Young Marrieds

[Snaggletooth]

are fresh out of college. Not just college, but an expensive private school with costs in the $20K per year range.

Married late in the year after parents paid the lions share of tuition, room, and board. Income for married couple is so low there will be no tax liability if they file joint. No one will benefit from the massive 1099Ts.

Parents can still claim these newlyweds as dependents, the way I interpret the situation. During the appointment for these young people, we called both sets of parents. One received the news joyously, as a $2000 benefit hung in the balance. The other set had a father who knew more than I did. He talked to the ultimate authority -- the IRS, who told him he couldn't claim the child unless the child had zero tax liability. And of course since the IRS knows more than tax preparers, I was the misinformed party.

In order for this to work for the parents, the newlyweds have to file separately. And there is a statement in TTB that a requirement for filing separately can be waived if the process of filing separately resulted in zero tax liability. This is what probably created the confusion.

There WILL be tax liability, some $90 for husband, and $200 for wife, as a result of filing separate returns. I believe the TTB language above does not apply, so long as the couple follows through with filing separate, and the two sets of parents can claim their children one more year. All the other qualifications (support, age, etc.) are met.

Does anyone disagree?

[GIMoe]

Mfj

There WILL be tax liability, some $90 for husband, and $200 for wife, as a result of filing separate returns. I believe the TTB language above does not apply, so long as the couple follows through with filing separate, and the two sets of parents can claim their children one more year. All the other qualifications (support, age, etc.) are met.

Does anyone disagree?

That is not how I read that Dependancy test. Test # 2 of 7 as listed in TTB on page 3-15 reads as follows:

2) Married filing joint test. A person cannot be treated as a dependent if he or she files a joint return with a spouse. This rule does not apply if the joint return was filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.

I read that as saying that the ONLY time someone filing as MFJ can be claimed as a dependant is if and only if they would have NO tax liability had they filed MFS. You state that there will be a tax liability if they choose to file MFS. This would then disqualify them from being claimed as a dependant.

[Snaggletooth]

My Take

Examples:

1) Married couple file jointly and have no liability. Had they filed separately,
they would also have no liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is waived.

2) Married couple file jointly and have no liability. Had they filed separately,
they would have had liability.
DEDUCTION BY PARENTS DISALLOWED, invoking the rule in TTB.

3) Married couple files separately and neither has liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is not applicable
since they are filing separately.

4) Married couple files separately and both have liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is not applicable
since they are filing separately.

[erchess]

I think we may have a misunderstanding here.

Moe, I believe that Snag intends to file the young couple MFS and have them pay small sums in order that their parents may claim much larger tax savings.

Snag, I agree with you.

Now I have a question. Was there ever a time when a dependent could not be married, period? If so, when was this?

[Grumpy]

I agree with Snaggletoof. If the married couple file separate returns then there is no need to apply the MFJ test.

[GIMoe]

Clarification

Examples:

1) Married couple file jointly and have no liability. Had they filed separately,
they would also have no liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is waived.

2) Married couple file jointly and have no liability. Had they filed separately,
they would have had liability.
DEDUCTION BY PARENTS DISALLOWED, invoking the rule in TTB.

3) Married couple files separately and neither has liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is not applicable
since they are filing separately.

4) Married couple files separately and both have liability.
DEDUCTION BY PARENTS ALLOWED. Rule in the TTB is not applicable
since they are filing separately.

After reading your examples, I looked it up in a different reference book and there it stated very plainly:

1)Unmarried or if married, does not file a joint return.

This would definetly support your view that they qualify as dependants as long as they file seperately and meet the other dependancy tests. Having seen it in this light I am inclined to agree with your assessment. It's amazing how something simple that you just don't see that often can start to get complicated. Until you break it down to its simplest form (like the above quote), then it becomes simple again. Well, just 1 more Week to go.

[GIMoe]

Agree

Moe, I believe that Snag intends to file the young couple MFS and have them pay small sums in order that their parents may claim much larger tax savings.

Snag, I agree with you.

Now I have a question. Was there ever a time when a dependent could not be married, period? If so, when was this?

I agree -- got tied up with the wrong wording.

[Bertandbull]

Young Married couple

It is funny you brought this up. I have been doing tax returns for years, and I have only ran into this situation once( and then this year)
A few years back, I had a client that was also a student, got married, but his new wife only made a couple hundred dollars. Turned out his mother could not claim him, because he had a tax liability if filed separate. I was fine with that one.

This year, another client filed his own return and went married filing separately ( his new wife was a student and parents already claimed her). Her parents cpa wrote me a letter, letting me know that I needed to amend The newlyweds return as MFJ, but not allowing the new wife to claim herself.

Well after meeting her for the first time and looking at her income , I really thought everything would be fine, with me amending the return.
My program would not let me do this. So, I did some digging(the Tax Book) and got two EA's opinions. Because ONE of them had a tax liability( The new Husband) it was not going to work.
Called her parents CPA the next day, while I read out of the Tax Book, he looked it up in his research software. He was totally stumped, as was I. The CPA amended the parents return without the daughter. I also amended BUT filed them joint claiming their own exemptions.
You learn something new every year. I think its great.

[erchess]

I am totally puzzled.

From reading this thread, I thought we were all in agreement with Snag and then Bert comes along...... Bert do you agree or disagree with the rest of us, and why do you believe as you do?

[jasdlm]

Agree with Snag

Additional exemption for dependents
(1) In general
An exemption of the exemption amount for each dependent (as defined in section 152) -
(A) whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than the exemption amount, or
(B) who is a child of the taxpayer and who (i) has not attained the age of 19 at the close of the calendar year in which the taxable year of the taxpayer begins, or (ii) is a student who has not attained the age of 24 at the close of such calendar year.
(2) Exemption denied in case of certain married dependents
No exemption shall be allowed under this subsection for any dependent who has made a joint return with his spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.

****
This is from section 151 of the IRS code; from this, it seems to me that Snag is correct. Thoughts?

[erchess]

Block's view

On Wednesday night 4/11/07 at my Chess Club I had the chance to discuss this thread with a friend employed by HRB. I learned that this firm does not allow married dependents unless MFS returns for both would show no tax liability. However, the firm has no trouble with the couple filing a joint return as long as it also shows no tax liability. My friend thinks that Pub 17 supports this view but I think that he clearly has not carefully read table 3-1 at the top of page 28 of that document.

On an aside, is it possible under current law that a couple could have zero tax liability filing separately but have a tax liability filing jointly?