Trading kids for tax purposes has been going on for years, but as modern technology advances, the Internal Revenue Service has been successful in finding inconsistencies on submitted returns. Many people ignore the fact that you could be liable for hefty fees and penalties if caught, not to mention you have to payback all the money received for claiming the illegitimate dependent. Your tax preparer will also be liable for not advising you accordingly about the requirements when claiming a dependent.

RED FLAGS

There are certain red flags that stand out when a return is submitted. These red flags are: Claiming a different dependent each year, a dependent being claimed by someone different each year, two people claiming the same dependent that tax year, dependent being claimed by someone consistently each year and then suddenly claimed by someone else, age of the person claiming the dependent (you’re 20 years old claiming a 13 year old dependent??), and last name mismatches (this is rare though).

REQUIREMENTS FOR CLAIMING A DEPENDENT

When audited by the IRS for claiming a dependent, you are asked to prove 3 things. You will be asked to prove you took care of the dependent, proof that the dependent resided with you for more than half the year and proof that you are related to this dependent. If you can’t prove ALL three of these requirements then you will be ask to payback the refund received for the dependent or the IRS will retain the anticipated refund.

CONSEQUENCES FOR CLAIMING AN ILLEGITIMATE DEPENDENT

If you are unable to prove the listed requirements then will be charged a penalty from the IRS, in addition to the penalty, if funds were given based on the dependent you will be charged interest on the refund received starting from the date of disbursement. Finally, you can be disallowed to claim the Earned Income Credit for 2 years if the IRS determines you recklessly or intentionally disregarded the EIC rules and 10 years if determined to be a fraudulent claim. What that means is, once disallowed, if you were claiming a valid dependent you wouldn’t be granted the Earned Income Credit for 2 year or 10 years.

If you are being audited or need assistance because of dependent claimed on your tax return, there is still hope. Email one of our tax specialists for information on what to do to resolve this issue with the IRS. At the end of the day, claiming someone’s dependent is not worth the headache or the money you would have to payback.

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