Audits for Determining Who is Eligible to Claim a Dependent

Tips for Avoiding or Resolving Your Audit over Dependents

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Blended families are more the rule than the exception these days, and mistakes can happen at tax time when you're not currently married to your child's other parent. Whose dependent is he? It's not at all uncommon for two taxpayers to claim the same dependent due to complex family circumstances. You and your sibling might both think you're entitled to claim your parent, and sometimes an adult dependent might file his return claiming his own personal exemption.

All these situations will catch the attention of the Internal Revenue Service. There are specific laws determining who is eligible to claim a dependent. They're a bit complicated and they're multi-layered, but they make it pretty clear who qualifies as a dependent and which taxpayer is eligible to claim him.

Duplicate Social Security Numbers 

The IRS uses a computer system to accept and process tax returns, and the system screens for duplicate Social Security numbers on multiple tax returns. This is called a "duplicate taxpayer identification number" case. 

The second tax return to be filed using the Social Security Number for a dependent that's already been claimed, or for someone claimed as a dependent who has also claimed a personal exemption for himself, will send up a red flag. This second filer will receive an electronic-filing error message. Not to worry ... yet. The message is simply an early warning signal.

What to Do 

Go back over your return. Make sure you got your dependent's Social Security number right. If it's correct, reach out to anyone else who might have claimed him as a dependent, such as your ex or a sibling who's been helping you support a family member. Find out if they've claimed your dependent.

If someone else has claimed your dependent, carefully review the tax rules for doing so. The IRS publishes tie-breaker tests to help taxpayers determine who gets to claim a dependent.

Because of the complexity of the rules, it's typically only possible for one taxpayer to qualify. For example, one rule is that a qualifying child dependent can only be claimed by the taxpayer with whom he lived for more than half the year. Obviously, this can't be both of you. An exception exists if the custodial parent has voluntarily given the dependent deduction to another taxpayer by providing a written release statement on Form 8332, but otherwise, this rule is pretty concise.

Another rule states that the parent always has the first right to claim a child, so if the other taxpayer isn't his parent, this is pretty clear-cut as well. 

If you meet all the criteria to qualify to claim your dependent, return your tax return to the IRS for further processing. You might also want to consult with a tax professional so you're prepared to defend your tax return in an audit. Only attorneyscertified public accountants and enrolled agents are authorized to represent you in an audit with the IRS.

If you can't identify anyone else who claimed your dependent, it's possible that you have a much bigger problem on your hands because his Social Security number has been compromised. Although the IRS has taken major steps against tax-related identity fraud in recent years, the problem is by no means eradicated so notify the IRS immediately. 

How the IRS selects and handles audits over dependents

The IRS will first attempt to guess which taxpayer is not entitled to the dependent and it will send an audit notice to that person. If the IRS can't determine which taxpayer isn't eligible, it will randomly select one of the tax returns for an audit. If the taxpayer successfully defends his tax return, the IRS will automatically audit the other tax return that claimed the same dependent.

Defending Your Tax Return in a Dependent Audit

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

Be prepared to show documents such as school records or medical records that indicate that both you and your 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. 

You may also need to submit documentation to qualify for various tax breaks, such as proof that you provided more than half your dependent's support if you've claimed head of household filing status, or proof of child care expenses, medical expenses or higher education expenses for various deductions or tax credits you took based on your dependent.

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 provide any supporting documents. 

What to Do If You Lose 

You can appeal the decision of the auditor or you can take your case to Tax Court if you and the IRS cannot come to an agreement over 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 a tax return. Talking this over with family members can go a long way toward preventing problems.