Homeless EIC?

[Jesse]

This is a good review to get the new season started.

If I understand all the information given:

did not move out until November,? no HOH.

No W-2, no 1099, no check stubs or bank deposits to prove income? Then no income to report. It was all his and she was doing him a favor.

No income, he had more and supplied roof for 11 months for child, dependent is his and his alone.

she is stuck with single, no dependents and no income. Nothing else would pass the due diligence tests.

To be a qualifying child for the dependency exemption the child could not have provided more than 1/2 of his/her own support, so the fact that father provided more support doesn't matter.

The father had the children for less time than mother also qualifies her as the custodial parent for dependency exemption.

Mother would not qualify for Head of Household so single, dependency exemption (unless signs the Form 8332), and EIC.

Am I thinking clear?

If the Trucker paid Mother I'm not understanding why he wouldn't issue a 1099 Misc, but without a 1099Misc, the due diligence for the EIC would be my only concern.

[AJsTax]

She has custody of her child. Father has custody of two other children by another marriage. Father cannot claim child as a dependent unless she gives it to him.

.

He had custody for 11 of 12 months in 2010. The mother also had custody for more than half the year.
We have no idea what the divorce decree says for later years.
I agree he will have to have the signed release for all years after 2010. NOT for 2010, he has custody for most of the year.

[AJsTax]

To be a qualifying child for the dependency exemption the child could not have provided more than 1/2 of his/her own support, so the fact that father provided more support doesn't matter.

The father had the children for less time than mother also qualifies her as the custodial parent for dependency exemption.

Mother would not qualify for Head of Household so single, dependency exemption (unless signs the Form 8332), and EIC.

Am I thinking clear?

If the Trucker paid Mother I'm not understanding why he wouldn't issue a 1099 Misc, but without a 1099Misc, the due diligence for the EIC would be my only concern.

In a dispute the tie breaker rules come into play and I believe the higher income of persons otherwise equal is one of the primary determinations.

[WhiteOleander]

No income, he had more and supplied roof for 11 months for child, dependent is his and his alone.

she is stuck with single, no dependents and no income. Nothing else would pass the due diligence tests.

I disagree with this statement. Dependency is not required for EIC. Age, Relationship, and Residency. So, if the child lived in the household with the mother for more than six months, she is certainly ectitled to claim the EIC. It does not matter if ex-spouse supported the dependent.

[Jesse]

In a dispute the tie breaker rules come into play and I believe the higher income of persons otherwise equal is one of the primary determinations.

In this case because of divorce it's not really a tie unless they had the child for the equal number of nights. If they lived together for the entire year it would be a tie, but Mother had the child for the month of December, therefore more nights than Father.

[Corduroy Frog]

Support No Issue?

As you can tell from the above posts, there are several things about this situation which bring heartburn to a tax preparer. It may not be necessary for taxpayer to show she is paying for the cost of a home, only that the child's residency is clear.

I agree this may be true from the qualifications, however, here is the essence of one of the Due Diligence EIC questionnaires supplied by Drake:

"Can you provide the IRS with receipts and bills substantiating the cost of maintaining more than half of the cost of the home?" The questionnaire lists some substantiating items, such as Utility Bills, Property Tax Bills, Grocery receipts, rent or mortgage receipts, maintenance and repairs, etc.

From the foregoing discussion, I would expect such as evidence of HoH status, but the above is from the 8867 series of Due Diligence Questionnaires.

[Jesse]

Calling Burton Koss

As you can tell from the above posts, there are several things about this situation which bring heartburn to a tax preparer. It may not be necessary for taxpayer to show she is paying for the cost of a home, only that the child's residency is clear.

I agree this may be true from the qualifications, however, here is the essence of one of the Due Diligence EIC questionnaires supplied by Drake:

"Can you provide the IRS with receipts and bills substantiating the cost of maintaining more than half of the cost of the home?" The questionnaire lists some substantiating items, such as Utility Bills, Property Tax Bills, Grocery receipts, rent or mortgage receipts, maintenance and repairs, etc.

From the foregoing discussion, I would expect such as evidence of HoH status, but the above is from the 8867 series of Due Diligence Questionnaires.

I'm not sure why it would be in the 8867 series because it providing more than 1/2 the support is not a necessity for EIC or even the dependency exemption for a "Qualifying child" (not a qualifying relative). Has something change or does my brain need more refreshing?

For EIC:

http://www.irs.gov/individuals/article/0,,id=218779,00.html

Qualifying Child Rules


Your child must have a valid Social Security Number and must pass all of the following tests to be your qualifying child for EITC:


Relationship
Your son, daughter, adopted child, stepchild, foster child or a descendent of any of them such as your grandchild
Brother, sister, stepbrother, stepsister or a descendant of any of them such as a niece or nephew

Age.
At the end of the filing year, your child was:
Younger than you (or your spouse if married filing jointly) and
younger than 19, or
younger than 24 and a full-time student
Any age if permanently and totally disabled

Residency
Child must live with you in the United States for more than half of the year.

Joint Return
The child cannot file a joint return for the year, unless the child and the child's spouse did not have a filing requirement and filed only to claim a refund.

Note: A qualifying child cannot be used by more than one person. If a child qualifies for more than one person and one of the persons is a parent or parents, the non-parent can claim the child only if their AGI is higher than the parent(s). If the child qualifies another relative and the parent AGI rules do not apply, the taxpayers choose. If more than one person claims the same child, IRS applies the tiebreaker rules. Read more about Qualifying Child of More Than One Person.


For dependency exemption:

http://www.irs.gov/publications/p501/ar02.html#en_US_publink1000220886

Support Test (To Be a Qualifying Child)
To meet this test, the child cannot have provided more than half of his or her own support for the year.

This test is different from the support test to be a qualifying relative, which is described later. However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. If you are not sure whether a child provided more than half of his or her own support, you may find Worksheet 1 helpful.

Support Test (To Be a Qualifying Relative)
To meet this test, you generally must provide more than half of a person's total support during the calendar year.

However, if two or more persons provide support, but no one person provides more than half of a person's total support, see Multiple Support Agreement , later.

How to determine if support test is met. You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. This includes support the person provided from his or her own funds.

[AJsTax]

I disagree with this statement. Dependency is not required for EIC. Age, Relationship, and Residency. So, if the child lived in the household with the mother for more than six months, she is certainly ectitled to claim the EIC. It does not matter if ex-spouse supported the dependent.

I understand where you are going with this, but it still remains, no income, no EIC.
This is definitley one that I would want to get the flow chart and check sheet and follow it closely to make a determination.

[BP.]

Forms 886

I was checking out some of the EIC pages for tax preparers at irs.gov, and found this handy link to the 886 forms series. The forms list the tests and all the docs and reqs from irs to claim HOH, EIC & dependency.

http://www.irs.gov/individuals/article/0,,id=118888,00.html

[WhiteOleander]

I understand where you are going with this, but it still remains, no income, no EIC.
This is definitley one that I would want to get the flow chart and check sheet and follow it closely to make a determination.

I totally agree with this. Our office has seen an increase in audits on Sch C income. If the IRS can't match it to a 1099M, they want the taxpayer to prove it. Especially if the client hasn't filed a sch C before, or the income is at just the right amount, or no expenses.

[cathe]

Congress and IRS should read this

I have read this with great interest. Here is a perfect example of the complexity that our tax laws have come to. The swirls and confusion of the meaning of the law, versus the understanding of it, along with the pressures of the IRS holding our feet to the fire to come up with their answer only shows blatently what is going bad with the tax code.

If Congress were locked in session with all tax forms and reference materials, no contact with the outside world and told to prepare their own tax return, or even a "simple" one like the one described here - I believe they would finally have a real understanding of what we are up against out here.

I also believe if those at the IRS were to do the same and not be able to contact each other, we would see just as many "varied" results as we come up with when they "test" us.

Frustrated with you,
Cathe