Mother owes IRS and is a dependent, can we claim her?

My mother lives with us. She has lived with us for several years. Only for the last full tax year (2007) did she not work at all. She does collect SS at $500/month. However, I understand that SS is not counted against the income limit. We live in a very expensive part of the country and there is no question that even with her SS we provide well over 50% of her care/living. The kicker is--she owes back taxes from an early withdrawal of retirement earnings in 2002 before she was 59.5. On a side note, as she used these funds to live during a divorce and before living with us permanently, I would think she is paying the fees unnecessarily, but in any event, she does pay the IRS every month out of her SS check, $125-or basically just the fees/interest. I am wondering--if we claim her as a dependant, which as I understand we could, would the IRS withhold our refund and apply it to her debt? Would her SSN and the debt with it, now associate with our refund?
Make sense? Thanks!

Thanks so much! That really helps. Apaka--they are technically getting their money from her, she pays them every month. As of right now, she intends to not work again ever, but even if she does, she basically just has the mindset that she'll never get another refund again, and will have a $125 bill for the rest of her life. Her logic! LOL. I assume if she dies before it is paid it will become ours at that time? Thanks again for everyones answers.

You may absolutely claim her as a dependent (you pay over 1/2 of her living costs and her AGI is less than $3,400) just like you heard. The IRS is after her, not you. Just because you took care of her does not mean the IRS will attach your refund. When you marry someone with IRS debt and then file a joint return, the IRS can go after your refund. When a person is simply a dependent, then the IRS wouldn't even think of touching it. Good luck and file that return with her as your dependent.

Sounds like you could claim her - you are correct that the ss benefits don't count toward the income test although they DO could in the calculation of support.

As to the penalties for early withdrawal, yes she does owe them and will have to continue paying. But that debt won't become yours if you claim her.

One way or another the IRS will get their money from her. I think it is worth a chance that she talk with a local agent at the IRS office in your city, and try to negotiate a lower repayment amount.

Eventually, they will take their money from any tax refund she might get.Her debt will not associate w/ your return or refund. If she has an income, she should use her self. If not, yes you can go ahead and use her as a dependent.