Qualifying Child Controversy

[jainen]

I trust you

I trust you saw it after you posted, and weren't trying to trick us.

[BP.]

That made me smile!

Chuckle. No, I saw it before I posted. Sigh. No trick intended, but this issue is making me feel more the trickee than the tricker. But I am still mulling over your answer about an individual not having a qc 'cause they're a qc, not 'cause they're a dependent.

[jainen]

even trickier

If you are the trickee and the tricker, that's even trickier.

Honestly, this issue is not so complicated. I think that Congress has done an utterly astounding job of clarifying the web of these five benefits. I haven't seen anything from the IRS that is wrong, and only that one minor error in Quickfinder. The problem is that all the explanations run to so many pages, trying to anticipate all the different family situations. If you turn to the actual language of the tax code, you will find it clear, concise, consistent, even fair. As I said, it's astounding.

[dtlee]

While I have been following this topic and am leaning towards accepting Mr. Koss' explanation, I have begun to believe that there are serious flaws (as pog pointed out) in the IRS website example of the niece and son where the IRS says "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." I believe that either the question or the response is missing some information.

I can accept that perhaps the niece is not a Qualifying Child. That the niece is too old to be claimed is a reasonable assumption, but this should have been spelled out in the example because that does not have to be the case (e.g. an 18 year old niece and her 1 year old son, neither with any income). Being too old to be a Qualifying Child and being the daughter of a brother or sister would allow the niece to be treated as a Qualifying Relative.

However, the situation doesn't completely explain why the son of the niece is not a Qualifying Child. My belief is that if the Grand Nephew would have been able to pass the test as a Qualifying Relative for the Grand Aunt/Grand Uncle, then in most cases, the Grand Nephew would also have been able to be treated as a Qualifying Child. Since the Qualifying Child test is applied first, the Grand Aunt/Grand Uncle would claim the Grand Nephew as a Qualifying Child (as noted above). The only scenario that I could think of where the Grand Nephew would not be a Qualifying Child to the Grand Aunt/Grand Nephew, would be if he, too, did not pass the age test (e.g. a 50 year old niece and her 25 year old son, neither with any income). This is still possible, so let's assume it is what disqualifies the son as a Qualifying Child.

Now (and this is the main reason why I am convinced this question is flawed), if the Grand Nephew does not pass the Qualifying Child test due to age or some other reason, the Grand Nephew is not eligible to be treated as a Qualifying Relative (unless all of my references are wrong). To be a candidate for a Qualifying Relative, you must be a relative in specified ways or be an unrelated person who lives with you the entire year. With regard to a brother or sister, the only relatives who qualify are a brother, sister, or a son or daughter of one of them. That does not include the Grand Nephew (grandson of a brother/sister). It does NOT say "a brother, sister or their descendants" which would make it match the Qualifying Child definition. By not being a related person, this Grand Nephew would have to fall under the other category and be required to live with the Grand Aunt/Grand Uncle the entire year. Based on the example, the niece and her son have lived with the taxpayer for 7 months. Thus, if neither of these are not Qualifying Children, then only the niece would be able to be claimed as a Qualifying Relative.

Thus, either both are Qualifying Child Dependents, one is a Qualifying Relative Dependent and the other a Qualifying Child Dependent, or only one is a Qualifying Relative Dependent and the other cannot be claimed as a dependent at all. I cannot conceive of any situation where you could have two Qualifying Relatives in the situation they describe.

While I am still considering Burton's assertions, I have disregarded this example as evidence since I believe it to be greatly flawed. I would be glad to hear if someone else has another perspective on this. If anyone wants the full IRS example posted here for easier access, I will be glad to post it.

[Koss]

Flawed Example

Your reasoning is airtight. The example is definitely weak.

My arguments have never relied on this example.

If nothing else, it is evidence that the IRS does not have a firm grip on this either.

I realize that many, many people who work for the IRS misunderstand certain rules, and they give out inaccurate information all the time.

But if something is flat out WRONG, or seriously defective or incomplete, how does it wind up on the IRS website? It's one thing for one person, somewhere within IRS, to make a mistake and write a bad example. But shouldn't the example have been vetted before publication on the web, by someone at the IRS who specializes in the new rules for children and dependents?

Burton M. Koss

https://www.uaskoss.net

koss@usakoss.net

[dtlee]

Thank you so much for reviewing my analysis, Burton.

I realize your assessment of this did not start with nor did it rely on this example. While I have been searching for any indication that the IRS might agree with you, this example is too flawed to be used for anything, not the least of which would be an answer to a FAQ on the IRS website.

Someone pointed me to Thomson who had a statement supporting your view in one of their courses. I have not found the reference yet, although I really have not had time to look.

Thanks again for your "stamp of approval" on my posting.

[dburd52]

Age Test

But what about the age test for qualifying child. The niece could be under 19, but that is not stated. So back to square one if the niece is 28.

[jainen]

That doesn't change

That doesn't change her son's status as a Qualifying Child to both generations. It means a different set of rules for the taxpayers to claim their niece, but as the natural mother she will still control the decision on who can take the QC. It's her's by the tiebreaker rules unless she agrees to let them take it.

Whoever ends up claiming the QC can take ALL or EACH of the five tax benefits, according to the facts and the other specific requirements. The five benefits are dependent exemption, child tax credit, EIC, child care credit, and head of household filing status. Obviously neither the mother nor the grand aunt and uncle would be able to use all five, but that is because of the other individual requirements, not qualifying child.

For example, even if the aunt and uncle claim the QC they can't file HoH because they aren't single. Even if the mother claims the QC she can't file HoH because she didn't pay the cost of keeping up the home. And even if she claims the QC she can't take the dependent exemption because she is a dependent herself which invokes a different rule. But that rule doesn't apply to EIC so she still might be eligible for that, if she claims the QC.

[dtlee]

I posted in this thread the various scenarios of what could be claimed by the Aunt/Uncle assuming different age combinations for the niece and her son. There is no combination of ages that would result in two Qualifying Relatives. To summarize, they could be two Qualifying Children for the Aunt and Uncle (e.g., niece 18, son 1), a Qualifying Relative and a Qualifying Child for the Aunt and Uncle (e.g. niece 28, son 11). or a Qualifying Relative (e.g. niece 48) with another individual not eligible to be claimed as a dependent (son 31) because the son is not a relative who does not have to live with the taxpayer the entire year.

I doubt that the third scenario was what the IRS was trying to describe since they mentioned Child Support (though they did say there wasn't any).

The example is very bad and the IRS answer is even worse.