The biggest cause of Errors and Robo-Audits for Low and Moderate Income Taxpayers may surprise you

The rules for who is allowed to claim a dependent are VERY confusing.  The rules are really hard to navigate.  There are many different types of dependents and which set of rules applies can be super-confusing!  

Thousands of dollars in refundable state & federal credits can be at stake if the wrong taxpayer claimed a dependent!   Robo-Audit letters are very common for low income families with children who qualify for refundable credits.  The Robo-Audit letters are confusing and intimidating, and many taxpayers who filed correct returns do not understand how to respond to them.

An ounce of prevention is worth a pound of cure.  A mistake is much harder to fix after you submit the efile than before.  Tricky situations where you will want to reach out for help BEFORE you file include: 

1) A Qualifying Child dependent who lived in multiple households during the tax year and/or was supported by more than one taxpayer.   The tie-break rules for which taxpayer gets to claim such a dependent can be very tricky.  Over the years, we have seen a lot of prior year returns prepared by paid tax preparers who got that wrong.  We have been able to amend the return so the taxpayer entitled to claim the Qualifying Child gets their rightful tax credits.

2) If a teenager under 19 has substantial income of their own from a part-time job, it can often be tricky to figure out if they are still a dependent of the parent who is providing the roof over their heads.  This is a question where a Zoom or speakerphone call with the parent and teen to clarify the dependency issue BEFORE either the parents or teens file can save a lot of trouble.  

3) If a young adult under 24 was enrolled in higher education last year, the dependency rules can again be hard to navigate.

4) If a disabled adult of any age was living with a relative, the dependency rules can get complicated.

5) Multigenerational households can also be confusing to sort out.  Typical issue:  grandparent, parent, grandchild all live in a home and perhaps an aunt or uncle too.  Multiple adults may contribute to the support of the household and/or the grandchild.  Who gets to claim a young child can make a huge difference in the refunds for the taxpayer claiming the child.

Robo-Audits are common in these situations even if the taxpayers did everything right.  

If you claimed a child in any of the above situations, you may very well get a Robo-Audit letter.  The letters are confusing and bullying in tone.  The National Taxpayer Advocate has studies showing that many taxpayers who get such letters filed correct returns, but are so confused or intimidated by the language in the letters that they fail respond to them.

Don't ignore audit letters of any kind, including Robo-Audit letters and don't sign anything you don't understand.  

Before you file:  do your research and talk it over with a knowledgeable VITA volunteer if you are unsure.  

Go-to resource for anyone unsure whether they can claim a dependent:  read VERY carefully the seven pages in Tab C (pages C1-C7) in IRS Pub 4012, the so-called "VITA Bible."  Don't overlook the sometimes critical footnotes on these 7 pages about dependents.  An ounce of prevention is worth a pound of cure.  If you are not sure, consult a knowledgeable VITA volunteer.

After you file:  Don't ignore scary IRS letters you don't understand.  They do NOT improve with age.  If your return was prepared at the Union College VITA site, please email Professor Mary O'Keeffe at UnionVITA@gmail.com immediately to discuss what documents you need to gather to support the dependents claimed on your return, and how best to respond.  Possible options including reaching out to your local Taxpayer Advocate at the IRS Taxpayer Advocate Service or your nearby Low Income Taxpayer Clinic.