Borderline EIC Qualifier

[Snaggletooth]

One lady who earns little more than minimum wage, tries to make a living for herself and an extreme mentally-deficient 21 year old son. Son had not been able to hold down a job because of this and other behavior problems. I know this family very well, such that if I were ever under scrutiny, I could not claim I was unaware of the situation.

In 2004, she had sought disability for her son. State DHS told her that the son was unfit for employment and recommended that he NOT work. She was able to produce a letter from doctor's office that her son was deficient. There are problems in qualifying for EIC, which of course this woman desperately needed. Firstly, the son was too old, secondly he had a small W-2, thus difficult to claim he was "totally and permanently disabled." I was naturally quite hesitant to claim EIC, but I composed a letter for her signature explaining the situation exactly as I described it above, and asked that the IRS determine his eligibility. We filed her return with this letter, plus the doctor's statement, and she received her EIC.

Now we face 2005, and here are the facts. Instead of paying disability to this 22 year old, the State DHS has an arrangement with certain employers who agree to furnish sporadic work which requires little thinking or skill. The son will have a W-2 this year for around $3500 or thereabouts. Woman will certainly want EIC again this year and needs it just as badly now as then. I'm not sure whether the W-2 will come from the employer or from the State.

So my question becomes: Is this 22-year old son a "qualifying child" for EIC purposes? There are no other relevant facts than those I have presented here. Is there such clear evidence against her that I can be penalized, or can this be considered a "grey area?"

[Black Bart]

"Iffy" EIC

Gray area or black and white? It's like they say--it depends on who you talk to. I've been occasionally astounded that things (here & QF) I consider to be trivial non-issues, which are routinely ignored by the public at large, are viewed as outright blatant fraud by others of "strict" interpretation (they'd make good federal prosecutors).

I'd Xerox all the previous medical data, replace the old W-2 with the new one, copy the old letter to IRS, type a pro forma letter (only date needs changed yearly--you'll be using it) recapping the history, explaining that EIC was granted the previous year (a precedent was established), detailing the situation in general, and requesting another "variance." Then send it off to IRS and let them make the decision as to whether or not the claim has merit. By rights he (if anybody) surely does qualify, and you hate to take the chance of some indifferent bureaucrat casually or callously denying the claim. But you must, because unless you (and she) are extremely lucky, somebody at IRS, sooner or later over the next few decades, is going to disallow it and, if that somebody happens to be a fresh-faced eager-beaver, they, instead of going back just three years, might go six if it's 25%, or maybe even from day one if they decide it's fraud.

As you say, she needs the money again this year and, just as you're thinking, she surely will need it next year, and the next year, and the next.... It'll go on 'til one of you dies. By only checking the "disabled" box on the EIC form and not "disclosing," you're taking it upon yourself to decide that he qualifies. It's a mistake to do that. You'll worry about it from now on.

You'd probably like to "get out" of this case, but can't. So, what to do? Let her take her chances! They're hers, not yours; although they will become yours if IRS comes nosing around. I can hear it now (maybe even to a Legal Aid attorney): "I want to do everything right, but I don't know anything about taxes. Mr. Jordan told me it was alright to get that money and why did he fix up the papers like that every year if it wasn't?"

I hope you don't take offense (you're far and away more knowledgeable about taxes than me), but I'm going to tell you something you already know. In the end...when it comes to money and/or "taking the blame"...it's every "man" for himself. It invariably boils down to this: "Who should lose money and get in trouble with the authorities--me, or somebody else? There's just no question who it's going to be. In these heart-wrenching hardship cases you want to do everything you possibly can (much of it pro bono) to aid the afflicted and that includes putting yourself at risk. I've done that (the risk part) more than a few times and it has almost always come back to haunt me. A few examples (some posted previously):

(1) I don't really think you're at risk for fraud, but anyway, an IRS criminal investigator once told me that of the thirty-something cases he'd tried, 100% of them said "the accountant did it."

(2) Client I would have trusted with anything--no books--income taken from crop settlements--at an audit a $20K settlement "appeared" in his "box"--not there when I did return.

(3) T/P quit farming--broke, bankruptcy, divorcing, alcoholic--"farmhand" W-2 wages only--all repoed and no money to recap depreciation. Told him I couldn't do it; so pitiful I gave "inappropriate advice." Don't know what he did (maybe a 1040A himself). Later, conscience-stricken, told me he "might go to IRS and throw myself on their mercy." Never saw him again--possible my name might have come up if he did.

(4) T/P had store and payroll. Had a series of personal disasters, illness, delinquent kids, and so forth. Told me not to count kids on 941s as "it's just a gift/spending money--they're not reliable/dependable-- just in and out--only show up when they feel like it--they just 'fool around'--don't really 'work,' etc., etc." Store went broke, IRS wanted old unpaid 941's. Nervous client calls--says I advised them no taxes were due on kids. I'd previously sliced their accumulated $1,000 bill to $500 because of "hardship" and they knew it.

I'm sure you have stories of your own. You shouldn't forget them.