1040X, EIC, and stimulus

[Jesse]

Turbo tax filers - this Mom and Dad live together with their two children. Mom, income of $8,000 filed w/ both children. Dad, income of $14,800 filed single no children.

Would have been better for Dad to claim both children and Mom to claim none. If we amend the tax returns, Mom will pay back he EIC she received and Dad will actually receive much more than Mom will need to pay back. Am I overlooking any problems with this?

Now with the stimulus, Dad received the $600 rebate, but with the amendment he will not have a 2007 tax liability if he claims the kids and he should have only received $300? Based on 2008's filing you will not be required to pay any additional rebate back, however this is still based on 2007's amendment so will this excess eventually be required to be paid back?

[BOB W]

Turbo tax filers - this Mom and Dad live together with their two children. Mom, income of $8,000 filed w/ both children. Dad, income of $14,800 filed single no children.

Would have been better for Dad to claim both children and Mom to claim none. If we amend the tax returns, Mom will pay back he EIC she received and Dad will actually receive much more than Mom will need to pay back. Am I overlooking any problems with this?

Now with the stimulus, Dad received the $600 rebate, but with the amendment he will not have a 2007 tax liability if he claims the kids and he should have only received $300? Based on 2008's filing you will not be required to pay any additional rebate back, however this is still based on 2007's amendment so will this excess eventually be required to be paid back?

This whole situation smells..... I guess that Mom & Dad are not married? What about Who supplies more that 50% of support to children? And more than 50%Household???

Did Mom file as HOH????

[Jesse]

This whole situation smells..... I guess that Mom & Dad are not married? What about Who supplies more that 50% of support to children? And more than 50%Household???

Did Mom file as HOH????

I don't think there is anything fishy, they just did not plan or prepare the tax returns to the best result as they were in a hurry and did it themselves through free-file. They are not married and the kids are their children - not stepchildren.

Both filed single and HofH will not make a difference as far as the end result, the EIC and the personal exemptions however will make a difference.

[FEDUKE404]

Facts for claiming dependents needed

Technically you can (apparently) move the children around, since there is only a "single" filing status involved, i.e. no HOH. It would seem one of them might even have a shot at HOH, assuming neither parent is married.

Of course, the IRS could make it interesting by asking how did you first figure out which (if either!!) parent paid more than 50% support for each of the two children. I don't think "would have been better" will carry a lot of weight for that determination, regardless of whether the first assignment was or was not correct.

I think the "tie-breaker" rules may come into play re the EITC.

FWIW, your explanation on page two of the Forms 1040X should be interesting, to say the least!

Thank goodness I no longer have to play these creative tax games with my current client base......

FE

[BOB W]

I don't think there is anything fishy, they just did not plan or prepare the tax returns to the best result as they were in a hurry and did it themselves through free-file. They are not married and the kids are their children - not stepchildren.

Both filed single and HofH will not make a difference as far as the end result, the EIC and the personal exemptions however will make a difference.

Jesse, you need to digest TTB tab 3-16> 18. There are conditions for HOH, EIC, Dependents, Higher AGI, etc. All these issues direct how to file these clients' tax returns. What yeilds the best refund is not the issue here, like FEDUKE404 said..

[David1980]

Of course, the IRS could make it interesting by asking how did you first figure out which (if either!!) parent paid more than 50% support for each of the two children. I don't think "would have been better" will carry a lot of weight for that determination, regardless of whether the first assignment was or was not correct.

You do not have to provide more than 50% support for qualify child tests.

The child cannot provide over 50% of their own support. Part of that change in that uniform definition of a child thing back from 2002-2003?

So if both parents were in agreement they could choose who gets to claim the children or whether to split it1/1 or whatever they want, assuming both meet all the tests. See page 28 of Pub 17.

I'm not sure how amended returns affect it nor how the stimulus payment would interact.

[DonPriebe]

Why is support an issue?

Of course, the IRS could make it interesting by asking how did you first figure out which (if either!!) parent paid more than 50% support for each of the two children. I don't think "would have been better" will carry a lot of weight for that determination, regardless of whether the first assignment was or was not correct.

I think the "tie-breaker" rules may come into play re the EITC.

If both children were living with the (unmarried) parents, then the parents can split those children any way they want to. There is no requirement that the parents furnish ANY support to the children; only that the children do not furnish over half of their own support. And there are no ties to be decided by "tie breaker" rules unless the parents both claim the same child.

[newbie]

Technically you can (apparently) move the children around, since there is only a "single" filing status involved, i.e. no HOH. It would seem one of them might even have a shot at HOH, assuming neither parent is married.

Of course, the IRS could make it interesting by asking how did you first figure out which (if either!!) parent paid more than 50% support for each of the two children. I don't think "would have been better" will carry a lot of weight for that determination, regardless of whether the first assignment was or was not correct.

I think the "tie-breaker" rules may come into play re the EITC.

FWIW, your explanation on page two of the Forms 1040X should be interesting, to say the least!

Thank goodness I no longer have to play these creative tax games with my current client base......

FE

And if the tie breaker rules are applied Dad wins because he has the highest AGI. If both children are qualifying children for both parents I see no reason you can't amend. Explanation should not be that difficult as Dad can list the rules for qualifying children and that the children were omitted on original return and Mom can state she erroneously took children as even though they are her qualifying children, they are Dad's too and tie breaker rules makes him the winner.

[Jesse]

Jesse, you need to digest TTB tab 3-16> 18. There are conditions for HOH, EIC, Dependents, Higher AGI, etc. All these issues direct how to file these clients' tax returns. What yeilds the best refund is not the issue here, like FEDUKE404 said..

I have reviewed and I would never knowingly prepare a tax return to yeild the best refund for anyone if I thought I was dealing with inaccurate information. To the best of my knowledge I abide to the tax laws.

..............Of course, the IRS could make it interesting by asking how did you first figure out which (if either!!) parent paid more than 50% support for each of the two children. I don't think "would have been better" will carry a lot of weight for that determination, regardless of whether the first assignment was or was not correct.

FWIW, your explanation on page two of the Forms 1040X should be interesting, to say the least!

FE

What does FWIW translate into?

My impression of this couple, and I could be wrong, is that they are good people struggling to make ends meet. I would not try to steer them in a fraudulent direction because I think they "would have been better", but if they are entitled to more of a refund by legitimately following the tax laws, why not?

The two together have provided support along with State Health Insurance, fuel assistance, food programs, etc...... As far as increasing their refunds H of H will not make a difference with Mom or Dad on an amended return. The children are qualifying children of Mom and Dad and if tie breaker rules were applied Dad would be entitled to claim both children. Because Mom originally did I just want to be sure that with the facts presented and nothing to hide could I be innocently leading them into EIC fraud or in anyway getting Mom into trouble because she originally took the children as dependents and for EIC?

And also there is still the stimulus issue, but if they had to pay back the $300 they would still have an overall increase in the refund. But again I don't want to get this young couple in trouble by overlooking something. Had they not asked me to look over the returns they would not have known they could have filed differently.

If this couple came to you for advice would you leave it as is or would you prepare a 1040X?

[Gretel]

Jesse, I agree with you, that in your case, you can switch around the children any way you like. Obviously you don't have to worry about tie-braker rules.

I hope someone can answer your real question.

What about the $300 rebate they received too much if you amend their returns??

[OtisMozzetti]

One Kid for Each

I have lacked the energy to run the numbers, but, in this situation or at least in similar situations, it should be worth investigating to get both Mom and Dad an EITC based upon ONE KID EACH. EITC tables show that a second kid pays out less EITC than a first kid. Balanced against that is that Dad is into the ideal income range, the "Promised Land", for EITC, while Mom is below the ideal income amount but not by very much.

...And, affecting the numbers, there are all those other factors such as the stimulus payments, the child tax credits (what AGE are the kids, by the way?), and the additional child tax credit.

By the way, Dad with higher AGI is the custodial parent under the tie-breaker rules; so they are supposed to go through a rigamarole to release the dependent exemption to the non-custodial Mom if that is the approach that they choose to pursue.

[Jesse]

Actually I did look at each taking one child, however about 40% of Mom's income is from unemployment. As you said "Dad is into the ideal income range, the "Promised Land", for EITC" and therefore they will be due a larger qualifying refund if he takes both qualifying children.

[Kram BergGold]

Jesse

An associate of mine swears if a couple filed MFS for 2007 to get the stimulus payment for the spouse with the lower income and then amends to joint that the IRS is not going to take the stimulus payment away.
Only time will tell if his info is correct. You may want to wait and see how IRS handles this. I did 2 or three of these.

[David1980]

By the way, Dad with higher AGI is the custodial parent under the tie-breaker rules; so they are supposed to go through a rigamarole to release the dependent exemption to the non-custodial Mom if that is the approach that they choose to pursue.

Custodial parent and non-custodial parent are terms for divorced and separated parent situations. If the parents live together are not separated nor divorced and have a kid the terms don't apply. There is no "non-custodial" parent in this situation. They can decide which will claim the children. Tie breaker rules do not apply unless parents cannot agree and more than one claims a child.