To Refile or Not to Refile

[Howie1947]

When I filed my 2018 taxes this year, I included, as a dependent, my wife's granddaughter. She had lived with us for 10 months during 2018. We provided for all medical, dental, and day care expenses for her while she lived with us. I received advice from the TT forums that it was perfectly legal to do so since the child's mother didn't provide any support. Further research also confirmed this was legal to do. Last December, we had to bring the child back to her mother. Again, the child lived with us from mid-February 2018 until Dec 8, 2018. The child's father, my wife's son, was not part of the discussion since he did not work last year and, in the case in Florida where they lived, all parental rights belong to the mother. Additionally, he is now deceased. We live in Washington State

The mother, despite having her daughter live with her less than two months, declared the child as a dependent and collected a refund for child care credit, etc. Recently, we were contacted by the mother asking us if we claimed her daughter as our dependent. We told her "yes". The IRS had sent her a letter informing her that the child was claimed  as a dependent on another tax form and that she needed to correct her forms or that's what we were led to believe.

Here's where it gets sticky. The mother, being who she is, has threatened that we will never be able to talk to or see the child again unless we do something. Since the child is the only child of her deceased son, my wife wants to make things right and not lose contact with her. She has asked me to possibly amend our tax form instead and pay back any benefit we gained from declaring the child as our dependent. In this way, the mother wouldn't lose the refund and possible state benefits.

My question, after that long-winded intro, is what are the ramifications of my filing an amended return? Should I amend my return? Is there a penalty involved? What would the proper procedure be? I have no idea what the child's mother is doing or what she has told the IRS. I'm looking for ideas or advice. There was no written agreement as to who could claim the child. The only written agreement we had was the mother agreeing to let us have custody until such time as she wanted us to return the child to her.

Thanks in advance for any advice or information.

[macuser_22]

Since the tax law required that a child must live with the parent at least more than half the tax year (183 nights) and the child did not live with the parent the required time then it would be tax fraud for the parent to claim the child as a dependent.

What the parent is suggesting is that you aid her to commit tax fraud.  Since this is a legal issue, and we cannot give legal advice here,  I suggest that you talk with your attorney for advice.    A letter from an attorney might change her mind about any threats that might be construed as extortion.

[macuser_22]

Nothing compels you to claim a dependent if you do not want to.   You can always amend to remove the dependent and pay back any tax breaks that were gained by claiming.  The IRS will also bill you for interest on the late repayments.

However, that does not mean that anyone else can claim the child without meeting the following requirements.  Since the IRS already disallowed the mothers claim, even if you do amend the IRS will probably demand proof form the mother that the residency (more than half the year) requirement was met before the allow the mothers claim.

---Tests To Be a Qualifying Child---
(Must pass ALL of these tests)

NOTE: If a child passes all of these tests he must say “yes” on his/her own tax return (if he/she files one) that another taxpayer CAN claim him/her as a dependent even if they DO NOT claim him/her)

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother,stepsister, or a descendant of any of them.

2. The child must be (a) under age 19 at the end of 2018, (b) under age 24 at the end of 2018 and a full-time student* for any part of 5 months of 2018, or (c) any age if permanently and totally disabled and must be younger than you (or your spouse if filing jointly).

3. The child must have lived with you for more than half of the year (There are exceptions for temporary absences such as school, illness, business, vacation, military service).

4. The child must not have provided more than half of his or her own support for the year.
See Worksheet 3-1. Worksheet for Determining Support
https://www.irs.gov/publications/p17#en_US_2017_publink1000171012

5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.

6. The child is not filing a joint return.

7. The child must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico

 *A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance during some part of each of any 5 calendar months of the year.

See IRS Publication 17 for more information.

https://www.irs.gov/publications/p17#en_US_2017_publink1000170876

[tax thief]

my wufe whim lives with me and always has has filed her taxes fraudulantky to get the eic. for 6 or 7 yeara in a row. she will fabricate some dramatic argument or something so she can feel ok going in and filing head if household single with 2 kids living alone alk if which are lies.  shes collected close to 20,000$ over the years and me being self employed...that really screes me. she fritters it away gambling and such every year while im left in a bad spot. idk what ti do

[macuser_22]

Your problem is much more than a tax issue.  I suggest that you consult with an attorney.  Nobody here can give you legal advice or help with a tax fraud issue.

[JamesG1]

I agree with the answer above.  Best wishes to you.