Questionable Dependent

[ACS41]

A former client called me to file her 2006 return after she received a letter from the IRS. She is single and owns her home. She faxed over a list of 2 dependents so she can claim headof household. The first one is her Step Dad. To my knowledge he does live with her. The second is a 45 year old man who she claims is mentally challenged and cannot work. Based on personal knowledge (my wife used to work with her) I do not believe this 45 year old man lives with her, or she provides any meaningful support let alone 50%. What proof should I require to claim this man? I am not sure how one proves that this person lives with her. The one thing I can think of his goverment disability check should come to her address.

[Virtual Managed Solutions]

ACS41 - That would be the first thing I would think of. Or any other important mailing(s) that come to her address. Something else that comes to mind is being tricky with your questions. Ask questions that could possibly lead to the answer, but don't be so blunt about them that she picks up on what you are doing. This is a touchy subject and I think it may be rather hard in getting the answer. Good luck with it though.

[Chowdahead]

The way I feel is that I am not an IRS employee so it's not my job to force a client to prove to me that a dependent lives with them. I explain to the client the IRS rules for claiming a dependent. If they understand the rules, and agree to file the return claiming said dependent, they are liable, not you.

If the IRS desires additional evidence, they will mail them the request, and adjust the return as necessary.

[jainen]

>>it's not my job<<

Why else would a client come to a professional, if not for assistance in correctly applying the complex laws? The laws impose responsibilities on the preparer too. The practitioner can not ignore the implications of information furnished to the practitioner, even if the information was obtained from a third party.

In the original post, the IRS is already watching because the client is a non-filer. But the big new powers the IRS just acquired are not against non-filers, but against preparers. It would be foolish to understate a taxpayer's liability when one has conflicting information that hasn't been resolved.

[mcb39]

I totally agree with Jainen. It doesn't sound as though you wish to be bothered to practice "due diligence" as a Preparer, either in this case or the case of the EIC questions. Remember, you are signing that tax return as well as the taxpayer. Perhaps you need to read the new rules and guidelines for Preparers that have been put in place over the past 2 years. And be aware of the penalties involved for non-compliance.

[Chowdahead]

>>it's not my job<<

Why else would a client come to a professional, if not for assistance in correctly applying the complex laws? The laws impose responsibilities on the preparer too. The practitioner can not ignore the implications of information furnished to the practitioner, even if the information was obtained from a third party.

In the original post, the IRS is already watching because the client is a non-filer. But the big new powers the IRS just acquired are not against non-filers, but against preparers. It would be foolish to understate a taxpayer's liability when one has conflicting information that hasn't been resolved.

Where in the IRS rules does it require that a preparer verify proof of residency for more than 1/2 the year, support, and relationship? Are we to have clients bring in letters from a government agency, school, or church to verify address. Should we start requesting birth certificates for nieces or nephews, sons, daughters, grandchildren?

There are rules. Our job as the professional are to explain the rules to the taxpayer. Some tax preparers have the client sign the EIC checklist or a customized document to "protect" themselves. By requesting additional documentation from some individuals opens yourself to a discrimination lawsuit from a client unless you ask for the same type of documentation from all clients.

Not even H&R Block attempts to verify all the qualifications to be claimed as a dependent, and they have one of the better relationships with the the IRS.

[ACS41]

Where in the IRS rules does it require that a preparer verify proof of residency for more than 1/2 the year, support, and relationship? Are we to have clients bring in letters from a government agency, school, or church to verify address. Should we start requesting birth certificates for nieces or nephews, sons, daughters, grandchildren?

There are rules. Our job as the professional are to explain the rules to the taxpayer. Some tax preparers have the client sign the EIC checklist or a customized document to "protect" themselves. By requesting additional documentation from some individuals opens yourself to a discrimination lawsuit from a client unless you ask for the same type of documentation from all clients.

Not even H&R Block attempts to verify all the qualifications to be claimed as a dependent, and they have one of the better relationships with the the IRS.

Jainen, I am with you. Other than looking for mail to the dependent with the correct address, is there anything else you feel a prudent accountant should ask for?

[jainen]

>>Where in the IRS rules does it require that a preparer verify... <

That would be the mild-sounding Circular 230, which identifies its true authority in the first paragraph. Section 10.34(d) says, "A practitioner advising a client to take a position on a tax return, document, affidavit, or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known, by the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." http://www.irs.gov/pub/irs-utl/pcir230.pdf

Unless you define professionalism as great marketing skills, I don't recommend you take H&R Block as your business model.

[ACS41]

>>Where in the IRS rules does it require that a preparer verify... <

That would be the mild-sounding Circular 230, which identifies its true authority in the first paragraph. Section 10.34(d) says, "A practitioner advising a client to take a position on a tax return, document, affidavit, or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished, to or actually known, by the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."

Unless you define professionalism as great marketing skills, I don't recommend you take H&R Block as your business model.

MY post did not refer to H & R Block. My general comment to all regarding my original post is a 45 year old dependent should raise eyebrows. The fact that I personally know the client just makes it more obvoius that I cannot ignore what I know.

[JRS]

This is a little off the post, but I think ethics come into play, not with the original post, but Chowdahead reply. Maybe,I am a little naive, but I won't sign my name to a return that will set off any flags at the IRS. I am totally content to remain off their radar. I am at the opposite end of the spectrum from Chowdahead. I probably take "due diligence" a lot farther than my clients wish, but they also know where I stand. Some try and I just look at them and for the most part they back off. When they don't and I KNOW the ramifications of their action, I make the suggestion that they move on to someone that will defend their stand.

[ajuroff]

>>Where in the IRS rules does it require that a preparer verify... <

That would be the mild-sounding Circular 230, which identifies its true authority in the first paragraph. Section 10.34(d) says, "A practitioner advising a client to take a position on a tax return, document, affidavit, or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known, by the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." http://www.irs.gov/pub/irs-utl/pcir230.pdf

Unless you define professionalism as great marketing skills, I don't recommend you take H&R Block as your business model.

If someone supplies you with an incorrect SS number...say....it shows YOUR SS number on their W-2, what do you do?

[ACS41]

The client just faxed over a copy of her dependent's mail that comes to her (taxpayers) address. The fax included his small bank statement that she funds. I am cool with this dependent.

[jainen]

>>The fax included his small bank statement that she funds.<<

You mean the best thing she can come up with to prove someone lives in her own household is a bank account that he doesn't even control? I'd be rather cool towards that too.