Marital Problems Causing Filing Status Problems

[Nelstax]

Young married client worked out of state most of the year. Wife and child stayed with her mother, sometimes with the grandmother of client and the rest of
the year in an apartment he rented for them. Client sends money home to the wife who shares with her mother. The wife's mother filed her own return claiming the daughter and grandchild before the client could file his return. The mother is adamant about claiming the dependents (for EIC) and has convinced the daughter that she should not file married jointly with her husband or sign any return with him.
BIG problems for him. This is a community property state, however since he is no longer single and must file married, can we use MFS and claim the child with a letter written
to explain the situation? Any suggestions would be greatly appreciated.

[DonB]

since he is no longer single and must file married, can we use MFS and claim the child with a letter written
to explain the situation? Any suggestions would be greatly appreciated.

If he is not the custodial parent, he would not have the right to claim the child without a release of claim from the mother. A letter of explanation will not help.

[Koss]

Custodial Parent?

I have to disagree, or at least challenge the underlying premise, of the response from DonB.

The whole question of which parent is the custodial parent, and the release of an exemption with Form 8332, is only applicable to parents who are divorced, never married, or to married persons who live apart. When a couple is legally married, these rules only come into play if the couple did not live together at all during the last six months of the year.

The original post says that the husband "worked out of state most of the year." That doesn't tell us whether the couple lived apart during the last six months of the year.

Even if they did, "working out of state" could be interpreted as a temporary absence from the marital home. The specific facts and circumstances are extremely important here. The fact that he was absent from the home for part of the year does not automatically give the child's grandparent the right to claim the guy's wife and child. We don't even know whether the wife and child actually lived with the grandparent for more than six months of the year.

With that being said...

If his wife does not agree to file a joint return, then he can't file a joint return. Period. He cannot force his wife to elect the MFJ status, even if they had lived together the entire year. So if his wife won't agree, then he will have to file MFS. No other filing status would be applicable.

However, depending on all the facts and circumstances, he may well be able to claim an exemption for the child, and possibly even for his wife.

On an MFS return, the taxpayer can claim an exemption for the spouse if the spouse had no gross income, is not filing a return, and is not the dependent of another taxpayer.

Yes, I know. The wife's parent claimed the grandchild and the wife as dependents.

But if he was paying the rent for her apartment, and also sending her money, then she may not truly qualify as a dependent of her mother. If the wife is young enough to potentially be a qualifying child of her mother, then the funds and housing provided by her husband may mean that she is providing more than half of her own support. This would also cause her to fail the support test for a qualifying relative.

And the same arguments could apply to the child.

You need to carefully examine all the facts and circumstances, i.e., the exact dates which the wife and child lived with her mother, the amount of money provided by the husband (including the rent), and also the question of whether the husband ever took any steps to change his domicile. Where was he registered to vote? Where was he getting his mail? He worked out of state. Did he get a new driver's license from that state? All of these things are relevant to whether his "working out of state" was merely a temporary absence from the marital home.

If you conclude that his child qualifies as his dependent, based on all of the facts and circumstances, then I would probably also recommend claiming the exemption for the spouse. If he's going to fight it out with the IRS, then claiming the spousal exemption will support his position. It highlights the fact that his wife had no gross income, did not file a return, and was not the dependent of another taxpayer. In other words, in this scenario, if the IRS is going to review the question of whether the child is his dependent or the dependent of the grandparent, it will actually help if they also have to determine whether his wife qualifies as a dependent of the grandparent.

If the facts support treating his work out of state as a temporary absence, then you may be pleasantly surprised to find the child is clearly his qualifying child, and that his wife does not qualify as a dependent of her mother.

BMK

[Koss]

Spousal Exemption with MFS

Just one further clarification:

With respect to claiming an exemption for the spouse on an MFS return, the question that arises is whether his wife truly satisfies all of the criteria to be a dependent of the wife's mother. If she does not, and she had no gross income and does not file a return, then he can claim the spousal exemption.

You do not need to determine whether his wife meets the criteria to be his dependent.

A spouse is never a dependent. Claiming an exemption for a spouse on an MFS return does not transform the spouse into a dependent. The spouse would not be listed as a dependent on the return, and the exemption would be claimed on line 6b--not on line 6c.

For a dependent, you claim a dependent exemption; for a spouse, you claim a spousal exemption. A spouse can never be considered a dependent of the other spouse. The rules for a qualifying child and qualifying relative are simply not applicable to a spouse. There is no support test, and there is no residency test. A spouse is a spouse.

BMK

[Nelstax]

Thank you!

Thank you so much for your responses. Koss, the last line of your first post is exactly the way I am looking at this situation, I needed someone else to look
at this and tell me I am right or wrong. I believe the mother-in-law should
not be claiming the dependents, besides that, it is saying nothing about her not wanting to HELP her child in her new marriage instead. That is another story.
I sincerely thank you for your time and expertise.

[Burke]

Also, doesn't the EIC questionnaire say something to the effect that "can you or the child be claimed as a dependent by another taxpayer?" That would rule out the EIC too.

[DonB]

Community Property State

On an MFS return, the taxpayer can claim an exemption for the spouse if the spouse had no gross income, is not filing a return, and is not the dependent of another taxpayer.

BMK

If they liver together at any time during the year in a community property state, would she not have gross income (1/2 of his income) and be required to file a return? I like your analysis Burton. I too quickly jumped to the living apart at all times in the last six months scenario ignoring the temporary absence question.

[ddoshan]

Based on the information in the post, if I was the Husband and father, I would be really upset at my mother-in-law. I would definitely claim my own child if nothing else and to heck with her. I would also have a serious conversation with my wife about this.

[JohnH]

I tend to agree that the MIL is likely in the wrong here, but there are too many unknowns. Perhaps the degree of support she is providing is much greater that what he provides, so even if she isn't legally entitled to the exemptions she is driven to insist on taking them. On the other hand, the MIL may just be a meddlesome, unreasonable sort who is willing to risk dmaging the daughter's marriage with her interference. I'm sure most of us have dealt with both types.

Depending upon the amounts of money involved and the stakes, it may just be that the husband should file MFS, kiss the money goodbye, and learn his lesson. He either needs to step up and support his family if that is the problem, or he and his wife need to make whatever sacrifice is necessary to save their marriage by ending the dependence upon the MIL.

Whatever the case, it is clear that the larger issue here is the marital relationship rather than a few hundred dollars in taxes for one year. As tax preparers we should't find ourselves in the middle of this sort of situation, but when we do, it might be wise to help the client look at the big picture rather than focus only on the lowest possible tax liablity.

[Koss]

Community Property?

If they liver together at any time during the year in a community property state, would she not have gross income (1/2 of his income) and be required to file a return? I like your analysis Burton. I too quickly jumped to the living apart at all times in the last six months scenario ignoring the temporary absence question.

The rules for community property states may in fact change things significantly. I overlooked that aspect of this affair.

BMK

[TaxGuyBill]

I just want to add a non-tax thought: Does your client realize that if he DOES claim the child that it dramatically increases the risk of marital problems, and that his wife may want to divorce him?

[Kram BergGold]

Community Property ?

The husband files MFS. Since they are from a Community Property State don't they each report 1/2 of his wages on line 7? Obviously, I am not from a Community Property State. If so, his spouse better file or she will have huge potential penalties when IRS questions his return.

[David1980]

I just want to add a non-tax thought: Does your client realize that if he DOES claim the child that it dramatically increases the risk of marital problems, and that his wife may want to divorce him?

I'd wonder if she isn't already pursuing that. We don't know, of course. But wife lived in apartment rented by husband for part of the year. Wife lived with her mother part of the year (did she move out of husband's place and in with mom?) Wife is unwilling to file jointly with husband.

[DonB]

The husband files MFS. Since they are from a Community Property State don't they each report 1/2 of his wages on line 7? Obviously, I am not from a Community Property State. If so, his spouse better file or she will have huge potential penalties when IRS questions his return.

I read that he must inform her of the income or it's all his.