UDC Puzzle

[Koss]

So an eight year old kid goes to live with his second cousin because his mother is dead and his father is in prison. The kid lives with his 25 year old cousin for the entire year, and no one else lives in the home. Cousin supports the kid totally. No custody, guardianship, or foster child placement.

Cousin isn't close enough to make him a qualifying child. So the kid is the guy's qualifying relative.

I think everyone will agree with this.

But what if the kid has an older brother, say, ten years old, who also lived with the guy the whole year, and was also fully supported by the guy?

The eight year old appears to be the qualifying child of the ten year old. And if that's the case, then most of you will say that the 25 year old who supported both kids cannot claim the eight year old as a qualifying relative, 'cause he's the qualifying child of someone else.

Right?

But wait a minute... isn't the ten year old also the qualifying child of the eight year old?

Can each child be the qualifying child of the other child?

But a dependent can't have a dependent, and a qualifying child can't have a qualifying child.

Right?

So how is this different from the unmarried couple, where the kid is hers but not his, and she has no income?

Perhaps when everyone thinks about this long enough, we will at least agree that there are some very serious defects in this new law.

There is a new page at my website that addresses this issue in a bit more depth.

Doug Lee contributed a lot to the development of this problem.

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[Safire]

I am going to stand by example 4 of Pub 501.

(Quote)
Example 4—taxpayer who is a qualifying child.

The facts are the same as in Example 1 except that you are only 18 years old and did not provide more than half of your own support for the year. This means you are your mother's qualifying child and she could claim you as a dependent. Because of the Dependent Taxpayer Test explained earlier, you cannot treat your daughter as a qualifying child and cannot claim her as a dependent. Only your mother can treat your daughter as a qualifying child.
(End Quote)


This example is about a woman with a child, and they both live with Grandma. The key phrase for me is "you cannot treat your daughter as a qualifying child".

Put this same example to the woman with a child and they both live with boyfriend. If the woman is claimed as a dependent, she cannot treat her child as a qualifying child, thereby freeing the child to be the qualifying relative of the boyfriend.

IMHO

[Koss]

Example 4

Example 4 supports my argument to some degree.

The problem is that Example 4 only appears in the chapter that deals with dependency. When you get to the chapter that deals with Child Tax Credit, the IRS appears to be taking the position that someone who is a dependent can still claim CTC if they have a qualifying child.

But if the single mother in Example 4 does this, then you are "splitting up the benefits of the same child," because, according to Example 4 itself, it is the child's grandmother that gets to treat the child as a qualifying child for purposes of the dependent exemption.

But you can't split up the benefits, according to the IRS. And if you do, it will trigger the tiebreaker rules, and in the scenario described in Example 4, it is the single mother who would win, not the child's grandmother, because the parental relationship has priority over any other.

Safire, I generally agree that a boyfriend can claim his girlfriend's kid, that the kid is not her qualifying child, and the main reason I believe this is in fact because the girlfriend is the boyfriend's dependent. But Example 4 doesn't prove this. Example 4 conflicts with the very existence of Form 8901.

My guess: Example 4 was written before Form 8901 was released.

In another thread, I have actually suggested that there is a typographical error in the text of the law, transposing certain text that was meant for IRC 21 into IRC 24, and vice versa.

Child Tax Credit was never meant to be available unless the person is also claiming the dependent exemption for the child. Allowing this possibility undermines the entire structure of UDC, and it is what makes it possible to argue that a nine old is the qualfying child of his twin brother.

I really don't think the IRS has figured out how to escape this loop. When they do--and it may take Congressional action to correct the text of the law--to accomplish this, I think Form 8901 will go down in history as the tax form that never was.

Burton M. Koss

https://www.usakoss.net

koss@usakoss.net

[Unregistered]

Qf

This example is about a woman with a child, and they both live with Grandma. The key phrase for me is "you cannot treat your daughter as a qualifying child".

Safire, The example falls under this heading Special Test for Qualifying Child of More Than One Person
The child in no way, can be the boyfriend qualifying child. So this example doesn't pertain to the boyfriend situation.

[Koss]

Further comment on Ex. 4

I suspect that someone is going to respond by arguing that Example 4:

(1) is only attempting to explain who can claim the dependent exemption, and
(2) is addressing the 18 year old mother, not the grandmother.

On this argument, the example would be technically correct. The example informs the 18 year old single mother that she cannot treat her child as her qualifying child for purposes of the dependent exemption, and is silent on the Child Tax Credit, because that credit is addressed in another chapter.

This argument holds that the 18 year old can proceed to claim the Child Tax Credit for her child, because under the rules for that credit, there is no "dependent taxpayer test," and the child is still her qualifying child. The argument then proceeds to determine that if the 18 year old claims CTC and the grandmother claims the dependent exemption, the 18 year mother will win under the tiebreaker rules.

No one is entirely comfortable with this outcome because when you return to Example 4, and pretend that you are the grandmother, you want to scream, "but it says right here that only I can treat the child as a qualifying child!"

At this point the only way anyone can continue to defend this bizarre analysis is to fall back on the claim that Example 4 is only meant to be read by the 18 year old mother, that it directly addresses the 18 year old mother with the pronoun you, and that in this regard it is correct, because it is informing the 18 year old that she cannot take a dependent exemption for her child.

They will argue that Example 4 is not intended to advise the grandmother of anything at all. In other words, in response to the grandmother's protest that we just said that only the grandmother can treat the child as a qualifying child, the IRS and others who can't admit there is a problem here, will respond by saying, "Oh, I'm sorry, ma'am. We weren't talking to you in that paragraph. We were only talking to your daughter. And all we meant was that she can't take the dependent exemption. We didn't say that you could, because we hadn't read Chapter 34 yet, so we had not yet decided whether you could take the exemption."

They will then tell the grandmother to read Chapter 34 of Pub. 17 to understand why the child is still somehow the qualifying child of the 18 year old mother, and tell her to read the tiebreaker rules to understand why she cannot take a dependent exemption for that child.

This is the only way to reconcile Example 4 with Form 8901. And at some point the IRS is going to have admit that these rules are mathematically unsound.

This defense of the rules, in which Example 4 is technically correct, even though, at the end of the day, the grandmother is not allowed to take the exemption, is based on the kind of linguistic analysis I did when I was grad student.

And it is utterly ridiculous. Publication 17 is not written for tax professionals or for theoretical linguists. It is meant to be plain English explanation.

When I wrote that only Partner Q could treat Building H as a qualifying facility, I wasn't addressing Partner Q's rights under this contract. I was only clarifying for Partner T that Partner T cannot treat Building H as a qualifying facility. The memo was not sent to Partner Q; it was only sent to Partner T.

If you try this argument on a jury in a breach of contract lawsuit, they'll drill you a second a**hole. You might as well get on national TV and start talking about the definition of the word the. People are not going to buy this.

Burton M. Koss

https://www.usakoss.net

koss@usakoss.net

[Safire]

The rules seem pretty clear that if the same child is a qualifying child of 2 people, then those two people can decide who can use the benefits, which cannot be split up.

If those 2 people don't agree it falls to tiebreaker rules.

In the example I cited, I believe that the explaination of why she cannot treat her child as a qualifying child, has more to do with the fact that she is a dependent, than the fact that she is a qualifying child of her mother. The same should apply across the board. And remember I am not talking about a boyfriend getting CTC or EIC. For those benefits you have to have a qualifying child. In the scenario I am talking about, the child would be his qualifying relative for dependent exemption only.

[Safire]

8901

Koss, I see what you mean about Form 8901. That seems to fit into the example of the child, mother & grandmother.

Well, I thought I had it figured out.