Newly Graduated College Student & RRC

[JRC]

A newly graduated student applied for the RRC on 2021 Return filing as Single nondependent of parents. Received Notice disallowing the $1400.00 RRC claiming error on the Form 1040 listing that one of the five errors was the reasoning. I looked over the errors and cannot agree with any of the reasons they claimed. 

1. It looks like the Student could have been claimed on the parents return because I found out that the student graduated in May of 2021 and not the prior year 2020. Now how would IRS have known this I do not know if this was the reason?

2. Let say I have the student pay on the notice without amending the student's return and have parents amend their return to claim the student? Will they disallow the E-filing because the student's Social Security Number was used on another's Primary Return?

[Camp1040]

Are you sure the parents didn't claim your client on their return? If client graduated in May of 21 did they provide more than half of their support. Maybe the parents claimed the AOTC.

[Just-Lisa-Now-]

"Let say I have the student pay on the notice without amending the student's return and have parents amend their return to claim the student? Will they disallow the E-filing because the student's Social Security Number was used on another's Primary Return?"

Youd need to allow 4-6 months for processing time on that amended return before you could EF any other return that included him on it.

Im guessing the parents already got the stimulus for the kid as an EIP advance during 2021, he was on their 2019/2020 return, right? I guess you could pick up some educational credits on the parents return if the kid was included.

[JRC]

@Camp1040: I'm sure they didn't claim the student because we did the Parent's Return. Agh... The Student lived with the Parents for the Year which without going through Actual Living expenses may have been supporting the child. (Housing, Food, ect.) 

Which is why I would amend the parents and have them claim the Student.

Thank you

[JRC]

@lisa: The parents income was to large for the EIP 1, 2. But did claim the Student for 2020 & 2019 and not for 2021.

So do you mean that the Return will bounce back if I amend to claim the Student on the parents return? I would need to Paper File the amended returns then?

I could claim the ED credits if they received a 1098-T which I no record of receiving yet.

Thanks

[Just-Lisa-Now-]

Too high for EIP 1 & 2......Did they get EIP 3 that included the $1400 for the kid? If so, Im guessing this is why they changed the kids return. How much income did the kid have in 2021, could he have paid for more than 50% of his own support?

[JRC]

@Just-Lisa-Now- No they didn't receive EIP 3 also income to great. Looking further the Student was Age 24 at end of year, Student Jan - May 2021, Income greater than 4300.00 at 31,000.00. Taking into account Age and Income I cant see why they would disallow the 1400.00.

With Income at 31000.00 he would have paid greater than 50% of support also. 

I am over thinking this I think. 

Thanks

[Just-Lisa-Now- · Accepted solution]

Yea, I'd dispute that correction letter, hes over 23 and makes more than enough to support himself, should be entitled to the RRC for 2021.

[JRC]

Do you think this is a TEST? haha....

Their letter was very vague for reasons of change. The notice wouldn't list the exact reason for it just listed (5) possible reasons and up to me to select the correct one?  Ridiculous..

[qbteachmt]

You are overthinking this, because you included a ton of details here that do not relate to the issue, of the RRC (if that is all you want to work on).

"But did claim the Student for 2020 & 2019 and not for 2021." <== this

The payout in 2021 was against a projection of 2021 tax filing, but it will have used whatever was the most recent tax return on file. For these parents, then, that is either 2019 or 2020 (payments started going out while 2020 tax returns were not yet due).

What we've seen a lot of is that 2021 actuals where the young adult becomes no longer a dependent (not claimed and cannot be claimed by the parent(s)) the IRS still is matching to those projections. They seem to expect that the families will fight it out over the fact that the parents got the money, but now the young adult qualifies under actual reconciliation on the 2021 tax form.

With your facts, the parents would have gotten the funds, but didn't qualify (limited due to income). Both the parents' 2021 tax return and the young adult's 2021 tax returns should be filed as applicable, and then the young adult qualifies or not on their own. You don't add a dependent to the parents' return, if this young adult does not qualify as a dependent. Or, the young adult individual filing for 2021 reflects that they still could be claimed, even though they are not being claimed, as a dependent by the parents.

It's the saying: Pick a lane and stay in it.

Don't try to fake out the 2021 returns. File them as applicable to 2021. If the IRS adjusts incorrectly, you then have something to stand behind.

But, if the advance payment got made for that young adult, the IRS seems to be doing a better job of avoiding a redundant/duplicate payout. All of these families need to fight it out amongst themselves.

[JRC]

Yes I am overthinking it. Thanks....

I will be protesting their notice and stick to how we filed (Correctly) in the first place.

Thank you.