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Dependent, Late Tax Returns

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    Dependent, Late Tax Returns

    I have a new client that is 22. He is filing three years of tax returns. He was self employed repairing motorcycles.

    Parents claimed him as a dependent on their tax returns those three years. He was living with them. I have been working on his and he made way over the amount to claim as a dependent. I do not believe he was in school at the time.

    If he files these tax returns and does not claim himself... will the parents receive notices that they should not claimed him based on his income?

    I've never ran into this before and I am not sure about the matching process in this case.

    Thanks for any input.

    File an accurate return

    1. verify for sure he was not a full time student any of the three years.
    2. prepare and file an accurate return for your client. If he does not qualify as a dependent on the parents' return he takes it on his own. You can't pick and choose here.
    3. When the letters come out the parents will have to amend their return to remove one dependent and pay the difference. Someone did not ask the correct questions when their return was prepared.

    You really do not have much other choice. Just leaving his dependency off his return will not be an accurate return.
    AJ, EA


      Thank you. I talked to the client today and his parents did not claim him.

      Good to know what to do if this comes up again in the future.


        Dear GGD

        Your follow-up post answered the first question I had when I read your original post: How do you know the parents claimed your client on their returns? Unless you actually saw their returns, or were the one who prepared them, you really can't be sure ... can you? If the son told you they did, that doesn't mean it's true, and if the son later told you they didn't, well, that may be incorrect as well. I would follow the advice offered by AJsTax above except, perhaps, the part about filing amended returns if the IRS catches the error and sends out letters. Depending of what those letters say, amended returns may not be necessary. If the parents did, in fact, claim son as a dependent on their returns for one or more of the three years in question, they may, of course, wish to file amended returns before hearing from the IRS.

        Regarding your other question, would the IRS computers catch these double-ups?, I would say probably yes ... eventually. But what the IRS would then do is anybody's guess.
        Roland Slugg
        "I do what I can."


          Rest of the story

          I'm kinda curious as to why the guy now has "seen the light" and decided to file several past year tax returns.

          My guess is there is a strong possibility his parents DID claim him as a dependent (or even student!) and, at the time, he figured "what income?"

          In any case, you don't need a polygraph exam to prepare the son's returns. If the facts warrant it, make your own decision on the personal exemption/dependency issue. Based upon the circumstances (especially since a Schedule C is involved!), I would be very careful of my questions and document thoroughly all responses. You don't want to get caught in any IRS crossfire.

          At this stage, you are only responsible for the son's return. You should be able to rely on the son's answer about his parents not claiming him. OTOH, although the path is a bit treacherous, you might be able to get a simple yes/no about the question by contacting the parents directly. If privacy rules get in the way, you are then definitely stuck with the son's answer. Other than overall peace of mind, that really should not change a lot for you.



            He is doing the tax returns now because he wants to get his citizenship. When I followed up with him on the dependent question he actually went to his father and asked him while I was on the phone. First in english and then in a foreign language. I heard "no, no". He was not in college at the time. So hopefully their return was prepared correctly. The Schedule C is a cash only business. I asked him all sorts of questions pertaining to the business and feel fairly comfortable preparing it. I did write it all down while talking to him. I say "fairly" because I always have doubts in a cash only business.

            He is owing quite a bit and I told him all the penalties and interest that would accrue on such amount. So hopefully he is now doing the right thing as a future citizen.



              He is doing the tax returns now because he wants to get his citizenship
              I did write it all down while talking to him. I say "fairly" because I always have doubts in a cash only business
              Not to be thinking outside the box too much - but I have slight "tickel" here - I am sure you did your due diligence on the facts and records presented

              Not sure what other questions I could ask or would ask - Seems like a possible Challenge coming forward 3 years later and Cash Biz.



                Yes it bothers me dealing with cash biz. I asked many questions and actually used the IRS guide on auditing cash businesses to get more information from him. I've done a few cash only businesses, flea markets, etc. But not one for three years. I've done the best I can to document the information. I told him that if he ever got audited he would have to provide documentation.



                  While I applaud your efforts, especially since it also appears you are trying to help an individual, my perspective on this scenario would differ.

                  When I assess the rewards/risks issues that might occur in returns of this type, I would conclude such would not be for me. Even with a "perfect" return there is a reasonable probability you will be exchanging telephone calls/letters with the IRS for some time.

                  Add in the fact that the IRS now can toss some serious due diligence issues, as well as sanctions/fines, at preparers whose returns cause problems, and I would just have to refer the young man elsewhere. My pockets are just not that deep and my available time is limited.

                  Good luck, and keep us posted!