HOH & EIC question

[Art]

Husband (Jim), wife (Kelly) are legally separated as of 11/04/08. Kelly “officially” moved out of the home on Aug 5th, but had spent little time at home prior to that date in 2008. Oldest child (Craig age 15) is Kelly’s son by a previous marriage. Craig was never formally adopted by Jim, but has always lived in the home with Jim & Kelly. Jordon (age 7) is son by Jim & Kelly. After Kelly moved out both children resided with Jim over 50% of the time and Jim provided over 50% of the support for both children. Divorce proceedings are still pending as of March 2009. Pending final divorce settlement and legal custody proceeding, Jim & Kelly “mutually agree” that Jim will get Jordan as dependent and Kelly will claim Craig in 2008. (An 8332 has not been signed at this time). In the absence of a signed 8332, it does not appear that Kelly satisfies either the member of household test nor the support test with respect to either Craig or Jordan. If Jim wanted to push the issue could he claim Craig as a dependent? If he is entitled to the dependency exemption for Craig, but gives it up by signing the 8332, is there any way he can claim earned income credit for Craig? Jim’s earned income is too high to qualify if he can only claim Jordon for the EIC. Finally can Jim file as HOH? Ie six month test not met, but legally separated.

[Koss]

Filing Status

Jim and Kelly should "mutually agree" to file a joint return.

If they lived in the same household at any time during the last six months of 2008, then neither one can use Head of Household filing status.

They are not legally separated.

"Legally separated" means separated under the terms of a court order. If the divorce is not final, it is extremely unlikely that they are legally separated. Legal separation refers to a court order that spells out terms of the separation, such as child support and property division, but is not a divorce decree. In most states, this type of court order hasn't been used in decades. As a practical matter, it simply doesn't exist. Your clients are not legally separated.

By the way, which one of them is your client? Or are you trying to do both returns?

They are legally married, so they can't use the filing status single.

They lived together at some point during the last six months of 2008, so neither one can use Head of Household.

Neither one of them died during 2008, so that rules out Qualifying Widower...

That leaves two options for filing status: MFJ and MFS.

With MFS, neither one can claim EIC.

Your fact pattern is not entirely clear, but it sounds like the children lived with Jim for the entire year, and that Kelly was living in the same home for only part of the year. If Kelly lived in the same home as the children for less than half the year, then neither child is her qualifying child.

Jim would be deemed the custodial parent, and he would get to claim both kids, unless he releases one or both to Kelly by using Form 8332.

Form 8332 allows the noncustodial parent to take the dependent exemption and the child tax credit, while the custodial parent, in theory, can still claim the other three benefits: HoH, child care credit, and EIC.

But on your fact pattern, HoH is not available, and they won't qualify for EIC unless they can agree to file a joint return.

BMK

[Lion]

Divorce

The support test for QC is does the child pay more than half his own support? If he does not, and all the unmentioned tests are passed, then you are looking at who the child lived with for more than half the year. Both parents qualify so far. So, if they still agree to split the dependents, you don't have a question. If your client (the father?) no longer agrees, then you do have an issue, and not just the tax issue. He'll have to decide what it's worth to him to have to renegotiate that piece of his divorce. If the children lived with him longer, he could claim them and has implied that he'll sign an 8332 for one child to his wife. He's either MFJ or MFS since he didn't meet the living apart clause for HOH. By the way, does the wife agree that she moved out in August? If she still owns the home, name on lease of a rental, and she continued to spend time there, she could assert that she also lived with the children the whole year. I really wouldn't want to be in the middle of this. Ask all the questions, but let your client answer the questions. Don't make assumptions about what's best for him. If he gains a bit of EIC but ends up losing lots of child support or property settlement when wife is angered, then he'll be mad at you.

[Koss]

Legal Separation

My assertion that your clients are not legally separated may have come across as a bit arrogant. But I'm fairly certain that whatever they think is a legal separation isn't.

If you really think they're legally separated, ask for a copy of the court order.

If they don't have a court order signed by a judge, they are not legally separated.

If they DO have a court order signed by a judge, you'll need to read the whole thing carefully. An order granting temporary custody of the children to one parent during the divorce proceedings isn't necessarily a legal separation.

Chances are, if you ask them for a copy of the separation order, they'll go deer in the headlights. The response will be: "The divorce isn't final yet."

I've been doing income taxes for 20 years, and I have never seen a legal separation order.

BMK

[Art]

Thanks for the quick feedback. I checked further and yes they are not legally separated. Will try to get the wife to bring her info in so I can run the returns both ways. They have been clients for years so hopefully we can get the best overall result and they can split the refund. If not then MFS is the only thing left.