Qualifying Child Controversy

[Mark Goldberg]

Burton Koss has a web site

https://www.usakoss.net

Read all of it before you decide anything.

[Bees Knees]

Taxpayer

The argument that the mother with no income is not a taxpayer and thus her child is not her qualifying child is a lame argument. It reminds me of the kind of argument tax protestors make when they twist words to support their contention they are not subject to U.S. income tax.

The term taxpayer is not limited to someone who actually pays tax. Otherwise EIC recipients would not be called “taxpayers” since they often get more back than they pay in. Yet Section 32(a)(1) uses the term “taxpayer” in the case of an individual who is eligible to receive EIC.

Using the same logic Burton is trying to make on his web site, I could argue the EIC is a nonrefundable credit because only "taxpayers" are eligible for the credit under IRC Section 32(a)(1).

[Jesse]

The term taxpayer is not limited to someone who actually pays tax. Otherwise EIC recipients would not be called “taxpayers” since they often get more back than they pay in. Yet Section 32(a)(1) uses the term “taxpayer” in the case of an individual who is eligible to receive EIC.

In your comparison the EIC recipient did earn income, thus receiving EIC. Burton seems to be focusing on individuals that have NO income, so what makes them a taxpayer by definition?

The following was cut & paste from QF written by Burton:

Definition of Taxpayer

What if not a US citizen?

Well, you'll argue that resident aliens and non-resident aliens are also "subject to an internal revenue tax." And I agree. They are. If they have income.

Because the IRC enables the US government to tax income earned inside the US by non-citizens, and income earned outside the US by citizens, the meaning of the term taxpayer does not appear to hinge in any way on citizenship or residency. US citizens who do not live in the US are still subject to internal revenue taxes--if they have income. Noncitizens who live in the US are also subject to internal revenue taxes--if they have income.

But regardless of one's citizenship or residency status, I do not see how someone can be a taxpayer if they have absolutely no income whatsoever.

Mark, can you give me an example of a person who is not a taxpayer, but somehow has a qualifying child?

If taxpayer status does not flow from citizenship or residency, and is not determined by whether the person has income, then why isn't every human being on the planet a taxpayer?

If the term does in fact encompass anyone, then why does the term have a formal definition in the law? The definition has no value or purpose unless it actually serves to separate the population into taxpayers and non-taxpayers.

And please don't offer a definition that somehow hinges on the issuance of an SSN or TIN. Aliens and foreign business entities can have income even if they never obtain a TIN. They may not be reporting the income or paying taxes, but they are certainly subject to an internal revenue tax. The idea that the existence of the SSN or ITIN defines a person or an entity as a taxpayer almost sounds like a tax protestor argument.

I don't think having an SSN makes you a taxpayer, and I don't think that NOT having an SSN excludes from the scope of the term taxpayer.

How is a person subject to an internal revenue tax if they have no income?

Burton

[Bees Knees]

Because the IRC enables the US government to tax income earned inside the US by non-citizens, and income earned outside the US by citizens, the meaning of the term taxpayer does not appear to hinge in any way on citizenship or residency. US citizens who do not live in the US are still subject to internal revenue taxes--if they have income. Noncitizens who live in the US are also subject to internal revenue taxes--if they have income.

Simple: Taxpayer refers to anyone, citizen or noncitizen subject to the laws of the U.S. Internal Revenue Code. All citizens and residents are thus taxpayers, and all nonresident aliens are taxpayers if they become subject to the laws of the U.S. Internal Revenue Code.

But regardless of one's citizenship or residency status, I do not see how someone can be a taxpayer if they have absolutely no income whatsoever.

Simple: If you are subject to the laws of the U.S. Internal Revenue Code, then you are a taxpayer.

If taxpayer status does not flow from citizenship or residency, and is not determined by whether the person has income, then why isn't every human being on the planet a taxpayer?

Simple: Every human being on the planet subject to the laws of the U.S. Internal Revenue Code are taxpayers. That means all U.S. citizens are taxpayers, all U.S. residents are taxpayers, and all nonresident aliens who did something, anything, to subject themselves to the laws of the U.S. Internal Revenue Code are taxpayers.

If the term does in fact encompass anyone, then why does the term have a formal definition in the law? The definition has no value or purpose unless it actually serves to separate the population into taxpayers and non-taxpayers.

OK, lets use your logic here. Name one example in the IRC where an individual is identified as a non-taxpayer.

And you should no that no word or term in any IRC applies uniformly across the board. That is what this whole argument is about. The NON-uniform definition of a qualifying child. They can’t even make a uniform definition in 5 code sections be a unified definition, let alone the other 9,999 code sections.

The real debate here should be where in code section 152 does it define the term “taxpayer.” Unless the term “taxpayer” is defined in the context of the law being discussed, you can’t say it is or it is not this or that. The term has no specific meaning unless it is specifically identified in a code, or is uniformly applied to all codes. The term “taxpayer” basically is meaningless, other than as a substitute to saying “he” or “she.” It’s really one of those politically incorrect words used as a way to try and not offend someone by saying everyone is a he or a she or an it.

[Bees Knees]

I did do a quick search on the term “non-taxpayer,” and the term is used often in court in tax protestor arguments. It is also used to describe someone other than the specific “taxpayer” involved in the court action. For example in American Electric Power, Inc. v. United States, KTC 2001-54 (S.D.Ohio 2001), the term nontaxpayer is used to describe the economic consequences to non-taxpayer parties. The court did not use the term to mean people who do not pay tax. The term is used to describe people who are not the taxpayer in the court case being litigated. Thus, the term has multiple meanings. The term "taxpayer" may also have multiple meanings, depending upon the context of its usage.

It is a stretch to use it to try to justify a loophole in the uniform definition of a qualifying child rules under Section 152 by limiting its scope to a person who actually paid tax for the year in question.

[pog]

Taxpayer Defined

The Code does have a definition of a taxpayer. See Sec. 7701(a)(14):

The term "taxpayer" means any person subject to any internal revenue
tax.

That definition applies to the entire title unless the definition is "otherwise distinctly expressed."

Perhaps the question should be what does "subject to" mean?

[Bees Knees]

Which proves my point. A person subject to any internal revenue tax is a vague definition. Internal revenue taxes are not limited to income taxes. They include fuel excise taxes, taxes on alcoholic beverages, estate and gift taxes, employment taxes, taxes on vaccines, recreational equipment, air transportation, gambling, the environment, ozone depleting chemicals….and the list goes on and on.

Name one person who can go through life in this country and not be subject to at least one of these. The definition is so vague, it basically takes on the meaning of anyone and everyone.

[Mark Goldberg]

Bees-More on this from IRS

I am not taking a postion on this yet but I want to make sure you have seen this:


In a section of the IRS website titled “Frequently Asked Questions,” we find a far more concrete example, which actually supports the “not a taxpayer” interpretation:


Q. My husband and I have provided a home for my niece and her son for the past seven months. She receives no child support from her ex-spouse, and she does not work or have any income of her own. Can I claim her and her son as dependents?


A. Under a new law effective with tax years beginning after December 31, 2004, dependents have been divided into two categories, qualifying child and qualifying relative. Your niece and her son would qualify as your dependent under the qualifying relative category as long as the other four dependency tests are met.


Why, in this example, is the son not a qualifying child of the niece? He appears to meet all of the tests. The niece, however, “does not work or have any income of her own.” This appears to support the conclusion that the niece is not a taxpayer, and therefore her son is not the qualifying child of any taxpayer at all. It is for this reason that he is the qualifying relative of the couple in question.



Now what has been pointed out by someone else on the other Board is the niece is a qualifying child for the Aunt/Uncle no matter how you define things and therefore is a dependent. The niece's child can only be a dependent of the Aunt/Uncle as a qualifying relative if you use the arguement that the niece is not a taxpayer.

[Bees Knees]

That is a good argument.

It is also a good illustration of the IRS always giving themselves an out for when they screw up. They say: "Your niece and her son would qualify as your dependent under the qualifying relative category as long as the other four dependency tests are met."

What other dependency tests? Could the "Not a qualifying child test" be included?

I don't know. It seems more likely this is a poor explanation of the rules than some hidden loophole in the code the IRS intended to illustrate. If the IRS was really trying to illustrate this point, why don't they come right out and say the "not a qualifying child test" doesn't apply if the taxpayer didn't have to file a tax return this year?

[Gretel]

Interesting

Why, in this example, is the son not a qualifying child of the niece?

Maybe because the niece wasn't the one to ask the question. Maybe they only looked at the situation of the person asking.

I wouldn't draw the conclusion that the IRS said the niece isn't a taxpayer.

[BOB W]

Confused???

Can someone please get to the bottom of this issue. We all need to know which is the correct answer. Tax season is right around the corner.

[Bees Knees]

Big Picture

I give Burton kudos for pointing this issue out. I don’t believe making the claim a taxpayer has to actually pay tax applies to this situation. But I do believe Burton has found a hole in the tax law that was more than likely caused by an oversight on the part of Congress.

Congress wanted to simplify the code. They also wanted to codify who gets the tax benefit of claiming a child. They came up with tie breaker rules to eliminate the need to go to court in cases where divorced parents each tried to claim the same kid.

In their usual bumbling of messing with the code, the definition of a qualifying relative should have said a person not claimed as a qualifying child by another taxpayer. That would give the dependency exemption first to the custodial parent, if he or she wanted it, next to the non-custodial spouse, if the custodial spouse said OK, and finally to a non-parent supporting the kid, if neither parent wants or needs the dependency exemption.

I don’t believe Congress ever intended the child to go dependentless. I think Congress just did not see this scenario as a possibility where nobody qualifies for the dependency exemption. Obviously, the person supporting the kid should get the dependency exemption if the parent is not supporting the kid and does not need the dependency exemption.

The IRS will probably not even challenge it unless more than one person tries to claim the same kid as a dependent. If I get a client in this situation, I will advise the client of the controversy and let them decide if they want to risk it, assuming the client would be the only one who would possibly even try to claim the kid as a dependent. I think that is the key to the issue. If there is no chance of anyone else trying to claim the exemption, then I think the one supporting the kid should be allowed the exemption.

[pog]

Comment on the IRS FAQ

On its website under FAQs IRS wrote, as Mark pointed out earlier:


"Under a new law effective with tax years beginning after December 31, 2004, dependents have been divided into two categories, qualifying child and qualifying relative. Your niece and her son would qualify as your dependent under the qualifying relative category as long as the other four dependency test are met. These test are:"


Comment 1. The word "dependent" in the phrase "would qualify as your dependent" should be in the plural form "dependents." Was that a typo or a careless grammatical error? Or did they mean to write "Your niece but not her son..."?

Comment 2. I think IRS goofed. The niece and the niece's son would both qualify under the qualifying-child category, wouldn't they? And if they do, they couldn't be qualifying relatives. Sec. 152(c)(2) defines the relationship for the qualifying-child test. The listed relatives are child of the taxpayer, a descendant of that child, or a brother, sister, stepbrother, or stepsister of the taxpayer or a descendant of any such relative (referring to the brother and sister). Blood relationships always confuse me but I'm pretty sure one's niece and her son must be a descendant of your brother or sister, hence a qualifying child under this subsection.

[Bees Knees]

Comment 2. I think IRS goofed. The niece and the niece's son would both qualify under the qualifying-child category, wouldn't they? And if they do, they couldn't be qualifying relatives.

I agree. Good catch. I didn't see that.

The IRS Q&A example is a moot point in Burton's argument since the aunt and uncle get both dependecy exemptions under the qualifying child rules, not the qualifying relative rules.

[Gretel]

IRS announcement

http://www.irs.gov/formspubs/article/0,,id=109876,00.html#child_def_2005

In the link above it reads: ...To claim the dependency exemption for a qualifying relative, the child cannot be the qualifying child of any other person and all five dependency tests discussed under Dependency Tests in Publication 501 must be met.

Note: It reads .....Person... and not taxpayer.