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
@Thatboythere,
okay, if a couple is married and they own a business together, they generally file together. If a couple is married and one of them owns a business, they may file together but they don’t have to. If they live together, but file separately, they must files as married filing separately (the worst tax status). If they live apart for at least the last six months of the year, and there is a child, the parent with the child may file as head of household.
Hey Thatboythere,
Generally, the IRS doesn’t go back for more than 3 years. That said, if they believe there was fraud, that extends the statute of limitations. But generally, they don’t go back more than three years.
Hi I actually received a letter in the mail today about my tax audit and it was honestly bc i did fill my girlfriend and her child bc i supported them throughout the year well i called to see what it was about and after it was all said and done they had (as im thinking now) understood that it wasnt my fault( i went to H&R block and they told me that they have seen many cases like this) so H&R block failed to tell me i couldnt fill them i even asked the H&r block lady how it worked and she said that as long as i provided for them that i could…I mean my mothers boyfriedn filled me way back when and i’ve seen many simmilar cases…well after i got done talking with them they told me they just wanted some billing statements and things just to make sure i was telling the truth and then they just tell me plainly that im going to have to pay it back so i sd okay and they sd they would place me on a payment plan for 25 a month(they did let me know of the intrest) also that they would take my next tax return but i knew that…now being that was my conversation should i be worried about and other penalties..bc they seemed to understand and see where my error was…I have no problem making it right and paying it back they know that but i def dont want to see any jail time for it….which ofcourse was def not talked about.
These are curious questions but when you get married do you have to file together if they own a business?
How far back can the IRS audit you for HOH, EIC and dependent info?
Is it over after three years?
Hi Jenny,
As long as your husband is undocumented, he may not claim EIC for his children. Besides that, they did not live with him for over half the year, so he would be unable to claim them for EIC even if he was.
Now, since the sister did not live with the children–then she shouldn’t have been able to claim the kids either. You could, if you wanted to, file a report.
Now this is something you do need to know–as long as your husband does not have a social security number–he cannot claim EIC for his children. But, if he gets one, and the children live with him, he can later go back and amend the tax returns for up to three years. So–let’s say the kids live with you for all of 2012, 2013 and 2014 — no SSN, no EIC. But, he can still claim them as dependents. But, let’s say he gets a SSN in 2015–then he can amend his prior year returns and claim the EIC for the kids.
My undocumented husband acquired legal custody of his three American children after the children were adjudicated dependent from the mother in 2011. He had paid child support since February, 2011, they lived with the mother until August, 2011 when they were adjudicated dependent. We were unable to claim the children because they did not live with us for 6 months, although he did pay over half of their support (the mother was a welfare-mom, no job, no income for over 2 years). She got a tax refund, though, because she allowed her sister, who did not live with them or pay half of the expenses, to claim the children for EIC, which probably netted about $8,000 in return money. Was that legal? Should we have been able to claim the children for EIC last year?
Hi James,
You’re not going to like my answer. I don’t think you qualify for the EIC. Here’s why:
EIC goes to the parent that the children live with. Your ex signed an 8332 form–that’s basically saying that the kids live with her and that you get to claim the exemption.
The parent claiming the exemption also gets the child tax credit, but not the EIC–EIC stays with the parent the kids live with. Here’s a link that explains that: http://robergtaxsolutions.com/2011/11/split-exemption-claiming-one-child-on-two-tax-returns-%E2%80%94-the-legal-way/
Now, if the children really do live with you–then you should NOT submit an 8332 form.
So, your court decree only allows you the exemption–not EIC. Sorry.
Im a divorced parent, I have a court agreement which determines which parent can claim our child for which tax year. My ex spouse went ahead and claimed my child when she was not authorized to do. The Feds sent a letter stating 2 people can not claim the same dependant, to amend the tax return if necessary. I found out about form 8332 in which my ex spouse signed over to me and sent that with my amended return. However the state is the major issue. The state did not give me the EIC in which i was entitled to. They sent me a letter asking for further proof which I sent them and then received another letter asking for additional proof which I also sent then I received yet another letter being declined again with instructions on how to file an appeal. Upon writing my appeal I sent all documentation a complete copy of the court agreement a copy of form 8332 as well. I also sent forms to the irs and the state departments reporting my ex for fraud. How long will it take for the feds and the state to take proper action against my ex? Why wont the state resolve the issue and award me the EIC when I am the proper person whom should it?
Hi Ken,
So the question here is–is the 22 year old person your daughter? If yes, you may have a good argument. If no–you’ve got a problem. If you claimed EIC–you’ve got a big problem.
what if the person was 22 and and coming back an forth from college and she had you claim her as a dependent and later on her mother filed and used her too.what should be the out come?
Hi Tricia,
Don’t worry about the typos (you should see my blog posts before they go to my proof reader!)
Okay–you’ve got a problem. I’m not going to sugar coat it, okay? When your boyfriend said that your kids were his niece and nephew–he lied on his tax return. He basically perjured himself on a federal document. I know this sounds harsh, but you need to see where the IRS is coming from here.
There was an option in the tax software to say “NONE” when it asked about the relationship. That would have been to correct answer. That’s probably what your boyfriend wrote the first time around. Then when he got no EIC, he went and changed it to “Niece and Nephew” — that’s the big lie.
Now, when you asked the IRS if you could do an amendment and they said it wouldn’t make any difference, they meant–it wouldn’t make any difference in how much he owed. And it wouldn’t.
Why does he owe more than what he got back? It depends upon how much of a penalty he got slapped with. There’s the 25% late payment penalty–that’s for certain. There’s the interest–that’s grows constantly. There might even be an underreporter penalty, that’s another 20%. So you can see how he can owe way more than he got back.
It used to be that you could claim EIC on a child that lived with you for the full 12 months but that was several years ago when that allowed.
So what can you do? Well, you’ve lived together for over 4 years. If the children’s father hasn’t claimed the kids, then your boyfriend may claim the dependency exemption on the 2. He won’t get EIC, he won’t get head of household, and he won’t get the child tax credit. But at least he’ll get the exemption, it will help reduce the fines and taxes a little bit.
Now, if you completely tax the children off your boyfriend’s return, and amend to put them on your return–you would still get the child tax credit and you’d get EIC for one of them.
Now what about the oldest? Is she still living in the house? Does she have income? You might not get a child tax credit for her, but if she can be claimed as a dependent, it still might help out your boyfriend.
It sounds to me like you’re a family and are working together as a family. It might make some sense to go see a professional and bring all your paperwork to have her work it out to the best of your advantage together. He’s still going to owe the IRS–but if you can recoup some of that by claiming the kids, you can at least help him pay down the debt. Good luck.
hello, ok i see some of the questions thats being ask are some what like mines but i just feel i need to ask my own.. My boyfriend and I did our taxes,, i have 5 children so i let him claim 2 being he lives with me for 4 years. ok so he claimed one the year of 2011 but for 2012 he claim 2. Also i claimed 2 and 1 didnt get claimed being she is a lil older now. he recieved a letter in the mail saying he had to send proof of relationship because he claimed them as neice and nephew, so we callled the IRS and ask can we do a amend but the lady said no we didnt need to cause she dont think it would make a difference but next thing you know he was aduit. i dont understand how if we asked prior to do this admendment. any how he was giving about 600 of his money now they saying he owes 4000 to the IRS. how can he owe this much if he never recieved this much. he did claim eic and head of household but being we did our own taxes without any knowledge of what the heck we was doing we thought was done correct. my taxes came back ok but his didnt.
I always thought that if you took care of that child for 12 months, you both have the same address that a child can be claim no matter the relationship. i see know i was wrong,, but why are they making him pay what he never was giving. i understand a penalty but 4000 was what he was suppose to get but he now has to pay, i dint understand.. also now that he tried to claim my 2 what should I do , can i do a admenment and claim them even though i claimed 2 which will now make 4 children or should i not claim them at all and wait till next year, also if i try to claim them next year will i be audit cause there name will be in the system now.. please help vecause we have been loosing sleep and stress,,
btw if its any typos in this i apologize in advance.
Hi Mark,
Honest answer–she will probably not get charged for the fraud, the sister’s boyfriend will. You will not get the money that he has to pay back.
Now–let me ask you this? Do you have any right to claim your child? Is there a court document allowing you to claim the exemption? Clearly you can’t claim EIC–your child doesn’t live with you, but you may be entitled to claiming the exemption and the child tax credit if the court documents say you can.
So–yes they are committing fraud. What’s in it for you if you report them? Probably nothing. How much trouble will it cause if you do report it? A whole bunch!
Perhaps your ex would like to sign the 8332 form to allow you to claim your child for 2013 and forever in exchange for you not trying to claim anything in the past? Perhaps if she understood that she was commiting income tax fraud–well she wouldn’t do it again. That’s not really the proper answer but it’s what came to my mind.
What you should really do is to encourage your ex to have her sister’s boyfriend amend his tax returns so that they are legal and proper, and he should stop claiming your child for EIC forever. Fat chance that will happen which is why I like my other answer, but this is the answer I’m supposed to give.
I live in Ohio and my child’s mom has not let me claim my child at all. For the past 3-4 years, she has given her sisters boyfriend my daughters social security number so that he could claim her. He would then give her the money. (She has 5 kids with no job and doesnt go to school). She also lives off the government. If I report them for EIC fraud, will she get charged along with her sisters boyfriend? Also, will I get paid the money that he’d have to pay back?
Hi Rodney,
You are not eligible for EIC. Don’t even try. You will suffer if you do. Trust me, just put that thought out of your head right now. Read this: http://robergtaxsolutions.com/2012/01/can-my-boyfriend-claim-my-child-by-a-different-father-on-his-tax-return-for-the-earned-income-credit/
Here’s my situation–my girlfriend has sole custody of her two children, she does receive child support, however in no way is it enough, she does not work so will not be filing a return this year–her only income is the child support. I work as a sub contractor who files 1099, i do indeed provide alot of financial assistance to her and her two children. Am I eligible for an EIC?
Hi Anyone,
Usually criminal charges are not filed but there are exceptions–especially cases where it’s obviously fraud as opposed to just a family dispute.
I see a lot of people who claim dependents who are not related to them nor lived with them. Will they be criminally charged for this?
Hi Candace,
So you claimed a grandchild that you shouldn’t have? Are you sure? The reason I’m asking is because you’re adopting three of your grandchildren–sounds to me like maybe you should have been claiming the grandchild.
But that’s not what you’re asking, is it? Sorry.
My best suggestion is to call the IRS and talk to them. I know that sounds crazy–but in your case I think it’s the best thing. Here’s why:
1. I don’t think you did a “criminal” thing claiming your grandchild–it pretty much sounds to me like you probably had a pretty good reason. Maybe you were wrong, maybe you shouldn’t have–or maybe you were right but your life will be a whole lot easier if you just claim you were wrong. Worst case scenario–you made a mistake.
2. Because they’ve already filed an audit–you can’t go back and undo it–but they might just want you to amend anyway. Or, they might do it for you. Although I’m not a fan of the IRS preparing returns–they might actually do yours correctly so it would save you some money if you don’t have to hire a pro.
3. I don’t think you’ll be hit with the “no EIC” rule for 10 years. That’s usually reserved for creepy people claiming kids they have no rights to at all. Granted, I haven’t met you, to me you’re only a question over the internet–but I’m just not getting “creepy” vibes from you at all. I could be wrong, but I’d bet money that you’re just a nice person trying to do what’s right for her family. That’s why calling the IRS and talking to them makes sense, show them that you want to do the right thing.
4. If you truly are in the wrong about claiming EIC–you really can’t appeal it. You could appeal the EIC ban–but I don’t think that will happen if you work with the IRS. Now, you issue will be in paying back the debt. Because you’re indigent, you might qualify for “currently uncollectible” status. That would get the IRS off your back for paying right now. If you could claim EIC on some of your grandchildren next year, then the IRS will take the refund to pay off the bad debt from before. That will clear your debt and get you back to even.
Good luck.
I received an eic audit letter this week and have 30 days to respond. I inadvertantly claimed a grandchild. If I hurry and file an amended return, with a request for payment plan, will that negate the audit process and avoid a 2-10 year ban on claiming EIC in future years? I am in the process of adopting 3 or my grandchildren and will be indigent and need it! Also, if filing an amended return does not negate the audit and penalty of 2-10 years, is there any appealing this, especially in indigency cases??
Hi Jessica,
Your tax advisor was right. Since you had the custody, you can claim the EIC. Now your question was should you go back and claim it on prior returns?
Legally, you can bo back and amend as far as 2009. The question is–how much hurt do you want to cause your ex, when he didn’t realize that he was doing anything wrong? You didn’t think he was doing anything wrong at the time either. How much hurt will it cause your kids by costing your ex thousands of dollars?
As an enrolled agent, I’m supposed to promote “correct” tax returns. But as a mom–what’s the best thing for your family? I can’t answer that question for you.
Hi Shannon,
You’ve got a great question there. I’m making the assumption that your boyfriend, although not the biological father is “daddy”, am I right? I’m also assuming that the biological father will not be trying to claim them at all and has no right to claim them–is that also correct?
If so–here’s what you do. Your boyfriend can claim your son (his son) as a dependent for EIC (and all the other dependent exemptions). He can claim you and your daughters as dependents only (no EIC, no chid tax credit.)
Now you might want to play with your taxes a little. It might make sense for you to not be a dependent and claim one (or both) of your children as dependents. Clearly your income can’t support them, but you can be single instead of head of household. Your boyfriend can be head of household and claim his son.
Play with it to see what’s the best tax strategy for you combined. After three years, that pretty much makes you a family and it seems to me that you are working together to do what’s best for your family unit.
You’re in a situation where you have options (that are both legal)–you want the best option for your family. The only thing that can cause a problem for you is if the biological father has any rights to claim the girls–then you’ve got an issue.
My ex and I have been divorced since 2009. On our divorce decree it says I am to claim my daughter as a dependent and he is to claim my son as a dependent. Last Income tax I was advised my a tax advisor that I can claim my daughter as a dependent but also claim the EIC for my son since they lived with me more than half the year and I pay for the child care even tho I receive child support for them. My ex tax return was rejected because he was trying to also claim the EIC for my son. We are currently now in a dispute over time sharing with the kids and is he saying that I did not have a right to claim the EIC for our son because on the decree it says he gets to claim him as a dependent. I advised him that just because it says he can claim him as a dependent it doesnt say anything about the EIC. My question is should I go back and amend my previous taxes on the years where he was claiming the EIC for our son when he really shouldnt have because they were with me more than half the year and I paid the child care expenses?
I have a question—-> I have basically been a stay at home mom, I do work occasionally and have made to date less then 3200.00 this year. My boyfriend works full time and supports me, my two girls and our son…I have read that he can claim me as a dependent and of course our son. My question is what about my two girls? He has done more then provide 1/2 of their support for the year. We have all lived together for 3 years.
I ask because on the website we use to file our taxes it says that if he claims me he can claim my kids as long as i have made under a certain income. I just would not be able to claim them and when/if I filed taxes I have to put that I can/am being claimed as a dependent on someone else return. I have also looked over the form 8867 and it doesn’t appear that he could claim them since they wouldn’t be his qualifying child. Is this just for the EITC?
Could you please shed some light on this for us? The more I read the more confused I get.
Hi Mari,
So there is a new court order that makes the old court order void, right? And the new court order doesn’t even mention taxes?
In that situation, I would say that you should be fine claiming your kids for both the dependency exemption and for head of household.
Now that doesn’t mean that your ex won’t try to claim them, but from what you’re telling me you should win if there’s a conflict.
Question, My ex had a court order staying that he can claim my 2 kids on income tax. the last court order, before I moved out of state doesnt say anything about taxes. I live out of the state now and my ex has no communication with children. Can I claim them myself now? Thanks
Hi Brooke,
You’ve asked a really good question. Here’s my official “Jan the Enrolled Agent” answer: “The IRS requires you to report all of your income on your personal tax return.”
But seriously, how often are you babysitting? I’m guessing it must be enough to make you be concerned about reporting it or you wouldn’t even ask.
Now, since the amount of babysitting is so low that no one is thinking about claiming you as a nanny and taking the daycare deduction on their tax returns, they’re probably paying you less than $1700 a year. As a household employee, that means they wouldn’t have to pay payroll taxes on you. If any one of your friends is paying you more than that–you sould really consider either paying self employment tax or them paying the nanny tax on you.
The $1700 is the line the IRS draws on the whole nanny tax issue. Here’s a link–it’s actually a post I did about kids who are under 18 and working household jobs, but there’s information there about adults too. http://robergtaxsolutions.com/2011/05/summer-jobs-for-teens-babysitting-and-lawn-mowing/
If you’re really working more than that, you should look at the nanny tax link: http://robergtaxsolutions.com/2011/11/nanny-tax-what-to-do-about-your-household-employees/
Hope that answers your question.
Whew! I live in North Carolina and the Jackson Hewitt I work for will not allow us to file taxes for cohabiting couples. I am not still with him but I lived with him for a long time, unaware it was illegal. Thank you so much for your thoughts!
Hi Autumn,
Welcome to the tax world!
I’m curious about what state you live in. The only state where I’ve know anyone to have trouble on their taxes for cohabitating was Florida–and that was a few years ago, I’m not sure how strict they still are about that. To be honest, the IRS never raised an issue about it, it was the company I worked for, clearly the Florida branceh was more conservative than Missouri.
I know that law you’re referring to–the one about a relationship not being legal. If you check to books in many areas, cohabitating is technically illegal–but most places you’ll never go to jail for it. I wouldn’t lose any sleep over that–even if you’re in Florida. When we discuss tax issues about that, I tend to think of the cases where a child is kidnapped–you can’t claim a kidnapped child as your own because kidnapping is illegal.
So your real issue is being claimed as a dependent. Well–if you weren’t working and had no income, and lived with that man for the full 12 months–then it’s okay for him to claim you as a dependent. He can claim your child as a dependent too. What he can’t claim is EIC–but he could claim EIC for the child that is his.
So from where I’m standing, you haven’t done anything wrong. You haven’t signed any returns, you haven’t claimed anybody that isn’t yours to claim.
The only possible issue is your boyfriend claiming EIC on the child that isn’t his–which if he did (and he might not have) he should amend–but only for that.
As you move ahead–if you’re still with this man, now that you’ve got income, he can’t claim you anymore. But he can be head of household for the child that you have together, and you can be single and claim the other child for EIC. And you’d both be legal taxwise.
If your area really has laws against cohabitabion–real laws that are enforced, you might want to check with an attorney. But from what you’re saying (it’s never been a problem) it won’t be an IRS problem either.
@Alberto,
Maybe you should talk to the examiner’s supervisor? I don’t know, it sounds to me like you are in the right. I hate to see you jerked around. Good luck.
Hi Liz,
I think you’ve just become the poster child for why you need to check out your tax preparer. On the plus side, she’s been caught and you’re not the only client she did this for so that backs you up on the preparer fault issue.
Since the overpayment was only $900 (only, I know, I don’t have and extra $900 laying around) you might not get hit too badly with penalties. That’s a good thing.
You might also want to consider amending your tax returns to married filing jointly. Although you may have a good reason for not doing so.
I think some preparers want to help people get refunds so badly that they cross the line on the legality issue. (I’m being kind aren’t I?) The problem is, their clients wind up getting nasty IRS letters like you did. (And several others as well.)
One thing that I would do if I were you is to request and “abatement of penalties”. That’s the term you want to use. The reasoning is that:
1. you intended to file correctly and the preparer was at fault
2. you have never filed incorrectly before and have no history of this type of problem
If you don’t ask, you don’t get. But I think you stand a good chance of winning that argument. The IRS may come back and want you to file specific paperwork, but I’m thinking might just grant you the abatement on a verbal request. It’s worth a try.
Thanks for your response Admin Roberg.
You don’t sound prissy at all, it’s the truth and thats how the IRS would view it being that there is people out there that knowingly do that, unfortunately I didn’t see the different addresses at the time and I didn’t understand the whole HOH thing until now. I did contact the preparer and advised of the letter I had received and asked why whould she knowingly do something she knew was not correct and not inform me of what it truly meant as I confided in her and paid her to do her job which she didn’t do correctly, she didn’t know what to say and made a ridiculous request…that I answer the audit letter and state that I’m not married and that several of her customers get those letters and blah blah blah. I told her that I already answered the audit letter and told the truth because I’m not a criminal. This is of great concern because she admitted to doing the same for other clients…lying!! I am going to file that complaint because she is crooked! I also asked her if she is going to help pay the fines and penalties and she said she will wait until I get the response and then we would talk and she was able to calculate the the overpayment was around $900 or so, I did contact the IRS who also suggested I file the complaint. This is most unfortunate and extremely stressful.
I sent in a receipts and her account info for her college tuition It cleary says her tuition was not paid by check nor financial aid nor grant it just says amount paid. No one could’ve claimed them since only my sister, my niece and I have their SSNs. I guess I was one of the (un)lucky one in a 100 random audits.
To me it sounds like the tax examiner just blew off everything I sent.
Thanks for your advise.
I am a tax preparer now and have one tax season under my belt. I learned it is illegal to be on my ex-boyfriend’s tax return. Conversation has recently brought up he filed taxes with me and my kids as dependents for some of the years. One of the children is legitimately his, but not the other. I had been letting my father claim me and my son before we lived with him and at the time and it had just been a discussion about who had made how much. The same happened with my ex for the years I didn’t have to file my own taxes ,but I didn’t know it was illegal to live together in my state and I had never been in trouble for it. I am concerned that being a tax preparer now will have them digging into my old taxes and I don’t want to be on illegal taxes. I am not sure what years between 2007 and 2010 were including my children and I as dependents and I want to correct the situation. This is difficult because this wasn’t my tax return and I was never required to sign anything. Since I can’t see the taxes, I am not sure how this was pulled off. What would you do in my position to make right on past taxes without pointing a fraudulent finger at my ex (I doubt he knew, but I still want to correct this)? Which people need to be removed? I would think only me and the child that isn’t his, but if he says that our relationship didn’t violate state law, would I have to prove his paternity of my child to establish the truth of it?
Thank you in advance for your guidance.
Hi Alberto,
It sounds to me like you’re in the right. I don’t get why the birth certificates don’t prove your relationship. I also don’t understand why you can’t just get a receipt from the college. I confess, most people don’t pay in cash, they do use checks or credit cards, but here in Missouri, the college over the bridge is an old land grant college and you can still pay your tuition with pigs. (Really, I’m not making that up.)
If I were you, I’d appeal. But I think you might want to get a professional to take a look–maybe see if there’s an easy solution–although I doubt it–it sounds like you’ve done a good job of getting your ducks in a row.
Here’s a link to find an EA in your area: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx
I’d love to take your case, but I think you’ll want to work with someone local. Sometimes it just helps to have someone there that you can look in the eye and get your story across to.
One thing to look at–did somebody else try to claim your niece and grand niece? That would be the question I’d ask if you were in my offce. What triggered the audit in the first place? Usually it’s someone else claiming the credit. So who?
Good luck.
Hi Liz,
I’m sorry but it sounds like you had a bad preparer. Sounds like she was a little crooked to be honest. But here’s your real problem, as much as the IRS hates crooked preparers, the big issue here is the fact that you signed your tax return.
Now, forgive me for sounding prissy, but this is what the IRS is thinking: if you knew that you should be married filing separately, why did you sign a return that said head of household? You’re supposed to read your return before you sign it. Why didn’t you check to make sure that your address was correct? Why didn’t you make sure your status was correct?
See where I’m going? There are lousy preparers out there. Believe me, I understand your problem. But be prepared, you’re not going to get a whole lot of sympathy from the IRS–so be grateful for any breaks you get.
So you are right–this should all be common knowledge for a tax preparer. I think you’re doing the right thing by filing a complaint. If the tax preparer works for a company, you might want to contact the manager or district office and report to them. Most of the big companies don’t want bad preparers–it costs too much to pay those fines.
As far as you’re concerned, you’ll have to repay the tax difference. There will also be a penalty for underpayment of your tax and there will be interest too. The good thing is you wanted to file the right way and you’re willing to pay the tax you really owe so that’s okay.
What I worry about is you getting hit with something called an underreporter penalty. This is where your complaint against your preparer might help. Mind you–it might not. You’ve got a tough case. Good luck.
Hi, Admin Roberg
Thanks for helping us out with your advise…
Here’s my situation:
I’m being audited for Head of Houshold, EIC, American Opportunity Tax Credit. I claimed my niece (20 year old full-time college student) and her daughter my grand-niece.
I sent proof of me being the HoH, my niece being a fulltime college student, birth certificates for me, my sister (my nieces mother), my niece and my grand-niece. The IRS responded I proved I was head of household, and that my niece was a fulltime student, that I supported them, and they lived with me…
BUT they are disallowing EIC becase they couldn’t verify my relationship with the birth certificates I sent. I do not understand why not, my birth certificate and my sister’s name the same parents with the only exception being that my sister’s birth certificate has my mother’s middle name while mine does not they have the same father’s name and last name, there are no other issues with the other birth certificates.
The letter also said that they were disallowing the AOTC unless I send a canceled check proving that I paid her tuition. I did pay her tuition but I paid her cash, at the time I couldn’t be at her college waiting a couple of hours in line to register her and pay her tuition personally I have to work. Besides Its been over a decade since I have used checks besides the AOTC law does not say anywhere I have to pay with check in order to get it. Do people even use checks anymore?
I know I am 100% right morally and legally and I feel the IRS is trying to steal what is honestly mine. I’m just tired dealing with these… people for more than 6 months. Do they even go through the stuff taxpayers send them? I lose sleep over this I’m writing this at 4:00 AM therefore sorry for any typos, I’ve been reading tax laws all night.
This audit has become a huge hardship on me since do I support my “nieces” and my elder mother.
What should I do?
Send them a later saying I disagree?
Appeal? (already have the letter ready)
Tax Court? (I’m willing to do DNA test along with my sister)
Thank you for your help,
-Alberto
Helpful info:
My sister is also an unemployed fulltime college student and lives 2 hours away from us.
Niece’s father abandoned her
Grandniece’s father abandoned her
This is regarding my tax return for 2011. I have an issue. I just received a Head Of Household audit letter from the IRS and I did some research about this and it turns out you can’t file HOH if you are married and living together. Both my husband and I prepared our taxes in the same place on the same day and advised the tax preparer that we are married and filing separately, issue number one is that in reviewing my tax return and my husband’s the tax preparer didn’t check the box “married filing separately”, issue number 2 I also noticed that the addresses for myself and my spouse are different (I’m assuming now due to research that she did this to show we didn’t live together?) and issue number 3 she put my filing status as HOH and I clearly recall her words “oh you have a child now, we can put you as head of household” being that I had my son on 09/30/2011, and in doint my research this information should be common knowledge for any tax preparer! I can’t believe this, what can I do? I already have a 14157 tax preparer complaint form but I’m so confused.
Hi Abigail,
Gee, I think you’re on the wrong page here. You haven’t done anything wrong! At least that’s the way I read it. Forgive me, but I’m going get really technical–but I think that’s what you need.
First, you are claiming your husband’s half-sister as a dependent–she is a “qualifying relative” she is not a “qualifying child”. This is an importnat difference. A qualifying relative gives you a dependency exemption and that’s it, not child tax credit or EIC. And I think that’s what you’ve done.
Now, the technical stuff that you need is in IRS publication #17. Here’s a link: http://www.irs.gov/pub/irs-pdf/p17.pdf
The information you need is on page 34 and it’s in the first column. It’s in the section on child in Canada or Mexico.
If that’s confusing, there’s an IRS interactive assistant that asks questions and when you answer them it tells you if you can claim a dependent or not. It’s probably a lot like the Turbo Tax questionaire. Here’s the link for that: http://www.irs.gov/uac/Who-Can-I-Claim-as-a-Dependent%3F
So that should give you the ammunition you need to go up against the IRS. Good luck.
Hi. My husband & I did our taxes this last spring on TurboTax online, and we claimed his half-sister (child) as a dependent. She lives in Mexico but is a US citizen, & he sends her money to help support her. On the online form it asked whether she lived with us & even though we said “no”, we got the tax credit. but now, in September we just got a letter saying they made an error and we need to either fill out a form saying she lived with us for 6 months (which she has never lived with us) or we cant claim her. Also my husband claimed her for his school financial aid, they said it was fine that she didn’t live with us. Now he’s really stressed not only about the tax credit but losing his financial aid. What should we do?
Hi Laurie,
I understand your problem, I’ve heard it a lot. Issue one: who else claimed those kids? That’s a big part of the problem–was it your sister? Or was it someone else?
If it was not your sister, then she can work with you and bear witness to the fact that yes, you did indeed take care of her children for her. You didn’t change the school or address or anything because you wanted them to have some consistency in their lives. That all makes sense and is a plausible argument.
Sadly, my guess is that you’re fighting your sister. If that’s the case, it’s going to be much more difficult for you. This is the problem that families with “unreliable” relatives face all the time.
You don’t have school records, what do you have? Does your landlord have the kids on your lease? Did your minister see you bringing the kids to Sunday School? Do you have a neighbor that would watch the kids while you were working? Who went to the parent teacher conference while you were taking care of the kids? Could their teachers vouch for you?
Basically, the school records are the biggie–but you don’t have that, so you’re going to need to use everything else you’ve got. It might not be much, but you fight with what you’ve got.
If you’re fighting your sister’s claim, it’s highly likely that you’ll lose. But–you said she was very unreliable–so she might not put up a case at all–and you might still win. So you have to put up the fight. Gather whatever documents you can and get them in right away. The person who doesn’t respond automatically loses, so don’t just give up.
If you do lose, request an abatement of penalties. It sounds to me like you’ve never had a tax problem before, and you’re likely to at least win the abatement and that will save you some money. Sorry I don’t have anything better for you.
I just received a letter from the IRS stating that I’m being audited for the December 2011 tax year. I claimed my sisters 3 kids because I in fact DID take care of them. They did live with me for half the year but I can’t prove it. I didn’t switch their address with the school or any of that stuff because…well I just didn’t. I knew this was only going to be temporary and my sister isn’t a very reliable person, so if they needed to get switched back, it would have never gotten it done. So now the IRS is asking me for letters from the school/drs offices and receipts. I don’t have any of that stuff. I never figured I would get audited because I mean…I wasn’t lying about any of it. So my question is, what the heck should I do..? I don’t want to go to jail or have to pay tons and tons of money back to the IRS that I obviously don’t have..
Hi Mike,
You accidentally said something really important. “I have custody of my son but he doesn’t live with me.” This is a huge problem, not just for you but for people like you. There’s a big difference between “custody” as in what your divorce or separation papers say, and “custody” as far as the IRS is concerned. That’s what got you into trouble.
Here’s the thing: as far as the IRS is concerned, if your son doesn’t live with you then you don’t get to claim him for EIC. Your son lives with your mother so your mother has the legal right to claim him on her tax return and take all the tax benefits.
I recommend that you say, “Oops, my bad.” And just pay back the extra refund you got for claiming him. (Yea, it’s going to cost you.) But this is why you should do it: your mom is the one with the real custody, she’s the one who deserves the tax credits. By you saying, oops, and backing your mom, at least one of you wins. Your ex has no proper claim at all.
Next, I’d request an abatement of penalties on the grounds that you did not understand the rules concerning custody. You might not win that, but if you don’t ask, you won’t get it. (Abatement means to take off the penalty.)
Now–about the Controller of Public Accounts–that’s a Texas tax agency. Texas doesn’t have a state income tax and they don’t do EIC–so the notice on your door isn’t about EIC. Are you self employed? I’m guessing the notice has something to do with that. Maybe sales and use tax. If you’re in trouble for EIC, that will be a letter from the IRS. (And it’s 11 to 22 pages long.)
If a government agency puts a notice on your door, that’s serious. Either you owe them money or you owe them some paperwork. Often it’s both. The best thing to do is to call the number they gave you and get to the bottom of it right away. These are things not to be messed around with.
You might need some representation. Here’s a link to find an EA in your area: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx
Just type in your zipcode and you should get a list of names of people who can help. You’ve heard the expression, “Don’t Mess with Texas.” More importantly, “Don’t Mess With the Texas Comptroller.” Call right away, find out the situation. If its something scary say, “I will need to hire representation.” And no matter what, use your best manners. (Trust me on that issue, all the please and thank you’s and yes Maam’s your mom taught you come in really handy.) Good luck.
Hi I have custody of my son but he doesn’t live with me.He only stays a weekends normally. He lives with my mother and my ex never sees him at all. Here’s the thing, I claimed my son the last two years on my taxes along with my daughter who lives with me. My mother and my ex have also been claiming him. Now I just got a letter on my door from the comptroller of public accounts saying they want to talk to me. I’m in Texas by the way. What should I do? Please help me. What’s going to happen
Hi Sandy,
You asked a pretty normal question. You know they’re doing something wrong, but you don’t have all the documentation. And that’s actually okay because if the IRS wants to prove fraud, they have to prove it themselves, they can’t get the documentation from you anyway.
You will need a social security number though, and that you might not have. Here’s a link to a post I did about reporting on fraud: http://robergtaxsolutions.com/2010/11/how-to-report-tax-fraud/
That should give you more of the information you need.
If you can’t report them, don’t feel bad. From what you’ve said, it sounds like they’ve criss-crossed enough government services that they’ll probably turn themselves in accidentally. They’re really slow at catching fraud, but once they do, the IRS tends to go after several years worth of returns.
To report a fraud of EIC, but how can I prove it? the mother claimed her daughter that never lived with her for years, on and off. Which her daughter has a criminal history and drug use and her mother refuses to let her stay at the mother house. the daughter been living at different appartments and receiving government money to pay the rent. So, what proof do I need to report a EIC fraud to the IRS that the mother claimed her daughter for YEARS? And worst her daughter ID is her mothers home address. Also, the mother owns 3 hours, one of those house supposedly is under her name “only, and reported it that she is separated from her husband and is untrue, second house was put as renting for the mentally disabled people which they collect government money, and the 3rd house is which both husband and the mother are living now. And the two houses is under both her name and her husband’s name, I can’t figure out what scam or fraud are they doing with the IRS when claiming properties or amount property taxes you pay or how much are they receiving from the IRS when filing taxes.
Hi Natalie,
Thanks for your question, it’s a good one and important. First, I’m sorry that you have to spend so much on your child’s medical expenses, I know first hand how stressful that is. Now, for the tax stuff.
First–it is okay for a person to claim medical expenses for a child that is not claimed as a dependent on his tax return IF the person pays the expenses. The IRS allows that for families like yours where one parent has custody and the other is paying medical expenses.
Anyway, in your case, you ex isn’t paying but you are. So, no–he shouldn’t claim them.
Are you going to have a problem with this? No–because you’re claiming what you should. If there’s ever an issue–well it’s his problem now isn’t it?
But here’s something to consider. In order for medical expenses to have any impact on your tax return, the expenses have to be over 7.5% of your adjusted gross income before anything can be deducted. And, if you don’t have other expenses like a mortgage real estate taxes, medical expenses don’t do you any good at all.
So let’s assume that you and your ex both have enough deductions to make the medical expense issue worth fighting over. (I’m guessing that’s so, otherwise you wouldn’t be posting, right?)
So let’s say you each make $50,000 a year. For your medical expenses to even start being counted, you’d have to spend over $3,750 to begin deducting medical expenses. So, if you’re splitting the costs, you’d have to spend over $7,500–anything less than that isn’t deductible.
So- what might make the most sense for you two is to figure where that deduction is best taken. For example–let’s say that together you spent $8,000 on your daughter’s health. That would give you each a $250 deduction for heathcare on each of your tax returns. At the 25% tax bracket, that would be worth $62.50 apiece. I’m guessing you spend more than $8,000, but you see how splitting the deduction is not that valuable to either of you.
But if you worked together and put all of the medical expenses on one person’s tax return–the full $8,000–well then you’d have $8,000 – $3,750 = $4,250. Now that’s a sizable deduction. Then, using the 25% tax bracket again, that would reduce someone’s taxes by over $1,000. So, if you were working together on this–that would give you another $1,000 to pay for your child’s heathcare. This is something worth thinking about. Of course, it only works if you’re both 100% in agreement. But doing something for the better life of your child makes a lot of sense to me.
Now–back to your problem. He’s claiming expenses that you’ve also claimed and he’s not entitled to it. That’s bad. You can’t both claim the same expenses. If there’s an audit, you’ve got the receipts so you win. I wouldn’t lose sleep over it.
But I do think that you’ll all be better off if you can work together on this instead of fighting over it. I know, easier said than done, but it’s worth a shot. Good luck.
Hi. My question is slightly different from everyone else’s. My ex has been claiming our childrens’ medical payments for the past 8 years and I just found out about them. Our divorce decree says that we both must pay half of the medical payments. I’ve been making the payments and sometimes he will pay me half, but most of the time, he finds an excuse not to pay. Then I found that since he works at the place I pay for the medication, (their insurance policy states I have to get it there), and they automatically put that i for a deduction for him when I pay. He was supposed to sign a form so they would not automatically do this and he never did. He claims that he thought he could deduct these medical payments because he was paying me half for them. I reminded him that he only pays me about 25% of the time. He refuses to file an amendment and he is continuing to deduct. My CPA told me that I have the right to deduct since I’ve technically been making the payment and I have the receipt. We have a child with lots of medical issues so there are thousands of dollars that he has been claiming and I don’t believe entitled to.
Hi Tracy,
I understand your problem–it’s happening all over America. There’s actually a linked in group for tax business owners and you problem has happened over and over again. I realize that doesn’t make you feel any better, but at least you know you’re not alone.
First–let me give you the cold hard facts of your case. Warning–you’re not going to like this part. When you sign your tax return you’re saying that you have read the return and that you are responsible for the numbers on there. This is kind of hard, I know. I have clients all the time who say, “Oh Jan, I trust you.” But I really want them to read and understand what’s on there. Even an honest straight arrow type can make a mistake.
Here’s the next possible problem: You paid somebody to parepare your return, but did that person even sign it? Does your tax return say “self-prepared”? The reason I ask that is becasue a lot of the crooked preparers out there don’t sign their returns or use PTIN numbers. That pretty much leaves you high and dry as far as accountability.
So where do you go from here? Well first–in the unlikely event that you did happen to use a responsible accounting firm (you had a bad preparer, but maybe she worked for a reputable firm)–they should represent you for this IRS audit. I’m guessing that’s not going to happen, but I’m putting it out there just in case.
Baring that–I’d pay for an enrolled agent. You can find one through this link: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx
Realize that you’re not going to get sympathy from the IRS for not knowing what was on your tax return. Be prepared for a little IRS attitude on that. Don’t let it get to you. (Being prepared is half the battle.)
You’ll want to work with your EA to make sure that you do have all of your legal deductions and see how bad it is when you take out the things that shouldn’t be on our return. Your problem might not be as big as it seems once you have a real professional working for you.
Good luck.