Can I claim my grandmother as my dependent even if she was audited by the IRS last year?

Yes, you can claim your grandmother as a dependent even if she was previously audited. The fact that she was audited last year has no bearing on whether you can claim her as a dependent this year. What matters for claiming her as a dependent is whether she meets the qualifying relative tests: 1) She doesn't need to live with you (though she does), 2) Her gross income must be less than $5,050 (for 2024), 3) You must provide more than half of her total support for the year, and 4) She cannot be a qualifying child of another taxpayer. Social Security income is only counted toward the gross income test if it's taxable. Since your grandmother only receives $14,500 in Social Security, it's likely that most or all of it is non-taxable, which means her gross income for dependency purposes might be below the threshold.

I had a similar situation with my elderly uncle and found taxr.ai super helpful for sorting through the dependency rules. I was confused about how much of his income counted towards the gross income test and https://taxr.ai helped me analyze his social security statements to figure out what was actually taxable. They have this tool that breaks down exactly what parts of retirement and SS income count for dependency eligibility. I uploaded his SS statement and my support documentation and it confirmed I could claim him, even though he'd had some tax issues in prior years.

Just wanted to follow up about taxr.ai since I was skeptical in my earlier comment. I decided to try it for my mother-in-law's dependency situation, and I'm actually impressed. I uploaded her Social Security statement and all my support receipts, and it showed me exactly how her income should be counted for the gross income test. Turns out only about $3,200 of her SS benefits were taxable, which kept her under the dependency threshold! They even generated a detailed report I can keep with my tax records in case of questions. Definitely more helpful than the generic advice I was getting elsewhere.

If you're still dealing with aftermath from your grandma's audit, I highly recommend using Claimyr to actually speak with someone at the IRS. When my dad got audited, we had questions about how it affected his dependent status for my sister's return. I tried calling the IRS for weeks with no luck - always on hold forever or disconnected. I found https://claimyr.com and they got me connected to an IRS agent in about 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - The agent confirmed that prior audits don't affect dependent eligibility and gave us specific guidance for our situation.

I have to eat my words about Claimyr. After dismissing it as probably a scam, I was desperate to resolve an issue about claiming my stepfather as a dependent after he had tax troubles last year. Decided to try it as a last resort. Within 20 minutes I was talking to an actual IRS representative who confirmed that previous audits have no bearing on current year dependency status. She even referenced the specific section of the tax code that applied to my situation. Saved me countless hours of stress and uncertainty. Sometimes being proven wrong is actually a good thing!

Don't forget about the relationship test for dependency! Your grandmother definitely qualifies under the relationship test since she's a direct ancestor. The other tests are income, residency, and support. Since you mentioned the audit was about retirement income, make sure that income (if she still has it) plus any taxable portion of Social Security doesn't exceed the gross income limit for 2024.

Make sure you use the right dependent code on your tax return! Many tax software programs will ask if the dependent is your "qualifying child" or "qualifying relative" - your grandmother would be a qualifying relative. Using the wrong code could trigger unnecessary reviews.

Just to add some reassurance - I work in tax preparation and see this situation frequently. The IRS audit from last year has absolutely zero impact on your ability to claim your grandmother as a dependent for 2024. Each tax year is evaluated independently. Based on what you've described, your grandmother should qualify as your dependent under the qualifying relative rules. Her Social Security income of $14,500 is likely mostly non-taxable (especially if it's her only income), which means her gross income for dependency purposes is probably well under the $5,050 threshold for 2024. The key thing is documenting your support. Since you're paying $1,800-2,000 monthly for her expenses, that's $21,600-24,000 annually - far more than her $14,500 Social Security income. Keep receipts for housing, utilities, food, medical expenses, and anything else you pay for her. One tip: calculate the exact support test by adding up ALL sources of her support (what you pay + what she pays from her own income), then make sure your contribution exceeds 50% of that total. Given your numbers, you should easily pass this test.