Is there a penalty for incorrectly filing for Earned Income Tax Credit?

For tax year 2005, I believed that I was eligible to file for the EITC for my daughter because I thought her father was in arrears for child support. I filed and received the refund. I found out at the end of 2006 that he was not in arrears, and so he was entitled to claim our daughter. I realize that the mistake was mine, and I want to correct it. However, now I am hearing that there is a penalty for filing for EITC when you are not eligible, and that it is you cannot file for EITC again for five years. Is this true? Are there certain circumstances that make this true or not true? If you provide an answer, please let me know the source so that I can look into it. Thank you so much!!

Is there a penalty for incorrectly filing for Earned Income Tax Credit?
Who does your child live with? If she lived with you for more than six months out of the year, you are the only parent who can claim the Earned Income Credit for your daughter. EIC goes to whomever the child resides with the longest. There is a difference between claiming Earned Income Credit for a child and claiming the child as a dependant. You can allow her father to claim her as a dependent on his return and you can still claim her as a nondependent for Earned Income Credit. If this confuses you, get some expert help in filing a 1040X - Amended Return to do this. The form is kinda tricky so I reccommend getting help. And yes if the IRS determines that you were ineligible for EIC you cannot file for three years without filing a 8862.
Reply:If the child lives with you, you have the right to collect the eitc and still get the child support. IT'S WHO THE CHILD LIVES WITH that determines who gets that credit. any ques. email me direct :)
Reply:You should always correct any error as soon as you discover it. File an amended tax return for 2005 and send the IRS a check for the amount difference in the new amended return and the amount that you received due to the error.
Reply:From publication 17, page 231 - you can download pub 17 at irs.gov:





"If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC....





If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless of intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. If your error was due to fraud, then you cannot claim the EIC for the next 10 years."





So it depends on what the IRS finding was if they disallowed your EIC last year. If they haven't done so yet, I'd contact them and talk to an agent who can advise you.





Unless you have a written agreement that your daughter's dad can claim her (such as having it in your divorce decree) it probably wouldn't matter if he was in arrears on support or not, you as the custodial parent would be eligible to claim her as a dependent and qualifying child for the EIC.