More than Just a Refund

Written by: Dale Howell, EA

Like clockwork, every year we are inundated with audits for Head of Household filing status, dependents and Earned Income Credit. Quite often, after just one phone call to the Member, we find out that the dependent claimed really wasn’t the taxpayer’s qualifying dependent at all because one or more of the complicated IRS requirements were not met.

Sometimes, even when a taxpayer is eligible to claim a dependent they just aren’t able to come up with the documentation needed to prove it.

I received one of these cases for tax year 2012 on April 4, 2013. It turned out the Member actually did qualify for her large earned income credit and was very quick to send her documentation to me. The problem was that she had only one W-2 for only $4,609 in wages, but her Earned Income Credit had been calculated based on the $16,469 in wages she’d reported on her return. This larger amount had made her eligible for the maximum Earned Income Credit for three children.

Once I received the Member’s documents I realized that the additional amount for “wages” reported on her return was really self-employment income that should have been reported on a business Schedule C. The taxpayer really had her hopes up for getting her $9,645 refund so that she could pay her rent. Without it she and her three children were facing eviction.

As sometimes happens with the IRS, the first response I faxed on 4/16/13 to the Austin SC was not received, so on 5/7/13 I faxed it a second time. Meanwhile, the taxpayer had received a letter showing she was due a refund of only $273, which was calculated from the W-2 wages she had been able to support. It took a few more weeks before the IRS could confirm the receipt of my response, and now we just had to wait.

The IRS has been extremely slow this year in reviewing responses. In a normal situation we just have to wait it out, but in this case the Member was faced with being forced to move out of her home. With no money and place to go, she called me several times in tears.

I decided to call the Taxpayer Advocate Service to see what they could do. They located our response and had it reviewed and requested an amended return be filed to include Schedules C and SE.

The taxpayer had an amended return prepared and we submitted it to the Taxpayer Advocate. The IRS agreed and has finally released the Member’s recalculated refund of $6,110, which included interest.

The best part of the story is that the Member and her three children were able to avoid eviction. Sometimes our jobs can make us feel like a Good Samaritan.