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TAX TOPIC Head of Household

Relying on Pre-existing Knowledge is Prohibited 

As you know, effective for tax years beginning after December 31, 2015, IRC section 6695(g) was expanded to apply the due diligence requirements with respect to determining eligibility for the Child Tax Credit, Additional Child Tax Credit, and the American Opportunity Credit. Effective for tax years beginning after December 31, 2017, IRC section 6695(g) was amended to further expand the scope of the penalty to tax return preparers who fail to comply with due diligence requirements with respect to determining eligibility to file as Head of Household. The IRS has released the final regulations for the preparer due diligence requirements, including those regarding the taxpayer's eligibility to file as Head of Household. The final regulations state that a tax return preparer who possesses pre-existing knowledge that was acquired outside the context of the preparer’s tax return preparation practice cannot meet the due diligence knowledge requirement by relying on that pre-existing knowledge. The preparer must make reasonable inquiries to determine the applicable facts, and the inquiries and responses to those inquiries must be contemporaneously documented in the tax return preparer’s files. The contemporaneous documentation is required to avoid the $520 penalty. A tax return preparer who completes Form 8867 but fails to meet the knowledge requirement and contemporaneously document his inquiries and the taxpayer's responses, has not satisfied the due diligence requirements of IRC § 6695(g).

Filing as Head of Household

 Can the Taxpayer File as Head of Household? 

Head of Household status generally results in a lower tax than the Single status. So unmarried taxpayers, and certain married taxpayers, should use the Head of Household status if they qualify. To qualify to file as Head of Household, the taxpayer must:

 Pay for more than half of the household expenses

 Be considered unmarried for the tax year, and

 Have a qualifying child or dependent.

Keeping Up a Home 

In general, the Head of Household status is for unmarried taxpayers who paid more than half the cost of keeping up a home for a qualified dependent relative who lived with them in the home more than half the tax year. Valid household expenses include:

 Rent, mortgage interest, real estate taxes 

 Home insurance, repairs, utilities  Domestic help

 Food eaten in the home

Welfare payments are not considered amounts that the taxpayer provides to keep up a home. Many filing status errors involve the Head of Household status, so be sure the taxpayer meets ALL the qualifications before selecting Head of Household status. Don't forget, Head of Household filing status is now covered by the IRS's Due Diligence Rules. So you can be penalized $520 for each tax return on which you errantly claim Head of Household status. 

Qualifying Criteria 


Taxpayers may use the Head of Household status if they meet two criteria. The first criterion is that the taxpayer either:


 Was unmarried (single, divorced, or legally separated) on the last day of the year, or

 Met the tests for married persons living apart with dependent children


The second criterion is that for more than half the year (except for temporary absences), the taxpayer must have paid more than half the cost of keeping up the main home of any of the following who lived with them:


 The taxpayer's qualifying child

 The taxpayer's qualifying relative


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