I am being audited and received forms 886-H-EIC, 886-H-DEP and 886-H-HOH

I am being audited and received forms 886-H-DEP, 886-H-EIC and 886-H-HOH
I claimed my stepsisters children on my 2010 tax returns. Here is the breakdown:
-I filed single
-She was "homeless" last year so I allowed her and the children to stay with me.
-I provided children with clothes, food and a place to live.
-The forms are asking for documentation which I believe I am unable to provide, such as receipts, cancelled checks, proof they lived here, letters from school, daycare, etc.
-I did not save any receipts (I didn't think I had to unless doing itemized deductions)
-This was only their "temporary" home, not supposed to be long term.
-I do not have any type of guardianship over them so I did not take them to the dr, collect benefits for them, etc.
-There are too young to be in school and childcare was not needed.
-Besides birth certificates, what other documentation could I provide?
-Am I being audited to prove I am elegible for EIC or because I did not claim Head of Household?
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    You say that the situation was supposed to be temporary, but not how long they lived with you. Did they live with you for more than 6 months? If not, then you probably shouldn't be claiming them. Did their mother also claim them? (this could explain why you are being audited - it could also be that you went from not claiming any children to claiming more than one)

    It sounds like you might have qualified to file as a head of household. This may or may not save you money. Did you go through the easyguide in TT to see if you qualified as a HOH?

    I would call the IRS and explain what you've explained here & see what other documentation they will consider (possibly statements from your landlord, church records if they've been in the nursery at church or a pastors statement, statement from a neighbor or other relative...) http://turbotax.intuit.com/support/iq/TurboTax-Topics/Contact-the-Internal-Revenue-Service--IRS-/GEN12235.html?_requestid=25042


    For documentation of expenses, you might go through bank records (you can usually find cancelled checks and credit card statements on line) you can also ask if they will accept a reconstruction estimate showing what you would have spent on rent, groceries etc.

    Please post again if you need more help. Laura
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      "This was only their 'temporary' home, not supposed to be long term". The requirement is that they live with you for MORE than 1/2 the year in order to be your "Qualifying Child" for EIC, HoH & The Child Tax Credit.

      It's the EIC & Additional Child Tax credit (The "refundable" credits that you're being audited for. Had the children lived with you the required 6 months, they most likely would have also qualified you for HoH too.

      The biggest thing you need to prove is that they lived with your for more than 6 months.
      • They did live in my home for the whole year.
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      Official documentation is best. Did your step-sister receive any state aid for her or the children......food stamps.....medical care...perhaps there is a state case worker who can veritfy they resided there from this date to that date. Note that form 886-H-EIC specifically lists a church as a source.

      Affidavits from the mother, other relatives and neighbors who knew the children lived there are better than nothing.

      Does your sister have envelopes showing she's been getting her mail there for a year?
      • According to her, she used her previous address up until the point that she was evicted, then used her mother's address. She was briefly staying in a shelter and with other family before moving here last Jan. So I guess in this situation there is not much more I could do.
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      Thank you for your suggestions regarding documentation for expenses. I am able to provide credit card and bank statements if the IRS finds this sufficient enough. I also plan on submitting letters from the mother, myself and others who knew she was staying here.

      They did live here from the end of Jan. 2010 until Dec. 2010, so well over (6) months. Their mother did not claim them (she did not earn any income).

      The reason for not claiming HOH is because another adult in the home already did so with my consent. How may not have more than one HOH correct?
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        You are correct. Only one person can be the head of household.  My concern then is that the person who filed as a head of household may not be qualified as such.  To make sure your returns are accurate you should both go through the EasyGuide for filing status to see who qualifies.  You can't claim the children as dependents on your return and the other person claim them for the HOH filing status.  The IRS doesn't allow the benefits of a child to be split this way.  Whoever claims them for HOH filing status gets them for everything else (if they qualify).
        So, if 2 people qualfiy to claim the children as dependents, you need to figure out which one of you can/will claim them (for HOH and as dependents).  If the other person is the other parent then they get them (doesn't sound like the case here), If the other person is not a parent of the children, but qualifies to claim them, then the person with the highest AGI qualifies to claim them. See the EIC publication page 16  http://www.irs.gov/pub/irs-pdf/p596.pdf.  The Tiebreaker rules listed here apply to HOH filing status as well as EIC.

        Hope this helps,
        Laura
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