Diallowed exemptions

[GERALD]

Familiar scenario. Husband claimed daughter on 2008 return. So did ex wife. IRS decided in favor of ex wife. He doesn't really agree, but accepts. Now, the problem. In 2007, he married a widow with two young children that she had always claimed, and were claimed on their joint 2008 return. They received a notice disallowing all three exemptions for 2008, even though the original inquiry only listed the one in question. According to IRS agent, law says if one cild is disallowed, all children are disallowed. Of course we are getting the info together to prove they are entitled to the exemptions, but I'm curious if anyone else has had this and/or knows the code or Reg. that spells this out.

[jainen]

>>According to IRS agent<<

Apparently there is some miscommunication, not any regulation involved. Each exemption must be evaluated on its own merits. I would expect you can clear this up with a single phone call (assuming you are eligible to represent your client before the IRS in this matter). Be prepared to fax a power of attorney signed by client, new wife, and yourself.

[GERALD]

Thank you for your response. Yes, I faxed in a POA over two weeks ago, but it took until yesterday for it to get on file. I made the phone call this morning and the agent refused to resolve it over the phone, saying documentation and proof had to be sent in. Exact quote: " If you claim eight dependents on your return and one is disallowed, all are disallowed. It's the law." End of conversation.

[jainen]

>>over two weeks ago<<

Watch your time limits closely. You may be able to see results by requesting the agent's workpapers (which you have an absolute right to see). They will presumably identify "the law" being referred to. Ask to speak to a supervisor if that is appropriate. If the taxpayer has received a letter, formally respond to it. If it is a Notice of Deficiency, file the Tax Court petition (which will automatically kick the case back into the Appeals office). Watch your time limits closely.

[kcjenkins]

It is not "the law", but any time an agent says something like that, you should immediately ask him for "the cite, please". If it is, in fact, 'the law' then there is a cite that you can read for yourself. If he refuses to give you a cite, then it is time to speak to his supervisor.

It may be 'policy' for them to ask for proof for all the other dependents, in such a situation, but that is something that gives you the opportunity to provide the proof. Just losing all of them without a chance to provide the proof is a whole other ball game, and not how it works.

[GERALD]

Thanks to both of you. This is a 30 day letter, and we still have a few days to respond. It is particularly frustrating to me since I have prepared her returns every year beginning before the children were born. They live within a mile of me and have lived with her every day of their lives. Her first husband was killed in a freak accident in 1999, and she has done a wonderful job of raising and supporting them, and now she has to prove the right to claim them.

[jainen]

>>a 30 day letter<<

Do NOT pursue this any more with the examiner or supervisor, except to demand the workpapers. They will stall you past your deadline with all sorts of promises. These are the IRS instructions, and if you don't follow them exactly you will probably lose the right for anything else, including tax court. Watch your time limits closely.

"If, after receiving the 30-day letter, the taxpayer wishes to appeal, the taxpayer must send a written protest to the Area Manager within 30 days from the date of the letter. The protest must include a full and detailed statement of the facts, law, and argument in support of the taxpayer's position and, if desired, a request for a conference at the Appeals office. Deficient protests will be returned to the taxpayer with an explanation why the protest cannot be accepted."

Protest and Conference Procedures

[GERALD]

Thanks for all your help. While I have been in practice many years (winding down tho), I have about a 95+% "cultivated" clientele and rarely have to deal with some of these sticky issues.