EIC & e-filing

[Harriet]

Client is filing HOH with 3 dependents all of which are step-children. He is eligible for EIC (step-children are qualifying children and lived with him all year), but ProSeries software says "dependent's relationship (step-child) is invalid for e-filing". I can't find anywhere that indicates that is so in IRS pub 596 or anywhere else. Is this return eligible for e-filing or will client need to mail return?

[taxea]

Is your client taking the children as dependents? Where is the children's Mother? and Father? Why aren't either of them claiming the children? taxea

[BP.]

Was the term "step-child" manually entered, or was it chosen from a list in a drop down box in your software? There are only certain relationship terms that can be used, so try picking the appropriate one (eg.son, daughter) from a list in the dependent relationship field. I don't think step child will be on that list.

[Harriet]

EIC & e-filing

Client is taking dependency. Mother left in Spring leaving him with children. Father is out of the picture. Client has pretty much raised the kids. I used the drop-down box which listed stepchild. Client said to just use "son" and "daughter", but I didn't feel right about that.

[Larmil]

Client is taking dependency. Mother left in Spring leaving him with children. Father is out of the picture. Client has pretty much raised the kids. I used the drop-down box which listed stepchild. Client said to just use "son" and "daughter", but I didn't feel right about that.

I think the relationship would be none. I had a client earlier this year that wanted to claim her "daughter". Upon questioning I learned the child was her girlfriend's daughter. The daughter passed the QR tests but not the QC tests. Hence, no EIC.

[taxea]

The rules for dependents include step-child. Further description says, in essence, if the child is raised as your own then a stepchild is considered your child. Son/daugher is appropriate. taxea

[WhiteOleander]

Client is filing HOH with 3 dependents all of which are step-children. He is eligible for EIC (step-children are qualifying children and lived with him all year), but ProSeries software says "dependent's relationship (step-child) is invalid for e-filing". I can't find anywhere that indicates that is so in IRS pub 596 or anywhere else. Is this return eligible for e-filing or will client need to mail return?

Was the t/p married to the children's mother? If not, they are not his step children.

[BHoffman]

This sounds like kids are his QRs, not QCs. Tell him to get his substantiating docs in order because you can bet AWOL Mom will be claiming them if she files.

[Koss]

Relationship Test

Wait a minute here...

If you use the relationship <none>, as suggested by Larmil, then the children will fail the relationship test for EIC and the Child Tax Credit.

Your posts do not explicitly state whether your client is married to the mother of the children in question. If the guy is married to their mother, then the children are his stepchildren, and a stepchild is a qualifying child. If he is not married to their mother, then they are not his stepchildren.

Taxea asserts that

The rules for dependents include step-child. Further description says, in essence, if the child is raised as your own then a stepchild is considered your child.

But I don't think you'll find that anywhere in an IRS publication or in the IRC. A child "raised as your own child" is considered to be a foster child for purposes of dependency, but not for EIC, HOH or the Child Tax Credit.

The formal definition of stepchild is: "the child of your spouse." And this definition holds for dependency, EIC, HOH and the Child Tax Credit.

Here's my answer: If they really are his stepchildren, i.e., he is married to their mother, then you may need to use <son> and <daughter>. These terms will allow the program to calculate EIC and the Child Tax Credit, and they will allow the children to be considered qualifying children for the Head of Household filing status, assuming the other requirements are met.

If he's not married to their mother, then Larmil is correct, and you need to use <none>. The taxpayer will get the dependent exemptions, but not EIC. HOH, or Child Tax Credit.

I have an arcane theoretical explanation as to why Proseries won't allow you to use <stepchild>, even though it's in the drop-down box.

To use HOH filing status, you have to be unmarried.

A stepchild is a child of your spouse.

So how can you possibly have a stepchild if you are unmarried?

If your client is married to the mother of the children, then he may indeed qualify for HOH filing status, because he may be considered unmarried by virtue of the fact that his spouse did not live with him during the last six months of the year. If this is the case, then he actually does qualify for HOH, and the children are still his stepchildren.

But I'll bet Proseries doesn't quite grasp the subltety involved here. On the surface, it really is a rather striking contradiction. How can you possibly qualify for HOH and have a stepchild, if you have to be unmarried in order to use HOH?

BMK

[WhiteOleander]

I would like to add that I believe that this is the type of scenario the IRS is scrutinizing closely. The preparer better be able to show they did the due diligence on this return or they "might" face a penalty. JMHO

[Larmil]

[QUOTE=Koss;72723]Wait a minute here...



If he's not married to their mother, then Larmil is correct, and you need to use <none>. The taxpayer will get the dependent exemptions, but not EIC. HOH, or Child Tax Credit.

-----------------------------------------END Quote-------------------------------------------

You are right as usual. He may be filing HOH as an abandoned spouse.

[Jesse]

If not married does he have legal guardianship; placement by an auathorized agency or court ordered judgement that could consider a "foster child"?

[DonPriebe]

Look in the IRS list of e-file error messages

You'll find that "STEPCHILD" is not a valid relationship for e-filing Form EIC.

Error 0203 - Schedule EIC - Relationship (SEQ 0060, 0130) must equal one of
the following: "CHILD", "DAUGHTER", "FOSTERCHILD", "GRANDCHILD",
or "SON", “SISTER”, “BROTHER”, “NIECE” or “NEPHEW”.

[Davc]

foster child[/i] for purposes of dependency,

That changed several years back. I can't remember which year but the current definition of "Foster Child" requires placement by an authorized agency or a court. See Pub 17 page 27.

[Koss]

Foster Child

Okay, you're right. That definition of a foster child may no longer be applicable.

Under the current scheme, if you have a child you are caring for, with no biological or legal relationship, you may still be able to claim the child, as a dependent only, under the rules for Qualifying Relative.

The outcome is the same. You get the dependent exemption, but not EIC, HoH, or Child Tax Credit.

BMK