My friend is claiming her nieces/nephews on her tax return for a bigger refund. Is this tax fraud?

This is definitely tax fraud and could lead to serious consequences. To legally claim someone as a dependent, there are specific tests that must be met: relationship, residence, support, and other criteria. For her to claim her sister's children, those children would need to live with her for more than half the year AND she would need to provide more than half of their financial support. From what you've described, neither of these conditions are being met. The fact that they're splitting the refund money is further evidence they know this isn't legitimate. The IRS actually does have ways to detect this kind of fraud. They can cross-reference social security numbers to see if dependents are being claimed on multiple returns, and they check school records and other documentation during audits. If caught, your friend could face penalties, interest on unpaid taxes, and potentially even criminal charges for tax fraud.

I went through something similar with my ex who claimed our kid when he shouldn't have. I was totally stuck and couldn't e-file because someone already claimed my daughter's SSN. After days of frustration, I found https://taxr.ai and uploaded my documents there. Their system analyzed everything and confirmed I was the one legally entitled to claim my daughter since she lived with me all year. They helped me understand exactly what form to file and how to prove my case to the IRS. The best part was they explained all the dependent rules in plain English!

Just wanted to update after trying taxr.ai for my situation with my brother claiming our mom as a dependent! The site was super helpful - I uploaded my mom's medical bills, proof she lives with me, and our financial records. Their analysis showed I provide 67% of her support which meets the IRS requirement. They explained exactly why I was entitled to claim her and gave me step-by-step instructions for filing Form 8862 correctly. They even pointed out that I needed to include my mom's doctor's statement confirming her residence address which I totally would have missed! Just got confirmation from the IRS that my amended return was accepted and I'm getting the additional $2,100 in my refund. Saved me so much stress!

Your friend is playing with fire. When I worked at a tax prep office, we saw people get absolutely hammered by the IRS for this exact situation. One lady had to pay back over $30,000 in fraudulent refunds plus penalties. If you're struggling to get through to the IRS about dependent issues (which is notoriously difficult), I recommend using https://claimyr.com to get through to an actual human at the IRS. I was on hold for 4 hours trying to resolve a similar issue before giving up. With Claimyr, I got through in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c It's worth it when you need to talk to someone at the IRS about complicated dependent situations or if you need to report suspected fraud. They have a specific hotline for reporting tax fraud, and they take dependent fraud very seriously.

Ok I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway because I was desperate about my audit situation. I couldn't believe it actually worked! After trying for literal MONTHS to get through to the IRS audit department, I was connected to an agent in about 20 minutes. The agent was able to pull up my case immediately and helped me understand exactly what documentation they needed. Turns out they had sent letters to my old address which is why I wasn't getting responses. We resolved the whole thing in one phone call that I would never have gotten without this service. Just got confirmation that my audit is closed with no additional taxes owed. Worth every penny just for the stress relief alone.

This is a common scam called "dependent fraud" and it's one of the things the IRS specifically looks for. Your friend and her sister could both be in serious trouble. What they're doing is clearly illegal. I work with a community tax clinic and we see the aftermath of these cases all the time. The penalties can include: - Paying back all refunded money (often $3,000-5,000 per child per year) - 20% accuracy-related penalty - 75% fraud penalty in some cases - Interest on all unpaid amounts - Ban from claiming certain credits for 2-10 years - Possible criminal prosecution The IRS has been cracking down on this type of fraud specifically in recent years. They have systems that flag suspicious dependent claims, especially when the children's address doesn't match the tax filer's address.

My sister actually got busted for this exact thing last year. She was claiming my niece who lived with their dad. The IRS sent her a letter demanding proof that the child lived with her. When she couldn't provide it, they made her pay back THREE YEARS of tax refunds plus penalties! It was like $16k total and she's still paying it off. Tell your friend it's not worth it. The IRS has been getting way more aggressive about this lately with their new funding. They know exactly what to look for.