IRS Scrutinizes Dependency Exemption Claim

Dear Tax Talk,

I filed my nephew and my stepdaughter as dependency exemptions. I know the Internal Revenue Service wants me to show proof of these dependents. The person I spoke with told me I didn't have a right to claim these two kids. Actually, she was very rude. I took care of my nephew over half of the year and my stepdaughter all of last year. How can I prove my relationship to them?

- Laverne

Dear Laverne,

While there are a bunch of steps to determine if you can claim someone as a dependent, there are more steps to actually support the deduction. Even though no one else claimed the children as dependents, the IRS is suspicious of the dependency exemption -- especially by low-income taxpayers. There is a lot of abuse in this area. Having a qualifying child allows a person to claim the earned income credit, or EIC, which can be more than $4,000, and that person can also claim the child credit, which can be another $2,000.

This doesn't excuse the agent's rude behavior. If you encounter rude treatment, you should end the call. When you call back, report the behavior. Generally, if you provide specific information regarding your call, the IRS' systems will know which employee you dealt with. You should be dealt with in a fair, unintimidating manner.

For the EIC and the dependency exemption, the IRS provides a list of documents you need to establish your relationship. Forms 886-H-EIC and 886-H-DEP detail the records you need to establish your right to claim the children as your dependents. You'll need to prove the following.

  • Your relationship through birth certificates or adoption agency.
  • Residency through school and medical records.
  • Age -- generally the IRS will handle this, but you may need to show additional records for a child older than 18.
  • Support through housing, clothing, food and education.

The relationship part may get complicated in the case of a nephew, as you would need birth certificates from you and your parents, sibling and nephew to spell out the relationship. If you were all born in the same place, this may not be so difficult, but if you have been overseas or to many cities, this could be time-consuming. The IRS may accept alternate proof such as from a church or school to establish the relationship.

Make sure you include evidence of payment of household bills when you establish the support criteria.

If you're entitled to the exemptions, then you should not fear moving forward. I know the IRS can be intimidating, but sometimes you may find the right individual to help you. I also suggest if you need help, you seek a low-income taxpayer clinic. These clinics are independent of the IRS but are sometimes funded by the IRS. They help you avoid the fear factor and help you best direct your efforts.

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