Client calls and she has 2 kids and a grandchild that lives with her. She barley worked - W-2 wage $3900 and small bsn netting $8050. Said she receive food stamps and 1 month in the winter got utility help with gas company. IRS told her she had to report that as income and they are dissallowing the earned income. This girl was even in the paper that they did an article on that she lives in proverty and looking for work. She was told she is to pay $3000 and she is very upset. Before she comes in trying to find or figure out what she was talking about - no being able to claim kids cause she acturally did not support them - the food stamps and other stuff she gets is letting her not claim them for EIC purpose. Any suggestion on the food stamps and why she would have to pay back $3000
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Did she receive a CP2000 and if so did you look at it?
Regarding utility assistance, if she qualified under LIHEAP, Low Income Home Energy Assistance Program, this is not taxable - I believe these are federal block grants to the states. -
Under the limited information we've got, it sounds like what happened here is the IRS said that the special welfare programs she receives are actually paying more than half the cost of support of the children. If that's the case the children are likely considered paying over half their own support and do not qualify as dependents of taxpayer. But it's really hard to guess on a CP2000 without actually seeing what the IRS adjusted.Comment
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Originally posted by David1980 View Post
TTB, page 11-5 says:
As long as the child is a qualifying child under all the other rules, the mother should still qualify for EIC.The support test for dependents does not apply to EIC—a child who
meets all other requirements and provides more than half of his
or her own support can be a qualifying child for EIC.
IRS is probably on a fishing trip here, hoping to catch a sucker who doesn't know the rules.Comment
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Support from a third party
Is not support provided by the child. Otherwise all the kids out there getting SS due to one parent being dead or disabled couldn't be claimed by the other parent.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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More info needed
I think we need more information, more detail from the IRS notice.
Like why was this person singled out and had the EIC denied. Usually there is another reason.Jiggers, EAComment
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Dave
Please note that SSA income is concidered money provided by the child or relitive when determing support, and is not income provided by a third party. If the SSA income is used for support and is over 50% the parents loose the dependent exemption.Last edited by RLymanC; 07-24-2008, 02:33 PM.Confucius say:
He who sits on tack is better off.Comment
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Yes it is, and if they use that money to provide support for the child they can lose that exemption on an audit.Originally posted by DaveO View Post
However, as I've been corrected support test is N/A for EIC. So I would say we need more info to determine why EIC wasn't allowed.Comment
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Original post may say that net SE income disallowed
Originally posted by bekzm View Post
The post from bekzm, based upon a phone call from the taxpayer, appears that it might state that the IRS disallowed the earned income of $8050 reported from the small business on the tax return. That would be about right to reduce the EITC with 2 qualifying children claimed by $3000.
The IRS just might be worried that some taxpayers put in bogus Schedule C income in order to reach the earned income level ("the Promised Land") where the EITC (and additional child tax credit) reach their sweetest levels. If this is what is bothering the IRS, then the taxpayer obviously needs to furnish the IRS better documentation of the small business income.Comment
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My client in the same situation (Sch C and EIC) was subjected to a TCMP audit. Indeed, IRS seems to be very interested in this combination.Comment
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