Is this Tax Fraud?

Question

We have court papers stating that we claim my husbands kids on our tax return (the Mom doesn't work). When we filed our taxes the Mom (and her husband) claimed the kids on their return. This is the 2nd time that this has happened in the past few years. After sending in court documents, we get our money, but I don't know if she has had to pay the money back that she had gotten.

Is this considered tax fraud?

Answer 1

It's not on the level of go to prison.

Basically, when the IRS confirms that she gave up the right to claim the children's exemptions/child tax credit, the IRS will amend the return, remove the dependents, reverse the money and demand payment.  She and her new husband will be allowed to set up a payment plan.  They will generally get hit with the equivalent of up to 12-18% in penalties and interest until the amount is paid in full.

Answer 2

Yes it is. IF there is already an agreement that the husband will claim the children on his taxes and he does have custody for at least 8 months out of the year, then they have no right to claim the children on the taxes and the maximum penalty is a huge fine and prosecution.

Answer 3

Your husband's ex-spouse and her husband will not be charged with fraud, although they know there is a legal agreement that you take the exemptions.  The ex-spouse would have to pay back any tax benefits once the exemptions were disallowed.

If the agreement meets the IRS requirements similar to form 8332, then it is binding, and the IRS will honor it.

Make every effort to file as early as possible next year to avoid this hassle.  The ex-spouse may be doing this just to make trouble, or in the hopes you won't pursue the exemptions.  Since it has happened twice before, count on it happening again.

Answer 4

The IRS has its own definition of who can claim kids. They only hold up your agreement if you enforce it. Next time file early. She will have to pay it back

Answer 5

It is not tax fraud.  To IRS, the court order is meaningless.  This issue comes up regularily in small Tax Court cases and court orders from divorce courts are regularily ignored.  What IRS looks for is which parent provided over half the support of the child, not who has the court order.  For protection, the parent who thinks her or she is entitled to the exemption should secure a signed Form 8332 from the other parent.