Grandparents are custodian: who pays Kiddie Tax?

[brother7]

Grandparents open custodial account for grandchild, age 4.
Interest = $2000 (for the sake of argument). This triggers the Kiddie Tax.

The child's parents claim the child as a dependent.

Q: Who reports the child's interest income and pays the Kiddie Tax, the parents (who claim the dependent) or the grandparents (who are custodians for the account)?

[Lion]

Child

The child reports the income and pays the tax, using his parents' tax information. Unless the parents qualify to report it on their return, but usually less beneficial. Now, the practicality for a toddler is that someone has to prepare his return and someone authorized to sign on his investment accounts must pay his balance due. But, it's his parents' tax rate and information that comes into play on the kiddie tax form.

[ChEAr$]

further

As Lion has said, it's the parents' income which controls and is used.

Sometimes it's interesting to hear from grandparents: "But we don't want our daughter and
her no good husband to know anything about this money."

Sound familiar anyone?

[Lion]

After

Because they only contact us AFTER they've done something and not before. Now we have to explain how it works. And, as Chears has said, it's not what the grandparents expected when they set up the account. Wonder why the financial advisor didn't explain more...

[DaveO]

I just answered a CP2000 notice tiggered in part by just such an arrangement.