I had 2 dependents that I claimed that year and have all the proof I believe that I need for the IRS. I received money back for earned income credit. I had income of approx $16,000 taking care of my aged parents. Rather than paying me directly, they paid some of the earnings directly to my landlord (I'm not very good at handling my money). I am in the appeals stage with the IRS and the lady said something about my not filing a Schedule C. So I googled it and came up with the Schedule C EZ form. I had an apparently inept bookeeper do my taxes for me that year and don't trust her now to even call and ask her about it. The IRS representative wants a copy of my rental agreement showing my landlord's name. I have a notarized letter from the Power of Attorney for my parents listing the amount paid to my landlord in my behalf. I want to do anything I can to avoid paying so much money back to the IRS. Help! The IRS representative expressed doubt that this was a real job. I worked soooo hard taking care of my parents that year, to the point my health was affected negatively. I was unaware that getting paid to take care of your aged parents was not looked at as employment by the IRS. Help someone please!

You need to clarify a few things:
1. Did you take care of your parents in their home, or in your own?
2. If you took care of them in their own home, then you were their employee - did they issue you a W2, and did they deduct social security tax?
3. If you took care of them in your own home - how did you document your $16K of income on your 2007 return? And did you pay self-employment tax (social security) on your income - that is, did you file schedule SE? Schedule C-EZ is OK to use as long as you meet the requirements listed on the form (no inventory, business expenses less than $5K, had no employees, are not reporting a loss).

Answers to these questions will help clarify how you should have filed.

You made a big mistake treating it as a job just to get the EIC, while not paying taxes on the iffy income! You really probably don't have any expenses to deduct on Schedule C. You need to drag that accountant in with you to the IRS for a meeting and plead for some sort of restitution, hopefully for the amount of the EIC. Depending on who you get, the IRS can be flexible and make adjustments and 'forgive' penalties and interest.

I agree with joypulv. If you paid someone to prepare your taxes, and she signed the return as your paid preparer, you need to get her involved in the audit, if, for no other reason, to show the IRS that you depended on her expertise.

That dependence will go a long way in getting the IRS to waive penalties on what you owe in taxes. By law, interest CANNOT be waived.

I did pay a tax person to do my taxes. She never told me anything about my parents needing to file a W-2 on me. She has balked at giving me any help. I was not dishonest, merely ignorant of the tax laws. Thank you very very much for your help.

Wow, I appreciate the advice about getting the tax preparer involved, she's been no help at all. But I'm sorry to say, but I was totally offended by what u said about "treating it as a job just to get the EIC". It was a very difficult & real job.

Thank you, I did take care of them in their home. Ignorant as we were and relied on the tax accountant's advice, the W-2 was not filed. I will never take chances again and now I know where to come for the expert advice!