Another Dependent Question

[Unregistered]

I’ve read all the dependent questions but haven’t seen this one addressed yet.

Taxpayer is married filing joint and has three children of his own. He also has two foster children placed with him by a state agency. He is paid over $20,000 per year for each child by the state agency.

I have never allowed the dependent deductions in the past because he clearly does not provide support. However when I read the chart on page 3-15 line 7 under qualifying child it says “The Child cannot have provided over half of his or her own support during 2005”. Since someone else provides the support it would appear he could now claim the deduction. Is that right?

[ChEAr$]

claiming

Nope. the support tests still apply.

Christmas ChEAr$,
Harlan Lunsford, EA n LA

[Gretel]

Interesting

...question. Children don't provide any support for themselves. So it appears that children can be claimed. Same would be true for children who receive too much insocial security payments.

I am almost sure there is a provision to clarify this or should there be a loophole?

[taxea]

Another dependent question

IRS pub 17 explains everything. Monies provided are considered as the child's contribution to his/her support. It further explains whether you can take the child as a dependent and how to handle the excess support you provided.
If you provide more support than the child most people take it as a donation.
taxea

[Gene V]

foster child

I agree with Gabriele, he should be able to claim the dependency exemption for the two children, under the new rules the children did not provide over half of their support.
TTB page 3-17 Support provided by others:
Foster care payments, welfare benefits and similar payments
I think if the checks where made out to the children instead of the parents, then it would be a difference story.

[ChEAr$]

pub 501

take a look at the most excellent worksheet # 1 on page 18 of the current publication 501.

You start with the dependent's own funds available. This seems a little different from older
worksheets which started out by figuring an individual's support and then asking about
other funds.

Merry Christmas,
Harlan Lunsford, EA n LA

[Bees Knees]

TTB, page 3-17 identifies foster care payments as support provided by others. This is applicable in the case of a qualifying relative where the taxpayer must provide over 50% of total support. Obviously, under the qualifying relative rules, foster care payments do not count in the taxpayer’s favor.

But for purposes of the Qualifying child rules, the taxpayer is not required to provide over 50% of total support. The only support rule that applies to a qualifying child is that the child itself cannot provide over 50% of his or her own support. Again, look at page 3-17. It says that foster care payments are provided by others. It does not say that foster care payments are provided by the child. They are payments provided by others. The child did not provide over 50% of his or her own support because that was provided by the foster care agency.

IRS Pub 501 does not come right out and say it, but it is sort of implied. On page 12 under “Support Test (To Be A Qualifying Child),” it says that this test is different from the support test to be a qualifying relative. Foster care payments are only mentioned under the support test to be a qualifying relative, and again on page 15 of IRS Pub 501, it says foster care payments are considered support provided by the agency, or state, or county. So for the qualifying relative rules, this counts against the taxpayer. It does, however, count in favor of the taxpayer for a qualifying child rules, because it is clearly support provided by someone other than the child itself.

This is also confirmed in the Worksheet on page 18 of IRS Pub 501 where is says “total funds belonging to the person you supported.” In no case are foster care payments ever belonging to the foster child. They are payments from the foster care agency or state paid to the foster care provider. So clearly, foster care payments are not considered support provided by the child, but rather, by someone other than the child or the taxpayer. Thus, foster care payments will not disqualify the child under the qualifying child rules.

[WhiteOleander]

I think in the case of support of the QChild and not the QRelative, the fostercare support would be considered in much the same way as child support. Child support is not considered funds provided by the child. So, I think this is the same concept intended to be applied to the fostercare payments.

[DaveO]

Followup

Thanks for all the input on my original post. I have read the applicable parts of Pubs 17 & 501. It would seem that under the Qualifying Child rules the foster child would qualify but not under the Qualifying Relative rules.

Since part of the Qualifying Relative rules are that the person is not your Qualifying Child it seems to me they pass and get to claim the exemptions. I thought these new rules were supposed to simplify this.

[Gretel]

Simplify

Dave, don't you know that they always lie to us when they talk about simplification. It's time not to get the hopes up anymore when someone mentions simplification.

Well, welcome to the board and have a good tax season.