I'm Anne I've been preparing taxes for 27 years and I'll be happy to help you with your question.
IRS changed the laws around who is allowed to claim a child a while back. According to the law as it stands now, parents have the superior right to claim their children. Please see page 17, left hand column, under the heading "Tie Breaker Rules" found below:
In order for your Mom to take your son as a dependent, she must have earned MORE than you & your wife combined.
With you living next door to each other, it makes it more difficult, since all of the records (school, doctor, etc) would be in your name and address. If you are receiving any state aid for this child, (Medicaid, food stamps, health care, child care, etc) you will put yourself at risk for losing that aid if your mother can claim the child.
On page 3 of the Form 8836, referenced below, there is a list of documents that can be used to establish where your child was living. See below:
Again, you two living next door to each other, it's possible that nobody else on the list knew that your son was now living with his grandmother, making her claim ineligible for IRS purposes. If your mother can not prove residency of your son in her house, then she will lose the dependency exemption, and all of the credits that she was allowed to claim, including the $1000 tax credit, and the Earned Income Credit
Please review the list of 3rd party affidavits, to see if anyone listed can prove residency of your son.
I will include the offer for a phone call at the end of this answer.
Please note, if I could give give you a different, legal, easier answer, it would have been my pleasure to do
so. At the very least you have an uphill battle here.
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