couple of interesting new things

[LdiJ]

What is the name of your state? federal

I just saw a new rev-proc with a very interesting clarification.

Since 2005 our firm (and NATP) has believed that a boyfriend or girlfriend living with a parent and that parent's child, could NOT claim that child as a dependent, because the child was it's parent's qualifying child, even if the parent wasn't filing a tax return.

The new rev-proc specifically states otherwise. It specifically states that if a parent is not filing a tax return, or is not required to file a tax return but is only doing so to get a refund of taxes withheld, then the child would not be considered to be the parent's qualifying child, and could therefore be someone else's qualifying relative.

Also, it looks like that in the new pubs for 2007, there has been a "tweak" in the qualifying child/qualifying relative situation. It was always clear that a grandparent or other relative could not claim a child for EIC purposes unless the child lived with them for more than 1/2 of the year, but it is now clearer that the grandparent or other relative also does not qualify for the child tax credit either unless the child lived with them for more than 1/2 of the year. The grandparent or other relative could only qualify for the exemption itself, with the child as a qualifying relative.

[TinkerBelleLuvr]

That would have been a handy piece of information for the one poster a while back. He was finally the CP, mother of child said he could have the exemption in the CO, but the GP's were fighting for the exemption.

It is certainly going to help with some of the battles.

Thanks Ldij

[tranquility]

What is the reference?

I'm not sure what you mean when you write:

Since 2005 our firm (and NATP) has believed that a boyfriend or girlfriend living with a parent and that parent's child, could NOT claim that child as a dependent, because the child was it's parent's qualifying child, even if the parent wasn't filing a tax return.

The new rev-proc specifically states otherwise. It specifically states that if a parent is not filing a tax return, or is not required to file a tax return but is only doing so to get a refund of taxes withheld, then the child would not be considered to be the parent's qualifying child, and could therefore be someone else's qualifying relative.

Who is this "someone else" you refer to? When the post is looked at as written, it seems like a boyfriend can claim the child as a qualifying relative.

Also, I'm not sure what you're saying by the "tweak". Maybe because it's early, but I've read the paragraph twice and I'm not seeing the significance.

[LdiJ]

Originally Posted by tranquility

What is the reference?

I'm not sure what you mean when you write:



Who is this "someone else" you refer to? When the post is looked at as written, it seems like a boyfriend can claim the child as a qualifying relative.

I mispoke, it wasn't a rev-proc it was a notice. Notice 2008-05 It will be appearing in Internal Revenue Bulletin 2008-2 on January 14, 2008

Here is an exact excerpt:

Example 1.

A supports as members of his household for the taxable year an unrelated friend B, and her 3 year old child, C. B has no gross income, is not required by section 6012 to file an income tax return, and does not file an income tax return for the taxable year. Accordingly, because B does not have a filing requirement and did not file an income return, C is not treated as a qualifying child of B or any other taxapayer, and A may claim both B and C as his qualifying relatives, provided all other requirements of sections 151 and 152 to qualify for the deduction are met.

Then it goes on to give the same example, with B having a low gross income and filing a return only to get a refund of taxes withheld.

Also, I'm not sure what you're saying by the "tweak". Maybe because it's early, but I've read the paragraph twice and I'm not seeing the significance.

I simply mean that is written more clearly in the pubs, therefore more clearly understood.
However that didn't have anything to do with the notice, that was a second issue.

[tranquility]

Thanks. It's all coming into focus now. I'm assuming it will have to do with 152(d)(2)(H) and clarifies 152(d)(1)(D):

(d) QUALIFYING RELATIVE.

For purposes of this section--

(1) IN GENERAL.

The term "qualifying relative" means, with respect to any taxpayer
for any taxable year, an individual--

(A) who bears a relationship to the taxpayer described in
paragraph (2),

(B) whose gross income for the calendar year in which such
taxable year begins is less than the exemption amount (as
defined in section 151(d)),

(C) with respect to whom the taxpayer provides over one-half of
the individual's support for the calendar year in which such
taxable year begins, and

(D) who is not a qualifying child of such taxpayer or of any
other taxpayer for any taxable year beginning in the calendar
year in which such taxable year begins.

(2) RELATIONSHIP.

For purposes of paragraph (1)(A), an individual bears a relationship
to the taxpayer described in this paragraph if the individual is any
of the following with respect to the taxpayer:

(A) A child or a descendant of a child.

(B) A brother, sister, stepbrother, or stepsister.

(C) The father or mother, or an ancestor of either.

(D) A stepfather or stepmother.

(E) A son or daughter of a brother or sister of the taxpayer.

(F) A brother or sister of the father or mother of the taxpayer.

(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law,
brother-in-law, or sister-in-law.

(H) An individual (other than an individual who at any time
during the taxable year was the spouse, determined without
regard to section 7703, of the taxpayer) who, for the taxable
year of the taxpayer, has the same principal place of abode as
the taxpayer and is a member of the taxpayer's household.

[garrula lingua]

Per LDIJ: Since 2005 our firm (and NATP) has believed that a boyfriend or girlfriend living with a parent and that parent's child, could NOT claim that child as a dependent, because the child was it's parent's qualifying child, even if the parent wasn't filing a tax return


If the non-custodial parent claimed the child's exemption, then they would trump the live-in boyfriend/girlfriend's ability to claim the child - ?? correct ??
Boy/girl friend could claim the ex-spouse, but not the child, as long as child support ='d 1/2 or more ?

[abezon]

Originally Posted by garrula lingua

If the non-custodial parent claimed the child's exemption, then they would trump the live-in boyfriend/girlfriend's ability to claim the child - ?? correct ??
Boy/girl friend could claim the ex-spouse, but not the child, as long as child support ='d 1/2 or more ?

There wouldn't be any trumping going on. A person could claim a non-related child who lived with them all year if the child was a qualifying relative. I.e., that person paid over half the child's support AND no one (the parent) claimed the child as a qualifying child. The statute that allows a NCP to claim their child requires that the parents between them pay over half of the child's support & have custody of the child for over half the year. If the boyfriend/girlfriend paid over half the child's support, then the parents by definintion could not have provided over half of the child's support.

[LdiJ]

Originally Posted by abezon

There wouldn't be any trumping going on. A person could claim a non-related child who lived with them all year if the child was a qualifying relative. I.e., that person paid over half the child's support AND no one (the parent) claimed the child as a qualifying child. The statute that allows a NCP to claim their child requires that the parents between them pay over half of the child's support & have custody of the child for over half the year. If the boyfriend/girlfriend paid over half the child's support, then the parents by definintion could not have provided over half of the child's support.

Which makes for an interesting conflict between federal law and state court family law rulings.

Example:

Mom is 20, in college and she and her child live with her parents. She does not work. Dad is also young and pays a moderate to low amount of child support. Dad argues for, and receives in state court, the right to claim the child for taxes every year as long as mom is not working. Mom is forced in court to sign a form 8332 relinquishing the exemption to the father.

The grandparents are not a party to the divorce. They can clearly demonstrate that they provide far more than 50% of the child's support. Therefore the two parents combined provide less than 50% and neither are entitled to the exemption.

How is the state court judge going to enforce his ruling if the grandparents take the exemption? Punish mom? She did what she was supposed to do.

[abezon]

The judge can't enforce his ruling, because there is no remedy that allows the NCP to claim the kid. Federal law says NCPs can't have the exemption unless the parents provided over half the kid's support. Even if the judge ordered the grandparents not to claim the kid, the IRS still wouldn't allow the NCP to claim the child. The NCP's only option is to increase his support to the point where the parents are paying over half the kid's support. This probably costs more than the exemption gains him....

Unless state law specifically allows the exemptions on the state return to differ from the federal return (some states do), the federal rules would be binding on the state return as well.

[LdiJ]

Originally Posted by abezon

The judge can't enforce his ruling, because there is no remedy that allows the NCP to claim the kid. Federal law says NCPs can't have the exemption unless the parents provided over half the kid's support. Even if the judge ordered the grandparents not to claim the kid, the IRS still wouldn't allow the NCP to claim the child. The NCP's only option is to increase his support to the point where the parents are paying over half the kid's support. This probably costs more than the exemption gains him....

Unless state law specifically allows the exemptions on the state return to differ from the federal return (some states do), the federal rules would be binding on the state return as well.

Under the law, you are absolutely correct and I agree with you 100%.

Unfortunately, that's not the way it would sometimes works in state court. State court judges seem to believe that they have control over tax exemptions for children, and I have seen more than one case where a state court judge punished a custodial parent when someone other than either parent had the legitimate right under federal law, to claim a child.

In addition, I have seen specific cases where a state court ordered that an NCP had the right to claim federal tax credits that federal law disallowed. I actually know of one case where a state court judge ordered that an NCP was entitled to EIC....and actually punished the CP when the IRS denied the NCP.

[abezon]

Originally Posted by LdiJ

Under the law, you are absolutely correct and I agree with you 100%.

Unfortunately, that's not the way it would sometimes works in state court. State court judges seem to believe that they have control over tax exemptions for children, and I have seen more than one case where a state court judge punished a custodial parent when someone other than either parent had the legitimate right under federal law, to claim a child.

In addition, I have seen specific cases where a state court ordered that an NCP had the right to claim federal tax credits that federal law disallowed. I actually know of one case where a state court judge ordered that an NCP was entitled to EIC....and actually punished the CP when the IRS denied the NCP.

Well, as Ron White says, "You can't fix stupid." I suspect that the CP was not represented by a lawyer, since a lawyer could have just asked why the judge was ordering her client to break the law. I'd have reported those judges to the state ethics committee & appealed any imposition of sanctions for abuse of discretion.

[LdiJ]

Originally Posted by abezon

Well, as Ron White says, "You can't fix stupid." I suspect that the CP was not represented by a lawyer, since a lawyer could have just asked why the judge was ordering her client to break the law. I'd have reported those judges to the state ethics committee & appealed any imposition of sanctions for abuse of discretion.

Believe it or not, in this particular case even the lawyers (both of them) believed that the judge had the right to do that. I finally managed to make her attorney understand, but not until it was too late to appeal.

I did manage to convince an attorney in another case that it couldn't be written into the orders before hand, but it was like pulling teeth. However that one was about the child care credit.