Can anyone tell me what the actual penalty amount for tax fraud is when it comes to claiming kids?
Question:
Answer:
Most of the time it is nothing more than paying the tax that would have been owed plus a penalty of 25% of the tax and interest.
If the IRS suspects fraud, they can assess a penalty of up to 100% of the tax due. In addition, they will also assess interest on the tax due.
Actually, your friend could claim his sister's children as dependents on his return (this was a law that went into effect on December 31, 2004) provided that:
1. Are the children or grandchildren of his brother or sister, and
2. Are still under 19 (or 24 if they are full-time students) by December 31 of the tax year, and
3. Shared the same principal residence as him for more than 1/2 of the taxable year, and
4. He provided at least 50% of their support for the year.
If your friend met all 4 conditions above, he just needs to document that to the IRS. If the dad also claimed the kids as dependents, he would need to be able to document conditions 3 and 4 above himself, otherwise he won't get the dependent exemption for them. The only way the dad can get around the "lived with him" condition is if the dad can document with a signed statement from the mom that it was agreed between the two of them that he is the one who will claim the children as dependents.
If your brother actually supported those children and those children lived with them, and they met all other criteria, then he better show proof to the IRS, so the dad will get into trouble. I hate deadbeat tax cheats, especially employers with lots of money cheating the IRS
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