Audits for Determining Who is Eligible to Claim a Dependent

Tips for Avoiding or Resolving Your Audit over Dependents

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Sometimes two or more taxpayers will attempt to claim the same dependent.

Sometimes a taxpayer will claim a dependent, and the dependent also files claiming his or her own personal exemption.

Both situations catch the attention of the Internal Revenue Service. There are specific laws determining who is eligible to claim a dependent on a tax return. Although complex, the laws are designed to make it clear exactly when someone is a dependent and which taxpayer is most eligible to claim the dependent.

The computer systems that process tax returns screen for duplicate dependents. The second tax return filed that uses the same Social Security Number for a dependent will receive an electronic-filing error message indicating that the dependent has already been claimed on another return. This should act as an early warning signal. If the IRS rejects your tax return over a dependent, you should carefully review all the criteria for dependents. If you meet all the criteria for claiming a dependent on your return, then you should mail in your tax return to the IRS for further processing. Just be prepared to defend your tax return in an audit.

How the IRS Selects and Handles Audits over Dependents

The IRS computer systems automatically identify tax returns where two or more tax returns have claimed the same dependent. In IRS jargon, this is called a duplicate taxpayer identification number case, and all the procedures for handling such audits are outlined in the Internal Revenue Manual section

The IRS will first attempt to guess which tax return is not entitled to the dependent, and the IRS will send audit letters to that person.

If the IRS cannot determine which taxpayer is not-eligible to claim the dependent, then the IRS will randomly select one of the tax returns for audit. If the taxpayer successfully defends his or her tax return, then the IRS will automatically audit the other tax return or returns that claimed the same dependent.

Defending Your Tax Return in an Dependent Audit

You will need to provide documentation that you meet all the criteria to claim the dependent. You may need to prove your relationship to the dependent, that your dependent is a citizen of the United States, Canada or Mexico, that the dependent lived with you for more than half the year, and that the dependent did not provide more than half of his or her own financial support.

Be aware that for most types of dependents, you will be asked to prove that the dependent lived with you for more than half the year. Be prepared to show documents such as school records or medical records that indicate both you and your dependent lived at the same address.

You can see a list of acceptable supporting documents in IRS Form 886-H-DEP.

You may also need to submit documentation to prove other tax breaks, such as proof that you provided more than half of the dependent's support (for Head of Household status) or proof of child care expenses, medical expenses, or higher education expenses for various deductions or tax credits you took based on that dependent.

Most of these audits take place through the mail. The IRS will mail you a request for information, and you will write back and provide any supporting documents.

If you want, you can ask a tax professional to assist you in dealing with the IRS. Be aware that only attorneys, certified public accountants, and enrolled agents are authorized to represent you in an audit with the IRS.

What if You Lose Your Audit?

If you and the IRS auditor cannot come to an agreement over your dependents or any other issue on your tax return, you can appeal the decision of the auditor, or you can take your case to Tax Court. You may also want to consult with a tax professional to consider your options.

How to Prevent an Audit over Dependents

The best way to prevent an IRS audit over your dependents is to address the issue of who gets to claim the dependent before anyone files a tax return. Talking this over with family members can go a long way towards preventing problems.

You should also carefully review all the criteria for claiming dependents.

There are tie-breaker tests for deciding who gets to claim a dependent.

Non-custodial parents are allowed to claim a dependent only if the custodial parent has provided a written release statement on Form 8332. Separated parents may want to consider splitting or sharing the various tax breaks related to a child.