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EIP3 Question


artp
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Working on parent's 2021 return on extension and 18 year old daughter received $1400 check from IRS, but no 1444-C or any other documentation. Daughter did not file 2021 tax return, has always been claimed by her parents in prior years and will be claimed again in 2021. She had a summer job and got a W-2 for $425 and no taxes were withheld. Parents got total of EIP3 for $5600 for husband, wife and the 2 children. Do not know why the daughter got the $1400. Is the daughter required to return the money to IRS? 

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If I remember correctly, when all the laws surrounding the EIPs, no provision was made that allowed the IRS to collect on errors. Now, I could be seriously wrong here. I am still in possession of the first EIP for my deceased mother. Of course, the check is void now as it has been well over a year. However, no communications from the IRS looking for that payment. I have always wondered if the same applies to those who received the EIP2 & EIP3 in error. For what its worth, if the client has spent the funds or has cashed the check, I would tell them to watch for a letter. There is no provision in any tax software to include an overpayment or payment in error on the client's tax return. Please correct me if I'm wrong.

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Terry D

My concern is that the daughter must have done something to get the $1400 check.  She insisted that she di NOT a tax return and did not go online to request the EIP. I have requested a transcript just to see what (if anything) is in her record and whether she claimed herself before I file the parent's return and claim her as a dependent to get the $500 tax credit.

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1 hour ago, artp said:

Terry D

My concern is that the daughter must have done something to get the $1400 check.  She insisted that she di NOT a tax return and did not go online to request the EIP. I have requested a transcript just to see what (if anything) is in her record and whether she claimed herself before I file the parent's return and claim her as a dependent to get the $500 tax credit.

Then this might be a sign of identity theft.

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19 hours ago, cbslee said:

This is why I posted about potential identity theft

But she got the money.... I could see if she received the letter and no check.  Why would identity theft send the money to the correct person holding the SSN.

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Follow the dependent rules and file accordingly.  Don't worry about the $1,400 because that's based on years and/or issues that don't have anything to do with the parents' return. 

Identity theft will not change the facts on 2021 parents' return either. 

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  • 2 weeks later...

I finally got a 2021 IRS transcript for the daughter which showed filing status of single, 1 exemption and no income, just the $1400 refundable credit. As stated earlier she received the check and cashed it. Again both the mother and daughter insist that a tax return was NOT filed and she did NOT go to the IRS website and request the EIP3 rebate.

However this happened, my concern is that if the IRS has the daughter claiming herself on their records and if we now file the parent's return and try to claim the daughter (which is correct since she qualifies as their dependent) and claim the $500 credit for other dependents the IRS will reject the return. Is this not a legitimate concern?  If so, should we first file an amended return for the daughter showing her as being claimed by her parents and then file the parents return? Suggestions??

 

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The daughter DID file a return and claimed her own exemption, perhaps by using the EIP portal, but it happened and is in the IRS computer system. (Probably doesn't want her parents to know.)

If the parents claim their daughter and try to e-file, it WILL be rejected for using an already filed SSN. Yes, the daughter should amend, but that is her decision. Amendments are taking weeks and months, so you may not be able to wait long enough to try to e-file the parents' return. And, it still might be rejected.

Paper file the parents' return. Explain to them what documents to gather to prove their right to claim their daughter. https://www.eitc.irs.gov/eitc/files/downloads/f886-h-dep.pdf

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I had an instance a few years ago when a student sold her eggs to an egg donor place and didn't tell her parents.  She got a 1099 and the s*** hit the fan come tax time.  I wouldn't automatically rule out identity theft, but since your client's daughter got and cashed the check I think Lion's suspicions should be considered.  Will the parents save at least $1400 on their return by claiming her?  If not, I'd let it go and file their return without her.  If she incorrectly claimed herself, let the IRS handle that one.

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Thanks for all of the replies. 

In response to Sara's point, the parents received a total of $5600 in EIP (husband, wife and both children-son and daughter). Daughter got separate $1400 check. If we tried to e-file the parent's return and not claim the daughter we would lose the $500 other dependent credit and possibly $1400 of EIP??

Lion's suggestion-paper filing and claiming the daughter seems to be the "cleanest" way to go and let the IRS deal with the daughter. NO guarantee this will be processed without IRS inquiry on the parent's return, but seems to be the best option.

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Paper filing, claiming the daughter, will work IF the daughter amends her return first. The current state of IRS processing paper returns might mean they will get letters. Prepare them for what documents they should start gathering.

IF the daughter qualifies to claim herself, then e-filing the parents' returns without the daughter would be best.

IF the parents/daughter are engaging you to amend the daughter's return, then you'll want to pull her transcript or have the daughter get it for you.

IF the daughter is not open and cooperative, then warn the parents about potential IRS letters and to contact you. 

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Your clients will not lose the $1400, only the $500.  Since the daughter got an extra $1400, the family comes out ahead $900.  Amending the one return and paper filing the other will take a year to process, and then the IRS queries will take months longer. Is it worth it?

There have been many posts here and all over the tax blogs about students who graduated in 2021 and claimed themselves, so they got the $1400.  Their parents already got the $1400 for that student based on their 2020 return.  No paybacks required.  Look around to see.

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