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To: SES1066
I don't question the ability of the IRS to cross-check tax records among different filers. I learned this a few years ago when I got a letter from the IRS informing me that I owed an additional $36,000 in taxes, interest and penalties because I allegedly failed to report an early withdrawal from a retirement account. After several letters with plenty of explicit documentation I ended up owing $0 (a 1099 form had been incorrectly filed by a third-party administrator when I rolled an IRA into another tax-deferred retirement account).

My point was that the IRS would have a difficult time verifying the existence and status of "household members" in cases where everyone is meeting the letter of the law entirely.

Since you're an Enrolled Agent, I'll post this question to you:

Suppose I'm the owner of a home where four people live (myself and three others), and that all four of us file our tax returns separately. For the sake of this discussion, I'll call these two unmarried working adults (I'm one of these), one retired parent, and one adult child. Under the U.S. tax code, would I be legally permitted to sign lease agreements with the three other adults in the house and have the four of us list ourselves as unattached members of different "households?" I would document their nominal rent payments and report them as income on my tax return, of course.

14 posted on 12/30/2014 4:17:58 AM PST by Alberta's Child ("The ship be sinking.")
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To: Alberta's Child
Suppose I'm the owner of a home where four people live (myself and three others), and that all four of us file our tax returns separately. For the sake of this discussion, I'll call these two unmarried working adults (I'm one of these), one retired parent, and one adult child. Under the U.S. tax code, would I be legally permitted to sign lease agreements with the three other adults in the house and have the four of us list ourselves as unattached members of different "households?" I would document their nominal rent payments and report them as income on my tax return, of course.

First, understand that this is FREE ADVICE, and thus worth what you pay for it!

What you are obviously talking about is what I consider to be one of the most far-reaching regs to come out of the PPACA, the fact that a taxpayer MUST take into account not just CLAIMED Dependents but also CLAIMABLE Dependents in computing tax liability and fines for lack of health insurance for any given month of the tax year.

Obviously, I see what you are trying to accomplish but I feel that it still goes back to what the IRS interprets as complying with regulations. The Supreme Court has long ruled that TAX AVOIDANCE is very legal if you are merely avoiding potential tax consequences but there have been any number of 'tax shelters' that have been ruled to be illegal and open for IRS prosecution.

This 'Claimable Dependency' is, I feel, headed for the courts as soon as someone is actually penalized for violation of this regulation. As new 'law' it has to wait for a victim to have 'standing' (legal term) to challenge the law and regulations. Since the remedy in tax law is for the taxpayer to owe the unpaid tax, the penalty and then the interest accrued on that summed amount, the taxpayer victim in this speculated case would be wise to immediately pay the owed amounts to the IRS in hopes that the Tax Courts to the appeals process will reverse the IRS EVENTUALLY!

Thus my former advice, better to be unnoticed than the poster child!

24 posted on 12/30/2014 6:15:09 AM PST by SES1066 (Quality, Speed or Economical - Any 2 of 3 except in government - 1 at best but never #3!)
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