Will I Go to Jail for EIC Fraud?

EIC Fruad

There’s a big difference between accidentally claiming your child and criminal tax fraud.

I often hear the question, “Will I go to jail if I cheat on my taxes?”  People see celebrities go to prison all the time, Richard Hatch, the guy who won a million dollars winning “Survivor”was been all over the news for awhile for tax evasion.  He spent four years in prison.   Note:  if you win a million dollars on national television, it’s safe to assume that the IRS knows about it and is looking for it on your tax return.  Other celebrity tax evaders include Wesley Snipes, Darryl Strawberry and Willie Nelson.  (And the list goes on and on….)

But what about EIC fraud?  What happens to you when you claim a child that’s not yours, or if you allow someone to claim your child when that person isn’t the parent?  What’s the punishment there?

If the IRS examines your return and finds that you cannot claim EIC, the worst case scenario would be that they impose “civil fraud” penalties on your return.  The penalty for civil fraud is 75% of your underpayment of income tax.

Say for example that you involved yourself in a scheme where you claimed children that didn’t belong to you over the course of three years.  The difference between what you received as a tax refund averaged $5,000 more each year than if you didn’t illegally claim those children for a total of $15,000 in excess refund dollars.  When the IRS catches up with you, they will demand their $15,000 plus another $11,250 for the penalty which would make your balance due $26,250.  Add to that the interest you’d be charged and you see how costly this is.

What makes this even worse is that if you are charged with civil fraud the IRS can then turn the case over to the Criminal Investigation Division for prosecution.  You could face both civil and criminal penalties at the same time—meaning they put your butt in jail, levy your bank account and put a lien on your house and any other property you own.

Most people who get caught for EIC fraud don’t have the money to pay back the tax owed, not to mention the added fines.  And of course, the higher the dollar amount owed to the IRS, the higher the likelihood of criminal charges.  So you really don’t want to hear the word “fraud” if the IRS comes calling.

But that’s the worst case scenario, fraud is pretty dangerous stuff, and they have to be able to build a case for it.  One of the key points of fraud is that you knew you were doing it.  I once spoke to a potential client over the phone, she had received an IRS letter and they were charging her penalties for fraud.  As she explained her case, she kept insisting that “she didn’t know.”   I thought there might be a case for her so I asked, “You mean you didn’t know it was wrong to claim someone else’s child?”  She said, “No, I didn’t know I could get caught.”  That’s not going to get you off of fraud charges.  I gave her the name of an attorney—if there’s a possibility of criminal charges, you’ll want the tax attorney over the EA or CPA.  (EAs and CPAs have client privilege for tax issues only, for criminal cases, only an attorney has privilege—meaning what you tell them, they can’t tell on you.)

In most cases though, a much more likely scenario is an accuracy related penalty—that would be 20% of the under-reporting.  Let’s say you live with your girlfriend, she has a kid, she said you could claim the kid; you don’t know it’s illegal but you get caught.  You’ll have to pay back the EIC plus the accuracy related penalty.  If the EIC difference was $5000, then you’d add another $1250 making the balance due $6,250.  The IRS would add interest to that as well.

Generally, if you lose an EIC audit, you’ll also be banned from claiming EIC for somewhere between 2 and 10 years depending upon the severity of the case.  That’s probably the worst penalty for most people.  Many of the people who get in trouble for EIC generally are able to claim EIC in other years.  Being banned from EIC for 10 years can cost a person over $50,000.  That’s a lot of money.

Accuracy penalties usually involve amounts of over $5,000.  If your EIC under-reporting is less than that, you’re more likely to pay “late payment” penalties which are equal to ½ of one percent per month.  For example, you file your return in February of 2008, in March of 2010 they catch up with you.  This means that the penalties have been adding up for 24 months, you’ll pay 12% for the penalty, plus the interest owed.  Let’s say you only got an extra $1000 for falsely claiming EIC, you’d have to pay back $1,120 plus interest of course.  The IRS will always get their interest payment.

But what if it’s not my fault? That’s a very common question.  What if it really isn’t your fault?  What happens if you went to a preparer that didn’t know any better and claimed EIC for you when she shouldn’t have.  Or worse, you had a crooked preparer.  (These things really do happen.)

You’ll have to report the preparer.  There are serious fines and penalties for tax preparers associated with EIC negligence and fraud.  The smallest, yet the easiest to prove, is the EIC due diligence paperwork.  For every tax return that has EIC on it, a paid preparer must have a form 8867.  Here’s a link to see what it looks like:  http://www.irs.gov/pub/irs-pdf/f8867.pdf

The link is to the official IRS form.  In my office, my computer software actually uses the same form but I’m required to sign it and have my client sign it as well basically stating that everything on the EIC form is true.  Here’s the thing—the IRS can call up any tax office at any time and say, “Hey, we’re coming to audit your 8867 EIC forms.”  As the owner of a tax business, I have to be able to pull them all and have them ready for inspection.  If I don’t have an 8867 form for every EIC tax return I prepare, its $100 for each one I’m missing.  Guess what, I’m not going to be missing any of those forms.   I can’t afford it and I don’t prepare that many EIC returns.  You can bet that an office with lots of EIC returns has itself covered in the forms department.

So here’s where I’m going with this, if your preparer really is crooked, do report him to the IRS, it’s the right thing to do.  But if you lied to your preparer about your relationship to the child you claimed or some other EIC offense, and the IRS goes to the preparer’s office and pulls the 8867 forms, and they find a signed affidavit with your signature saying that you are the actual parent of the child—now you’ve just proved that you committed a fraud.  That’s the last thing you want to do.  Remember, a plain error costs a lot less than fraud and there’s no jail time involved.

So what should I do if I receive an EIC audit letter?  If you have the rightful claim to EIC, fight it.  If you’re not sure, maybe you do, maybe you don’t—seek professional help.  I’ve seen innocent people lose EIC audits because they didn’t know the rules.  Don’t take chances, it’s too costly.  If you know for a fact that you should not have claimed a child, pay up and get it over with as quickly as possible.  It won’t be easy, but in the long run it will be better for you.

If you know that you’ve illegally claimed EIC, don’t wait for the IRS to come after you.  File an amended return and pay the tax.  You’ll definitely have to pay interest, but by filing an amended return and paying before you get an IRS letter, you have a very good chance of avoiding the penalties.  You’ll probably sleep better too.


Here are some links that might help:

EIC questions of any kind:  http://www.irs.gov/Individuals/Earned-Income-Tax-Credit-(EITC)-%E2%80%93–Use-the-EITC-Assistant-to-Find-Out-if-You-Should-Claim-it.

How to find free tax preparers:  http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

How to find your local IRS office:  http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1


637 thoughts on “Will I Go to Jail for EIC Fraud?

  1. Hi Sara,
    You ex husband’s girlfriend cannot claim your son on his taxes. The best way to report that is for you to claim your son. Paper file your return, or file an amended return, and start the process rolling. The girlfriend has no legal claim.

  2. Hi Michael,
    How is she going to get caught? The only way she will get caught is if you file a tax return. That’s the best way for you to report it.

  3. Hi Krishna,
    Let me make sure I understand correctly. You are going to file a tax return for your friend. She no longer has a US bank account. You are going to have her refund direct deposited into your bank account and then you will transfer the money to her Indian account. Is that correct?

    Now if I did that, it would be a crime, because I am a tax professional and it’s a violation of my ethics rules. (Circular 230.) But I think you’re okay. You are doing this for your friend. You are not a tax professional. Technically, she needs to file her own taxes – you’re just helping her.

    Do check with your bank though. Some states will not allow a direct deposit to go into an account that does not have the recipient’s name on it.

    Make sure you have something in writing with your friend though – just to cover your backside if anything were to go wrong.

  4. Hi Kasha,
    It sounds like your mom could be in danger of getting caught for welfare fraud. You might want to talk to an attorney to make sure that what’s she’s doing doesn’t come back to hurt you. This is out of my league. I can give tax advice. I’m not qualified to give legal advice or welfare advice. Good luck.

  5. Hi Deina,
    I am not an immigration attorney so I can’t answer your visa questions. Since you were legally married, your husband could file as married filing jointly with you on his tax return. But, by doing that, he’s opening himself up to having to pay tax on your Peruvian income. (He shouldn’t have claimed you as a dependent, but as a wife.)
    I think you should get copies of the tax return transcripts that have your social security number on them and see what they say. If you’re concerned that there could be a problem, then I would file returns for those years with a 1040 NR. Show that you had no US income and that you were living in Peru. That would cover your backside. (That is if you needed to. If you had no income, it might not be worth the effort.)
    But I would talk to an immigration lawyer first. I think your biggest worry is the Visa more than a tax issue. Good luck.

  6. Hi Shawna,
    Wow. The tax advice I can give – paper file your return. But you’ve already done that. Beyond that, how much contact you choose to have with your child’s grandmother is up to you. It’s hard – she’s family. But caring for your child is your number one priority. Good luck with this one. I don’t think there are any easy answers. (Yes, this is me taking a lame cop out. Sorry.)

  7. Hi Jarhead,
    If you and your wife did not live together at all for the last 6 months of the year, and your children live with you, then you may be able to claim head of household. But – your wife would be required to file as married filing separately – which is a really lousy tax status. But, it’s quite possible that you’re still better off filing that way, so you’ll want to do what’s best for you as a family.

  8. Hi Charlie,
    She gets to keep claiming EIC on your ward as long as you let her. Only you can make it stop. Paper file your return and claim your foster child. You may have to do it several times.

  9. So I had a very good friend who fell on some bad luck and lost her home, I allowed her to stay a week one time and then, a week later she stayed a couple more days. It was during tax time and I mentioned my ex didn’t claim the kids this year, (I didn’t have taxes to file) and I was surprised. She left fairly abruptly when I discovered a lot of unsettling things that made me question the sincerity if her and friendship, and if I ever even knew my friend at all…. Long story short, she left and I have had absolutely no contact with her, my attempts to contact her have resulted in her changing her number, blocked me on Facebook/ messenger… So not seeing much point in holding on to a friendship that was clearly one sided, moved on… Recently I had heard that there had used my child as a dependent on her taxes and that it allowed her to qualify for EIC…I asked a mutual friend to forward a message to her, indicating I knew what she had done. The mutual friend received a “thumbs up” icon and was promptly blocked as well? What should I do? Am I in trouble, I had no knowledge not did I receive a penny if it??

  10. Hi, my ex husband has a court order saying he can claim my oldest son for taxes but hasn’t worked over the last 3 yrs but my son has lived with me over the yrs that he claimed my son. His girlfriend claimed my son instead on her taxes. Can they get in trouble for this? My ex is behind in his child support. How DO I report them? I can’t find a number to do this please help. Thanks

  11. Hello I have a question regarding the EIC regarding residency.I had my ex wife living with me for a while .She was working,I was not.I have sole legal custody of my child.She decided on very short notice to just leave my child and I and move far away .She decided to leave in May of last year short of the six months required to claim a dependent .As stipulated under our parenting plan she is supposed to pay child support but has not.Aside from that she claimed the earned income credit and didn’t live with us even six months and did not contribute to his welfare eg. clothing etc.When she said to me she intended to make the claim I told her I didn’t think that would be wise because as I understood it you had to be residing with your child for at least 6 months for the year you were claiming.She had a tax preparer do her taxes and somehow got the income credit.Isn’t it required by law that you have to furnish proof to show you physically lived at the same residence for at least 6 months ? I had thought that since tax returns were being held up this year specifically for the reason of catching fraud that she would have been caught and would be forced to pay back what she owed in addition to whatever other fines and penalties would be imposed for fraud.So how is it she was allowed to get the credit when she didn’t even meet the requirements.My understanding is she has committed fraud .Am I wrong on this one ? If this is clearly fraud how do I go about reporting it ?

  12. Hello,
    I have my friend who left back to India and she is never going to come back to US. As she left to India permanently, she asked me to claim her taxes and refund to my account and then I can transfer to her Indian account. Is that possible? Will that be a crime? Any suggestions?

  13. My mom had my daughter for 5 months. She filed her behind my back. I never gave her permission to file her. My mom said she has proffered thru welfare that my daughter was staying with her. Is that fraud I had her the 7 other months.

  14. What happens if I got married in the States, I was trying to be a permanent resident but my immigration lawyer was a scam, so I had 2 options… leave the country voluntarily or stay and get deported. I chose the first one., I returned to my country in 2010…since then I didn’t know my still husband was still filling taxes with me as his dependant. I live in Peru and I know my country doesn’t qualify under the IRS law of putting people that are out of the country as a dependantla. So he’s been doing this and I have never received any money from him. Now he wants the divorce because he has found someone new in his life….he cheated on me…. is this going to cause me any problems in the future if I want to apply for another visa? Will I get in trouble also with the IRS if he gets audited? I didn’t know anything until 4 years alter but still I didn’t receive anything.

  15. Hi, my name is Shawna. I have a boyfriend that I have been with for almost 3 years (Connor) and we have a 1 year old together. (Jaxxon). Connor’s mother has done nothing but try to steal his money since we first got together in 2014. The first year when he had a job and was able to file, I was pregnant and he and I were both depending on income tax to help us get out of his mother’s house and on our feet. He got his emerald card and we were out with my mother and by a mistake, we accidentally left his card at his mother’s house. We come back around night time to get it and it wasn’t where we left it. His mother claimed and screamed that she didn’t know where it could be. She then kicked us out that night and we were forced to move in with my mother. (My mother is amazing). Anyway, before we leave that night, I stood out on the sidewalk, loading our things and listening to his mother and step dad calling us losers and we would never go anywhere in life. As that was happening, Connor crawls in through his bedroom window, gets into his mother’s purse and finds his card. We then leave and stay with my mother. The next day, we go to pick up his last check from his job at the time. (This is a family owned business and they knew Connor and his mother). We get up there and his last check had already been picked up by his mother.. We call her and she admits to taking it and tells us that we shouldn’t have taken Connor’s card out of her purse the night before. Time passes, we are now in 2015, ready for our taxes again, we worked things out with his mother and we were living with her. We go up to H&RBlock to file and they tell us, we had already been claimed as dependents (all 3 of us) and there was nothing they could do about it… We figured, okay, we will let it go because we did live with her most of the year. Anyway, here is 2016. This is where it gets ridiculous. Connor, Jaxx and I lived with his mother for 4 months out of 2016. We lived with my sister for a while then we finally got an apartment. We get all of our W2s and we go to H&RBlock in Iowa Park. We get there and ONCE AGAIN, we were used as dependents. I explained to the woman exactly what happened and she asked, “did Connor go to school at all in 2016?” we answered no and that he graduated in 2014. She asked “how much did he make this year.” We looked over everything and calculated it all and it came to over $15,000. The last question was, “did y’all live with her all year” We answered no and that we also have a written statement, mail and other proof to prove that we lived with my sister and had a place of our own. Anyway, us being VERY aggrivated that she not ONLY claimed Connor but she claimed OUR child who she had NEVER done anything for.. We call her and ask why she did it and THIS HORRIBLE WOMAN says “Oh, it’s the last year I can get money for y’all, y’all will get over it and the IRS won’t do anything about it”. This being said, SOMEBODY PLEASE TELL ME, this woman WILL get in trouble… Because of HER, we lost our apartment, I lost my job because she called up there and complained to my boss about me on a daily! Because of HER, we have no car, no money and we are having to start all over AGAIN! (We already sent a paper copy of our income tax to the IRS, we are now waiting to hear back from them). Just someone PLEASE give me some advice on how to go about all of this…

  16. If my wife and I live in separate households (due to our full-time jobs being in separate geographic locations) and my children from a prior marriage live with me full-time where I pay 100% of the household bills, can I claim head-of-household?

  17. We are guardians of a 4 year old since he was 13 months. Last 2 tax seasons we did claim him. As did his birthmom. She has 3 other kids 12, 9, 5. also in others care. We received the letter that “someone else also claimed him.” He’s been in our care full time almost 3 years now. The others in their care tgeir whole lives as well. How long does she get to keep receiving EIC for all 4 of her kids? Obviously, we have legal documents proving our case.

  18. Hi Christina,
    You are a blood relative and your sister and her children lived with you – so it sounds like you’re in the right here – unless of course it’s your sister who is claiming the kids – then you lose.

    So – I’m guessing that you pay the rent (or mortgage) or I’m guessing you can prove that. Either through receipts, bank statements, or a letter from your landlord. You pay the utility bills, right? Same thing, your utility companies can provide you with documentation on that as well. Proving that you bought groceries is harder, but I suspect the IRS doesn’t really expect you to have your grocery receipts. I think the most important thing for you is proving the children live with you and that the mother isn’t claiming them.

  19. My sister and her kids lived with me threw out the year , the oldest is 3 , i clamied them on my taxes and now I’m being audited , I’m worried now because all this stuff I’ve been reading I could get pentelized , I do not have any recipts to prove I supported them , I do have there birth certificate and ssi cards can anyone give me some advice please , thank you ,,

  20. Hi Leeann,
    If the daughter is living with the boyfriend and not the mother, I don’t think the mother should claim them. I’m guessing that the boyfriend – who is the child’s father will claim the child. I don’t think you want to touch this.

  21. Dear Miss my kids,
    If the children lived with the custodial parent exclusively since May of 2016 – then custodial parent has the right to claim the children on taxes.

    Now, if there is a court order for the non-custodial parent to claim an exemption – then the non-custodial parent should claim the exemption only – but not HH or EIC.

  22. Hey, I’ve prepared my own taxes for a couple of years as well as my mother in laws. This year she asked me to do hers again but wants me to claim her daughter (29) and grandchild. The daughter doesn’t work but has lived with her boyfriend (father of the child) and his 3 other children. Is this legal? If she wants to proceed will I get into trouble?

  23. Hi Jan I have a question. If someone files their boyfriend/ girlfriends kids when the kids are living with their dad is that considered EIC fraud

  24. shared parenting in place through court documentation two children involved in a divorce each parent claims one each and every year. non custodial was incarcerated nov 2016. custodial parent filed taxes and claimed both children even tho non custodial had income all year. custodial stopped visitation in may 2016. is custodial in the wrong for claiming both children as it is documented in court order split?

  25. Hi Lucy,
    I took off your last name. They are committing tax fraud. All they need is for some jealous ex-friend or neighbor to get wind of what they’re doing and tell the IRS. You never know how it goes. Some people get caught, some folks don’t. I don’t know what to tell you. Some folks get “married” in Vegas without the wedding license so they aren’t legally married. But if they signed and paid for the marriage license, it’s a real marriage.

  26. Hi Nichol,
    If your nieces and nephews live with you, and you are supporting them, you should be able to claim them. But you have to get these other tax years straightened out first. Your sister’s friend should not be able to claim those kids.

  27. My daughter and the father of her 4 year old got married in September of 2016. They are still both filing as HOH, with him claiming the child and her claiming her daughter from a previous marriage, and getting some pretty good EIC refunds. I am very worried that they will get caught, they claim that since it was a Vegas wedding, there is no chance they will. Who’s right?

  28. Hi
    I have been claiming my sisters 3 kids for the past 7 years because they all live with me. My sister hasn’t had a job or supported them since they were born. She has refused to let me adopt them but I do have paperwork for the oldest gas legal gaurdianship. Last year I received an IRS letter for 2014 saying I owe because I claimed the kids. I guess at one point thru the year my sister used a friend of hers address on the 3 child’s application for school due to district reason, the same friend put the 1st and 2nd kids in girlscout with her daughter and used her address. With doctors and my girls school the address is still my address. The letter said I got audited and I needed to provide proof I support the children. I submitted docs in 2016 and then was given another letter for 2014 & 2015, saying I owe a little over 10000. IRS still gave me my federal refund in 2016, I stilled claimed the 3 kids. They withhold my state and told me I still owe 10000 with interest. I have suspicion that my sisters friend claimed 3 of the kids. What do I do when filling this year.

  29. Hi Jessica,
    You had the kids Sunday through Wednesday. He had them Thursday through Sunday. So you had them 4 days a week, to his three. So you win the physical custody. I think the school records and daycare statements are going to be your best evidence.

  30. Hi Mikky,
    your best bet is to file your tax return claiming your child. I’m guessing that you did and it was rejected. Paper file the return. That will start the whole audit process. And get you started on your tax refund at the same time.

  31. My ex claimed our kids on his taxes 2013 2014 and this year, he did not I think have a legal right. I had sole legal custody and we shared physical custody, I had kids sunday 1pm til thursday 6pm and he basically had weekends and thursday night. The kids were registered for school with my address, when sick I took off work to attend to them, there medical; and everything was my address, daycaree in my name and I paid it, school expenses clothes haircuts sports cubscouts and associated costs all paid by me.Their dad doesnt and never has paid child support. What docs do I need aside from custody agreement, school registration, daycare statements, and sports registration showing my address to provide the irs proof he didnt have legal right, nor did I sign a release for him top file.

  32. Hi Jan,
    I have a child who I am the primary custody of and she physically lives in my household for 7.5 months out of the year and lives with the non-custodial parent for the remainder of the time. (Visitation consists of split holidays). How should I go about filing for fraud considering he hasn’t paid for his court ordered child support and is using his tax return with claiming our child to pay what he owes. I don’t know where his current residence is I just know the state and I have no access to his SSN to put down on the form. Also there was no verbal, written agreement to the non-custodial parent claiming our child as a dependent on his taxes no did he get a signed Form 8332 from me.

  33. Hello again so the bf that my friend has claimed as her nephew this same guy was once on child support for the son that they share which he is also being filed on the same return.. I told her what u said last time so she took the chance.. so I’m jus wondering because that would be fraud at its best but do u think the same thing would happen if she gets caught or would that fraud cause jail time?

  34. Hi Latasha,
    Since you have all the paperwork you need, you will eventually get your refund, but I suspect that you’ll have to go through the process of proving you have a legitimate claim first. Good luck.

  35. Hi I have 2 foster kids. Apparently the mother of these kids has let another person claim them on there return. I went to file mines and it had been kicked back out. I mailed it in. The kids has been in foster care for 2 years. I had them for 1 year. Will I receive my refund that’s due or will I have to prove they’ve been with me this entire time before I get my refund. I have all paperwork needed. Thanks

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