Wierd EIC situation

[joanmcq]

Unmarried couple lives together, parents of child. One parent is the breadwinner; other parent is primarily a student and earned only a bit over $1100. I prepared the student's return first, and considering her 'without a qualifying child' she gets $90 EIC. But I read the questionaire closer and check that she does have a qualifying child, since a qualifying child lived with her, but the child would be the qualifying child of the other parent (who does not qualify in the least for EIC), and the student gets no EIC for her own wages. Last year, without the child, this wasn't a problem. So is this correct, that the presence of the baby disqualifies the student from getting EIC on her ownsome, or not? The student is not the dependent of the other parent since she provided more than half her own support due to student loans and scholarships.

[erchess]

Thinking Out Loud

The mother certainly cannot claim the child as her dependent because Dad who lives in the house is supporting the child..

I thought college financial aid did not have to be counted in determining support. Are you absolutely sure Mom can't be a dependent? If she could be and were would the group come out ahead?

My software asks the same question about could someone else claim the child as a qualifying child for EIC. However, my understanding is that under a revenue ruling or procedure that came out after last tax season and before this one, the IRS is in essence saying that as long as only one taxpayer tries to use a given dependent in any way they plan to ignore the possibility that some other taxpayer or taxpayers might have had a legitimate argument in law and fact to claim the child. If I could satisfy myself that what I just said not only was true then but has not changed, then I would be comfortable telling the computer that no other adult can claim the child if I so much as thought probably no one would actually do so. This is not a matter of my sympathizing with the taxpayer but simply a matter of how I understand the applicable rules.

It sounds to me as though this couple if married would make too much money for EIC. Is that true? The reason I ask is that virtually all of the Republicans and some of the Democrats in Congress would I think view it as unfortunate if two people who live together and have a child together without marriage qualify for a government benefit that they would not qualify for if they were married. Therefore it would not totally surprise me if at some future point household income becomes part of the EIC Equation but I think I would have seen it in TTB if that had already happened.

[David1980]

The mother certainly cannot claim the child as her dependent because Dad who lives in the house is supporting the child..

Not since the revised dependency rules. The support test for qualifying child no longer says you have to provide over half the support. It says the child cannot provide over half their own support. So dad could pay 100% and still not disqualify mom from claiming the kid.

Now if they were to both claim the child tie-breaker rules would come into play, but as long as they agree as to who claims the kid it's a choice.

As far as EIC vanishing, my guess is there's some checkbox or questions that need to be completed. If the child could be the qualifying child of someone else and that someone else would win the tie breaker rules the form (8867) says you are supposed to explain to the taxpayer... but not that they can't claim EIC.

[Koss]

Eic

Erchess wrote:

The mother certainly cannot claim the child as her dependent because Dad who lives in the house is supporting the child..

I have to disagree here, because it doesn't matter who is supporting the child, as long as the child is not providing more than half of his/her own support. The mother definitely has a qualifying child. All four tests--age, relationship, residency, and support--are satisfied.

Under the current rules, that means that the parents can choose who claims the child. If they can't agree, and both claim the same child, then the parent with the higher AGI will win under the tiebreaker rules. So she could claim the kid if they agree to do it that way.

With that being said, I agree with Erchess that you should carefully revisit the question of whether the mother is providing more than half her own support. Scholarships and grants are not treated as support. Loans, however, are considered support in the sense that the student is borrowing money and spending it to support herself.

So coming full circle, if the mother in fact did not provide more than half her own support, then she may well be a dependent of the child's father. That would disqualify her from claiming any dependency exemptions (for herself or for the kid). But at least in theory, it does not disqualify her from claiming EIC for a qualifying child.

I'm not kidding. I know it's weird, but the rules for EIC with a qualifying child are very different from the rules for EIC without a qualifying child. And as the dependent qualifying relative of the child's father, she actually falls into that rare category of taxpayers who can claim the Additional Child Tax Credit for a child that is not their dependent, by using Form 8901. But that's not applicable for her, 'cause her income is too low...

Overall, the couple may benefit more by agreeing that the father will claim the child.

I am now going to try to answer your original question, which I think somehow got lost in this discussion... LMAO

If Dad claims the kid, can she claim EIC without a qualifying child?

The consensus seems to be NO. But see the following thread from last year, in which this exact question was quite thoroughly debated:

http://www.thetaxbook.com/forums/showthread.php?t=7173

BMK

[erchess]

David

That's what I get for considering the issue of dependency without the chart on page 3-15 of the 1040 Edition to guide me. For the dependent child the support test question is whether the child provided over half of his or her own support. It's just fine if someone else who does not try to claim the child provided over half of the support. Just to keep us on our toes though the support test for a qualifying relative requires that the taxpayer have provided over half of the dependent's support.

[Koss]

Erchess--

You wrote:

My software asks the same question about could someone else claim the child as a qualifying child for EIC. However, my understanding is that under a revenue ruling or procedure that came out after last tax season and before this one, the IRS is in essence saying that as long as only one taxpayer tries to use a given dependent in any way they plan to ignore the possibility that some other taxpayer or taxpayers might have had a legitimate argument in law and fact to claim the child. If I could satisfy myself that what I just said not only was true then but has not changed, then I would be comfortable telling the computer that no other adult can claim the child if I so much as thought probably no one would actually do so. This is not a matter of my sympathizing with the taxpayer but simply a matter of how I understand the applicable rules (Emphasis supplied).

You are referring to IRS Notice 2008-5, which settled a long-simmering debate about what it means for someone to be "a qualifying child of another taxpayer." I've posted a link to the notice below.

It isn't quite the way you described it, and it's not applicable to the fact pattern in Joan's original post. Joan's clients are an unmarried couple in which they are both the biological parents of the child. That means it is undisputed that the child is the qualifying child of both parents. So they can choose who claims the child, or they can invoke the tiebreaker rules.

Notice 2008-5 addresses a different situation: What happens when a child appears to be the qualifying child of one person, but also meets the criteria to be the qualifying relative of someone else? This is relevant in the case of unmarried couples where the child is hers but not his. And the short answer is that if she had no income, or so little income that she is not required to file, he can in fact claim the child as a qualifying relative, provided that she either does not file a return, or files a return only to get a refund of tax withheld, without claiming the child.

Here's the link:

http://www.irs.gov/pub/irs-drop/n-08-05.pdf

BMK

[Koss]

Rule 8 and Rule 11

The problem is that the current IRS interpretation appears to hold that she has a qualifying child, even if she chooses not to claim that child. And anyone who has a qualifying child cannot claim EIC under the rules for those who do not have a qualifying child.

I actually argued this point in a thread last year. In a rather lengthy debate, I took the position that once she agrees to allow the father to claim the child, she doesn't have a qualifying child. But I ultimately conceded that this view is not supported by current IRS publications.

Here's the link to the thread from last year:

http://www.thetaxbook.com/forums/showthread.php?t=7173

BMK

[Koss]

Fyi

The interpretation in Notice 2008-5 is applicable to all tax years beginning with 2005.

It is meant to clarify how the IRS is interpreting the UDC rules that went into effect as of 01/01/05. It is a retroactive interpretation.

BMK

[David1980]

The problem is that the current IRS interpretation appears to hold that she has a qualifying child, even if she chooses not to claim that child. And anyone who has a qualifying child cannot claim EIC under the rules for those who do not have a qualifying child.

Oh. I get it now.

[erchess]

Wow

Thank you everyone and especially Burton for the education I have received in this thread.

[joanmcq]

Thank you for all of the responses.

The wage-earner wants to claim the child as a dependent, and gets HOH, and CTC. Its definitely in the best interests of all around. The amount of EIC the student would get by claiming the child is miniscule. The student gets 9K in scholarships (not counted as support) but is taking out 20K+ per year loans which disqualifies her as a dependent. Trust me, I've run the numbers, this year and last to see if it would work, but it doesn't.

As for the 'Republicans and some Democrats' who think that this unfortunate that this couple, if married, would not qualify for EIC? No they wouldn't. And they ARE married. The federal government just doesn't recognize the marriage. And they would get back another 4k NOT from EIC, but from the education credits, exemption, etc that the student can't use since she only earns a pittance per year.

[David1980]

The federal government just doesn't recognize the marriage.

Why wouldn't the federal government recognize their marriage, unless it's same sex or something.

[joanmcq]

Because its same sex.

[Larmil]

Why wouldn't the federal government recognize their marriage, unless it's same sex or something.

Politics aside - The law is written - We do not write the laws - We prepare tax returns in the best interest of of clients according to the laws as written - not whether the law is fair or just in our minds.

[erchess]

Yes Lamil Absolutely

Many of my clients would get more or less than they do if I made the laws but that isn't even on my mind when I try to get inside their lives and also inside the tax laws to puzzle out how things fit.