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.