ITINs and Child Tax Credit

[whkrueg]

We have seen a number of returns this year where the Client has and ITIN and also ITINs for dependents/children in Mexico. When we explain to them that because the dependents/children are in Mexico they are not eligable for Child Tax Credit.

They produce a prior year return that shows them getting Additional Child Tax Credit.

Apparently what is happening is that on previous returns they are being reported as Resident Aliens, Most likely using the presense test (i.e. present in the US for 183 days).

If we ask the client if they ever came to visit, how long they stay and it meets the presense test are we required under due diligence to request some kind of verification of their length of stay?

I believe we should, however I would like know to how others handle the same situation.

Thanks/Wayne

[taxea]

I haven't done any of these because of the type of returns I do. I remember that we had to instruct the taxpayer to have the "dependent" go to the American Counsel where they lived to apply and obtain a SS card...only then could we take them. This was back in 1994 when the IRS started requiring SS#'s for dependents....so the law may have changed since then.

[Koss]

ITIN and Child Tax Credit

I have done many, many returns for taxpayers who have dependents who live in Mexico.

You are correctly interpreting the rules. If the dependent has never lived in the US, then they may indeed qualify as a dependent, but not for the child tax credit.

My guess is that the prior year returns you are seeing were simply done incorrectly.

It doesn't matter which software you use; the algorithm is the same. At some point, you answer a question or check a box in your program to indicate the child is a US citizen or resident alien. If you answer no, the program will not allow the child tax credit.

For inexperienced or unscrupulous tax pros, it is simply too easy to go back to that screen and change the answer. I wish I could tell you otherwise, but in many of the storefront operations, what may be happening is something like this: A first or second year tax pro wades through the return, and at the end, scratches his head, with the client sitting at his desk, wondering why they're not getting the child tax credit. Then a more experienced tax pro looks at the return, and says, "Oh, it's because the child is not a US citizen or resident alien. You indicated on this screen over here that the child is a resident of Mexico." And then he walks away to finish whatever he was doing. And the light bulb goes on over the new tax pro's head, or the client's head, or both, and all of the sudden it becomes crystal clear that this kid was actually living in the US after all... for the whole year! So the answer gets changed on that screen, and the return gets filed that way.

They're not eligible for the child tax credit.

It's usually nieces and nephews. And the taxpayer is sending money home to his family in Mexico. With the incredible poverty in some parts of Mexico, I have no doubt that in many cases the taxpayer here in the US is indeed providing more than half the support for that child. But in most cases, the child has never been in the US, and the child tax credit is simply out of the question. All they get is the dependent exemption.

BMK

[whkrueg]

ITINs and Child Tax Credit

Koss,

I believe you have hit the nail right on the head. The other Tax Preparer and myself have both tried to explain this to the owner (not a tax professional) but we still get these looks from him when they leave the office like look the the business were are loosing.

I showed him in TTB that dependents in Mexico are specifically mentioned and also in IRS publications. To me that means the IRS is going to look at this closely this year and we don't want to have a visit from them.

Thanks for you input....

[Koss]

Substantial Presence Test

You are also correct that in some cases, a child with an ITIN may actually live here in the US, and if the substantial presence test is met, then the child is considered a resident alien for tax purposes. This makes it possible to claim the child tax credit for a dependent who has an ITIN.

The fact that the child has an ITIN (instead of an SSN), in and of itself, is not what disqualifies the taxpayer from claiming the child tax credit. Eligibility for the credit hinges on US residency for the child.

Of course, for EIC, it's a different story. The child must have an SSN in order to be a qualifying child for EIC.

BMK