1040X Remove/Add EITC

[MilTaxEA]

I just wanted to run this by someone else to ensure my thinking is correct (especially with the new $500 fine for EITC).

I have a couple of clients who live together, a grandmother, her daughter, and the grandchildren. Last year the mother claimed the kids for EITC, however the grandmother also met all the criteria to claim the EITC and HoH if the mother did not claim the children. They would get back about $4k extra by doing it this way. (Note: The non-custodial father claimed the dependency exemption and CTC.)

Is there going to be an issue if I file two 1040X returns; one for the mother to remove the children EITC claim and another for the grandmother to add the children for HoH and EITC? I don't see a problem with this, but I just want to double check with someone else because of the increased EITC scrutiny.

I already have a signed 7216 release from both of them so I can collaborate with both of them.

[Gary2]

Is the grandmother's AGI higher than the mother's? For 2010 and later, it must be.

[Koss]

Remove EIC on 1040X

I don't see any reason they can't do this.

But for heaven's sake, don't mail the amended returns in separate envelopes on the same day.

Either you have to file the return where EIC is removed first, and give the IRS a month or two to process it, and then file the return where the grandmother is claiming the children, or...

File them in the same envelope, with a letter that explains what they're doing.

If you file them in separate envelopes at the same time, they'll get processed separately, around the same time, and the grandmother's claim may be denied, or subjected to an examination, because someone already claimed those kids for EIC.

They tell you not to put multiple 1040s in one envelope. It's normally a terrible idea. But this case is unusual.

If you do it the first way I suggested, you have a different problem: Mom owes a balance due on the amended return. She probably doesn't have it. If you wait for them to process her return, so that grandma's return doesn't get tied up in an audit, then you have interest and penalties accruing for the mother while they are waiting for grandma's refund.

If you do decide to put both returns in one envelope, you should get a little creative.

The letter that explains what you're doing should be stapled to each return--the same letter, just a copy for each return. Because some bonehead clerk may open the envelope and put each return in two different processing piles.

I might even staple the two returns together, just to try to force someone to deal with the whole thing as a single transaction. But I still say you should put a copy of the letter on top of each return, even if you staple everything together. Because that same bonehead clerk will ultimately separate the returns, and you want a copy of the letter to stay with each return.

No matter how you do it, there's a good chance there will be some inquiries. But I don't see anything wrong with it.

BMK

[Gary2]

The letter that explains what you're doing should be stapled to each return--the same letter, just a copy for each return. Because some bonehead clerk may open the envelope and put each return in two different processing piles.

Or worse, throw out the second copy, wondering why the stupid taxpayer wasted paper mailing in two copies of the amendment.

I might even staple the two returns together, just to try to force someone to deal with the whole thing as a single transaction. But I still say you should put a copy of the letter on top of each return, even if you staple everything together. Because that same bonehead clerk will ultimately separate the returns, and you want a copy of the letter to stay with each return.

Even worse, definitely throw out the second copy, since it doesn't have the "received" stamp on it.

Actually, I thought the IRS scanned images of the return, and that the transcriptionists worked off the scanned images. In that case, stapling two returns together would likely result in just one file, which would really mess it up. This could be totally my imagination, or too much science fiction.

[RitaB]

I seem to recall

(Note: The non-custodial father claimed the dependency exemption and CTC)...Is there going to be an issue if I file two 1040X returns; one for the mother to remove the children EITC claim and another for the grandmother to add the children for HoH and EITC?.

I believe the tax benefits of a dependent can only be split by parents. I think Granny is outta luck. However, I am tired to the point that I cannot even finish this senten

[Gary2]

I believe the tax benefits of a dependent can only be split by parents. I think Granny is outta luck. However, I am tired to the point that I cannot even finish this senten

I don't think so. Pub 596 says "However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter" in the section talking about the custodial/non-custodial split. (emphasis added)

Let me add: It's true that only parents who are separated can qualify for the split, and only the non-custodial parent can get the dependency exemption and related items as a result of the split. Thus the mother couldn't split benefits with the grandmother, nor can unmarried parents living together split the benefits. The confusing part is that when separated parents use the split, the benefits that belong to the custodial parent can be used by anyone else that's qualified.

[dan doshan]

I wonder how much the daughter made and or if she got any child support. If she made very little which is why it would have been better for her mother the grandmother to claim the child and if they all live in grandmothers home, then it might possibly be likely that the non custodial parent would not have been allowed the claim the exemption. As it is possible that the two parents together may not have provided over 50% of the childs support. If so, then the mom technically could not or should not release the exemption to him. Just a thought. Aren't taxes fun.

[MilTaxEA]

I don't think so. Pub 596 says "However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter" in the section talking about the custodial/non-custodial split. (emphasis added)

That was what I thought as well, but I appreciate the cite for confirmation.

Here is my plan:

• File their returns for this year and wait for their refunds.
• Amend the mother's return for last year removing the EITC along with a check for underpayment (her refund this year more than covers that)
• Wait for a month or so before amending the grandmother's return

Thank you so much for your feedback!

[MilTaxEA]

I wonder how much the daughter made and or if she got any child support. If she made very little which is why it would have been better for her mother the grandmother to claim the child and if they all live in grandmothers home, then it might possibly be likely that the non custodial parent would not have been allowed the claim the exemption. As it is possible that the two parents together may not have provided over 50% of the childs support. If so, then the mom technically could not or should not release the exemption to him. Just a thought. Aren't taxes fun.

That was my concern as well. However, I figured out the mom took out tens of thousands of dollars in loans for education that year which supports the fact she provided more than half of her own support (or rather that the grandmother did *not* provide more than half her support). She also had savings and a part time job that she was using to cover her expenses and (with the child support) took care of the children. The father is also providing medical insurance through his work. All this should easily add up to more than half of the kids' support. The grandmother was "just" providing free rent.

I will run through the support questions to make sure that I cover all my bases. Thank you for pointing that out.

[MilTaxEA]

Let me add: It's true that only parents who are separated can qualify for the split, and only the non-custodial parent can get the dependency exemption and related items as a result of the split. Thus the mother couldn't split benefits with the grandmother, nor can unmarried parents living together split the benefits. The confusing part is that when separated parents use the split, the benefits that belong to the custodial parent can be used by anyone else that's qualified.

Very well stated. I am going to bookmark this discussion for future reference.