not commit fraud. They are her kids therefore she is entitled to the EIC. She made a mistake by not looking at the big picture. That's all! Form 8332 ONLY for custodial/noncustodial issues. No EIC fraud.