Taxpayer claimed child for 2 years. He didn't have a child. Claims return was prepared by a tax preparer.

[runbullrun]

Taxpayer is coming forth to fix the issue / pay back taxes / file amended. 

Taxpayer is asking for my assistance. Does anyone know where I should start? Has anyone had to deal with a situation like this? So far I've been told that taxpayer needs to report this to criminal investigations unit of IRS for starters. Any other suggestions on where to start? Who to contact?

Thank You.

[dkh]

You probably already have this information but if not hope it helps

https://www.irs.gov/individuals/how-do-you-report-suspected-tax-fraud-activity

https://www.irs.gov/pub/irs-pdf/f14157a.pdf

These are relevant if it was the tax preparer that was responsible for adding the dependent to the taxpayer's return 

[IRonMaN]

"Taxpayer claimed child for 2 years. He didn't have a child"

There is way more to this story than you are providing in a couple of sentences.  Make believe dependents don't tend to fly through the IRS computers without some kind of regurgitation.  Getting the whole story would be helpful, otherwise I would suggest ------ run bull run.

[George4Tacks]

My first reaction was to just report the "error" on amended tax returns, then I found this article https://www.hg.org/legal-articles/amended-tax-returns-with-criminal-implications-40668

[runbullrun]

"Make believe dependents don't tend to fly through the IRS computers without some kind of regurgitation" - I thought the same thing. But the taxpayer received credits and refunds. I have his transcripts in front of me to prove it. I'm totally shocked this was not picked up by the IRS.

[ljr]

my thoughts exactly - were the returns efiled or paper filed to start off with? Do you see a paid preparer on the return or is it showing self-prepared? If efiled that has to be a real person with a social security number. I would ask a lot more questions. Also did they file HH? Were they "living" with someone and it was their significant others child. Does the taxpayer know the claimed child. way too many red flags here.

[runbullrun]

I agree with everything your saying here. I'm just trying to find a starting point on where to report the improperly filed returns. Taxpayer claims the returns were filed by a friends mother who had a side business of doing tax returns. There is no PTIN on the transcript. Taxpayer is admitting there was no child so no - he was not living with someone. Red flags doesn't begin to describe the returns. They are clearly fraudulent. Looking for a starting point. 

[runbullrun]

That is an excellent article. Thank you for passing it along. 

[dkh]

Do you really want to get involved in this mess?   Have you considered recommending this taxpayer hire a lawyer that specializes in tax law?

[runbullrun]

Still trying to make a decision on that. 

[sjrcpa]

I doubt there will be criminal prosecution for this 2 year "thing" if client corrects it voluntarily and quickly.

But I am not a lawyer.

[IRonMaN]

Just for my own curiosity, how guilty is your new client?  Did he come up with the plan to add dependents and then got cold feet once he found out people go to prison for tax fraud or did the ace tax preparer come up with the plan and he just went along for the ride?  In either case, I wouldn't touch the return or the client with a ten foot pole but I would love to see the "tax preparer" rot in a jail cell if this is the standard operating procedure of her "tax practice".

[abctax55]

IF ( and I wouldn't touch this with the proverbial ten foot pole) you take this on, get a retainer.  A big one.

I second the motion of sending him off to a tax attorney.

Your client *may* have been hoodwinked into signing a return falsely claiming a dependent.  I have clients I could do that to as they do NOT even look at what their return says.  But your client is responsible for what he signed (either paper file or efile).

[runbullrun]

Thank you for your thoughts. I am seeing where a tax attorney is a better choice for him. 

[BobKamman]

My guess is that he found out the name and SSN of a child who died at age 2, and was buried in the backyard.  

[Accountant-Man]

Do you mean "criminal tax law?"

[rcooley25]

I would sujest you tell that client to hit the rod jack and dont come back no more.

[BobKamman]

Best source is not a third party's article that doesn't describe the requirements for voluntary disclosure, but IRS itself:

https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosur...

One key point is that the taxpayer should contact IRS, before IRS contacts the taxpayer.  So I would want to know why this person suddenly got religion.  I don't think the facts you describe rise to the level of a criminal prosecution, so the question becomes whether to drag out the process or come clean quickly. Although IRS is unlikely to prosecute the taxpayer, they might be interested in going after the preparer, and they would need witnesses to testify before a grand jury and at trial.  

[ljr]

I too would like to know what made him "find" this error now and want to correct it. Also the preparer is his friends mother so I don't see him agreeing to go after her 

[BobKamman]

I just noticed the part about the friend's mother being the preparer.  So I started thinking of all the accounting issues.  Maybe she keeps an inventory of unused child SSN's.  Kids whose parents are not eligible to be claimed for any credits, so she pays them in return for their promise not to let anyone else do this.  Can that be expensed, or is it part of cost of goods sold that requires an annual inventory?  LIFO or FIFO?