Tiebreaker Rules for 2009 Tax Year

[dtlee]

I am having trouble deciphering the changes for 2009. I know the returns themselves are more than a year away, but I think that they messed up the Qualifying Child Tiebreaker Rules when HR 6893 modified §152(c)(4) from this:

(Before HR 6893, effective for 2008)
(4) Special rule relating to 2 or more claiming qualifying child

(A) In general
Except as provided in subparagraph (B), if (but for this paragraph) an individual may be and is claimed as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is—
(i) a parent of the individual, or
(ii) if clause (i) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.

(B) More than 1 parent claiming qualifying child
If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i) the parent with whom the child resided for the longest period of time during the taxable year, or
(ii) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

to this:

(After HR 6893, effective for 2009)
(4) Special rule relating to 2 or more who can claim the same qualifying child.

(A) In general
Except as provided in subparagraphs (B) and (C) , if (but for this paragraph ) an individual may be claimed as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is—
(i) a parent of the individual, or
(ii) if clause (i) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.

(B) More than 1 parent claiming qualifying child.
If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i) the parent with whom the child resided for the longest period of time during the taxable year, or
(ii) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

(C) No parent claiming qualifying child. If the parents of an individual may claim such individual as a qualifying child but no parent so claims the individual, such individual may be claimed as the qualifying child of another taxpayer but only if the adjusted gross income of such taxpayer is higher than the highest adjusted gross income of any parent of the individual.

Under the current law, the Tiebreaker Rules are only invoked if more than one taxpayer actually does claim a Qualifying Child. I think they were trying to say that these rules are now mandatory in determining who can claim a Qualifying Child, but they messed up when they just changed "claiming" to "who can claim the same" and figured that was enough.

We all know that when we file separately, either parent can take the dependents. I doubt that this change was intended to affect that, but when I read through the new version of the law, it clearly states that if the parents file separately and the child resided with both parents the same amount of time, the parent with the highest AGI treats the child as a Qualifying Child. Under the old rules, this would have only been important if both parents attempted to claim the same child, but now that the law has changed, it no longer appears that way.

Well, suppose the father has the higher income and he doesn't want to claim the dependent (perhaps because of AMT) and wants the wife to take the dependent? Can this be done? In other words, if paragraph (B) applies and that parent does not claim the child, does the other parent get the child under paragraph (A)? I tend to think not since the goal of the IRS under the old rules was to force the higher income to take the child if both the higher and lower income actually claimed the dependent and the wording of this paragraph has not changed. What about paragraph (C), does that help? Well, I think there is no help there either since the spouse with the lower income does not have AGI higher than the highest AGI of any parent.

Does this mean they are forcing us to put the Qualifying Children on the return with the higher AGI starting in 2009 when we file as MFS?

I am hopeful that someone will show me where I am misreading this.

[Earl]

tiebreaker rules

First line in Part B states that if more than 1 parent claims the child. If filing separate returns you will have only 1 parent claiming the child so tiebreaker rules do not come into effect.

[dtlee]

First line in Part B states that if more than 1 parent claims the child. If filing separate returns you will have only 1 parent claiming the child so tiebreaker rules do not come into effect.

Earl,

Thank you for pointing that out, so are you saying that the new rules are saying that the rules in (A) and (C) are applied proactively to decide who may claim the child but (B) only applies if both parents actually do claim the child?

In other words, is this how you are reading it:

If either parent can claim the child or both can claim the child, either one may claim the child (under (A)(i) since (B) only applies if both actually do).

However,
if the parents cannot claim the child then only one taxpayer (described in (A) (ii)) can claim the child

or

if the parents can claim the child but decide not to, any of the taxpayers with income higher than either parent (described in (C)) can claim the child.

[Roland Slugg]

Who has the higher AGI?

I have often wondered how a tax preparer is supposed to know which parent or third party has the highest AGI if the preparer does not prepare or see the tax returns of all possible claimants. Even if one person does prepare the returns for both divorced parents, wouldn't it be a violation of confidentiality to allocate the exemption based on that knowledge?

[dtlee]

I have often wondered how a tax preparer is supposed to know which parent or third party has the highest AGI if the preparer does not prepare or see the tax returns of all possible claimants. Even if one person does prepare the returns for both divorced parents, wouldn't it be a violation of confidentiality to allocate the exemption based on that knowledge?

Roland,
I agree. The way the Tiebreaker Rules were rewritten in 2004, the IRS would only apply the rules if multiple taxpayers attempted to claim a child. We had no way of knowing and were not responsible for enforcing the rules (although we knew how they would be applied).

Now it looks like they are putting it back in our laps again to enforce them.

I have no idea how the revised rules are intended to work. To be perfectly honest, I don't see how the new paragraph they added, §152(c)(4)(C), can be considered to be a tiebreaker at all. To me it says, anyone with higher income can claim the child if the parents can claim the child but don't. It would make sense for this to require it to be the highest income (as paragraph A does), but it does not say that.

[erchess]

Notice the Heading of Section B of the new rules

The whole of section B assumes a situation where both parents have tried to claim the child despite their not filing jointly. It does not apply if the parents enter into one of three possible agreements: an agreement to file jointly and claim the child, an agreement as to which will claim the child as they file separately; or an agreement that neither shall claim the child as they file jointly or separately. Note that I am and the law is inferring agreement from behavior. I think they are deemed to have agreed on one of these courses of action if they both sign the relevant return or returns.

C makes clear that if the parents do not in fact claim the child, then of other individuals who may try to claim the child the one with the highest income wins out.

I see nothing in the new rules that would tend to make our lives more difficult. We ask the same questions as always about who else knows the child's name dob and ssn and what support if any they or others provided. If the story told to us by a taxpayer leads to the taxpayer claiming a child so be it. If another taxpayer tells a conflicting story that leads to his claiming the same child we allow both and indeed it's ok that we did not notice the conflict until the IRS stepped in.

[dtlee]

Thanks, Erchess.

My initial reaction was that the entire section was now written proactively with the change from:

(4) Special rule relating to 2 or more claiming qualifying child

to

(4) Special rule relating to 2 or more who can claim the same qualifying child.

However, I agree with you and Earl that they kept (B) worded as only applying if both parents separately claim the same child.

However, when I re-read (C), I do not see them specifying the highest income as they do in (A). They say, "if the adjusted gross income of such taxpayer is higher than the highest adjusted gross income of any parent of the individual." It is easy to have a situation where multiple individuals could qualify. That is why I am saying it is not a tiebreaker. Perhaps they are saying that if (C) occurs, then (A)(ii) applies, but then the meaning of the phrase, "Except as provided in subparagraphs (B) and (C)" becomes unclear.

The other issue I have with the wording is that it does not say, "if the adjusted gross income of such taxpayer is higher than the highest adjusted gross income of any parent of the individual who can claim the child as a qualifying child."

Suppose Mary, age 24, lives with her daughter, Kellie, age 5 in the house of her mother, Beth. Mary has not seen Kellie's father in over five years and was never married. Mary is required to file a tax return, but her mother, Beth, earns more and would benefit more by claiming Kellie. Under the old rules, either Mary or Beth could claim Kellie. This new paragraph seems to indicate that we can only allow Beth to claim Kellie if we can show that her income is also greater thatn Kellie's father. Even if we know who that is, it is unclear how we can apply this as Roland pointed out.

When this was written the old way, the IRS applied the tiebreaker rules only if two or more individuals claimed a child. To me, it appears that the change from "claiming" to "who can claim the same" implies that the rule should be applied proactively.

As I read it (with the help I've gotten here).....

If neither parent can claim the child, then only the qualified person with the highest AGI can claim the child (meaning we must know the AGI of all such qualified people).

If one or both parents are qualified to claim the child and only one does, there is no tiebreaker.

If both parents are qualified to claim the child and both claim the child, the IRS will only allow the claim of the parent who lived with the child longest to claim the child or, lacking that, the parent with the higher AGI. (Since it appears that the IRS applies this rule, we are not involved.)

If one or both parents are qualified to claim the child and neither does, any qualified person may claim the child as long as that individual has higher AGI than "any parent." (Again, we seem to need to know the income of any and all parents [possibly natural parents and stepparents] before allowing someone to claim the child.)

My final concern is that this seems to say that the "taxpayer" must have higher AGI than "any parent."

Jane, age 6, lives with her mother, Sally, and her grandparents, Roger and Rose, in her grandparents home. Roger's AGI would be $29,000 if computed separately and Rose's AGI would be $30,000 if computed separately. Sally had AGI of $7,000 and Jane's father, Mark had AGI of $31,000. If Sally does not claim Jane, I do not see that her grandparents can claim Jane either since neither of these "taxpayers" earned more than Mark.

I just don't think this section is very well worded since I doubt that it says what they want it to say,

[okie1tax]

Mark CANNOT claim claim the child unless Sally signs form 8832, the way I read your senerio.

[dtlee]

Mark CANNOT claim claim the child unless Sally signs form 8832, the way I read your senerio.

Actually, Form 8332 is only for transferring from the Custodial to the Noncustodial parent.

I did not say that Mark wanted to claim Jane or if Mark even knew that Jane was born. My point was that neither Roger nor Rose has a higher income than Mark. Their combined income is higher than Mark's and their combined income is higher than Mark and Sally's. However, I cannot say that the wording of the law cares about those comparisons.

As I indicated, the wording says, "f the adjusted gross income of such taxpayer is higher than the highest adjusted gross income of any parent of the individual." It does not say that the parent must be in any way eligible to claim the child (or that they have to even know who the father is).

I truly doubt that it says what they want it to say,

[Earl]

C states that the child must be the qualifying individual of the taxpayer. To me this means that is someone other than the parents want to claim the child then the child will have to be a qualifying child for the other taxpayer. In your scenario unless Mark had custody of the child more than 6 months then he would not be able to claim the child and his adjusted gross income would not be involved.

[dtlee]

C states that the child must be the qualifying individual of the taxpayer. To me this means that is someone other than the parents want to claim the child then the child will have to be a qualifying child for the other taxpayer. In your scenario unless Mark had custody of the child more than 6 months then he would not be able to claim the child and his adjusted gross income would not be involved.

Earl,

Thanks for your comment.

I think that is a fair analysis in general of what they intended. I still would want to see it worded that the comparison in income is against those parents who can claim the child and I don't see that wording, but I can surmise that this is what they probably meant.

Also, I think that what Erchess mentioned, (i.e,, that they really mean this goes to the highest income) is also likely what they intended.

[Lion]

High-income Parents

I think they were tired of high-income parents who were losing the benefit of claiming a child by the phase-out being able to "give" the benefit to an older sibling or live-in grandparent with a part-time job. They needed a way to disqualify others living with the child from claiming the child.

[Snaggletooth]

Two out of Three

Prior to the "more likely than not" criteria (an idea whose rescission has come), there was a "two out of three" criteria. Contrary to the opinion of some, this was NOT a feeling that a position would be sustained on its merits two out of three times, but instead would be sustained by the opinions of two out of three PREPARERS.

Mr. Lee is slugging out this old familiar subject, and you can see the diversity of opinion. If the IRS were to re-institute the "two out of three" standard on this subject, they wouldn't have a prayer. And they wouldn't have anyone but themselves to blame.