It was the middle of July when I first received this particular three-year IRS audit – a case in which virtually every line item on the tax return was being questioned: Wages, Withholding, Energy Credit, Filing Status, Dependent Exemptions, Child Care Credit, Child Tax Credit, Mortgage Interest, Mortgage Insurance, and Contributions.
Upon reaching out to the member to discuss his case, he shared with me that, in November of 2012, his brother had fallen on hard times and, in response, he had taken in all of his brother’s children: one niece and two nephews. He and his mother took care of them while his brother and his brother’s wife worked on putting their lives back together.
I immediately got to work, going down my list of usual questions: Can I get a copy of your W2’s to prove your income and withholding? Can I get the children’s birth certificates and the birth certificates of you and your brother so I can prove the relationship? Can I get a letter from your pastor, the children’s school, or the children’s doctor to reflect their residency? Do you have proof that you have made the mortgage payments for the home that it is in your mother’s name and you have a beneficial interest in? Can I get the receipt from the daycare provider? Do you have proof of the cash contributions you made to your church?
The member did his best to prove his case; however, the birth certificate he sent did not reflect that he was related to the children’s father. We discussed getting a DNA test, but the cost was fairly expensive – so, we agreed to hold off while he looked into finding a DNA test that was on the more affordable side.
In the meantime, he was able to provide a letter from the children’s pastor at the church that they attended on Sundays with their parents. This letter stated: “I can verify that the children stayed with the member at his address from November of 2012 until December of 2015 as their parents were not working and he actually took the kids in and did a great job providing for each of them.” He also shared a handwritten letter from the daycare provider which stated that the children lived with him for the same period of time and noted that “he is a great male figure in their lives and did a great thing by taking care of the kids in that difficult time period.” The member also submitted bank statements proving he was making the mortgage payments along with proof that he did, indeed, live at that particular address.
While the member was busy sifting through and sending me stacks of documents, I contacted the IRS to request an extension on the case. Unfortunately, I had called a little too late; exam reports had already been issued for all three years, which showed that the IRS had disallowed all of the member’s income, withholding, credits, and exemptions for the children, leaving him with a balance due of over $30,000.
After review of these reports, I followed up with the member and explained to him that, without the DNA results that would prove the relationship to his brother, it would be unlikely that he would get the Child Tax Credits and Child Care Credit. However, in the meantime, I told him I would send his bank statements to the IRS that proved his support of his niece and nephews.
In my response letter to the IRS, I went into detail about his story. I explained that he lived with his mother, that his brother and wife had fallen on bad times, and that he had taken the children in. I explained that the birth certificates did not reflect the brother’s relationship, but that we were working on DNA test to prove the relationship. I also included a tax code citation regarding equitable ownership in the home to support the allowance of the mortgage deduction and, for purposes of support for the children, I provided the Fair Rental Value of the home from a real estate valuation website. I explained to the IRS that the taxpayer had inadvertently claimed his homeowner’s insurance for the mortgage insurance premium deduction, and that we were not submitting any receipts for the residential energy credit at this time.
After shipping our response off to the IRS, I cautioned the taxpayer about the “worst case scenario” and told him that, if we were lucky to hold onto the children as “other dependents,” we might be able to cut his tax bill in half. The member said he was very grateful for all of the work, noting that he had just had his first child and was overwhelmed with the day-to-day work involved in taking care of his newborn son. This was in August.
On Monday, October 10, 2016, three pieces of mail were delivered to my desk. Each letter was regarding the member – one for each tax year. I was so worried about what the letters would say that I set them aside for a few minutes while I got on the phone with another member. A second or two after I hung up, my phone rang. It was the member!
He asked if I had gotten the letters from the IRS. I told him I had, but that I hadn’t looked at them yet. He then asked if the letters actually meant what they said. I gingerly opened the mail while he waited on the line. Lo and behold, each of these three letters reflected a zero balance due. Before getting too excited, I quickly got online to do a quick verification and, indeed, the letters showed the truth: that the cases were closed. The member could not have been happier. I have never heard someone jump for joy, but that is exactly what he was doing.
This was the best ending for someone who had done such a good deed for a family member. Here at TaxAudit.com, we get to make a difference in the lives of our members every single day, and I am so grateful to have had the opportunity to play a role in this particular member’s success and to help provide peace of mind to a man who was so deserving of it.
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