Dear Tax Talk,
I claimed my two nephews on my taxes and I was audited. I took extensive care of my nephews by paying for day care and helping with doctor bills and groceries.
I have a packet from the daycare showing that I paid each month. It also shows that I am on the emergency contact list for the two boys. My only concern is the residency test. I stayed with my sister, helping her out, throughout 2007, but my name is not on the utility bills.
The children’s doctor bills were under the mother’s name, so when I helped to pay them, they would not reference my name. I was between college and home when I was helping my sister out with her kids. Will the day care information be enough for the IRS, or will I need more information?
The rules for claiming a dependent sound simple enough. Among other things, a related dependent has to live with you for more than half of the year and you have to provide more than half of their support.
As you’re finding out, proving it is a little more complex. School or child care records would show that the child shared the same address with you. The records, however, may not show it for the year under examination, or for the entire year.
Payments to a child care provider will help, but for public school, there are few or no receipts. You could get an affidavit from someone at the school, but when you tell someone that it is for the IRS, he or she may not want to get involved. If the child is old enough, or young enough, (they learn to lie later), their own statements may be persuasive to an examiner. However, I’m not sure I would want to put that pressure on a child.
When it comes to providing half of their support, it gets a little more complex. If no one else is claiming the child as a dependent, that fact should help persuade an agent that you are the more appropriate person to claim the child. Support includes basic support like housing, food and clothing, but it also includes recreational, schooling and medical.
If you can also prove residency for more than half of the year, support will usually follow. If you believe you’re entitled to the exemption, be insistent with the agent. Many taxpayers who represent themselves often get intimidated and end up losing. The IRS has a list of tax clinics for low-income taxpayers who need help in representation.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.