EIC question

[oceanlovin'ea]

I have a client who has 2 children. She has always claimed the children. I have gotten something with the name and address of the children on it in the past. I personally know the grandparents of these children. Grandma puts pictures of the kids on instagram all the time. She also talked to me about the grandson because of issues with his schooling. I did not ask them any questions about where the kids lived. They volunteered the information. They have told me the kids are at their house all the time. They might spend one night with the mom all year long. The mom has signed over guardianship to them so that they are able to enroll them in school and take them to doctor, etc.
BUT now she faxes me a copy of her lease agreement with the kids names on it. So here is her proof that the kids live with her.
BUT I know that is a lie.
BUT I can't tell her I know it is a lie.
HOW can I file a tax return for her that I know is not accurate? I am not paying a fine for her lies.
BUT I can't tell her that the grandparents told me. If she were smarter, she would know we are friends and I would know the truth. Grandparents don't claim the kids. So she probably thinks, like most people do, that it is okay for her to claim them.

What would you do?

Linda, EA

[Bob McCoy]

Not an unusual situation for families to collude and shift dependents around to obtain the most advantageous refund. The grandparents may not have earned income and figure their daughter would benefit more from the credit. Sounds like they are trying to help her and probably mean well.

You on the other hand don't want to betray their trust by discussing what they disclosed to you, and don't wish to be caught in the middle.

No one can force you to prepare their return. If you don't feel right about it simply turn her down. Sounds like you might be better off without her business anyway. If it was me I would refer her someplace else. You can always come up with a reason to tell her.

[oceanlovin'ea]

Grandparents are very honest people. She was young when she had the kids, one is their biological grandchild. She doesn't want to deal with them so she has let the grandparents take over her responsibility. They do it because they love the kids. They are not trying to help her.
They have 10 kids of their own so don't need any more deductions.
She doesn't give them any money or buy anything for the kids. They don't think she deserves the EIC. Why should she get all that extra money to spend on herself. If she at least spent it on the kids it would be a little different but she doesn't.

Linda, EA

[S T]

On the clients (I do few on EITC) that I believe are questionable, I print out all of the 8867 due diligence and questionnaires, and have the client fill them out, and request whatever documents that are required, school records, doctor records (for address), emergency notification, etc. Once you receive that information you can analyze and determine what your choices as a tax preparer are.

Good Luck

Sandy

[Bob McCoy]

Grandparents are very honest people. She was young when she had the kids, one is their biological grandchild. She doesn't want to deal with them so she has let the grandparents take over her responsibility. They do it because they love the kids. They are not trying to help her.
They have 10 kids of their own so don't need any more deductions.
She doesn't give them any money or buy anything for the kids. They don't think she deserves the EIC. Why should she get all that extra money to spend on herself. If she at least spent it on the kids it would be a little different but she doesn't.

Linda, EA

If it was me I would opt out if I was reasonably certain a client was gaming the system.

[ddoshan]

Don't the due diligence criteria indicate that in regards to the EIC if you know or have reason to know the information you are getting is not correct you should not prepare the return. You do not have to explain to the client why you will not.

[ttbtaxes]

This is why I won't prepare any return with an EITC, period. No one, no way, now how. Too much downside risk and you can bet your bottom dollar that if the EITC were disallowed on an audit the client would be pointing fingers at you and throw you under the bus any way they could.

[oceanlovin'ea]

8867

I think that is what I will do....I printed out the first 2 pages of the form. I will tell her these are questions that I am required to ask her. Then I will ask each one, no matter how silly some of them sound. it will ask if the child was with her more than 6 months and if anyone else could claim the child.

Thanks

Linda, EA

[DonB]

You already know the answer as to where the children live. Don't do the return.

[Bob McCoy]

Sounds like a return for one of the major chain preparation companies. They charge bug bucks for those types of returns, and almost never turn people away no matter how questionable a return appears. Bottom feeders to say the least.

[taxea]

If the grandparents are legal guardians perhaps the court papers address where the kids reside. Don't discuss anything with the mother and I wouldn't do her return if I were you...it is a conflict of interest. I would have the grandparents provide all documents that prove the kids live with them and file the kids on their return. I would keep all the documents or submit a detailed statement with the documents attached to the return that justifies the dependents on the grandparents return.

[Gary2]

Sounds like a return for one of the major chain preparation companies. They charge bug bucks for those types of returns, and almost never turn people away no matter how questionable a return appears. Bottom feeders to say the least.

I've turned away my share of EITC returns while at a major chain, so please don't generalize.

And in this case, the only reason the question has come up is because the tax pro happens to be on friendly basis with the grandparents. If you take that out-of-band information out of the equation, I can't imagine many preparers questioning the kids' residence after receiving the lease.

[tpnl]

Grandparents return

Grandparents don't claim the kids. So she probably thinks, like most people do, that it is okay for her to claim them.

What would you do?

Linda, EA

Do you prepare the grandparents return? I would insist the grandkids go on their return. That takes care of the EIC fraud. Amend the return if it was already done. If the grandparents don't want to, then that would tell me they really don't care if the daughter comitts fraud.

You didn't know before, but you know now. Wouldn't the grandparents benefit from child tax credit?

Good luck.

[oceanlovin'ea]

Talked to mother

Mother called to see if I got the lease. So I told her I had to ask questions from a new questionaire that IRS makes us fill out now. I asked if the children lived with her more than 6 months of the year. She siad YES. Then later it asks if there is anyone else that could claim the children. She said NO.

To clear up any confusion, I have known the grandparents for over 20 years. They are very good friends of mine. They became foster parents many years ago and ended up adopting most of the kids. So at this point they still have 10 kids at home. Income is wiped out by standard deduction and exemptions. They get the maximum additional child tax credit given if no taxable income. It is of no benefit for them to claim these 2 grandchildren.
The grandson is having trouble in school. He was tested and was diagnosed with Asbergers. Grandmother was talking to me about trying to find some help for him because my grandson also has developmental delay issues. In conversation, she said that Elizabeth had signed over guardianship of the kids to them because that made it easier for them to take kids to doctor and to school. She said the kids are always with them, that the mom doesn't buy them clothes or give them anything to help with taking care of them. This discussion had nothing to do with doing tax returns. It was just a personal conversation. BUT since I do both their returns, now I became aware of the situation.
I am not sure how I will tell her to go somewhere else but I will not do the return when I know that it is not an accurate return. I am not good in situations like this. I had it happen one other time when I knew something a client told me was not totally accurate. I guess I did not express myself well when I have to deliver this kind of information. They were very upset. I really don't want to implicate the grandparents.
As Scarlett said, "I think about it tomorrow"

Linda, EA

[Lion]

Tell them your insurance company told you that preparing tax returns for family members can create a conflict of interest, that you can't risk higher premiums, and give her a couple referrals.... (Nothing personal; just business.)