Foster child dilemma

[rtsietsema]

Potential client has shared guardianship of foster child for all of 2019. Shares house with other guardian and provides well over half the cost of the home. Not a married couple, in the State of Wisconsin. The other guardian, with income of roughly $15,000 has already filed as single, claiming the child as a dependent getting the child tax credit and the EIC. Obviously a large refund. I had nothing to do with that return.

The question is, may my potential client file as HOH using the foster child as a qualifying child even though someone else used the child for CTC and EIC? The foster child’s presence in the home combined with his income seems like it should work, but it feels a little strange. Any thoughts are welcome. It seems like a unique situation. Thanks.

[ATSMAN]

If the custodial parent of the child signed 8332 to release for CTC, they can still qualify for HOH assuming the tests for HOH pass for the custodial parent.

[TaxGuyBill]

The question is, may my potential client file as HOH using the foster child as a qualifying child even though someone else used the child for CTC and EIC?

No. Two adults living together can't split the benefits from a child. So only one of the can have the child on their tax return in any way.

Ideally, the two guardians should have each tried the results of claiming the child and figured out which is the best overall result. Due to EIC, I suspect the overall result has already been done (the low income person claiming the child), but that is just a guess and circumstances vary.

[Rapid Robert]

The EIC and the HOH cannot be split between two taxpayers. If the other taxpayer legitimately took the EIC, then your client cannot take HOH. However, you should look up the tie breaker rules. I think the taxpayer with higher AGI gets to claim all the tax benefits for a dependent if both taxpayers otherwise could claim the child as a QC, so maybe the other guardian made a mistake that can be rectified (either voluntarily or involuntarily).

Also possibly disagree with ATSMAN about Form 8332, that only applies to divorced, separated, or never married parents. But maybe two guardians of a foster child in this case are considered "never married parents"? Not sure about this one.

[edit - posted while TaxGuyBill also posted]

[TaxGuyBill]

[edit - posted while TaxGuyBill also posted]

Great minds think alike. :-)

However, you should look up the tie breaker rules. I think the taxpayer with higher AGI gets to claim all the tax benefits for a dependent if both taxpayers otherwise could claim the child as a QC, so maybe the other guardian made a mistake that can be rectified (either voluntarily or involuntarily).

Tiebreaker rules only apply if two taxpayers actually try to claim the child. If both qualify and the agree who will claim the child, the tiebreaker rules don't apply. So while the client (with the higher AGI) would "win" if he wanted to claim the child, they other guardian can claim the child if they agree.

[Toobusy]

I disagree with statement/replies posted. Yes, she can claim HOH status provided she can prove that she paid over half of the cost of keeping up the home that the dependent lived in using the Support Worksheet (which can be found in TTB) and compute cost of keeping of home, divided by the number of people (including the child) living in house. If she provided more than half of the cost of keeping up the home she can claim the HOH Filing status. She should check the box HOH, and below the filing status line it states: "If you checked the HOH..., enter the child's name if the qualifying person is a child but not you dependent."

Beside you stated the other guardian file as "single" - therefore she can use the same child as HOH. It is true that two people cannot use the child same filing status for the same dependent, but they can use the same person/dependent under different filing status if the Suport Test is met..

A few years ago I had a similar situation and contacted IRS, the IRS Agent was very nice and walked me through the procedures listed above. It worked and the TP was able to claim HOH Status for the dependent for years.

Also, let it be noted, that the HOH - and the qualifying child is not your dependent will only allow you to claim the filing Status of HOH, you won't be able to claim credits such as: EIC, ATOC, CTC for that person, but it does allow you the get the HOH Standard Deductions.

[rtsietsema]

Thank you all for the responses. My potential client has the higher AGI, and undoubtedly is entitled to claim the foster child for benefits the law allows. My response to the potential client is a) leave it alone, and file as single paying more in taxes. b). Have me review the already filed return to determine if that return should be amended to remove the child as a dependent and file the potential client as HOH, if the taxes saved exceed the EIC earned by the lower AGI filer. It’s his choice.

I’m pretty sure if he tried to file as HOH, with the child already claimed as a dependent for CTC and EIC on the already filed return, his return would be rejected.

[Toobusy]

If he has a higher AGI, it may not be beneficial for him to claim the child. Do the numbers and see who benefit more. If the two of them can come to a meeting of the mine, they should be able to work it out where it benefit both. Based on her income I am quite sure that she received more EIC by claiming the child, I don't know if his income will qualify him for EIC..

If he wants to claim the child, he must do a paper return with a detail letter attached outlining the situation, and showing why he qualify to claim the child based on IRS Regulations/guideline. Stating that he provide more than half the child for the TY, etc. I had to do that several times due to similar situation, and IRS reversed it and awarded my client.

[Rapid Robert]

I disagree with statement/replies posted. [B]Yes, she can claim HOH status[...] She should check the box HOH, and below the filing status line it states: "If you checked the HOH..., enter the child's name if the qualifying person is a child but not you dependent."

You are applying something that is not in the facts provided. It is a simple matter of reading the form instructions for the entry you refer to (which is new for 2019).
"

• Your qualifying child who, even though you are the custodial parent, isn't your dependent because of the rule for Children of divorced or separated parents under Who Qualifies as Your Dependent, later.
  
  If the child isn't claimed as your dependent, enter the child's name in the entry space below the filing status checkboxes. If you don’t enter the name, it will take us longer to process your return.

" [note that the preceding two indented paragraphs are part of a single bullet point in the instructions -- so this means using the new line on Form 1040 only pertains to the use of Form 8332]

What this means is that the only time you can use a QC who is not your dependent for filing HOH is when the QC would be your dependent except you released your claim using Form 8332. There are still no situations where one taxpayer can use a QC for EIC while another can use the same QC for HOH. This was one of the main goals of the revised Uniform Definition of a Child first put into law for 2005 tax year.

I read your comment as one could simply fill in the new option entry page 1 of Form 1040 and claim HOH despite another taxpayer claiming the child for EIC. This is not even true for Form 8332 users. We still don't know for sure (IMO) whether or not Form 8332 could be used by these foster parent/guardians (which I take to mean not bio parents and not adoptive parents).

[terryats]

Don't want to commit on rules for HOH, EIC etc, I believe the rules are clear. My big question is who did the courts award the child to ?

[Rapid Robert]

My big question is who did the courts award the child to ?

Not relevant for tax purposes. All that matters is who did the child spend how many nights with? In the facts of the OP, all three lived together all year, so both guardians have equal number of nights.

[terryats]

²Foster Child. For purposes of the EITC, a child is your eligible foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. (An authorized placement agency includes a state or local government agency or an Indian tribal government. It may also include a tax-exempt organization licensed by a state or an organization authorized by an Indian tribal government.)

[Rapid Robert]

Yes, a foster child relationship satisfies the relationship test for a QC. It was already given in the original facts that we are talking about a foster child, so we don't need a "big question" about it. However there are four tests for QC: residency, relationship, age and support. The court does not determine the residency test, only the relationship test.