Form 8901 Child Tax Credit

[Koss]

This new form provides a way for a person to claim the Child Tax Credit for a qualifying child that is not their dependent. According to the form, this can happen in two ways:

1. the person who has the "qualifying child" is himself a dependent of someone else, or

2. the "qualifying child" is married, and therefore cannot be claimed as a dependent because the joint return test is not met.

For the moment, I'm going to disregard the second scenario. This could only happen if a 15 or 16 year old were married. I'm more interested in the first scenario.

The existence of the first scenario demonstrates that the IRS recognizes that a particular child may be a person's qualifying child for purposes of the Child Tax Credit but not for purposes of the dependent exemption. Or at least this is one way of looking at it. In spite of the various paragraphs in Pub. 17 which explicitly say that "only one person can claim all the benefits," I'm still not convinced that we're reading this right, nor am I convinced that the IRS is reading the law correctly.

If in fact the Child Tax Credit can be claimed for a qualifying child that is not your dependent, then why is the IRS taking the position that the Child Tax Credit is "tied" to the exemption when the exemption is released to the noncustodial parent? Why couldn't the custodial parent use the same form to claim the Child Tax Credit, after releasing the exemption to the noncustodial parent?

I think I have an answer for this. And it may actually resolve some of the nagging questions that have been bounced around about unmarried couples...

I have updated my website, and I am working on some new stuff right now.

But I'd sure like to hear what everyone else thinks about this. I can't find anything in the revised code for the Child Tax Credit that clearly indicates that the Child Tax Credit is released along with the exemption. And it's clear from Form 8901 that the Child Tax Credit can be claimed even if the qualifying child is not considered your dependent...

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[dtlee]

Burton,

You surely are a trailblazer on this topic.

I am probably too far behind to catch up, but at least I can see where you are going.

While you have had this nagging question for a while, I just realized last night that there are only three scenarios where a custodial parent (who would otherwise be entitled to claim a child as a Qualifying Child) would not have the child as a dependent on the tax return.

As you indicate, Form 8901 (which describes itself as "Information on Qualifying Children....") is a way for the IRS to track the Social Security Numbers of the Children in scenarios where the taxpayer is not allowed to claim dependents due to the rules for Qualifying Children so they can differentiate this from the scenario where the entitlement to the dependents is given to the noncustodial parent under the rules for divorced or separated parents. In the 8901 situations, it appears that the IRS is trying to enforce that a Qualifying Child is a Qualifying Child for all purposes and so, I would expect that if you list a child there for the Child Tax Credit, they would likely be looking to verify that that Social Security Number does not fall under a Child Care Credit, Earned Income Credit, Dependency, or Head of Household qualifier for any other taxpayer.

Apparently, this strong linkage between dependency and the other benefits is weaker in the divorced or separated parents scenario in the eyes of the IRS. While I have not read into this deeply, it could be that the "Qualifying Child" terminology was not added to the laws governing the rules for divorced or separated spouses, so the IRS is trying to follow older rules there. I will review the changes on your site later today.

Thank you for sharing this update.

[Snaggletooth]

Burton Koss

Koss, great to have you back recently. You were away too long!

How does your new discovery stack up against the idea that the definition of a child was to be "uniform?" The new definition was supposed to clear up the issues of children qualifying under one benefit and not qualifying under the next. As far as form 8901, it appears you are correct.

Did this "non"-uniform provision get in as a loophole?

Judging from the number of posts and the conversations ensuing, the situation is just as confusing now as before. Thanks, however, for revealing this unusual "twist."

Ron Jordan, Manchester, TN

[jainen]

My question this morning

My question this morning is how someone else could claim a dependent exemption when the mother is using Form 8901. Having a Qualifying Child does not automatically give the mother any of the five benefits. There are other requirements for each. That is why she can't claim a dependent exemption, being a dependent herself, even though she has a qualifying child under the uniform definition.

But under the tiebreaker rules, a grandparent could not also claim the QC. And the child could not be a qualifying relative to a boyfriend because he or she is already a Qualifying Child to the mother. So except for the special case of Form 8332, the benefits can not be split. One person gets all that she is otherwise eligible for.