Economic Impact Payments (CARES Act)

[philchavez]

New client. Has two kids. Tom in high school, and Sally in college. Sally received a $1,200 EIP check in May 2020. She originally filed a 2018 return with single filing status, and didn't show she was taken as a dependent on her parent's 2018. She later amended her 2018 return which showed her as a dependent on her parents return. Parent's filed a 2018 return taking Sally as a dependent. Except for dependency issue, Sally is otherwise eligible for EIP in 2018. Per EIP rules, Sally would not be eligible for EIP checks if she was a dependent on another taxpayer's tax return. According to the IRS, they base taxpayer eligibility for EIP checks on 2018 or 2019 returns per IRS guidance at https://www.irs.gov/coronavirus/economic-impact-payment-information-center#eligibility

Sally and her parents have not filed 2019 tax returns. Sally now has EIP check in hand and its burning a hole in her pocket (i.e. college kid). If her parent's do not take her as a dependent on their 2019 tax return and Sally files a return in 2019 that shows she's not a dependent on her parent's return, then Sally appear to be entitled to a check.

The question...should I advise Sally to deposit her EIP check now, file her 2019 tax return (and her parent's 2019 tax return) as if Sally was not a dependent, and be done with it? Or do I wait until Sally's 2019 return is eFiled before advising her to deposit?

Any thoughts? Thanks guys and gals for your input.

Phil C.

[IRonMaN]

Let's put it this way - If there wasn't a $1200 check burning a whole in someone's pocket, would the parents eagerly give up and say she was not a dependent?  

[qbteachmt · Accepted solution]

"and didn't show she was taken as a dependent on her parent's 2018. She later amended her 2018 return which showed her as a dependent on her parents return. Parent's filed a 2018 return taking Sally as a dependent. Except for dependency issue"

Except for? I believe you mean, "I intend to do what applies given their reality."

"Or do I wait until Sally's 2019 return is eFiled before advising her to deposit?"

You realize nearly nothing is being processed by the IRS? What good is waiting?

How about:

File what applies. Now they see why they need to pay attention.

Sally keeps the money that came in Sally's name.

Everyone files 2020 taxes correctly, factually, and on time, and the stimulus checks are reconciled as part of 2020 tax filings.

[TaxGuyBill]

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@philchavez wrote:

If her parent's do not take her as a dependent on their 2019 tax return and Sally files a return in 2019 that shows she's not a dependent on her parent's return, then Sally appear to be entitled to a check.

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No, Sally would qualify if the parents' are not ABLE to claim her as a dependent.  If she is ELIGIBLE to be a dependent, she does not qualify.

[BobKamman]

From the IRS FAQ in your post:

"Taxpayers likely won't qualify for an Economic Impact Payment if any of the following apply:
...You can be claimed as a dependent on someone else’s return. For example, this would include a child, student or older dependent who can be claimed on a parent’s return."

Do you see where it says “are claimed” ? No? Neither do I. I just see “can be claimed.” If Sally is in college, has she studied enough English to know the difference between “can be” and “are” ? Well, OK, at some colleges these days that might not be covered until grad school. Is Sally an adult? How much did she pay you to prepare her original return, and her amended return? Do you think it’s a good idea to work with her parents to help her circumvent the rules? Are they paying you enough, to ease your conscience about that?

[philchavez]

Original and amended 2018 returns were prepared by another tax preparer. I was asked to do the 2019 returns. Sally’s EIP issue (in my original post) surfaced beforehand. I haven’t begun working on the 2019 returns. Your point is well taken. Circumventing the law not my intent. I really appreciate all who took the time to post your comments. 

[qbteachmt]

Here is the misunderstanding: "According to the IRS, they base taxpayer eligibility for EIP checks on 2018 or 2019 returns per IRS guidance"

The Checks are an advance against the 2020 tax filing credit. The 2018 taxes are moot and do not apply. The 2019 taxes are moot and do not apply. No one has been injured or otherwise affected by the Corona Virus or ill with Covid-19 in 2018 or 2019. All of this was how they tried to figure who gets mailed or direct deposited how much money.

Only 2020 is impacted by the virus.

And any tax year filing should be accurate.

[philchavez]

qbteachmt...thanks so much for clarifying that! It was my misunderstanding of how the EIP program worked, which lead to my original post. Your post addresses my question perfectly. Others provided a “Dependents 101” refresher, which was also on point. Yay!

[BobKamman]

So if Sally isn't sure she'll qualify as a dependent for 2020 (she may already have five months of attendance, if Zoom classes count), should she hold on to the check, or cash it?  If she knows she will qualify as a dependent, should she send it back now?

This is when you have The Conversation with your client.  "If you ask me if she should have received the check, my answer is that she did not qualify.  If you ask me what happens if she keeps the money, my answer is that it's highly unlikely that the Justice Department will sue to get it back."

[qbteachmt]

You might be getting a VISA card:

"Starting the week of May 18th, approximately 4 million eligible recipients of Economic Impact Payments (EIP) will receive an EIP Card in the mail. The EIP Card is a Treasury-sponsored, VISA-branded, prepaid debit card that provides a safe, convenient and secure way for EIP recipients to access their Economic Impact Payments without having to go to a bank or credit union to cash a check."

https://www.consumerfinance.gov/coronavirus/managing-your-finances/economic-impact-payment-prepaid-d...