Test Return #2

[erchess]

Responses

My first reaction was that Mandy gets nothing in the way of tax savings except her standard deduction. I was sure that a dependent could get none of the benefits associated with having a child. In fact I was sure that EIC and CCC required a child who was the taxpayer's dependent. Then I read in TTB where a taxpayer's child can get the parent the CCC even if the parent is a dependent. At that point I posted an answer of $150 following the path described in detail by Newbie and not the path described by Bees. Then I had PM with John H which referred me to the IRS Website's guide for self preparers who wonder if they can get the EIC. This persuaded me that Mandy could get EIC and when I went back in Drake Software and looked at the items that had convinced me otherwise I concluded that I had misread those items. I ended up getting the right answer in the right manner but only with help because of things I was sure I knew.

In this business it isn't what you don't know that kills you it's what you are mistakenly sure you know.

[David1980]

I find it an interesting scenario. You could potentially preparer the return wrong and get the right answer (assuming I even have the right answer.)

Yup, two methods to arrive at the correct answer. I've had to argue with many people regarding the true purpose of Form 8901, and it was nice to see an example where it was actually applicable.

[BP.]

Thanks, Bees! I got the correct answer, using the correct method. And, I agree, the various software checkboxes have to be looked over carefully to get the results you know you should be getting. This sort of question could pop up in my office at least a time or two per season, though w/o the 8901 component. (As OtisMozzetti noted, if they're friendly- Cindy & Mandy are not- I'll try to maximize the refunds to the "family" and they can shuffle the $$ as they wish.)

Just a side note and follow up question or two:

We'll have to tell Mandy her return must be mailed in (Cindy already filed) and we're not sure exactly when to tell her to expect her refund-- that'll fan the flames of her dispute with Cindy.

What would you have charged Mandy for her return?

Will you tell Mandy to expect an IRS letter? (Both Cindy & Mandy can expect one.)

WIll you charge Mandy to prepare a response for her to the IRS letter?

Cheers & a great weekend!
Barb

[Bees Knees]

In putting together this scenario, I was purposely looking for a situation where a dependent could get EIC and Child Tax Credit for a qualifying child, while not get any of the other benefits due to being a dependent.

Then when it came to calculating the tax by entering data into Pro Series, I came across this problem. I tell the program Mandy is Single, knowing she does not qualify for HOH. Then I entered Ann Maries info under the dependents area, which is the only place to do it even though Ann Marie cannot be Mandy’s dependent. Under one of the code boxes, it gave me four choices:
Code L – Dependent child who lived with client.
Code N – Dependent child who did not live with client due to divorce or separation.
Code O – Other dependent
Code Q – Not a dependent (but is a qualifying person for EIC and /or child tax credit and / or dependent care expenses)

Naturally, since I already knew Ann Marie was not a dependent, but was a qualifying child for EIC and child tax credit, I picked Code Q.

You would think that would be the end of it. Going to the 1040, it did give Mandy EIC but not child tax credit. Why? Code Q said it would give her child tax credit. Ann Marie’s age was entered correctly. There was no reason for the program to deny child tax credit.

It was later that I discovered when you pick Code Q, the program automatically checks a box that says “Not qualified for child tax credit.” I then had to un-check that box to get the program to give her child tax credit. In my opinion, it should have been the other way around. I cannot think of any reason why Pro Series automatically assumes a non-dependent who qualifies for EIC will not qualify for the child tax credit, given the fact that the age requirement is already met.

I think it is a programming glitch. Regardless, it illustrates why you cannot trust your software to get things right. We have to know the rules.

[Bees Knees]

It was later that I discovered when you pick Code Q, the program automatically checks a box that says “Not qualified for child tax credit.” I then had to un-check that box to get the program to give her child tax credit.

I’m curious to know how other tax software handles this problem.

[spanel]

In putting together this scenario, I was purposely looking for a situation where a dependent could get EIC and Child Tax Credit for a qualifying child, while not get any of the other benefits due to being a dependent.

Then when it came to calculating the tax by entering data into Pro Series, I came across this problem. I tell the program Mandy is Single, knowing she does not qualify for HOH. Then I entered Ann Maries info under the dependents area, which is the only place to do it even though Ann Marie cannot be Mandy’s dependent. Under one of the code boxes, it gave me four choices:
Code L – Dependent child who lived with client.
Code N – Dependent child who did not live with client due to divorce or separation.
Code O – Other dependent
Code Q – Not a dependent (but is a qualifying person for EIC and /or child tax credit and / or dependent care expenses)

Naturally, since I already knew Ann Marie was not a dependent, but was a qualifying child for EIC and child tax credit, I picked Code Q.

You would think that would be the end of it. Going to the 1040, it did give Mandy EIC but not child tax credit. Why? Code Q said it would give her child tax credit. Ann Marie’s age was entered correctly. There was no reason for the program to deny child tax credit.

It was later that I discovered when you pick Code Q, the program automatically checks a box that says “Not qualified for child tax credit.” I then had to un-check that box to get the program to give her child tax credit. In my opinion, it should have been the other way around. I cannot think of any reason why Pro Series automatically assumes a non-dependent who qualifies for EIC will not qualify for the child tax credit, given the fact that the age requirement is already met.

I think it is a programming glitch. Regardless, it illustrates why you cannot trust your software to get things right. We have to know the rules.

Would that code not be mostly for divorced situations, therefor that would be the correct thing to do, EIC and not CTC.

Chris

P.S. Taxwise does the exact same thing.

[JohnH]

I agree completely with erchess's comment that "it isn't what you don't know that kills you it's what you are mistakenly sure you know." We had exchanged several PM's after I changed my result from $9 to $528, but I could not figure out why ATX wouldn't allow the CTC even though he insisted that it was allowable.

After finding the time to re-read the rules, I became convinced that either ATX had a flaw or I wasn't doing something right in the software. I finally discovered my problem the day before the exercise ended. The problem was (of course) ME. I went to the "Find" field in the ATX "Select Forms" window and discovered the Form 8901. I believe this is because I've never needed to use it before, but I do plan to review a few selected client situations just to be sure.

Great exercise, and for me a real learning experience. It also reinforces the value of having a forum like this one in which to bounce ideas off one's colleagues around the "virtual water cooler".

[Bees Knees]

Would that code not be mostly for divorced situations, therefor that would be the correct thing to do, EIC and not CTC.

Maybe, but then why would Code Q say it is also for the CTC when the person is not your dependent?

[Bees Knees]

Maybe, but then why would Code Q say it is also for the CTC when the person is not your dependent?

I think I found the answer. Pro Series does not support Form 8901. You have to go to the IRS website to get Form 8901, manually fill it in, and attached it to the return as a paper return. It cannot be e-filed using Pro Series. Thus, Pro Series defaults to a situation in which it can handle. As mentioned before, this won’t be an issue in 2009 but it is an issue for 2008.

[JG EA]

Yes this was a good practice return. I never have had anyone in this position. I was tied into the thought that if they can't claim as dependent then no CTC. However I did think of the 8901 and tried to find it on my software. But I couldn't and determined that it would show as a diagnostic if it could have applied. A terrible reliance on software instead of thinking it through. And it wasn't the software's fault, it was a check the box thing as Bees said.

But if you are trying to show how good TTB is under such a circumstance, you have. I took each issue in order - Did the grandmother have the right for dependency, so therefore the daughter did not and then as a result could not claim her child - all with TTB in hand. I read the specific example in the book on this senario, but was confused about the CTC and made those wrong conclusions.

I feel good about the problem because when something is out of the ordinary it is better to get it wrong in practice and then remember the lessons learned.

Lesson one: Do not rely on software
Lesson two: Research thoroughly if an unfamiliar area.
Lesson three: Think with my brain instead of falling back on what I think I know.
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