I have a client that received a notice of deficiency for her 2004 taxes - that were done by a friend and that she can't find a copy of. As a result, her 2005 refund (that I did) is being held up. I finally got her to bring in the letters she has from the IRS. They were asking for documentation about her son and nephew that she had claimed for 2004, and because she didn't send it, they disallowed the exemptions, head of household and EIC. She is now saying that she can't get the documentation for the nephew, since he has gone back to wherever.

What documentation are they wanting? I doubt IRS is interested in a stupid office prank butt print from the copying machine, so I'm not sure why the absence of the nephew precludes her providing the information. The nephew's exemption and two-child EIC may be hopeless, but we can hope that she can come up with the documentation required for her son.

The IRS letter gives her a 90 day window to respond which closed before she came in to our office this year. At this point, is there anything that we can do? Would it be possible to file an amended return claiming the son but not the nephew? I'm not sure the best way to approach this.

You're not going to solve things with an amended return, because she's run afoul of the anti-fraud EIC provisions for 2005. IRS won't grant the 2005 EIC without a Form 8862, and perhaps not even then, if they determined that 2004 involved reckless or intentional disregard. Hard for them to think otherwise when they haven't heard anything in response to their inquiry.

Even though the notice period for 2004 has expired, I'd use the contact information on the last 2004 notice and ask how to proceed with 2004. In the meantime, if 2005 didn't include the 8862, get that in on an amended return along with proof that her son lived with her and she supported the household. (The 2004 notice should give you an idea of what documentation they're looking for.)

Phil