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Alright, I need to stand corrected again. I said she wasn't committing fraud, just an innocent error in understanding the confusing details of tax law. I may be wrong on that.

If it were me, I'd distance myself as far as I can from the situation. Then again, I do not like conflict and do my best to avoid it. So I am definitely biased in that suggestion.

It sounds to me like the kid is not grown up enough to be an adult, and neither is his now former guardian. I don't see any good coming from that situation.

However, if you insist on preparing his tax return, you now know too much to ignore facts. He needs to report his under the table earnings or you cannot prepare the return. It is possible that you might not be able to file his state return given the discord between the parties. I do like the suggestion of having the guardian insert their SSN on an otherwise completed return and then watch as it is mailed.

What is on her return is her problem and not yours. Nor is it the kid's. If claiming his own exemption is the right thing to do from a tax perspective, you'll probably have to file on paper and let the chips fall where they may. The kid might have to answer additional questions about the situation. So might the guardian. Then again, the IRS might not ask anything and let both returns stand despite their inconsistencies.

At any rate, good luck. It sounds like you'll need it.

--Peter
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