New clarification to the dependency regs

[joanmcq]

Finally they've decided what has long been argued...

http://www.irs.gov/pub/irs-drop/n-08-05.pdf

[solomon]

I wonder how may taxpayers previously got the proverbial shaft.

[BP.]

TTB 2007, pp. 3-16 & 3-17, Single Parent Situations: After a quick skim, looks like not all the situations on these pages reflect Notice 2008-5. Eg- Cousin supporting twins, and footnote 9. Will these pages be rewritten/updated?

[Bees Knees]

Yes, those pages will be updated.

[erchess]

I wonder

If TTB has ever thought about issuing the books in looseleaf binders so that those of us who wanted to could print revised pages and insert them. I bought the physical books and the CD this year but I may get only the CD next year because I have developed the habit of checking the CD every time I consult the printed copy.

[Bees Knees]

If TTB has ever thought about issuing the books in looseleaf binders so that those of us who wanted to could print revised pages and insert them. I bought the physical books and the CD this year but I may get only the CD next year because I have developed the habit of checking the CD every time I consult the printed copy.

The updates for the printed books this year will be PDF replacement pages. You can print them out and tape them over the old pages.

[erchess]

Ty Bees

You are on the ball as usual.

However I have now read the IRS material and I am confuzzled by the idea that someone who is not a relative by blood, marriage, or adoption can be a qualifying relative. In the examples at the end of the piece, should not the dependents be qualifying other dependents rather than qualifying relatives?

[BP.]

Yes, those pages will be updated.

Thank you, Bees! And thank you proud inspector No. 8.

[New York Enrolled Agent]

You are on the ball as usual.

However I have now read the IRS material and I am confuzzled by the idea that someone who is not a relative by blood, marriage, or adoption can be a qualifying relative. In the examples at the end of the piece, should not the dependents be qualifying other dependents rather than qualifying relatives?

A dependent can ONLY be a qualifying child or a qualifying relative. §152 was changed by the WFA. You might want to look at §152(d)(2)(H).

[dtlee]

I am confuzzled by the idea that someone who is not a relative by blood, marriage, or adoption can be a qualifying relative. In the examples at the end of the piece, should not the dependents be qualifying other dependents rather than qualifying relatives?

I agree with you that the choice of terms is misleading. Qualifying Relatives do not need to be related in the traditional sense as you point out.

As an aside, the wording on line 6 of the 1040 also need updating. It is unclear if that line intends to mimic the QC/QR Rules or is defining "children" differently there. I know many preparers who count any son or daughter as either a child who lived with you" or "who did not" even when the child is a Qualifying Relative. I am not sure whaat the IRS really wants there. I have seen them attempt to give the EIC to a family with a 36 year-old "son" counted as a "child who lives with you" so I suspect they interpret these in a way that is not documented anywhere.

[snowbird]

Not sure if it was a discussion on this board or another several weeks ago about taking a child (18 yrs old) as a dependent that was a friend of the tp's son that had been abandon by his parents. The tp had been taking care of him for several years. Some said he could be taken as a dependent, but obviously prior to this notice, he could not. It still seems to be questionable if he could. The notice says:

"This notice clarifies that an individual is not a qualifying child of “any other taxpayer” if the individual’s parent (or other person with respect to whom the individual is defined as a qualifying child) is not required by section 6012 to file an income tax return and (i) does not file an income tax return, or (ii) files an income tax return solely to obtain a refund of withheld income taxes.

If the parent filed and paid taxes but did not take the child as a dependent ... it sounds as if the tax payer could not either. However, the example seems to revolve around whether or not the child was taken as a dependent by the parent. If the tp did not know if the parent filed a return, could not locate the parent, I would advise to take the dependent. If the parent surfaces and complains, report the parent for abandonment ... that would shut him or her up quick!

[New York Enrolled Agent]

Not sure if it was a discussion on this board or another several weeks ago about taking a child (18 yrs old) as a dependent that was a friend of the tp's son that had been abandon by his parents. The tp had been taking care of him for several years. Some said he could be taken as a dependent, but obviously prior to this notice, he could not. It still seems to be questionable if he could. The notice says:

"This notice clarifies that an individual is not a qualifying child of “any other taxpayer” if the individual’s parent (or other person with respect to whom the individual is defined as a qualifying child) is not required by section 6012 to file an income tax return and (i) does not file an income tax return, or (ii) files an income tax return solely to obtain a refund of withheld income taxes.

If the parent filed and paid taxes but did not take the child as a dependent ... it sounds as if the tax payer could not either. However, the example seems to revolve around whether or not the child was taken as a dependent by the parent. If the tp did not know if the parent filed a return, could not locate the parent, I would advise to take the dependent. If the parent surfaces and complains, report the parent for abandonment ... that would shut him or her up quick!

Perhaps I miss something but I do not follow your assertion the 18 year old could not have been a qualifying relative of the friend's parents prior to this notice.

I fail to understand how the birth parent could take the "abandoned" child as a dependent. Look at §152(c)(1)(B) - a qualifying child must have the same principal place of abode as the taxpayer for more than ½ of the taxable year. Thus the 18 year old child is not a q.c. of any parent (you say he has lived away from the parents for years). Thus assuming the other requirements are met, the 18 year old could be claimed (both before and after the notice) as a q. r.

[dtlee]

Not sure if it was a discussion on this board or another several weeks ago about taking a child (18 yrs old) as a dependent that was a friend of the tp's son that had been abandon by his parents. The tp had been taking care of him for several years. Some said he could be taken as a dependent, but obviously prior to this notice, he could not. It still seems to be questionable if he could. The notice says:

"This notice clarifies that an individual is not a qualifying child of “any other taxpayer” if the individual’s parent (or other person with respect to whom the individual is defined as a qualifying child) is not required by section 6012 to file an income tax return and (i) does not file an income tax return, or (ii) files an income tax return solely to obtain a refund of withheld income taxes.

If the parent filed and paid taxes but did not take the child as a dependent ... it sounds as if the tax payer could not either. However, the example seems to revolve around whether or not the child was taken as a dependent by the parent. If the tp did not know if the parent filed a return, could not locate the parent, I would advise to take the dependent. If the parent surfaces and complains, report the parent for abandonment ... that would shut him or her up quick!

I remember the discussion. Basically, yes, there was discussion as you describe, but the fact that some believed the parents could claim the son, doesn't change the law.

The discussion was that the son did not live with the parents at any time of the year for several years and they paid nothing towards his support. Based on the way the situation was described the parents cannot claim the son as a Qualifying Child or a Qualifying Relative, so regardless of how they would want to file, it has no impact on whether the people who fully support him and with whom he lived the entire year are allowed to claim him as a Qualifying Relative.

Despite what people said, the tiebreaker rules only matter if multiple taxpayers can claim the son as a Qualifying Child. The only reason he is eligible to be a Qualifying Relative of anyone is that he is no one's Qualfiyfing Child. There is nothing in Notice 2008-05 that changed the IRS interpretation of this. The son was required to live with the parents (except for temporary absenses) for them to claim him prior to the notice and there was nothing in the notice that changed that requirement.

[snowbird]

Perhaps I miss something but I do not follow your assertion the 18 year old could not have been a qualifying relative of the friend's parents prior to this notice.

I fail to understand how the birth parent could take the "abandoned" child as a dependent. Look at §152(c)(1)(B) - a qualifying child must have the same principal place of abode as the taxpayer for more than ½ of the taxable year. Thus the 18 year old child is not a q.c. of any parent (you say he has lived away from the parents for years). Thus assuming the other requirements are met, the 18 year old could be claimed (both before and after the notice) as a q. r.

The parent would lose the dependency because of the residency and support, but the child was still theirs. What the IRS is saying, they agree with your interpretation or clarify. But the IRS is also saying, that "Commentators have indicated that section 152(d)(1)(D) may lead to unintended tax consequences that differ from the tax consequences under prior law." They used an orphan example ... who were the other "commentator"? I always understood the IRS from 2006 comments. It was my understanding that if no parent (grandparents, etc) qualifies to take the dependency as a qualified child, no one could .

If you read the notice, it all relates to a parent (s) that does not file or only files for refund. What happens if the parents do not qualify for the dependency deduction but do file a return owing taxes? Can someone else still take a dependency deduction.

[commentator]

I remember the discussion. Basically, yes, there was discussion as you describe, but the fact that some believed the parents could claim the son, doesn't change the law.

The discussion was that the son did not live with the parents at any time of the year for several years and they paid nothing towards his support. ...

A parent need not pay support to claim a qualifying child. The only support test for that status is that the child not have paid more than 1/2 of his/her own support.