Unfit Mother -Child Taken In By Cousin

[zeros]

Some years ago this happened and the cousin took the child in but did not adopt. I believe this would be his second cousin. He deducted her on his tax return all the years and now she is in the first year of college. He had heard that because he did not adopt her that he could no longer claim her as an exemption, education credit, etc. She still lives with them except for the time she is in school. Any truth to this?

[erchess]

My Two Cents

I would use the page in TTB and if she qualifies as an other dependent I would claim the exemption. I'm not sure if an other dependent can education credits but I feel sure that a close reading of TTB will answer this.

[solomon]

Temporary absences are permissible for a QR.

[Burke]

When I took the EA exam in 1986, I remember that one of the questions on it was could you claim a cousin as a dependent. (Assuming of course, they met the various rules.) The answer was yes, and that was before QR's and QC's.

[Gary2]

A cousin is not a QC, and doesn't meet the relationship test for a QR who doesn't have to live with you. So a cousin, like a total stranger, has to live with you the entire year - though temporary absences, as Solomon pointed out, are permitted.

[zeros]

Lived With Him All Year

A cousin is not a QC, and doesn't meet the relationship test for a QR who doesn't have to live with you. So a cousin, like a total stranger, has to live with you the entire year - though temporary absences, as Solomon pointed out, are permitted.

The cousin lived with the provider all year.

[Burke]

That's what I meant by meeting all the other various rules.

[Koss]

QC vs. QR

This could get really complicated really fast... or not.

The question in my mind is on what basis was the child claimed for the last few years? As a Qualifying Child or a Qualifying Relative?

The cousin relationship certainly does not meet the relationship test for a qualifying child. But the claim that a full-blown adoption is required is absolutely wrong.

If the child in question was placed in the taxpayer's home by way of a court order or through a social service agency, then that's a foster child, and the criteria for a qualifying child are met.

The question that arises next is more complicated, and I don't have an answer.

In most cases, once the child turns 18, the court order or other process or instrument that had the effect of placing the child in the taxpayer's home expires. In general, someone 18 years of age or older cannot be placed in the taxpayer's home unless they are disabled or incompetent.

So the question that I cannot answer is whether the relationship of qualifying child, having been established by placement of the child in the taxpayer's home, somehow survives once the child reaches the age of majority.

This thorny problem is similar, but not identical, to the issue that arises with divorced parents. How the heck do you determine which parent is the custodial parent when the "child" in question is 21 years old and a full time college student? The parent with whom the child actually lived more than half the year, you say? What if the kid doesn't live at home anymore?? Full time student under 24 doesn't have to live at home in order to be a qualifying child... I'm not talking about a temporary absence, i.e., living in the dorm, coming home over the summer. Let's say the kid really, really, totally moved out.

How can you credibly claim that either parent is the "custodial" parent?

Okay, wait a minute...

On the custodial parent issue for a full-time student, maybe the problem isn't what I thought it was. If you take the position that the kid really moved out altogether, then the kid fails the residency test for a qualifying child, and all you have is a qualifying relative. At that point, if the parents are divorced, the kid can only be the qualifying relative of one of them--that parent that provided more than half the kid's support.

But I still say there's a gray area, in the sense that the kid might be renting an apartment on campus, and be primarily supported by the father, who was not the custodial parent when the kid was under 18. The kid lived with mom until he went away to college. The kid's now in college full-time, but takes the summers off. During the summer, he might spend a few weeks with his dad, a few weeks with his mom, and a few weeks working at a dude ranch or something...

So if he's not supporting himself, and he's "away at college," is it a temporary absence that is automatically considered to be a temporary absence from the home of his mother, which was his last permanent address before he went away to college? Or could the facts and circumstances, at some point, support a coherent argument that the kid changed his permanent residence from mom to dad?

The problem is that a court order awarding primary physical custody to mom means nothing to the IRS even when the kid is under 18. The federal tax law looks at who the kid is actually living with, not what the court ordered. From the lesser to the greater... If the court order does not determine who the custodial parent is while the kid is a minor child, then it certainly doesn't determine who the custodial parent is once the child reaches the age of majority.

BMK


BMK

[oceanlovin'ea]

Welcome back, Burton M. Koss. You have been missed greatly.

I for one love reading your posts.

Linda, EA

[S T]

Burton

I also have wondered where you have been,

Glad to see you posting and assisting us with all of the "crazy" dependent scenarios, among other issues.

Sandy

[BP.]

Welcome back, Burton M. Koss. You have been missed greatly.

I for one love reading your posts.

Linda, EA

Agree with Linda & others- Was good to see you post here, Koss!

[Gretel]

Thank you so much, Burton. I actually have a father in this situation who has to pay tuition for his college kid but cannot claim him. This give me some things to think about and I will print your post and put it into his file for now.

[zeros]

Might Be Considered A Foster Child

It was a court ordered decision to have the child live with the adult cousin. She still lives there except for when she is in college. I haven't done the cousin's return yet, but can I assume that I will be ok to still claim her along with the educational credit for 2010 and beyond?

[Koss]

Foster Child

The court order definitely means that the child was a foster child, as this term is defined in the tax law, until the child turned 18.

However, the court order probably ceased to have any effect once the child turned 18. For purposes of state law, once the child turns 18, the taxpayer no longer has the rights and obligations of a foster parent.

The question of whether this terminates the foster parent relationship for federal tax purposes is, I think, uncharted territory. I don't think you're going to find an answer in any published IRS guidance. The issue certainly isn't addressed by the text of the Internal Revenue Code, and it isn't addressed in the Treasury Regulations either. I don't think you'll find any discussion of this in any IRS publication, and I don't know of any court cases. It may well be the case that the IRS has never challenged a taxpayer who has taken the position that a foster child continues to be a qualifying child even after the foster child relationship has technically ended according to state law.

If I were the taxpayer, I would certainly continue to claim the child as a qualifying child.

As a tax professional, you probably need to educate the client and let them make the decision. It is difficult to impossible to gauge the probability of the IRS challenging it. I do think that if it is challenged in an audit, and the IRS disallows the qualifying child, the possibility of any penalties, for the taxpayer or the preparer, is extremely low. The position is not frivolous.

Pub. 17 has stated for many years that in-law relationships and stepchild relationships are not ended by the death or divorce of the person through whom the relationship arose. This makes the position very defensible.

This is one of various areas where state law and federal tax law are, to say the least, not in harmony. I'm well aware that the general rules for a qualifying child allow the child to be claimed until age 19, or 24 if they are full time student. This makes it possible for a biological parent to continue to claim their child even after the child reaches the age of majority. Over the years, I've talked to many clients who somehow got the idea that they can't claim their child as a dependent once they turn 18, and of course this is wrong. But it's wrong because the tax law says otherwise, and because the biological relationship between parent and child clearly does not cease to exist when the child reaches the legal age of adulthood.

In the case of a foster child, I don't think this issue is entirely clear.

As long as your client understands that this may be an untested area of the law, it's probably okay...

BMK