EIC

[Christian]

Thank goodness I survived another season! I have a number of extensions which I will address over time. Among them is a married couple (grandparents) who support a daughter in her thirties and her two minor children. They are carried as dependents and until now I understood lived with the grandparents. You can imagine my surprise when my barber (the couples wife) informed me they were living in town in a home owned by a relative but were being supported 100% by the grandparents. Unless I do not understand the EIC requirements or have overlooked an exception this disqualifies the couple from taking the EIC for the minor children. Any feedback would be appreciated but I believe their not living in the couple's home eliminates this tax break. I failed to add that both grandparents have earned income

he from farming and she from being a beautician.

Edited April 16, 2015 by Christian

[jklcpa]

You are correct that the grandparents must have a qualifying child to take the EIC, that is unless their own income is so incredibly low that they'd qualify for the credit without a child.  To be a qualifying child, they must meet the age, relationship, cannot file a joint return, no one else is claiming, AND must have lived with the taxpayer for more than 1/2 of the tax year.

 

Did the grandchildren live with this couple for more than 1/2 of 2014?  Or are you saying that you were misled and these grandchildren never lived with the couple, that the couple only supported them financially while they lived elsewhere?

[Christian]

Judy,

 

I have known the father since high school. When he asked if he could take his daughter and children as dependents I agreed he could. Daughter has no income children are on Medicaid the father(s) are missing in action. I asked him if they lived with him which he answered affirmatively. In having my hair trimmed last year I inquired how the grand kids were doing and asked concerning their living arraignments and only then found out they were NOT living with the couple. In any event it looks as if the EIC for them is gone. Both grandparents will be 65 and older this year (2015) which I read as ending their

use of the credit in 2015 on the basis of age as well.

[jklcpa]

The couple's ages would only be a factor if they had no qualifying children.  If they DID have qualifying children and still met the other tests, then they could still have claimed the EIC. But I agree with you, the EIC is gone for them.

[Christian]

I am glad you clarified the point with respect to age. I've never run into it but it's usefull info if I do and who knows maybe the grandkids will move back in at some point. I do very few EIC returns and am running into problems with folks trying to cheat.

[Pacun]

Knowing too much is a dangerous thing.

[RitaB]

Knowing too much is a dangerous thing.

For whom? I hope you don't mean we should help people cheat by not asking questions. Half of us can only pay the taxes for all of us for so long, you know, till something breaks. Forgive me if I misunderstood your comment, but that's all I can come up with.

Unless I missed the "/s". In that case - yeah, haha.

[Tax Prep by Deb]

EIC is a big player in my town. I would estimate that at least 60% of the 300 clients I saw this year qualified for EIC. You do have to be diligent with your questioning, and sometimes a bit sneakier than they are. I would estimate that of my 60% EIC clients 99% are upfront, but I have some that I catch in misstatements. Keep them talking long enough and they will reveal the truth!

[Christian]

For what its worth I dropped the EIC for the grand parents along with the child tax credit because of no residence in the grand parent's home.   

[Richcpaman]

Christian:

 

Who is paying for the second house that the daughter and grandkids live in?  If the Parents are footing that bill as well, and daughter has no income, then maybe they do NOT lose out on the EITC.  Is the Daughter dating someone new that rents/owns this 2nd house?

 

Rich

[Pacun]

Well, if they live in the second house and the elder don't live there, they don't qualify for EIC. Remember that you only need 183 days in a year to qualify for EIC. So finding out that they live in the house doesn't mean anything. Maybe they had a leak in the ceiling and the hair dresser saw them for a month there while it was repaired.

 

I normally interview the TP and I write down their answers and keep it for my records. I don't have authorization from my clients to discuss their tax matters with any one else nor do I have their permissions to interview or question third parties.

[Christian]

In my conversation with the grand mother I established the grand kids had not lived with them in years. I noted it in their file for 2014. The daughter works but it's all off the books. If there is another boyfriend I hope he is infertile.   

[Pacun]

Off the books qualifies her for EIC credit.

[Jack from Ohio]

Off the books qualifies her for EIC credit.

You suggest ignoring Circular 230?  "...known or should have known..."

[Pacun]

Off the books means that she worked and therefore she must pay taxes. If she worked then she qualifies for EIC if she has a child and or the income is low enough for EIC. Where am I ignoring circular 230?

 

The fact that it is off the books doesn't change the characterization, classification, taxation of the money earned. Neither does it change the fact that was earned income (if it was) nor will it prevent for EIC to kick in.

[Pacun]

I will add "as long as it is from a legal activity".

[Christian]

You are all of course quite correct. I learned she does a little baby sitting from a third party. I was not told by the grand father that she works. In fact quite the opposite. In any event gentlemen I am not a member auf die Geheime Staatspolizie

for the federal government.   

[Lion EA]

Income from an illegal activity is still taxable income.

[Pacun]

Income from an illegal activity is still taxable income.

 

Correct, but I really wonder if you make 5K selling drugs you will qualify for EIC.

[RitaB]

Correct, but I really wonder if you make 5K selling drugs you will qualify for EIC.

I really wonder if they would give her a high five.

[kcjenkins]

Income from an illegal activity is still taxable income.

True, but remember, the daughter is not Christian's client, so it's not his worry. 

[JohnH]

I really wonder if they would give her a high five.

Very good :)

[Lion EA]

I know the IRS considers all income as income, even illegal income.  But, I hope they don't consider illegal income as earned income for EIC purposes.  The law is not logical, though, it's just the law.  If I kept a client that earned money at illegal activities, I'd have to research that.  Luckily, not my client base -- as far as I know.

[Christian]

Her father came in today and I asked him. Yes she makes maybe $300 a year baby sitting a family members child. My thought was if she made a few thousand dollars I would suggest he forego the three exemptions so she might receive the EIC. I have known him for ages and am now satisfied I have done my best for him. He and wife got refunded so all is well and I guess you might say I went the extra mile.  

[RitaB]

Her father came in today and I asked him. Yes she makes maybe $300 a year baby sitting a family members child. My thought was if she made a few thousand dollars I would suggest he forego the three exemptions so she might receive the EIC. I have known him for ages and am now satisfied I have done my best for him. He and wife got refunded so all is well and I guess you might say I went the extra mile.  

I think you did a great job, too. And thank you for not suggesting to him that she made a few thousand dollars so she could receive EIC. That happens, and it gets old and tired when you pay taxes.

Edited April 21, 2015 by RitaB