EIC Audit

[Gary2]

Also, in the case of the daughter, you'll have to prove support. This could be tricky if she's getting SSI, food stamps, free medical care, etc.

And this is assuming that none of them are getting SSDI. Remember that Social Security benefits are considered support provided by the individual. In a large household, the household expenses are normally divided evenly, so it doesn't take much SSDI for a child to be considered self-supporting.

For some reason, this stuck in my mind till I remembered the flip side.

There is no support test for EIC. So even if the grandkids are disqualified from being dependents because of SSDI, they're still eligible to be claimed for EIC. This works because with SSDI as their only income, they won't be required to file returns claiming themselves.

There's nothing in the information provided suggesting SSDI, so this is just general discussion. On the other hand, SSI and other public aid for the mother does seem likely, so her exemption may be at risk. As already pointed out, without disability she can't be a qualifying child for EIC.

[zeros]

Yes/No

Did more than one person claim the dependents? You could also have multiple people sending in documentation trying to prove that they are the ones that should get the dependent.

Did he claim the same three dependents the prior year? Any issues in the past?

I prepared all three returns so the grandchildren are being deducted on the grandfather's return only. No problems in the past.

[Koss]

Appeal

It sounds like this case may need to be appealed, and it sounds like the taxpayer has a good chance of prevailing on appeal if it's done right.

Zeros, you can e-mail me if you want, and I can give you some guidance on the appeal process.

BMK

[FEDUKE404]

Dependent issue

I understand the EIC issue but there is the dependency issue as well. Even if she doesn't qualify him for EIC she still is a dependent

Well, not necessarily.

There could easily/likely be some goobermint funds coming her way...

....especially with the scenario so far presented.

I agree with John. This is another clear example of why I do not miss having to deal with the situations that accompany many/most EITC returns. (And I felt that way a long time before the IRS started its theoretical "crackdown" on such abuse.)

FE

[DaveO]

I understand the EIC issue but there is the dependency issue as well. Even if she doesn't qualify him for EIC she still is a dependent

[JohnH]

For me, this discussion just reinforces my opinion that preparing a few EIC returns is bad business. Too many risks and too many opportunities to be hassled by clients who can't pay the going rate for extra services when one blows up in your face.

If you only prepare a half-dozen or so and one of them gets into this logjam, you waste a tremendous amount of time and resources getting the problem resolved. On the other hand, if you prepare a large number of them, you can at least consider averaging the cost of sorting out the problem returns over your entire population of clients by bulding a reasonable allowance into your fees.

So it's either choose to do a bunch of them or leave them alone altogether. Personally, I think I'll stick with the "accidental EIC" returns only, and send the others down to HRB. Sure would be nice if one of you were located nearby so I'd have a trusted preparer to recommend them to.

[dodgedipduck]

The 25 year old can sign her own statement that she lived with the taxpayer and that the taxpayer supported her.

Again, there is an age test for EIC.

From Pub 596:

A qualifying child is:

Under age 19 at the end of 2011 and younger than you (or your spouse, if filing jointly)
Under age 24 at the end of 2011, a student, and younger than you (or your spouse, if filing jointly)
or was . . .
Permanently and totally disabled at any time during the year, regardless of age

The 25-year-old cannot be a qualifying child unless she's disabled. It doesn't matter how many documents you submit to the IRS.

[DaveO]

We charged but not nearly enough for the time it took. One case was an individual who was used to getting EITC and the issue came up when a nephew moved in. The other was a father whose ex-wife had died suddenly and he had the kids move in. In the first case we deeply discounted our bill. In the second case we charged close to full price since the taxpayers income had only dropped due to the time away from his work required by becoming the custodial parent.

As you may expect the first taxpayer thought the whole process should have been free for him just like the money had been.

In the second case the taxpayer was happy to pay for us doing something clearly beyond his ability.

[MLINDER42]

Eic Audit

How did the people pay you to take to appeals?I have a couple every year but I do not have the time to take to appeals with out some payment.

[DaveO]

The 25 year old can sign her own statement that she lived with the taxpayer and that the taxpayer supported her. Have it notarized. Get the parent of the 1 year old to sign a statement that the child lived with and was supported by the taxpayer and that they did not claim the child. I've had a couple of these that ended up in appeals where we won but not after plenty of grief along the way. In both cases the appeals officer stated that the case should never have gone that far before being resolved.

[dodgedipduck]

Unless the 25-year-old is disabled, she is too old to be a qualifying child for EIC.

With this mishmash of relationships, I'd be inquiring as which other people claimed the EIC and other tax benefits for the same children.

[David1980]

Did more than one person claim the dependents? You could also have multiple people sending in documentation trying to prove that they are the ones that should get the dependent.

Did he claim the same three dependents the prior year? Any issues in the past?

[Gary2]

Also, in the case of the daughter, you'll have to prove support. This could be tricky if she's getting SSI, food stamps, free medical care, etc.

And this is assuming that none of them are getting SSDI. Remember that Social Security benefits are considered support provided by the individual. In a large household, the household expenses are normally divided evenly, so it doesn't take much SSDI for a child to be considered self-supporting.

[Gary2]

I believe the mother is quite young. The mother and father are not married. They might live together though. Not certain of this.

You didn't say whether you did the original return, but if you had, you'd need to do better than that for due diligence. Though I don't agree with their logic, the IRS position is that an infant not living with a mother is "inconsistent, incorrect, or incomplete."

Even if you hadn't done the original, it would have been useful to go through the due diligence items when responding to the IRS. In other words, at least for the granddaughter, include in your proof of her living with the grandfather an explanation of why she wasn't living with either parent. He didn't just walk into the hospital and take the baby home, at least not without a lot of paperwork or the mother accompanying him.

Did you get an 886-H-DEP or 886-H-HOH? While they say to send either "...medical records..." or "A letter on official letterhead from ... medical provider", the latter is surely more compelling, particularly if it can cite dates, and not only confirm the address but also that the grandfather is allowed to make medical decisions.

[zeros]

Living with a Parent?

Why isn't the 1 year old living with a parent?

I believe the mother is quite young. The mother and father are not married. They might live together though. Not certain of this.