Who gets the exemption for the baby?

[Sherill]

Mom is a high school student. Has a baby in Sept. Mom signs 8332(Release of Claim to Exemption) to dad for 2005. Dad files taxes and takes the child as an exemption, along with Child Tax Credit for 2005. (No marriage between mom and dad).
Grandma enters - she has the mom/dad/baby living with her (dad pays rent and other support items). Grandma has documentation proof from the State that both mom/baby lived with her and medicaid payments thru 2005. She also has document from the Court stating both baby and mom lived in her custodial home for 2005. Can grandma take the baby as an exemption?
The single parents and baby are now residing together in 2006, in their own home, away from grandma's home.
Who gets the 2005 exemption for the baby?

[Brian EA]

Mom is a high school student. Has a baby in Sept. Mom signs 8332(Release of Claim to Exemption) to dad for 2005. Dad files taxes and takes the child as an exemption, along with Child Tax Credit for 2005. (No marriage between mom and dad).
Grandma enters - she has the mom/dad/baby living with her (dad pays rent and other support items). Grandma has documentation proof from the State that both mom/baby lived with her and medicaid payments thru 2005. She also has document from the Court stating both baby and mom lived in her custodial home for 2005. Can grandma take the baby as an exemption?
The single parents and baby are now residing together in 2006, in their own home, away from grandma's home.
Who gets the 2005 exemption for the baby?

The Dad of course. The baby is the qualifying child of the mom and or dad. Since the mom did not file a return the dependency goes to the dad

[Koss]

Wait a minute...

The Dad of course. The baby is the qualifying child of the mom and or dad. Since the mom did not file a return the dependency goes to the dad

The original post says that the mom, dad and baby were all living in the same home with Grandma.

The baby is the qualifying child of three people: Mom, Dad, and Grandma.

Mom presumably did not file a return. If the child is the qualifying child of more than one person, and both try to claim the child, then the under the tiebreaker rules, the parental relationship trumps all other claims. So the father would prevail over the grandmother.

I agree with the conclusion of the first response but not with the reasoning.

The original post contains a lot of information that is leading the client, and perhaps the tax pro, in the wrong direction. All that stuff about Grandma supporting Mom, Dad and the Baby, and a cryptic reference to medicare are irrelevant. For EIC and CTC there is no support test. For dependency, the test is not whether the taxpayer supported the child, but rather whether the child paid more than half his own support. So none of that stuff matters.

Form 8332 cannot be used by an unmarried couple living together. Form 8332 is for parents who are divorced or separated. The IRS has conceded that the "rules for children of divorced or separated parents" can indeed be used by parents who were never married, but these rules, and Form 8332, are applicable only when the parents are separated.

If an unmarried couple is living in the same household with the baby, then these rules are not applicable. Only the tiebreaker rules would come into play. If both Mom and Dad try to claim the child, then the one with the higher income wins. If they agree on who is going to claim the child, then that parent simply claims the child and the other one doesn't. Form 8332 is not necessary. In the fact pattern from the original post, the conflict is not between Mom and Dad, but between Dad and Grandma. Dad automatically wins, with or without Form 8332.

The reference to the current state of affairs in 2006 is also irrelevant.

The only thing that could possibly be an issue in the scenario described in the original post is the assertion that Grandma has a "court order" stating that the baby is somehow "in her custody."

When the order was entered, and exactly what it says, could be very important. I happen to think this is an extremely gray area of the both the federal tax law and the various state laws. If the court order in question is an order for foster child placement or guardianship, then it could be interpreted under state law as an order that strips custody and parental rights from the natural parents. But the fact pattern described seems to be saying that both parents were actually living with the baby for all of 2005.

The question I am posing here is this:

Federal tax law now defines a foster child as one who is placed in the taxpayer's home by a court or agency. With this type of placement, the child becomes the taxpayer's qualifying child. In most cases, with a true foster child placement, the child in question will not be the qualifying child of the natural parents, because foster child placement usually means that the parents, for one reason or another, cannot care for the child, and this usually means that the child is not living in the parents' home. Ergo, they fail the residency test.

But I think we're going to start seeing more cases like this one, where someone who is not the biological parent has court-ordered custody, or some sort of guardianship or "placement," and the child and the biological parent are living with them.

The result is that the child appears to be the qualifying child of both the parent and the "foster parent," or "guardian," or whatever term you choose. And in this not-so-far-fetched scenario, the application of the tiebreaker rules will mean that the foster parent loses.

That being said, I'm not convinced that guardianship is the same as foster child placement by a court or agency. I'm prepared to take the position that it is, for the benefit of my client, particularly if no one else is attempting to claim the child. If guardianship is equivalent to foster child placement by the court, then this allows the taxpayer to claim not just the exemption, but all the child-related benefits for a child with whom they have no blood relationship at all. The guardianship itself is the relationship that satisfies the relationship test.

This has significant implications for certain nonstatutory families, i.e., the unmarried-couple-with-a-kid-that-is-hers-but-not-his. If a guardianship is interpreted as a foster child placement, then it would allow the boyfriend to claim her child, with all the benefits, provided that she agrees. If she also claims the child, then she will prevail under the tiebreaker rules because she is the parent.

Unless you take the position that a guardian or foster parent has exactly the same status as a natural parent under federal tax law. Then the tiebreaker rules would give the exemption and other benefits to the one with the higher income. But I don't think this interpretation is supported by the text of the law. Just because a "placement" satisfies the relationship test doesn't mean that it establishes the same relationship as a parent. The law still appears to make a distinction between parent and foster parent.

If guardianship over a person with whom you have no blood relationship establishes a legal relationship that is equivalent to foster child placement for purposes of federal tax law, then...

Suppose I am appointed guardian of my 80 year old mentally incompetent grandfather. Does that make me his foster parent? Does that make him my foster child?

If you haven't stopped reading by now, take a moment to remember that the age limit for a qualifying child for EIC is not applicable if the child is permanently and totally disabled.

No, I would NOT attempt to claim EIC for a taxpayer by asserting that his qualifying child is his 80 year old grandfather over whom he has been appointed guardian.

But if the same taxpayer also has guardianship over his girlfriend's child, and you assert that the child is now his foster child for purposes of federal tax law, then how is this any different from the guardianship over the 80 year old?

I see only one way out of this ridiculous line of reasoning.

The language of the guardianship order, for the 80 year old, will explicitly state that the reason for the guardianship is the fact that the person is incompetent. But the guardianship order for the child will state that the reason for the guardianship is because the person is a [/i]minor child[/i], who for various reasons, is in need of a guardian.

This distinction supports the claim that guardianship over a child is equivalent to foster child placement for purposes of taxation, but that this is not the case with respect to guardianship over an adult that is not also your child.

But this is not a very convincing argument.

As in the case of divorce decrees, when you attempt to implement a federal law that relies heavily on facts that are established by local and state laws, the result can be...

chaos.

Burton

[jainen]

A linguist

One essential difference between foster placement and guardianship is that the foster parent, in spite of the name, does not take on the rights and responsibilities of a parent. With a guardian, the natural mother and father are stripped of parental rights.

On the other hand, under the qualifying child definition a foster parent can treat an eligible foster child as her own child. I suppose you could argue that this child has three parents in the home, and the tiebreaker would go to "the parent with the highest adjusted gross income." A linguist might make much of the use of "highest," which grammatically denotes more than two, instead of "higher."

[Sherill]

No court order for the baby

Thank you for your extentive answer. There is no court order, and dad has signed the birth certificate....grandma just wants her fingers in the $$$$$$.