I live in South Dakota.  For the past 2 1/2 years, I have been living
with my sister and her husband.  I have a good job with a good salary,
my sister has basically been unemployed, and her husband has not
earned much money.  I provide the bulk of the financial support to the
household.  In all matter of fact, my sister and her husband are
effectively my dependents.  My earnings for 2002 were about $50K,
while their combined earnings were under $12K.

My tax accountant tells me that I cannot claim them as dependents.  

They are not disabled, they have received no state or federal welfare
aid of any form, and nobody else can claim them as dependents.

So I have 2 questions:
1.  Can anybody think of a way that I can use this dependency to
reduce my federal income taxes? (SD has no state income tax)
2.  If we somehow legally designated the couple as my dependents,
would I incur any liability for their debts?

If it makes a difference:  we are living in a house that my sister and
her husband own (paid off with gifts from my parents).  There is no
mortgage on it.  I own a different house, which is paid-in-full, but
has been vacant for these last 2 1/2 years.

---

Clarification of Question by phinboy-ga on 01 Apr 2004 14:15 PST

What will count as answering this question would be a clearly-defined,
and legal method that I can take to my tax accountant.

If it works, I'll give the answerer a bonus of 10% of the tax savings
for my 2002 return (amended) and 2003 return as well.

According to the IRS, 5 test must be met in order to claim somone as a
dependent (note: all 5 just not 1).  The test are:
1.) Claimed dependent in 2003 must have less than $3050 of GROSS
income.  Note this does not apply if the depended in under 19 or a
full time student under 24 years old.

2.) OVer half of the dependents total support for that calendar year
must have been furnished by the taxpayer

3.) The dependent m ust fall within one of these relationships: 
    a.) son or daughter 
    b.) bother or sister 
    c.) half brother of sister 
    d.) stepbrother or stepsister 
    e.) mother or father 
    f.) and a few weird ones (not applicable) 

4.) the dependent must not have filed a joint return with his or her spouse  

5.) the depednent must be a US citizen or resident of the US.  

So, I dont really belive there is any way for you to claim them as a
dependent, espcially since they most likely filed a joint return. 
Even if the file seperate its not worth it.  The deduction for you
would only amount to a benefit of about $740 bucks (assume 25% times
45K (your taxable income)-the $20 for this question).

Just a side note: It is against the CPA code of conduct and the IRS
regulations to award someone a % of tax savings from a return. 
Contingency fees like this are not allowed.  Thanks.