Yes, the IRS checks dependents and routinely audits tax returns to verify dependency claims, particularly when two people claim the same child, information is inconsistent, or high-value, refundable credits like the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC) are involved. Improperly claimed dependents can lead to audits, reversed tax benefits, penalties, and interest.
If one of you do not file an amended return that removes the child-related benefits, then you may be audited by us to determine who can claim the dependent. In that case, you'll get a letter in a few months to begin the audit. In the audit, we'll require you to provide proof that you're entitled to claim the dependent.
The dependent's birth certificate, and if needed, the birth and marriage certificates of any individuals, including yourself, that prove the dependent is related to you. For an adopted dependent, send an adoption decree or proof the child was lawfully placed with you or someone related to you for legal adoption.
Not reporting all of your income is an easy-to-avoid red flag that can lead to an audit. Taking excessive business tax deductions and mixing business and personal expenses can lead to an audit. The IRS mostly audits tax returns of those earning more than $200,000 and corporations with more than $10 million in assets.
If the child is yours, proving the relationship is usually as simple as providing the child's birth certificate. If it is a grandchild, sibling, niece, or nephew, you may also have to show the birth certificate of the child's parent and your birth certificate to prove the relationship.
Relationship: Be your son, daughter, stepchild, eligible foster child, brother, sister, half-sister or -brother, stepbrother, stepsister, adopted child or the child of one of these. Age: Be under age 19 or under 24 if a full-time student, or any age if permanently and totally disabled.
Here are 12 IRS audit triggers to be aware of:
One-time forgiveness, officially known as First-Time Penalty Abatement (FTA), is an IRS program that allows qualified taxpayers to have certain penalties removed from their tax accounts.
Signs That The IRS Might Be Investigating You
A qualifying child must meet five IRS tests: relationship, age, residency, support and joint return. The child must be your son, daughter, stepchild, foster child, sibling or a descendant of one of those individuals. For age, the child must be under 19 at the end of the year or under 24 if a full-time student.
Spouse or domestic partner: Request a marriage certificate or a domestic partnership certificate, and a joint tax return as proof of an ongoing relationship. Natural-born children: Require a government-issued birth certificate to confirm the parent-child relationship.
Unreimbursed employee expenses are perceived to be one of the most common IRS red flags. The IRS frequently reviews unreimbursed employee expenses in audits, as they are widely considered a high abuse category for W2 employees.
What happens during an audit? Internal audit conducts assurance audits through a five-phase process which includes selection, planning, conducting fieldwork, reporting results, and following up on corrective action plans.
Five Most Overlooked Tax Deductions
An audit for claiming dependents is a common reason the IRS contacts taxpayers, especially those claiming the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC).