Earned Income Credit Qualifying Child of more than one person

[GTS1101]

The rules seem to indicate that if a child is the qualifying child of more than one person they can decide who will take the earned income credit and the dependent exemption and all the other credits. Then if they both try to take it the tie breaking rules apply.

But on Form 8867 it seems to indicate that if you don't qualify under the tie breaking rules you can't claim that child for EIC purposes.

Here is my scenario. Child lived with his mom dad and uncle all year. The uncle would like to claim the child this year to get the EIC as his income is lower and the father will not qualify and the mom is not required to file. The parents have agreed to let the uncle claim the child for EIC. But the tie breaking rules indicate that if two or more people qualify and one is the parent and the other is not the parent, only the parent can claim. Any advice on how to report this on 8867? Can the uncle claim the child or not. It seems on one hand yes but then on form 8867 no.

Thanks!
GTS1101

[MilTaxEA]

He can claim the child as long as his AGI is higher than either of the parent's AGI (if the parents are eligible to claim the child). Look under the rules for a qualifying child of more than one taxpayer.

As for how to answer the 8867, I hate the way they phrase that question. The way I interpret it is *if* the tiebreaker rules apply ... and since the tiebreaker rules do not apply in this instance I would answer "yes" and attach a statement explaining why I took that position.

Anyone else have any thoughts?

[dan doshan]

Is it question 13 you're refering to. If so it asks .... under the tie breaker rules is the child treated as the taxpayers qualifying child. This seems to make sense in the posters situation. As you indicate the uncle could claim the child if his income is higher, which is a criteria of the tiebreaker rules.

Never thought of this. If the uncles income was say 11K and the dads was say only 5K, but the dad did claim the eic for the child, would the uncle then be excluded from claiming eic as a person without a qualifying child. It would appear so, but seems odd.

[Koss]

Tiebreaker Rules

Why does the father not qualify?

You said the uncle's income is lower. Lower than whose income?

BMK

[taxea]

does the child qualify for the uncle? how long did child live with him? If all of the qualifers are in place I woul get signed F8332s from the parents.

[Koss]

Cannot use Form 8332

The original post says:

Here is my scenario. Child lived with his mom dad and uncle all year.

Form 8332 can only be used to release the exemption and the child tax credit to the noncustodial parent. The noncustodial parent, by definition, is a parent with whom the child did not live for more than six months of the year.

The child lived with his mother, father, and uncle for the entire year. There is no noncustodial parent. Form 8332 cannot be used.

And even if it could, it does not allow a noncustodial parent to claim the earned income credit.

BMK

[dan doshan]

Love these eic scenarios. One really has to be careful. One situation I tend to forget (not an eic) is grandchild living with grandma all year. Grandchild is the qualifying child of grandma and she would be eligible for the eic but what is grandma's filing status?

[taxea]

The original post says:



Form 8332 can only be used to release the exemption and the child tax credit to the noncustodial parent. The noncustodial parent, by definition, is a parent with whom the child did not live for more than six months of the year.

The child lived with his mother, father, and uncle for the entire year. There is no noncustodial parent. Form 8332 cannot be used.

And even if it could, it does not allow a noncustodial parent to claim the earned income credit.

BMK

Only one person can qualify for the credit and that apparently has not yet been determined. All I' m saying is whomever it turns out to be would be wise to get a F8332 from the qualifying parent of the 'Custody" of the child and if that person does not qualify to use a F8332 then...guess what....no credit.

[GTS1101]

The uncle's income is lower than the father's income. The father's income is to high to qualify for the EIC. The mom does not have any income as she is a full time student and is not required to file. The father and mother are not married but the father, mother, and uncle all lived together in 2011.

So back to my original question. The EIC rules seem to be saying two different things. On one hand it says if two or more people have the same qualifying person they can choose which one can claim the EIC. Then under the tie breaking rules it says if a parent can claim a child as a qualifying child but does not it goes to the person with the higher AGI. But it seems to indicate the tie breaking rules only come into play if both try to claim the child. If only one person claims the child it seems the tie breaking rules don't matter. Any other thoughts? If I follow tie breaking rules only father can claim. But if they are allowed to chose and ignore the tie breaking rules than the uncle can claim. Any other thoughts?

GTS1101

[Koss]

Cannout use Form 8332

Only one person can qualify for the credit and that apparently has not yet been determined. All I' m saying is whomever it turns out to be would be wise to get a F8332 from the qualifying parent of the 'Custody" of the child and if that person does not qualify to use a F8332 then...guess what....no credit.

Form 8332 is only used to release the exemption and the child tax credit to the noncustodial parent. It cannot be used to allow anyone to claim EIC.

In the scenario described in the original post, the child lived with both parents for the entire year. There is no noncustodial parent. Form 8332 cannot be used for any purpose in this scenario.

BMK

[Koss]

Tiebreaker Rules

The rules are indeed confusing. It seems that in some cases, the tiebreaker rules are only applicable after the fact, if two people actually claim the same child, but in other cases, the tiebreaker rules are "mandatory," meaning that they are applied before the fact, to determine who, if anyone, may claim the child.

My reading of the rules, as applicable to your fact pattern, is that the uncle cannot claim the child. See Example 2, on page 17 of Publication 596. Keep in mind that in this context, the uncle has the same position as a grandparent living in the home, with the child and the child's parents.

http://www.irs.gov/pub/irs-pdf/p596.pdf

BMK

[ttbtaxes]

This area is so complicated, and under a high-powered microscope, which is why I won't prepare any returns involving an EIC.

[dtlee]

I agree with Burton.

The tiebreaker rules were once something that we (i.e., the taxpayer) had to apply, then were something the IRS would apply after the fact, and are now something where we apply part and they apply part.

My understanding is that if the child is a Qualifying Child of both parents, either parent may choose to claim a child and the IRS will apply the tiebreaker rules if both parents claim the same child. This appears to be true even if the parents live together and are unmarried and the lower income chooses to claim the child.

In the case where the child is a Qualifying Child of a parent and someone else (e.g., a grandparent, older sibling, aunt, uncle, etc):

• If the other person's income is higher than the parents who may treat the child as a Qualifying Child, either the parent or the other person may claim the child and the IIRS will apply the tiebreaker rules if more than one person claims the child.
• If the other person's income is lower than the parents who may treat the child as a Qualifying Child, we need to apply the rules and must exclude the other person from any eligibility to claim the child.

Take a look at examples 1 and 2 on page 30 of publication 17.

My interpretation of these rules is that if neither parent claims the child, then the child may be claimed as the Qualifying Child of any other qualified individual whose AGI is higher than the highest AGI of any parent of the child.

However, just to make this more convoluted, take a look at example 6. It implies that if the parents file jointly we should use their joint AGI divided by two when determining if the oher person can claim the child. Youe parents are unmarried, so I agree that the uncle must have higher income than either parent.

These rules are so convoluted, that the IRS has examples all over the place since they cannot seem to convey what the rules are with words alone.

[dan doshan]

I think it was just the 2010 tax year that they changed the rule to say that if the child is a qualifying child of a parent then no one else can claim the child as a qualifying child unless their income is higher than the parent or parents.
So GTS1101 Uncle cannot claim the child.

Note that under the rules initially a billionaire could have 4 kids living at home. One of the kids say was 19 and earned 15K. I believe that kid could have claimed his 3 siblings as his qualifying children.