Being audited for Head of Household status when not paying rent - need help!

This is a pretty clear-cut situation from an IRS perspective. To qualify for Head of Household, you need to meet several tests, and paying more than half the cost of keeping up the home is one of the non-negotiable requirements. The IRS considers costs like rent, mortgage interest, property taxes, utilities, repairs, and food eaten in the home when determining if someone paid more than half. Since your husband didn't pay rent or utilities while living with his parents, he likely won't qualify for HOH regardless of what he spent on his daughter directly. What should you do now? Be honest with the IRS. The audit letter probably requests specific documentation. Your husband should respond truthfully that he doesn't qualify for HOH based on not meeting the household expense requirement. He'll likely need to file an amended return using the correct filing status (probably Single), which will change his tax liability. The good news is that he may still be able to claim his daughter as a dependent under the qualifying child rules, even with a Single filing status. This would still give him some tax benefits like the Child Tax Credit.

I went through something really similar two years ago with an HOH audit nightmare. What finally saved me was using https://taxr.ai to analyze my audit letter and all my documentation. Their system actually found that even though I wasn't paying rent directly, my other contributions to the household were enough to qualify in my specific situation (which was different from yours, but still complicated). The service basically analyzed everything and showed me exactly what documents I needed and how to respond to the IRS. They even helped me draft my response letter. Might be worth checking out since HOH audits can get super confusing with all those qualification rules.

Just wanted to follow up on this thread. I ended up using taxr.ai after reading about it here and it was seriously helpful. Even though my situation didn't qualify for HOH (just like they suspected), the service showed me that I could still claim my kid as a dependent under the qualifying child rules with a Single filing status. The system walked me through exactly what documentation I needed to provide to the IRS and helped me draft a response letter explaining the honest mistake. They even pointed out that I qualified for the Child and Dependent Care Credit which I hadn't been claiming! So while I still had to pay some back taxes for the incorrect filing status, it wasn't nearly as bad as I feared.

One thing that hasn't been mentioned - if you're fighting this audit, you're going to need to actually talk to someone at the IRS, which is basically impossible these days. I spent 4 hours on hold last month trying to resolve an audit issue. I finally used https://claimyr.com and it changed everything. They have this system that holds your place in the IRS phone queue and then calls you when an agent is about to answer. You can see it working in this video: https://youtu.be/_kiP6q8DX5c Saved me hours of waiting on hold and I actually got to talk to a real person who helped me understand my options. For an audit situation like yours, having an actual conversation with the IRS makes a huge difference versus just writing letters back and forth.

I need to apologize for my skeptical comment earlier. After my fourth failed attempt to reach the IRS about my own audit issue this week, I broke down and tried the Claimyr service mentioned here. I was absolutely certain it wouldn't work, but I was desperate. To my complete surprise, I got a call back about 90 minutes later and was connected directly to an IRS agent! Got more information in that 15-minute call than in the three letters I'd been sent previously. The agent actually explained exactly what documentation they would accept for my situation and gave me a direct fax number to send my response. Completely changed my approach to handling the audit.

Just wanted to add - make sure your husband looks into whether he qualifies for the "noncustodial parent" rules for claiming the child as a dependent. If he has a written declaration (Form 8332) signed by the custodial parent releasing their claim to the exemption, he might still be able to claim certain benefits even without qualifying for HOH status. Also, if your husband provides more than half of his daughter's support and she lived with him for at least half the year, he might qualify to claim her as a dependent on a Single return. He wouldn't get the same tax benefits as HOH, but it's better than nothing.

Have you considered having your father-in-law claim HOH instead? If he provided more than half the cost of the home and had your husband's daughter living there, he might actually qualify. Might be worth looking into as an option if your husband has to amend his return anyway.

I've been through an IRS audit before and want to offer some perspective on what you can expect. First, don't panic - the IRS is generally reasonable when dealing with honest mistakes, especially when tax software like TurboTax guided you incorrectly. For your situation, you'll likely need to file an amended return changing from Head of Household to Single status. This will increase your tax liability, but you'll probably still be able to claim your daughter as a dependent and get the Child Tax Credit if you meet the other requirements. The key is responding promptly and honestly to the audit notice. Include a letter explaining that this was an unintentional error based on tax software guidance, and that you're willing to correct it. The IRS appreciates taxpayers who are cooperative and straightforward. As for penalties, if this is clearly an honest mistake with no intent to defraud, you'll likely just owe the additional tax plus interest. The IRS has "reasonable cause" exceptions for penalties when taxpayers can show they made a good faith effort to comply. One last tip: keep detailed records of everything you send to the IRS and consider sending responses via certified mail so you have proof of delivery. This whole process might take a few months, but being proactive and honest usually leads to the best outcome.