Head of Household

[Artbuc]

Jurisdiction

Delaware

Looks like I am the only one asking questions on this sub-forum. Here is my latest question. I asked my nephew to see his 2021 1040 to better understand how to help with his modest inheritance. His return was prepared by a reputable CPA. I was surprised to see he filed as HOH. He is single having divorced 15 years ago. His 27 yo (26 on 12/31/2021) daughter lives with him. She is a full time student who makes about $8k per year. She files to get her withholding back. Nephew pays over 90% of the household bills. As I understand Pub 501, daughter is not a qualifying daughter by virtue of her age and is not a qualifying relative by virtue of her income. CPA completed Due Diligence checklist for the HOH eligibility. Am I missing something? Is there any way nephew can claim HOH?

 

[Tax Counsel]

Is there any way nephew can claim HOH?

Under the facts you provided the answer is no, assuming that no one other than his daughter is a qualifying person for the HOH filing status. He'll likely end up getting a letter from the IRS in the months ahead informing him of that.

 

[Artbuc]

Under the facts you provided the answer is no, assuming that no one other than his daughter is a qualifying person for the HOH filing status. He'll likely end up getting a letter from the IRS in the months ahead informing him of that.

Thx, no one else lives in household. I have to see what he did in 2020. I assume he filed HOH since he used same preparer. That will be two years. 2019 should be ok since daughter was 24. He has not been contacted by IRS yet but I assume it would be an easy cross check since his daughter files with same address. He asked me what he should do. I told him I could not stand worrying everyday wondering if/when IRS will come after me but he will have to make his own decision. I assume preparer will be in trouble too since he submitted his HOH Due Diligence checklist.

 

[Tax Counsel]

He asked me what he should do.

I suggest he submit an amended return correcting the filing status and any other errors on the returns. He'll likely save penalty and interest doing that over the IRS finding it first. And he may want to seek a refund from that CPA for the erroneous advice.

 

[Artbuc]

I suggest he submit an amended return correcting the filing status and any other errors on the returns. He'll likely save penalty and interest doing that over the IRS finding it first. And he may want to seek a refund from that CPA for the erroneous advice.

Shouldn't he ask the CPA to file amended return? Nephew is not capable and I do not want any part of it.

 

[Tax Counsel]

Shouldn't he ask the CPA to file amended return? Nephew is not capable and I do not want any part of it.

He could do that, if he trusts the CPA who made the error to fix it properly. If he goes that route, the CPA should not charge anything to fix his/her own mistake. Or he can go to some other tax preparer to have it done if he does not want to do it himself.

 

[Artbuc]

I was just rereading Pub 501. It clearly states that a student can be a qualifying child if under 24 years old. That means nephew was not eligible for HOH in 2019 either. Daughter turned 24 in August 2019. I have to see his 2020 and 2019 returns to confirm, but I assume his CPA filed HOH for those years too. Yikes, this is a mess. I used to do his returns many years ago but he thought his buddies at work were always getting big refunds and he was not. I tried to explain the difference between how much tax you owe vs how much refund you get but he could not understand it.

Am I right about the "under 24" requirement?

I guess the only reason IRS has not caught him yet was the massive Covid upheaval.

 

[army judge]

Am I right about the "under 24" requirement?

I guess the only reason IRS has not caught him yet was the massive Covid upheaval

Yes, you appear to possess a very informed view regarding the "HOH" deduction and it's application.


The IRS does a very thorough job of vetting taxpayer returns.

That said, here's a better answer to your assertion:

More than 21 million paper tax returns are still waiting for processing by the Internal Revenue Service, as the tax agency struggles to swiftly disburse refunds to American households, according to a watchdog report released Wednesday, 22 June 2022.

Most taxpayers file their returns electronically, but millions of others — disproportionately the elderly — still fill out their returns manually. National Taxpayer Advocate Erin Collins said in her report that the IRS backlog this year is 21.3 million paper returns, 7 percent more than the 20 million that were awaiting processing at the same time last year.

The report may add to the political headaches for the IRS, with Commissioner Charles Rettig's term set to expire at the end of this fall. The agency has faced budget cuts, outdated technological systems and a depleted workforce that have made it less responsive to taxpayer needs. But the growth of the backlog of paper returns relative to last year amounts to a setback for the agency, after Rettig vowed to "crush" the backlog this year.

The Internal Revenue Service closed the most recent filing season with more than 35 million in unprocessed tax returns, as the agency's backlog grew markedly amid a crush of challenges related to the pandemic and economic relief efforts, a government watchdog said Wednesday.

Erin Collins, the National Taxpayer Advocate, said in her report that about 17 million paper tax returns are still waiting to be processed and approximately 16 million additional returns have been placed on hold because they require further review manually. Another 2.7 million amended tax returns have not been processed.

This backlog represents a fourfold increase from 2019 — the most recent year before the coronavirus pandemic — when the IRS closed its filing season with 7.4 million unprocessed returns, according to the report. These numbers reflect the IRS backlog as of May, and the agency may have made progress reducing it since then. The IRS backlog amounted to 11 million at the end of the 2020 filing season, fewer than a third of the current number of unprocessed returns.

In actuality, the IRS has a daunting job.

The IRS does the best it can using 1980s designed, mainframe COBOL programs.

Tax Cheats Stiff Uncle Sam by $381 Billion Per Year, IRS Study Says
...

https://www.washingtonpost.com/us-policy/2022/06/22/irs-refunds-taxpayers-returns/
...


https://www.washingtonpost.com/us-policy/2021/06/30/irs-backlog-returns-taxpayers/
...

 

[Tax Counsel]

IAm I right about the "under 24" requirement?

For the qualifying child test, you are correct, assuming the child is a qualifying student and that the person is not permanently and totally disabled. But if the child fails to meet the tests for a qualifying child he/she might still allow him to claim HOH filing status if the child meets the qualifying relative test. There is no age limit on the qualifying relative test.

The IRS is still quite behind in processing paper submissions and will be for awhile. For years the Congress has not provided sufficient resources to the IRS to enable it to modernize and function as effectively as it should. The government and taxpayers both are suffering the consequences of those years of neglect. Covid made an already existing problem much more pronounced.

 

[Artbuc]

For the qualifying child test, you are correct, assuming the child is a qualifying student and that the person is not permanently and totally disabled. But if the child fails to meet the tests for a qualifying child he/she might still allow him to claim HOH filing status if the child meets the qualifying relative test. There is no age limit on the qualifying relative test.

The IRS is still quite behind in processing paper submissions and will be for awhile. For years the Congress has not provided sufficient resources to the IRS to enable it to modernize and function as effectively as it should. The government and taxpayers both are suffering the consequences of those years of neglect. Covid made an already existing problem much more pronounced.

Unfortunately daughter makes around $8k gross earnings so not eligible for qualifying relative. I looked at nephew's 1040 again. It was prepared by a local firm. Preparer signed his name without CPA credential. That explains a lot. CPA would never make a big mistake like this.

Not sure IRS will ever catch up with him due to Covid backlog but my advice to him is to fess up and make it right. Not sure he will listen.

 

[Artbuc]

You are not going to believe this. Nephew confronted tax preparer. He admitted nephew did not qualify for HOH but said that is the way he has done it for years and the way he was taught. Told nephew no one ever gets caught and he will not have a problem. I told nephew the guy is a crook and intentionally lied on his Due Diligence form. Nephew said he will make sure 2022 is done right but will take his chances on previous years. I told him IRS probably has not even seen his returns yet since he was not owed a refund and IRS will get him. He is 55 years old and I am washing my hands. I am super pissed that guys like that are in business.

 

[army judge]

 

[Artbuc]

Yeah, that is why I am so pissed and disappointed at the same time. I should not be surprised. I quit doing his taxes years ago because I got tired of hearing about all of his buddies get big refunds and he does not. I finally told him to get his buddies to do his taxes.

 

[Tax Counsel]

You are not going to believe this.

Unfortunately, I have no trouble believing it. When I worked at the IRS I encountered a number of tax preparers that did fraudulent returns for clients and an even greater number who had no real knowledge of tax law and just bungled things up. They were not the majority of return preparers but there were enough of them that consumers need to take care whom they choose to do the work. While it's harder today to be a tax preparer as the IRS requires an exam of tax knowledge, there are still too many crooks and incompetent people preparing returns. People should do some due diligence and check out any professional they intend to hire, whether doctor, lawyer, architect, accountant, tax preparer, or whatever else. There are crooks and incompetent people in every line of work. It's up to the consumer to protect himself/herself by checking out the people they are considering hiring. After all, it's the consumer that ultimately pays the price when the professional screws up.