Audits for Determining Who is Eligible to Claim a Dependent
Tips for Avoiding and Resolving Your Tax Audit over Dependents
Blended families are more the rule than the exception, and it's not at all uncommon for two taxpayers to try to claim the same dependent. Complex family circumstances and a misunderstanding of the rules are often to blame.
It might be unclear who should claim your child if you share custody with your ex, or who can claim your parents if you and your sibling both help to support them. All these situations will catch the attention of the Internal Revenue Service, which has specific rules in place for determining who is eligible to claim a dependent.
The IRS rules are complicated and multi-layered, but they make it very clear who qualifies as a dependent and which taxpayers are eligible to claim them.
The Effect of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions from the tax code when it went into effect in January 2018. Taxpayers can no longer claim exemptions for themselves and for each of their dependents, at least through 2025 when the provision potentially expires. This doesn't mean that claiming dependents doesn't still offer a few nice tax breaks, however.
Several advantageous tax credits and a few deductions depend on having one or more dependents, so you can bet the IRS will continue to keep an eye out for multiple tax returns that claim the same ones, even during the period of time when personal exemptions aren't an issue.
How Duplicate Social Security Numbers Are Detected
Claiming a dependent requires entering that individual's Social Security number on your tax return. The IRS uses a computer system to accept and process returns, and the system screens for Social Security numbers that appear on more than one of them.
The second tax return to be filed using the same Social Security number for a dependent that's already been claimed by someone else will trigger a red flag from the computer. The second filer will receive an electronic-filing error message or receive a notice from the IRS via USPS mail.
Not to worry...yet. The message is your first warning that something is amiss.
What to Do If You're Flagged
First, go back over your tax return and make sure you entered your dependent's Social Security number right correctly. You might have transposed numbers and inadvertently entered someone else's SSN.
Reach out to anyone else who might have claimed your dependent as their own if the number is correct, such as your ex. Find out if they've claimed your dependent.
Determining Who Can Claim the Dependent
Review the tax rules for doing so if someone else has indeed claimed your dependent and there's a dispute as to who has the right. The IRS publishes tiebreaker rules to help taxpayers determine who gets to claim a dependent. You might even want to touch base with a tax professional so you're sure you understand the complex rules and tests and you get it right.
It's typically only possible for one taxpayer to qualify per each dependent. For example, one rule states that a qualifying child dependent can only be claimed by the taxpayer with whom the child lived for more than half the year. Two or more taxpayers can't all meet this test.
IRS rules for qualifying dependents are broken up into two categories: qualifying children and qualifying relatives. Qualifying children:
- Must be related to you by blood, or be your adopted child, stepchild, or foster child placed with you by an agency. Descendants of these individuals qualify as well.
- Must be younger than age 19 on the last day of the tax year, or age 24 if a full-time student. Exceptions to the age rule exist if the child is totally and permanently disabled. The child must also be younger than the taxpayer who's claiming the dependent.
- Must live with the taxpayer for more than half the year.
- Cannot file a joint return with a spouse unless it's only to claim a refund.
A custodial parent can voluntarily give the dependent deduction to the other parent by providing a written release statement to the IRS on Form 8332. This sometimes happens in divorce situations.
A qualifying relatives cannot be your qualifying child, or anyone else's qualifying child for that matter. They must have lived with you all year, although exceptions exist for close relatives such as parents or siblings.
Income limits for the dependent apply. The ceiling was $4,150 in 2018 and 2019, but it's indexed for inflation so it's possible that it will increase at least somewhat for the 2020 tax year. Finally, you must have financially provided for more than half of your dependent's total support for the year.
The IRS also allows taxpayers to waive or transfer the right to claim dependents to someone else. This might happen when two or more taxpayers jointly support their aging parent. They must collectively still pay for more than half of that dependent's support, and the person claiming the dependent must personally contribute more than 10%.
File IRS Form 2120, the Multiple Support Declaration, to allow one taxpayer to claim a dependent who's supported by more than one person.
How the IRS Handles Dependent Audits
The IRS will first attempt to determine on its own which taxpayer is not entitled to the dependent. It will send an audit notice to that person.
The IRS will randomly select one of the tax returns for an audit or send notices to both taxpayers if it can't determine which taxpayer isn't eligible. It will automatically audit the other tax return that claimed the same dependent if the first taxpayer successfully defends his tax return.
Defending Your Tax Return
Send your tax return back to the IRS for further processing if you're sure you meet all the criteria to qualify to claim your dependent. You might also want to hire a tax professional.
Only attorneys, certified public accountants, and enrolled agents are authorized to represent you in an audit with the IRS.
Be prepared to provide documentation that proves that you meet all the criteria to claim your dependent. You might have to prove your relationship to the individual, or that the dependent did not provide more than half of their own financial support. The more documentation you have, the better.
Be prepared to provide school records or medical records that indicate that both you and your qualifying child dependent lived at the same address for more than half a year, although this rule is waived for some qualifying relative dependents such as your parent.
You can find a list of acceptable supporting documents in IRS Form 886-H-DEP.
Most of these audit procedures will take place through the mail. The IRS will mail you a request for information, and you'll write back and send in copies of your supporting documentation.
What to Do If You Lose
You can appeal the decision of the IRS auditor, or you can take your case to U.S. Tax Court if you and the IRS can't come to an agreement about your dependents. But an ounce of prevention is always worth a pound of cure, so do your best to avoid getting tangled up in this sort of situation in the first place.
Address the issue of who gets to claim a dependent before anyone files their tax returns. Talking this over with family members can go a long way toward preventing problems.
A Bigger Problem
It's possible that you might have a much bigger problem on your hands if you can't identify anyone else who claimed your dependent. Your dependent's Social Security number might have been compromised, and someone unknown to you has used it to file a tax return. This, too, can trigger an IRS computer flag.
The IRS has taken major steps against tax-related identity fraud, but this problem is by no means eradicated.
Notify the IRS immediately if you have reason to suspect that this has happened. You can find instructions for how to handle such a situation on the IRS website, including how to file a complaint with the Federal Trade Commission, how to notify the major credit bureaus, and details on completing and submitting Form 14039, the Identity Theft Affidavit, to the IRS.
You can also call the IRS to notify them that your dependent's Social Security number was used on another return. The number will be included on the notice you receive.
Internal Revenue Service. "Qualifying Child Rules." Accessed Oct. 30, 2019.
Internal Revenue Service. "Publication 501 (2018), Dependents, Standard Deduction, and Filing Information." Accessed Oct. 30, 2019.