In the past, low-income taxpayers and their paid tax preparers have not developed documentation to support EIC claims as part of the tax return preparation. If the tax return is selected for audit, the IRS will demand documentation. It can be more difficult to obtain such documentation when the audit occurs. Taxpayers throw out or lose documentation. Agencies or businesses that may have documentation may close, have a difficult time locating older records, or be unwilling to cooperate. Witnesses may move. Therefore, if you have the opportunity to prepare the return, you should advise the taxpayer to obtain and maintain documentation of residency and support for that tax year.

A mother claiming a child can prove relation simply by submitting the child’s birth certificate. More birth certificates may be required if the taxpayer is claiming a grandchild or a niece or nephew. Submit all the birth certificates needed to show the relationship between the taxpayer and the claimed child.

Problems can arise for male taxpayers who may not be listed as the father on a birth certificate. That taxpayer will have to take steps to legally acknowledge the child if he wants to claim the child on his tax return. The taxpayer may have already done this in the context of a child-support proceeding. New birth certificates can be obtained when the legal acknowledgment is done.

Taxpayers claiming adopted children and children placed in foster care by a state agency will have to show documentation of those facts.

Residency is commonly contested in an EIC audit. The key is to provide third-party records that show the names, common addresses, and dates of common addresses of the taxpayer and any qualifying children. Low-income people frequently change apartments. This can make the documentation quite burdensome. Nonetheless, the taxpayer can generally find some records to establish her own address, e.g., leases, rent receipts, subsidized housing records, utility bills, other bills, food stamp records, public assistance notices, medical records, driver licenses, pay stubs, etc.

On the other hand, it can be difficult to find third-party records that establish the address of a child, particularly a young child. The IRS suggests school records, day care records, medical records, and social service agency or community-based organization records to establish a child’s address. Records submitted to the IRS should show a common residency of more than 6 months, e.g., a record from the beginning of the year and a record at least 6 months later with the same address.

If these records do not exist, the taxpayer should try to get a letter on official letterhead from the child’s school, medical provider, childcare provider, or the taxpayer’s clergy, employer, or landlord. Ask the potential affiant if they would be willing to testify in Tax Court if necessary. Explain that they can probably participate virtually if needed. If possible, the affidavits should be notarized. They should state that the taxpayer and children lived together for 6 months or more during the tax year in question. This can be difficult since these third parties may not know the exact duration of the common residency.

IRS examiners are less impressed by letters and affidavits from relatives, friends, and neighbors. You should try to get another letter or some corroborating documents if the taxpayer must rely on letters from relatives, friends, and neighbors. As a practical matter, relatives, friends, neighbors, school bus drivers, or lawyers handling divorce or custody matters are often more competent witnesses on the issue of common residency than the affiants preferred by IRS auditors. Fortunately, the IRS Appeals officers and the Tax Court, unlike the IRS examiners, can and do give weight to affidavits or testimony by such witnesses.

Tax Court judges can and do rule in favor of the taxpayer based primarily or exclusively on a taxpayer’s credible testimony. Of course, testimony by other credible witnesses is also helpful. As a practical manner, the IRS generally will not have any witnesses on the EIC issues with the possible exception of a competing claimant. The Tax Court has even ruled in taxpayers’ favor when the testimony as to the child’s address is contrary to the address in school records. The taxpayer’s credible testimony can be given more weight than “official” records.1  Never send original documents to the IRS. The IRS routinely loses documents. You should write the taxpayer’s Social Security number on each document that you send to the IRS.

• 1See, e.g., Coats v. Comm’r, T.C. Memo 2003-78; Sliwinski v. Comm’r, T.C. Summ. Op. 2003-49; Gingrich v. Comm’r, T.C. Summ. Op. 2002-158.

Lastly, the IRS may contest the “earned income” claimed by the taxpayer if it is not collaborated by a W-2 or 1099. This can eliminate the EIC even if the taxpayer can prove a qualifying child. Many low-income taxpayers have small businesses such as styling hair, cutting grass, or childcare, in which their income is not reported to the IRS by a third party. They will have to provide evidence of their income through bank records, cancelled checks, or other business records. Receipts can be used to substantiate the expenses incurred with the business. Affidavits from customers or suppliers may have to be used if no other records exist.