Have you incorrectly filed for or are currently filing Head of Household with IRS? Confusion begins with false linkage between child support, partial custody, and dependents.
What is Head of Household?
One of the most commonly misinterpreted aspect of tax filing is what constitutes the IRS definition of “Head of Household.” Let’s examine what causes confusion with IRS Head of Household rules, penalties for misfiling, and what happens if you are audited regarding Head of Household requirements by the IRS.
Filing as Head of Household vs Single
What makes you able to qualify for Head of Household IRS? Head of Household IRS requirements include being unmarried, paying for more than half the cost of home related expenses, and having a qualifying dependent living with you for more than half of the time. Home related expenses include rent, utilities, and miscellaneous housing cost. All of these requirements revolve around the tax year that you are filing for. This is all based on the IRS Publication 501; refer to page 5 for more information on filing status directly from the IRS website.
Who can actually file for Head of Household with the IRS? The primary purpose for allowing Head of Household filings is to support single parents who need to take care of their children—it is essentially a government measure intended to provide support for those living at or below the poverty line.
As vague as the classifications are, there is a key difference between someone who can file as a Head of Household, and an individual who should file as single. Your tax refund can approximately double if you file as a Head of Household, so there is certainly an incentive to do so. However, a person cannot file for Head of Household if they merely pay child support, even if they get to claim their child as a dependent. This is where most mistakes occur. Deductions and tax credits can still be claimed by these individuals, but they are lawfully required to file as single if their child did not live with them for the majority of the tax year. There are of course, consequences for not filing your status correctly; though annual tax audits from the IRS are rare, penalties for misclassified filings can be substantial.
Penalties for Misclassified Filing Status
To officially file your taxes, you must sign your name under this statement: “Under penalty of perjury, I declare that I have examined this return, including any accompanying statements and schedules and, to the best of my knowledge and belief, it is true, correct, and complete.” Because you agree to this perjury statement, you are at the mercy of the IRS if you purposefully file incorrectly. Lower than one percent of tax reports are audited federally, however, California typically audits on a much higher frequency – as do most states.
In most penalty of perjury statement cases in California, the incorrect filer will have to pay the IRS the correct amount along with additional interest-accruing penalties. The IRS will enforce a dis-allowance penalty if they catch you fraudulently filing for Head of Household. This means you will not be able to claim Head of Household for ten years after your penalty of perjury, even if you legitimately qualify. There are serious penalties that the IRS has the right to impose as well: If classified as a fraudulent filer, you may be fined up to $250,000. You may also be imprisoned for up to 5 years if the IRS wishes to impose their full will. Keep in mind that if your spouse filed fraudulent taxes on a joint tax return, you may be entitled to innocent spouse relief. Explore penalty relief options offered by the IRS here.
What happens if you are audited by the IRS or Franchise Tax Board?
It is easy to file as Head of Household mistakenly. Whether you do so on purpose or not, there is always a chance you will be audited by the IRS or the CA FTB (California Franchise Tax Board). Receiving notice of a California tax audit can be quite alarming. If this happens, you are at risk of severe financial penalties as discussed above. Don’t panic, however. The first thing you should do, is contact an experienced tax attorney. With the help of a tax attorney, you should be able to go over your options, whether it be a settlement, or a more complex negotiation.
How to Defend Yourself From the IRS With a Tax Attorney
Depending on the circumstances, it may be possible to show that you did not intend to defraud the government, but simply misclassified the filing status. In some cases, it may also be possible to negotiate a tax resolution with the state tax authorities or the IRS. In any event, you are well advised to seek the advice and counsel of an experienced tax attorney who can devise a successful defense strategy. At the same time, it’s best to be proactive and consult with attorney on how to lawfully mitigate your tax liabilities.
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