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A Complete Mess


Christian

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In some 37 years of helping folks with their taxes this is the creme de la creme of tax messes. A male client 59 yoa and single came in this year stating he had taken in his former wife's daughter and her three young children providing them with a home since June of 2018. He insisted on claiming them as dependents despite my objections. I took a pass as a result and some family member filed his taxes claiming the three kids as dependents allowing him the HOH filing status along with receiving the EIC and Child Credits which resulted in some $9,100 in refunds. A very happy camper until he received a mail audit notice requiring proof of his connection to the kids all of whom are by a different father with resulting different last names. As best as I can determine he will need birth certificates for all three as well as the mother's birth certificate tying her to her mother his former wife. These along with his marriage certificate and divorce decree might do it but I doubt it. Are step children and step grandchildren allowed as such after you have been divorced from your wife for several years ? I have no clue. So much for having a kind heart for a family in need. Now his former wife has refused any of the birth certificates he probably needs. Whether he can obtain them from the State of Virginia I really don't know. Even so there remains the question of whether the Service will recognize these people as relatives since he is no longer married to their grandmother and has not been for several years.☹️ Anyone have any suggestions?

 

 

Edited by Christian
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I believe that Virginia considers birth certificates public records and they can be obtained by going to a DMV and paying a fee.  I am not sure what information he will need, but if he claimed them on his taxes he obviously has birth dates and social security numbers.  That being said, i tend to agree with ILLMAS that you should refer him back to the "expert" that filed his return and claimed all those people and credits. 

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1 hour ago, Christian said:

Are step children and step grandchildren allowed as such after you have been divorced from your wife for several years ? I have no clue. So much for having a kind heart for a family in need. Now his former wife has refused any of the birth certificates he probably needs. Whether he can obtain them from the State of Virginia I really don't know. Even so there remains the question of whether the Service will recognize these people as relatives since he is no longer married to their grandmother and has not been for several years.☹️ Anyone have any suggestions?

The step child is still his step child, and the step grandchildren are still his step grandchildren:

https://www.forbes.com/sites/peterjreilly/2014/06/23/step-kids-remain-step-kids-after-divorce/#82fc21271b04 

A birth certificate just proves somebody was born.  Your issue would be proving they lived with him for the proper amount of time.  If you take this on (I might if he could convince me they did, and produce plenty of dated documents with their names, and his address - like school records, medical invoices, Forms 1095 B, etc.)  here are two documents I'd read first:

https://www.irs.gov/pub/irs-pdf/p596.pdf

https://www.eitc.irs.gov/eitc/files/downloads/f886-h-eic.pdf

 

 

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37 minutes ago, RitaB said:

If you take this on

Get a really good engagement letter, and get a BIG retainer, up-front - and make sure it CLEARS - before you do anything for this guy.  And tell him right off the bat that his chances are not zero, but not good.  Put that in writing in the engagement letter, have him sign and date it, and you both keep a copy.  

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51 minutes ago, Catherine said:

Get a really good engagement letter, and get a BIG retainer, up-front - and make sure it CLEARS - before you do anything for this guy.  And tell him right off the bat that his chances are not zero, but not good.  Put that in writing in the engagement letter, have him sign and date it, and you both keep a copy.  

I handled an EIC/CTC audit for a grandmother a few years ago, and it went great.  She was really the grandmother, and the kids really lived with her while the parents were incarcerated.  She had been my client forever, and I had plenty of "proof" before I prepared the return.  We got some more items together, and IRS was satisfied.  I really hate refundable credits, but I felt very comfortable that she was entitled to the refund.  I certainly would not go out on that limb otherwise, correct.

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I appreciate all of your replies. I have retained Rita's reference for future possible use. I informed him today I can do him no good (regrettably). He is a good man and was truly attempting to help that family but the audit indicated birth records for those kids. He had a misunderstanding with their mother when she moved and neither she nor the former wife will raise a finger to help. He himself cannot get the records so I can see no way to keep his filing status or credits intact. I did WARN him of the real possibility this very thing might happen. Now he will learn a difficult lesson.

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Exactly so Max. I ran into this stone wall when I reviewed the requirements of the audit. Without the birth certificates I see no way to tie these children to the step grandfather. The step  daughter was such a complete ingrate she refused any assistance after having lived in the guys house for nothing for about a full year ! Well what is to be expected of a mother having three minor children all by different fathers. He should have known better.

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I checked out obtaining the records from the DMV and examined their required form. I found it inline with what Max stated in his comment. Unless I am greatly mistaken the relatives have to be kin to the grand children genetically. However if you will check their form DMV Virginia Birth Certificate Application and find you agree I would greatly value your opinion. I thought to add it to this comment but find I lack the tech skill to accomplish it. ☹️

ETA -
Link to vital records at VA DMV - https://www.dmv.virginia.gov/general/#vital.html

And the form itself with page 2 listing required i.d. and documents acceptable:
 

Screenshot_20191028-114044.thumb.jpg.f9a954ac9924810c7c5664a3a1c25c25.jpg

Screenshot_20191028-114129.thumb.jpg.a608f58473ed70792c68fb9a9de89824.jpg

Edited by jklcpa
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I can't find anything that defines "grandfather" for purposes of this use.  I really tend to agree with you that he is out of luck, since the stepdaughter will not cooperate with him.  Perhaps next time he will realize that you were not trying to be difficult when you did not want to claim this credit for his return.  Or not - there is always some family member that knows the tax law better than we do. 

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Thanks for your input. I have a sneeking suspicion he listened to the former wife. The same grand wizard who got him into a tax problem years back !  This time he is really going to pay big time as I feel almost certain they are going to want $8,000 plus back. They may write some off as his reported income is less than $15,000.  

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I guess I'm a bit confused. As Rita said, the birth certificate only proves someone was born. In this case, the birth certificate will never prove these children are his. As a step father or step grandfather it seems he can still claim the dependents if all of the requirements are met. However, I think I would run from this as well. The waters are already muddy and it doesn't appear they will clear anytime soon. If you choose to take this on, take Catherine's advice. CYA at all costs, I might even go as far as contacting my E & O insurance if I really thought about doing this.

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I think the certificate would indicate who the parents are and would tie him in that way. I may call the division of vital records but am just about shot on this one. I really love my little tax business but I simply now lack the ooomph to deal with these compllicated situations as I once did when I was spry and willing. 😉

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With a mess like this, and what I assume was a "self-prepared" return, he might be better off to try to explain the situation himself to whoever is conducting the correspondence audit and plead ignorance.   Could he get a letter from a clergy person that knows of the relationships and the circumstances to write saying that the children were his grandchildren by marriage to their grandmother and that they lived with him over half of the year?  Or school records showing his address as the address for the children?  And put that with  a letter in his own, non-technical words, explaining the situation and then hope for the best. And while he is waiting for a response to that, start saving up to repay some or all of the credits.  Who knows, he might get lucky depending on whose desk this lands on. 

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He can in fact provide school resident records for two of the children. I am going to make a last ditch effort by calling the examiner myself as his number is listed. I have all clients check the third partry check box on their returns. Oddly I have found IRS folks reluctant to discuss much of anything in regard to this even though the Form 1040 instructions provide clear indications they would be expected to. He has now lost his job and their chance of recovery is at best not great. What are they going to do sell the guy's double wide or pickup and make him destitute? I think not. 

 

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