New clarification to the dependency regs

[dtlee]

Thank you for your comment. I did not say that the parent needs to pay support to claim their son as a Qualifying Child.

The son needs to live with the parent for the parent to claim him as a Qualifying Child. (The example cited says he has not lived with them for several years--in this situation where he was abandoned, I would not consider this a temporary absense--he has lived in his friend's parents house for several years.)

The parents would need to prove support to claim the son as a Qualifying Relative. (The example cited says they have not contributed anything towards his support while living with his friend's parents.)

Based on what was stated, the son is neither eligible to be claimed as a Qualifying Child nor a Qualifying Relative by the parents.

[Koss]

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.

The notice addresses one very specific question:

If a child appears to meet the criteria for qualifying relative for Individual A, and also meets the criteria for qualifying child for Individual B, what principles are used to determine if Individual B is a taxpayer? In other words, how do we determine if the child is a "qualifying child of another taxpayer," which would disqualify Individual A from claiming the child as a qualifying relative?

In your question, Snowbird, you state that the parents "do not qualify for the dependency deduction but do file a return owing taxes?"

Well, in that case, the child is not the qualifying child of the parents. Therefore, the child is not "the qualifying child of any other taxpayer." If the do not qualify for the exemption, but still have to file a return, that means the child did not meet the age, relationship, residency, and support tests with respect to the parents. So the child is not their qualifying child. That means that someone else may claim the child as a qualifying relative if the criteria are met.

Burton M. Koss
koss@usakoss.net

[Koss]

New Rules = Old Rules

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.

The notice changes absolutely nothing. With respect to the tax law that became effective for 2005 tax returns and later, whatever was possible before the notice is still possible, and whatever was not possible before the notice is still not possible.

The notice applies to all tax years beginning after 12/31/04. The notice explains the law that has been in effect for the last two filing seasons.

The notice does not change the law or the IRS interpretation of the law for any particular tax year. The law is the same for 2005, 2006, and 2007.

Burton M. Koss
koss@usakoss.net

[DonPriebe]

Some people never get the news

The notice changes absolutely nothing. With respect to the tax law that became effective for 2005 tax returns and later, whatever was possible before the notice is still possible, and whatever was not possible before the notice is still not possible. ... The notice explains the law that has been in effect for the last two filing seasons. ... The notice does not change the law or the IRS interpretation of the law

But apparently the IRS authors of Pub 17 were never clued in that this was the IRS interpretation all along.

Since the guidance seems to be beneficial to a great many taxpayers (the unmarried couple with his/her child example), do you think we've heard the last of it?

[Koss]

Publication 17

But apparently the IRS authors of Pub 17 were never clued in that this was the IRS interpretation all along.

Since the guidance seems to be beneficial to a great many taxpayers (the unmarried couple with his/her child example), do you think we've heard the last of it?

I don't think the language of Pub. 17 for 2005 and 2006 tax returns was ever in direct conflict with what is stated in Notice 2008-5.

The text of Pub. 17 was, and for the most part still is, ambiguous.

One thing that I think we all actually agree on is that when there is a conflict between the text of the law and some other document such as Pub. 17 or the instructions for Form 1040, that the text of the law is the controlling document.

The problem is that on this particular issue, it is not just the Pub. 17 and the instructions that are ambiguous; the text of the law itself is ambiguous. The core of the debate still revolves around how to interpret the phrase "not the qualifying child of any other taxpayer."

When the text of the law itself is open to more than one interpretation, and there is no controlling court decision, the taxpayer has the right to file a return based on any reasonable interpretation of the law, even if it conflicts with the interpretation presented by the IRS.

In this case, Notice 2008-5 provides a clear, unambiguous indication as to how the IRS has chosen to interpret an ambiguous law. But I concede that it could still be changed or overturned somehow. I think it is extremely unlikely.

BMK