Grandparents, parents & baby

[BP.]

In this situation, all the parties are amicable and are trying to maximize the total tax benefits.

Grandparents had their daughter and her baby living with them all year. Their daughter was 18 y.o. at the end of 2010; a high school student; earned just under $10,000. The baby's father doesn't live with them. The 18 y.o. daughter meets all the requirements to be the qualifying child of her parents.

The grandparents asked who should claim the baby, their daughter or the baby's father.

My answer was that neither parent could claim the baby, since the baby's mom, as well as the baby, are both the qualifying children of the baby's grandparents. (Reference pub 17, p. 29, example #5.) The grandparents' AGI is too high for any EIC.

Since the daughter is her parents' QC she can't claim EIC for the baby. (Reference pub 17, p. 234.) And I don't see how the baby's dependency exemption can go to the baby's father, even if the grandparents were to forego claiming the baby, since TTB QR test #5 is failed.

This disappointed them as they thought there was perhaps a large refund in store for one or the other of the baby's parents. Have I overlooked anything?

[dtlee]

BP,

My opinion is that you are correct.

Here is how I am interpreting what you wrote that leads me to this conclusion. The grandparents provide the home for the daughter and grandchild. You indicated that the daughter is a full time student and do not indicate that the baby's father provides any support. You indicated that the daughter is also not providing more than half of her own support (hence you treat her as meeting the Qualifying Child requirements for the grandparents).

The daughter is not eligible to claim any dependents because she is eligible to be claimed as a dependent by the grandparents.

The baby's father is not eligible to claim the baby outright as a Qualifying Child because the baby must live with him more than half the year (and he does not live with the child at all).

The baby can be considered a Qualifying Child of the grandparents since neither parent can claim the child as a Qualifying Child.

Since the baby is a Qualifying Child of the grandparents, there is no possibility of the father claiming the baby as a Qualifying Relative regardless of how much support he provides (none is mentioned) since a Qualifying Child cannot be anyone's Qualifying Relative.

Separately, the daughter is ineligible for the Earned Income Credit since she is the Qualifying Child of the grandparents for EIC purposes even if the other grandparents cannot or do not claim the EIC.

As an aside, the rules for divorced or separated spouses does not come into play unless the parents together provided more than half of the baby's support for the year and that does not seem likely based on the information provided. If for some reason they did (because the father paid in lots of money), those rules contradict the basic Qualifying Child rules and you are on your own. However, there is no indication that the father provides any support in your post anyway.

[BP.]

Doug, I so appreciate the time you took to provide such a thorough & cogent reply.
Barb

[Burke]

I agree with all the above. But you and I know, in the real world, these situations are commonplace -- they file to maximize all the benefits -- and never get challenged. And of course, since the IRS "accepts" it, you don't know what you are talking about. A prime reason EIC should be eliminated from a tax filing benefit and put back where it belongs. In the welfare system.