The deduction, IMHO, is his take. There is no reason for him to discuss it with his sister. If the sister decides she wants to try and claim her niece as a dependent, she at a minimum should be discussing it with the OP, since she is rightfully a dependent of the OP. When she says, “I want to claim Susie on my tax return.” The OP should say, “well that’s a problem, since I am legally claiming her as a dependent on my return.”
Which should then result in a discussion/negotiation about the fair payment of childcare costs.
I’ll also add, it sounds like there’s a very good chance that, based on your sis’s income and her own kids/dependents, an additional exemption wouldn’t help her much, if at all. It is very very common for taxpayers to have $0 tax liability for the year, in which case an additional exemption (which equates to a reduction in taxable income) can’t and won’t reduce one’s tax anymore – it is already as low as it will go. In addition, the refundable Earned Income Credit maxes out with two children – again, an extra kid wouldn’t help her here.
I have to retract this last statement, because I just found out today in a tax update seminar that, new this year (2009 tax year), a third child does indeed result in a higher Earned Income Credit.
I know I am jumping in a little late here- you already have your answer, but I have actual hands-on experience with something very similar.
In my case my step-children’s mother decided to claim them on taxes despite the fact that (1) they primarily live with my husband (Dad) and myself, (2) the divorce decree and all subsequent parenting plans/custody agreements clearly stated that Dad got the deductions, and Mom signed/agreed/acknowledged this with her signature and date (that is an important factor to the IRS!).
So what happened was this: Someone gave Mom some really bad advice saying that since there were two children involved and she paid (or was supposed to pay) child support that she was entitled to take the deductions for one child and Dad would get the other. She has the children listed on her lease (as we do as well) so she had some minor “evidence” that she could be custodial. Neither parent had filled out a form 8332.
So we filed our taxes as normal (e-filed) in January, and she filed in April (paper). Sometime that summer we received a notice that our children had been double-claimed and that whichever party was not entitled to the deductions should file an amended form ASAP. We ignored it, because she was the party that needed to re-file. However, she also ignored it thinking she already had the refund and erroneously believing that we would have to re-pay our refund because she had “proof” she could claim the kids by virtue of listing them on her lease if nothing else. Boy howdy was she wrong!
The IRS doesn’t like it when people ignore their notices- go figure! So the next thing we got was a demand for proof that our taxes were accurate (she got the same thing) and a warning that only form 8332 (or something substantially similar with particular wording) would do if there was any confusion about time spent/residency of the children.
Mom returned the letter with a copy of her lease. Dad returned the letter with the divorce decree stating he gets the deductions every year with no conditions (sometimes the deduction is only if child support is paid in full, or some other condition) and highlighted this clause along with the judges signature (doesn’t matter to the IRS) and Mom’s signature (THAT is what counts if using something other than form 8332).
Not only did Mom have to re-pay the refund, she was also barred from claiming the EIC (which she also used the children for) for a certain number of years whether she qualified or not and some other penalties that I forget. It was bad.
The short version of above is: If you are entitled to claim a dependent then claim them. If someone else does as well, they will be caught and the IRS will find it in your favor. You needn’t argue with or even discuss it with the person beforehand, just do your thing and let the IRS handle it from there.
Yes, this is how it sounds to me as well. I also have a bit of experience here too though. I have a 16 year old niece who lives with me full-time (her parents are out of state) and she has for the past several years.
When she first came to live with me, I had to go through the courts to obtain legal guardianship (with her Mom’s agreement- this was not a custody fight or anything) and was advised by my lawyer that I should not attempt to claim her on taxes or enroll her in school or anything else that a parent would normally do until the guardianship paperwork was in place. I was told (maybe wrongly) that if there is a tax dispute between a natural parent and a non-parent, that the IRS will (almost) always give the deductions to the natural parent unless there is substantial and documented evidence to the contrary.
It’s trickier when the dispute is between the two natural parents, but that isn’t really pertinent here.
So the next thing we got was a demand for proof that our taxes were accurate (she got the same thing) and a warning that only form 8332 (or something substantially similar with particular wording) would do if there was any confusion about time spent/residency of the children.