Did we finally decide....

[Unregistered]

Did we finally decide that the child tax credit DOES go with the dependency exemption even though the child lived more than half the year with the other (non-claiming dependent) parent, if they give up the exemption on form 8332? Please, ignore all possibilities of the parent being someone elses dependent or married and under sixteen.

Did we decide that the EIC can or Cannot go to the custodial parent if the child did in fact live with the (non-claiming dependency parent) more than half of the year in the same situation above, where form 8332 gives the non-custodial parent the dependency.

After reading QF, I had told one of my clients that it sounded like she would get the CTC, because the child did not live with the father more than half of the time, even though she is giving the dependency to the child's father because of not wanting to go against the judge's orders of every other year exemption. It sounds like I may have to eat "stupid cake" with this client.

Who has the best chart or comparison to flow through these new rules?

[Snaggletooth]

Broken Record

I've stated this before, but it appears there is still sufficient confusion. Some of the really sharp minds who frequent this board still have opposing views. As Bees Knees told us, the IRS printed that they would still honor a judge's decision in Pub 502, but then rescinded that paragraph and removed it.

I also am leery that the IRS is NOT going to invade the habitat of the local judge. We all know that tax law is Federal and the local judge really has no jurisdiction, but I can also tell you that the IRS has backed down before - twice. It remains to be seen whether the IRS will assert its domain in Federal tax law and unravel the authority of local judges. In the past, the IRS has not been much of a presence when the problems have hit the fan.

To be honest, I'm going to discuss this issue with each of my clients in this split situation, and warn them of the possible impasse. I'm not going to necessarily throw out local rulings until the dust settles and some court cases are in the books.

[Unregistered]

let's assume

Let's say that she is going to go by the judge's ruling that her ex gets to claim the exemption. The child does not stay with the ex but two nights per week, that is nowhere near half of the year. Does he still get the CTC (even though the child does not live with him half of the year) just because she is giving her right to claim the child to him?

[Koss]

Let's say that she is going to go by the judge's ruling that her ex gets to claim the exemption. The child does not stay with the ex but two nights per week, that is nowhere near half of the year. Does he still get the CTC (even though the child does not live with him half of the year) just because she is giving her right to claim the child to him?

Everything I've seen leads me to believe that the IRS position right now is that the Child Tax Credit is tied to the Dependent Exemption when Form 8332 or a court order is applicable.

The IRS also holds that no court order or extension of the function of Form 8332 will allow the noncustodial parent to claim EIC or HOH on the basis of the child in question. These benefits are still available to the custodial parent, to the extent that she is eligible for them.

I'm opening a real can of worms here, but if you carefully read the text of the law, together with the modifications made by UDC, what you'll see is that there is absolutely nothing in IRC 24 (Child Tax Credit) that indicates that the credit is linked to the exemption. UDC apparently removed this language, and this may be the basis for Form 8901, which allows a person to claim the CTC for a qualifying child that is not their dependent. But the form instructions say nothing about a custodial parent; the form appears to be only for taxpayers who are dependents of someone else, and therefore cannot claim the dependent exemption for the qualifying child.

But IRC 24 does not say anything about dependency.

IRC 21 does. IRC 21 is the code section for CDCC. This code section says you can only claim CDCC if the child is your dependent as defined in IRC 152(a). A literal reading of this limitation would mean that the custodial parent who releases the exemption cannot claim CDCC. But neither can the noncustodial parent, because he isn't the one who was working while the kid was in day care, and probably wasn't the one who paid for it.

I think they got the language of the two sections backwards when the reformulated it with UDC. The IRS is implementing it as this is what happened--with one important exception. The missing reference to dependency in IRC 24 is making it possible for someone to have a qualifying child even if they are claimed as a dependent on someone else's return. And this is actually the source of some of the major problems in the interpretation of UDC.

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[headly]

Udc

Burton Koss,

I have been following your website and postings. Thanks for all the research you are doing. I just read an email from Thomson PPC on Tax Compliance and will reprint it. I would like your take on this.

Thanks

"Summary of Technical Corrections in the Gulf Opportunity Zone Act of 2005

The following paragraphs summarize the technical corrections that are of greatest interest to most practitioners and are based on a document (JCX-88-05) prepared by the staff of the Joint Committee on Taxation. (See the U.S. House of Rep. website for a complete reproduction.)

Except as otherwise provided, the corrections contained in the Act take effect as if included in the original legislation to which the amendment relates."


My words ......it lists all kinds of amendments, i.e. energy policy, reinvesting foreign earnings, reporting donations of motor vehicles, boats and airplanes. As well as the UDC.
Now to the quote for UDC.



"Amendment to the Working Families Tax Relief Act of 2004

Uniform definition of child (Act secs. 201, 203 and 207)
The W F T R ACt of 2004 established a uniform definition of a qualifying child for purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit, and head of household filing status. The Act makes a number of conforming amendments. For EXAMPLE, for purposes of the health savings account rules and the household and dependent care credit rules, an individual may qualify as a dependent regardless of whether he or she has gross income that exceeds an otherwise applicable gross income limit or is married and files a joint return. Also, the individual is not subject
to the general rule that a dependent of a taxpayer is treated as having no dependents for the tax year of such individual beginning in such calendar year."

(My note - example capitalized by me, as if this is just one example of many?????-back to quote)

"The Act also permits a divorced or legally separated custodial parent to waive, by written declaration, his or her right to claim a child as a dependent for purposes of the dependency exemption and child credit (but not for other child related tax benefits)."

End of quotes.


Since it says for example ......????could this mean other areas as well????
Please excuse any typos. I'll go read the JCX-88-05, but just wanted to pass this along to you.

Keep up the great research.

Thanks.

[Unregistered]

In the "for what it's worth" department

See page 20 of 1040 instructions, bottom line that states that "Only the noncustodial parent can claim the child for purposes of the dependency exemption (line 6c) and the child tax credits (lines 52 and 68). This, of course, is for "Children of divorced or separated parents" and certain tests have to be met (see heading of Children of divorced...above the last sentence on page 20).

[Koss]

Technical Corrections

Burton Koss,

I have been following your website and postings. Thanks for all the research you are doing. I just read an email from Thomson PPC on Tax Compliance and will reprint it. I would like your take on this.

Thanks

"Summary of Technical Corrections in the Gulf Opportunity Zone Act of 2005

Unfortunately, this looks like a summary of various technical corrections that were already made to UDC. In a brief search, I did find one document that makes it exceedingly clear that there was never an intent to change the fundamental process used to transfer the exemption from the custodial parent to the noncustodial parent. But I can't find anything that suggests that there is, or has been, any recent action to change the circular rules we are encountering with respect to multigenerational households and other situations where the mere presence of a nonworking family member in the same home is alleged to somehow disqualify another taxpayer from claiming a person who otherwise meets the defiintion of a qualifying relative. Nor do I see anything that suggests that that Congress is even aware that there is a serious problem in the law with respect to the Child Tax Credit and the Child and Dependent Care Credit.

I'll have to take a close look at this, but I don't think it really addresses the issues we're dealing with.

Burton