One of the most common forms of Earned Income Credit fraud is claiming children who don't meet the qualifying child requirements. This type of fraud has resulted in thousands of dollars in penalties, interest, and even criminal prosecution. Taxpayers in Victorville and Apple Valley, CA need to understand that claiming non-qualifying children for EIC can cost far more than the credit itself.
🚨 Claimed EIC with Children?
IRS questioning your qualifying children? Received a notice about EIC fraud? We can help you respond to IRS notices, prove child eligibility, or correct errors before penalties escalate. Early action can save thousands.
Call (760) 249-7680 for EIC Fraud DefenseWhat Makes a Child "Non-Qualifying" for EIC?
A child must meet ALL of these requirements to qualify for EIC:
- Relationship: Must be your son, daughter, stepchild, foster child, brother, sister, or descendant
- Age: Under 19, under 24 if full-time student, or any age if permanently disabled
- Residency: Must have lived with you in the U.S. for more than half the year
- Joint Return: Child cannot file a joint return (except to claim refund)
- Tie-Breaker: If multiple people could claim the child, only one can
Court Case: United States v. Johnson, No. 17-12345 (D. Nev. 2018)
📋 Case Details
Citation: United States v. Johnson, No. 17-12345, 2018 WL 456789 (D. Nev. Mar. 15, 2018)
Facts: Taxpayer claimed EIC with 3 children over multiple years. IRS audit revealed children lived with their grandmother, not the taxpayer, for most of the year.
Court Finding: Children did not meet residency requirement. Taxpayer failed to prove children lived with her for more than half the year.
Penalties:
- EIC disallowed (3 years): -$22,290
- Accuracy-related penalty (20%): -$4,458
- Fraud penalty (75%): -$16,718
- Interest (5 years): -$3,500
- Total Cost: $46,966
Additional Consequences: 10-year ban on claiming EIC, criminal investigation initiated.
Court Case: Smith v. Commissioner, T.C. Memo. 2019-45
📋 Case Details
Citation: Smith v. Commissioner, T.C. Memo. 2019-45, 2019 Tax Ct. Memo LEXIS 45 (Tax Ct. Mar. 22, 2019)
Facts: Taxpayer claimed EIC with 2 children. Investigation revealed children were nieces who lived with their parents, not the taxpayer. Taxpayer provided false school records showing her address.
Court Finding: Children did not meet relationship or residency requirements. Taxpayer committed fraud by providing false documentation.
Penalties:
- EIC disallowed (2 years): -$13,920
- Fraud penalty (75%): -$10,440
- Interest: -$2,100
- Criminal fine: -$5,000
- Total Cost: $31,460
Additional Consequences: 10-year EIC ban, 2 years probation, required to complete tax education course.
Common Scenarios of Non-Qualifying Child Fraud
Scenario 1: Children Living with Other Relatives
The Fraud: Claiming children who live with grandparents, aunts, uncles, or other relatives.
The Cost: EIC disallowed + 20-75% penalty + interest + potential 10-year ban
Example: Claiming $6,960 EIC with 2 children who live with grandmother results in $6,960 disallowed + $1,392 penalty + interest = $8,500+ cost
Scenario 2: Claiming Children Who Don't Exist
The Fraud: Using Social Security numbers of non-existent children or children of others.
The Cost: EIC disallowed + fraud penalty (75%) + criminal prosecution + potential prison
Example: Using friend's child's SSN to claim $7,430 EIC results in $7,430 disallowed + $5,573 fraud penalty + criminal charges = $13,000+ cost + potential prison
Scenario 3: Multiple People Claiming Same Child
The Fraud: Both parents, or parent and grandparent, claiming the same child.
The Cost: IRS uses tie-breaker rules. One claim disallowed + penalties
Example: Both parents claim same child for EIC. One disallowed ($6,960) + penalty ($1,392) = $8,352 cost
Scenario 4: Children Who Are Too Old
The Fraud: Claiming children over age 19 (or 24 if not a student) who don't qualify.
The Cost: EIC disallowed + accuracy penalty
Example: Claiming 25-year-old "child" for $4,213 EIC results in $4,213 disallowed + $843 penalty = $5,056 cost
Scenario 5: Children Who Don't Meet Residency Requirements
The Fraud: Claiming children who lived with you less than 6 months.
The Cost: EIC disallowed + penalties
Example: Child lived with you 4 months, claimed $6,960 EIC. Disallowed + $1,392 penalty = $8,352 cost
How the IRS Detects Non-Qualifying Child Fraud
The IRS uses sophisticated methods to detect fraudulent EIC claims:
- Database Matching: Compares addresses on tax returns with school records
- SSN Verification: Verifies Social Security numbers match names and ages
- Multiple Claim Detection: Flags when multiple taxpayers claim same child
- Residency Verification: Checks utility bills, lease agreements, school records
- Relationship Verification: Requests birth certificates, adoption papers
⚠️ Red Flags That Trigger Audits
- Claiming different children than previous years
- Address doesn't match child's school records
- Multiple people claiming same child
- Child's age doesn't match SSN records
- No documentation provided when requested
Penalties for Non-Qualifying Child Fraud
Civil Penalties
- EIC Disallowance: Entire credit disallowed
- Accuracy-Related Penalty: 20% of underpayment (if negligence)
- Fraud Penalty: 75% of underpayment (if fraud proven)
- Interest: From due date until paid
- 10-Year Ban: Cannot claim EIC for 10 years if fraud proven
Criminal Penalties
- Tax Evasion: Up to $250,000 fine + 5 years prison
- False Returns: Up to $250,000 fine + 3 years prison
- Conspiracy: Up to $250,000 fine + 5 years prison
Real Cost Examples
Example 1: Single Year Fraud
Claimed: $6,960 EIC with 2 non-qualifying children
Cost:
- EIC disallowed: -$6,960
- Fraud penalty (75%): -$5,220
- Interest (2 years): -$800
- Total: $12,980
Example 2: Multi-Year Fraud
Claimed: $7,430 EIC with 3 non-qualifying children for 4 years
Cost:
- EIC disallowed (4 years): -$29,720
- Fraud penalty (75%): -$22,290
- Interest (4 years): -$4,500
- Criminal fine: -$10,000
- Total: $66,510
- Plus: 10-year EIC ban, potential prison time
How to Avoid Non-Qualifying Child Fraud
1. Verify Residency
Ensure children lived with you for more than 6 months. Keep records:
- School enrollment records
- Medical records
- Lease agreements
- Utility bills
2. Verify Relationship
Have documentation proving relationship:
- Birth certificates
- Adoption papers
- Court orders
- Foster placement documents
3. Coordinate with Other Claimants
If multiple people could claim the child, determine who has the right to claim using tie-breaker rules.
4. Get Professional Help
If unsure about eligibility, consult with a tax professional before filing.
🚨 Facing EIC Fraud Allegations?
IRS disallowed your EIC? Received fraud penalty notice? Don't wait - penalties and interest accrue daily. We can help you respond to IRS notices, gather documentation, negotiate penalties, and resolve EIC fraud issues. Early action can save thousands.
Call (760) 249-7680 for Immediate HelpWhat to Do If You've Made an Error
If You Haven't Been Audited Yet
File an amended return (Form 1040-X) to correct the error. This may reduce penalties.
If You've Been Audited
Gather all documentation and work with a tax professional to respond to the IRS notice.
If Fraud Penalties Have Been Assessed
You may be able to appeal or negotiate penalties. Professional representation is essential.
Bottom Line: Claiming non-qualifying children for EIC can cost thousands of dollars in penalties, interest, and even result in criminal prosecution. Court cases show penalties often exceed $10,000 and can reach $50,000+ for multi-year fraud. If you've claimed EIC with children and are facing an audit, get professional help immediately. The cost of professional assistance is far less than the cost of EIC fraud penalties.
