Taxes BIG PROBLEM Dependents?

Question

Ok, so I have a friend at work and she has a 2 year old little boy. But last year she let her bf carry her son-the dad, and she carried 2 of her friends kids on her tax returns. Well she came to work crying about how the IRS sent her something saying she owes $6k to the IRS. I want to help her out but I dont know what to do. Is there anyway that she can turn in some sort of paperwork that would get the IRS off her back, like something that would make her not owe anything, or what is the worst that they are going to do to her. She is now raising her son on her own and she needs her full paycheck as well as her future returns. Help please. She is really stressing out and I hate seeing her like this.

Answer 1

You have very few options on how you can help you friend. If I remember correctly they implemented stricter rules on dependents starting in 2005, where they came up with new definitions for Qualifying Child. Dependents must be adopted, related (by blood or marriage, except cousins don't count), or legally designated through guardianship.

There is no way to undo a fraudulent tax return, and the only thing anyone can do it to pay the fine, pay the interest, and pay back the money that they never should have gotten in the first place.

She should have filed as single with no dependents last year, instead of Head of Household and 2 dependents that were not hers to claim. The $6,000 is the extra money she got in her refund for her filing status (the difference between Single & HH), the 2 dependent exemptions, child tax credits, (possibly) Earned Income Credit (EIC), plus the penalty for filing a faudulant tax return and the interest it has been accumulating since April.

An amended return (Form 1040X) will provide an accurate record, but will NOT cancel the $6000 owed to the IRS.

Things are actually a whole lot worse than you and your friend realize, SHE ALSO OWES STATE TAXES and they should send her a similar letter, if they haven't already, unless of course you lucked out and happen to live in a state (like Nevada) that doesn't have state income taxes.

She's in for more misery if part of her refund last year was from EIC (Earned Income Credit) granted by those 2 kids she claimed. Anyone that obtains EIC through fraudulant means is denied EIC for the next 10 years. This means your friend must file additional forms just to TRY and get EIC for her OWN son. From this point on the IRS will review each of her returns and decide whether or not to grant the EIC, otherwise she does NOT recieve EIC and her refund (if any) will be smaller.

Your friend's friend (the mother of the 2 kids she claimed) is unaffected, unless she herself fraudulently claimed EIC with some other kid that wasn't hers either.

When it comes getting out of paying, you have only one hope for your friend and that is if her last year's tax return was PROFESSIONALLY PREPARED. I don't know about Jackson Hewitt or Liberty, but I know that H&R Block will pay (up to a certain amount) a portion of what you owe to the IRS if the mistake was made by the preparer, but in this particular case its going to be hard to prove.

Any competent preparer should have caught on to the fact that those two kids were not hers, and refused to file her return with them on it and her as Head of Household, because of the rules for Qualifying Child.

The only way an honest and competent preparer would have filed her as Head of Household with those 2 kids was if your friend blatently lied to them. In which case the company will pay nothing since they technically made no mistakes while acting on what they thought was accurate and truthful information from your friend.

If the preparer knew that those 2 kids were not hers and still filed the return, then it was clearly NOT a mistake. In which case the prepare is fired, faces IRS penalties, and/or criminal charges with possible prison time. Your friend still has to pay the $6,000 and the company will pay nothing.

The hard part is that it comes down to a whole he-said-she-said match trying to prove something as big as this was the company's fault... and the odds are not in your friend's favor.

There's really no way out of it, she has to pay that money back. Have your friend go down to the local IRS office with that notice letter ASAP and setup a payment plan, otherwise the IRS can automatically freeze/tap her accounts, and/or garnish any/all paychecks for whatever amount THEY decicide until the debt is paid. If it turns out you she also owes the state, have her go down to the Commissioner of Revenue office for your city and make arrangements for a state payment plan as well, because they can do the same things the IRS can when it come to tapping accounts and garnishing paychecks.

Even with an arranged payment plan, from this point on each time she files her taxes the IRS will automatically take her refund and put it towards paying the back taxes, SHE WON'T GET A REFUND CHECK UNTIL THE $6,000 IS FULLY PAYED. If your friend files her future returns with a professional tax preparer, tell her to pay them in cash and NOT TAKE ANY REFUND ANTICIPATION CHECKS OR REFUND ANTICIPATION LOANS, otherwise she's only going to dig herself deeper into the hole. These early payment options are contingent on the IRS sending the refund to the company. If they don't recieve the money from the IRS, your friend is now legally obligated to pay them back as well.

You're friend may be tempted not to file, but would only be digging herself deeper into the hole, so tell her to always file her taxes. That way the IRS has an updated accounting and can apply those refunds to paying off the debt faster.

Have your friend go to the Human Resources office or Personnel Division where she works and change the exemptions on ther W-4 and state withholdings to "0" exemptions. If she has more than one job, she needs to do this for EACH employer and claim "0" exemptions on the W-4's and state withholdings forms for them as well. Yes, they will be withholding more money from her paycheck, but it will help pay the back taxes faster. Even if she didn't owe the IRS, I'd still advise changing to "0" exemptions, even if married and/or with kids. I explain the reasons why in one of my other answers.

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Your friend will need to get a better paying job, or another job. She should find 1-2 roommates, or better yet move in with family. It will be easier to pay a portion of the rent and utilities rather than trying to live on her own. Plus, if the roommates/family members are good and responsible, she will have people to watch her son while she goes to work.

Of course, another option would be that you and her other friends can pitch in and loan her some (or all) of the money to pay the IRS, but I wouldn't advise it since money tends to destroy friendships. I figure $20 is a reasonable loan most people will let slide for a friend, however long it takes to get paid back. So, if you and 49 of her other friends all lent her $20 she can put a decent $1,000 dent into that IRS debt.

I know that the majority of all this is stuff you didn't want to hear, but you and your friend need to know just how deep of a hole she is actually in. I've tried to cover as many aspects I can think of to help keep your friend from digging any deeper, but there is nothing I can advise that will make it all go away.

Answer 2

Well, she lied on her tax return and claimed dependents she wasn't entitled to, and got a lot of money for it. Essentially she stole it from the government - what is surprising that they want it back? No, she can't just file some paperwork and make it all go away. She's in serious trouble over what she did. She's not going to get her full paycheck OR her future refunds.

Sorry to sound unsympathetic. But did you ever hear the saying "if you can't do the time, don't do the crime"? And what she did was illegal, and now she'll have to pay the price by paying back what she stole.

The worst that COULD happen to her is that she could be prosecuted for tax fraud. But what will most likely REALLY happen is that the IRS will set up some kind of payment plan for her (and THEY will decide what she has to pay each month, they won't just ask her what she can afford), and if she doesn't stick to it, will garnish her wages. And any refunds will be taken toward her debt until it's paid off.

Answer 3

She has no choice but to pay the money back. It is not automatic that the EIC will be denied in the future, although she will have extra paperwork to file.

The extra withholding suggested in another answer will not help her immediate problem. It is better to send the money directly to the IRS rather than have it withheld and credited to her account after a year.

What she must do is immediately set up an installment agreement to pay the money back. That is the only thing that is going to get the IRS "off her back" in that they will not pursue other actions as long as she keeps up her payments.

If she does not face up to the debt and start paying it back systematically, the IRS will take further collection actions including garnishing her pay or seizing any assets she has.

Answer 4

1. It appears that your friend claimed Dependents, which she should not. Evidently, IRS will like to get all extra refund IRS paid to your friend along with interest and penalty.

2. The IRS letter will have tax, interest and penalty amounts.

3. Your friend does not have much choice. If she delays the payment, the amount will keep on multiplying and it will take many years before she can get out of this.

4. So she should get expert help or may be from a friend who has gone through similar situation. May be, call IRS and see if they can waive off the penalty or reduce this.

Answer 5

Your friend needs a lawyer. There's nothing you can do to help her unless you want to pay her tax liability. Chances are that part of that $6,000 represents interest and penalties. If your friend truly believed she was entitled to claim her friend's kids, but it turns out she was not, then she might be able to get the penalties removed. You always have to pay the tax due and the interest.

Note: Contrary to what another responder said, if you are the custodial parent you CAN still file as Head of Household when you're not claiming the dependent deduction because of an arrangement with the other parent.

Answer 6

She should not have lied in first place she can have irs set up pymnt arrangements on what she owes but needs to claim only her child irs will take her taxes every year also until debt is paid but theres not much more she can do but what is right.

Answer 7

Go to www.irs.gov for answers about dependents. You can't just use someone else's kids anymore. You have to prove with ssn cards, birth certificates, medical records, school record, receipts that you actually took care of these kids. IRS offers payment plans for repayment. She can call 800-829-3903 or 800-829-1040 for help but she shouldn't wait until IRS does something drastic like freeze her bank account or levy her wages. Encourage her to call Tuesday, Monday is a holiday for us. Tell her good luck!

Answer 8

She filed a fraudulent return. Plain and simple. She probably felt great when she felt she got away with something. I feel sorry for her child not her. People should realize not to mess around with Uncle Sam's money. She will be lucky not to go to jail.

Answer 9

Try filing an amended return. A tax attorney or accountant may be of help. But it might be worth it to go ask H&R Block for any advice they can give.

Answer 10

You know, you only have to do three things in life:
Live
Die
Pay Taxes
good Luck!!