An important tenet of the tax preparation business is expecting anything. Taxpayers will for example insist on a tax position that appears logical but is probably not legal. Caution is always advisable whenever a taxpayer conveys unusual circumstances that create a lower tax liability. The purpose of tax preparer ethics is accurately representing clients. Your obligation isn’t so much helping the IRS collect taxes; you also want taxpayers to avoid IRS trouble as a consequence of your efforts.
One suspect arrangement is when two people living in the same residence claim a filing status as Head of Household. This is theoretically possible, but only if the individuals are merely roommates with very specific conditions. They must have separate family units who are simply sharing a common address. Individuals in a relationship together will not qualify. A refresher tax preparation course on Head of Household requirements illustrates the point.
In order to file as Head of Household, an unmarried taxpayer must pay for more than half the cost of keeping up a home in which a qualifying person lives. In most cases, a “qualifying person” is a child, but this can also mean another relative if the taxpayer claims a dependency exemption. That detail may cause even experienced tax return preparers to reexamine the requirements for a non-child dependent.
The main point is that claiming a dependency exemption is not necessary when the qualifying person for Head of Household filing status is a child. What matters is that the taxpayer is the custodial parent of the child and therefore eligible to make the dependency claim. By again referencing tax preparer study material, a dependent child’s age is restricted to under 19 or, if a full-time student, under 24.
In addition to the requirement for a qualifying child, the taxpayer’ status as unmarried is critical. The IRS generally defers to local laws for defining marriage. Therefore, a couple living together is not necessarily married. Moreover, same-sex couples are never considered married for federal tax purposes.
In some cases, an unmarried couple may have children of each individual living in the same household. Both individuals in an unmarried couple are probably not allowed to claim Head of Household filing status. Even when each person has children, they are sharing household costs by living together. The IRS will require that separate family units are maintained, which is highly unlikely. Only in a roommate situation does the possibility exist to demonstrate distinctive living areas where at least half the cost is paid by one taxpayer.
One of the mandates in tax return preparer employment is conducting reasonable inquiry about taxpayer circumstances. When the facts reveal that household costs are shared by an unmarried couple, only the individual who pays more than half can claim Head of Household status. The other person must file as single.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.