Splitting tax benefits for Qualifying Child

[Bill Tubbs]

In the situation where boyfriend and girlfriend live together and have a child together… Let’s say b/f has W-2 = $40,000 and g/f has W-2 = $10,000. I think we all agree that last year b/f could claim Dependency, CTC, & HOH, and g/f could claim EIC. I would argue that this is the case this year – I don’t see where in the tax code that would prevent this. This position would seem to be contrary to what the IRS says in Form 1040 instructions, page 21, “Qualifying child of more than one person”, but IRS instructions/pub’s don’t carry the weight of law, and that’s why I’m looking at the law itself.

Sec 32(c)(3) defines “Qualifying Child” for EIC purposes:
“(A) The term `qualifying child' means a qualifying child of the taxpayer (as defined in section 152(c), determined without regard to paragraph (1)(D) thereof and section 152(e)).”

In my example, assume the child is not married, is a US citizen and resident, and has a SSN – this satisfies the rest of the paragraphs under 32(c)(3) – paragraphs (B) through (D). “Without regard to paragraph (1)(D)” is the clause dealing with support, and 152(e) is the “Special Rule for Divorced Parents” (which I’m not sure why they even mention Sec 152(e) here as it’s not part of Sec 152(c), except to possibly emphasize that the non-custodial parent cannot claim EIC).

Sec 32(c)(3) -- Sec 32 is Earned Income Credit, (c) is “Definitions and special rules -- For purposes of this section,”, and (3) is “Qualifying Child” -- this paragraph defines QC for purposes of the EIC section, which in itself implies that the definition of QC is different for EIC & for Dependency (even though the definition of QC for EIC starts out with the definition of QC for Dependency). Sub-paragraph (A) then goes on to modify the definition of QC (by disregarding 152(c)(1)(D) and 152(e)), which clearly make the definitions of QC for EIC & Dependency different. Therefore, since the definitions of QC for EIC and Dependency are different, Sec 152(c)(4) must be applied to QC for EIC separately from QC for Dependency. Thus, if one taxpayer claimed the child as QC for EIC and the other taxpayer claimed the child as QC for Dependency, the tie-breaker rules would not kick in and thus this scenario would be allowed.

For those that say once you determine a QC for dependency purposes, you must stick with that determination of QC for the entire Title 26 (Income Tax)… Let’s examine Sec.152(e), Special Rule for Divorced Parents. When reviewing dependency, Sec. 152(e)(1) says in part:
“such child shall be treated as being the qualifying child or qualifying relative of the noncustodial parent for a calendar year if the requirements described in paragraph (2) are met.”
This could then mean the custodial parent no longer has a QC; instead, the non-custodial parent has a QC. So, only the non-custodial could claim the dependency exemption. But then how can the custodial parent claim EIC, as the custodial parent does not have a QC? The argument here is that the definition of QC for EIC purposes is different than the definition of QC for Dependency (specifically, reading 152(c) without using 152(e)) – exactly my point above, that the rules for QC for the 2 purposes, while similar are not the same.
Alternatively, if you interpret 152(e)(1) to mean that the non-custodial parent now has a QC, and that the custodial parent doesn’t lose the child as a QC but rather the custodial parent simply agrees not to claim the QC as a dependent, the same argument still holds. The non-custodial parent has a QC then for dependency purposes, but not for EIC. Why? Because the definitions for QC are indeed different for EIC & Dependency.

Thoughts?

[headly]

agree

I just completed a return, read each rule and used the IRS EIC tool. And, while my client could not use his child for HOH or dependency based on support rules, he could use the child for EIC purposes. So, yes, I agree, there is a difference but it was in the support test.

[jainen]

It won't work

It won't work, headly. You can parse the text all you want. The law and the Congressional committee report are perfectly clear that there is only one uniform definition of Qualifying Child, which is applied in different ways to the various benefits. Since they all live together as one happy family they can choose, but if that SSN shows up on two returns the IRS will use the tiebreaker rules to give the child to the parent with the higher AGI.

[Koss]

Division of Benefits

In general, I agree with your analysis. It is clear that the IRS has adopted the position that the benefits associated with a qualifying child can only be claimed by one person. But I agree that this position is not really supported by the text of the law.

You are absolutely correct that the definition of a QC is different for each of the five benefits, and there is no single definition that exists anywhere in the tax code independently of the sections that describe each of the five benefits. The IRS appears to have inferred a common definition from those characteristics that each definition has in common: age, relationship, residency and support. But to the extent that this definition might somehow exist on its own, each of the five code sections modifies the defintion or adds some sort of restriction. For CDCC, the age cutoff is 13. For EIC, the age cutoff is 19, and the support test is removed. For HoH, there is the additional requirement of paying more than half the household expenses. For CTC, the age cutoff is 17. And for dependency, which might be considered the "core" definition, there is the additional restriction that a dependent exemption cannot be claimed by someone who is a dependent.

So age, residency, relationship and support, by themselves, do not qualify the taxpayer for anything at all; other requirements must be met, and these requirements are different for each of the five benefits.

Nowhere in the tax code does it say that benefits cannot be split between taxpayers for the same child.

The "all or nothing" principle expressed in IRS pubs is one reasonable interpretation of the law, because IRC 152 does provide tiebreaker rules that apply when more than one person claims the same child. And the other four code sections do indeed use a modified version of the definition of a QC in 152(c), so it is reasonable to assert that the tiebreaker rules are "copied and pasted" into the other four code sections, and that all five code sections need to be read together and applied simultaneously.

But it doesn't change the fact that each code section uses a different definition, and clearly not all taxpayers are eligible for all five benefits. So it is equally reasonable to assert that the tiebreaker rules are applied separately to each code section, and separately to each benefit.

On this interpretation, the tiebreaker rules are only triggered if two taxpayers claim the same benefit on the basis of the same child.

There is a "middle ground" interpretation that goes like this:

If two taxpayers are both eligible for two or more benefits for the same child, they cannot agree to divide them up. All benefits that both taxpayers are eligible for must be claimed by one or the other. But if there is a benefit that one taxpayer is eligible for and the other is not, the one who is eligible may claim that benefit, without triggering the tiebreaker rules, even if the other taxpayer is claiming other benefits. This interpretation simply says that benefits that are actually available to more than one taxpayer may not be split up between them.

I don't think any of these interpretations has more or less support from the text of the law. To me, all of them are pretty reasonable, and they all involve inferences about how the five code sections interact, or do not interact, with each other. I am not going to speculate as to how a court would rule.

I do think that if Congress does not amend the law to clarify this issue, that the question will eventually be hashed out in court, but that may take a year or more, and some cases will be decided in the "small tax case" division of the tax court, or with memorandum decisions that are not binding on the IRS with respect to other taxpayers.

If Congress doesn't fix this law, it may remain open to multiple interpretations until a federal district court rules on it, and even that decision may apply only to part of the country. And the IRS could appeal.

This particular problem, concerning the scope of the tiebreaker rules, is unrelated to the unmarried-couple-kid-is-hers-but-not-his debate, and also unrelated to the "twin brothers are qualifying children of each other" conundrum. But it ties into these scenarios indirectly.

This law is full of holes. It has to be one of the most badly written pieces of legislation in the modern history of tax law. I know some folks on this board are tiring of the UDC discussion, but these problems are not going to go away.

More on this below...

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[Bees Knees]

No where in the tax code does it say that benefits cannot be split between taxpayers for the same child.

The "all or nothing" principle expressed in IRS pubs is one reasonable interpretation of the law, because IRC 152 does provide tiebreaker rules that apply when more than one person claims the same child. And the other four code sections do indeed use a modified version of the definition of a QC in 152(c), so it is reasonable to assert that the tiebreaker rules are "copied and pasted" into the other four code sections, and that all five code sections need to be read together and applied simultaneously.

But it doesn't change the fact that each code section uses a different definition, and clearly not all taxpayers are eligible for all five benefits. So it is equally reasonable to assert that the tiebreaker rules are applied separately to each code section, and separately to each benefit.

If this law were challenged in court, and the court determined the code to be unclear, the court would turn to the committee reports to see what was the intent of Congress.

The committee reports say the following: “Tie-breaking rules: If a child would be a qualifying child with respect to more than one individual (e.g., a child lives with his or her mother and grand mother in the same residence) and more than one person claims a benefit with respect to that child, then the following "tie-breaking" rules apply…”

The committee report then goes on to repeat the tie breaking rule in Code Section 152. What is interesting about the above language, is that it was said in the context of ALL five benefits, not just the dependency exemption. In other words, it was Congressional intent that only ONE person claim all the benefits, and the loopholes that may be interpreted to allow benefits to be split were not what Congress wanted.

In writing the IRS Pubs and instructions, the IRS employees in charge of putting these rules down in writing probably considered this in the explanation given in the Pubs. I would suggest we all follow the pubs and instructions and not try to over analyze the code.

[Koss]

More comments

I am going to start referring to the "unmarried-couple-kid-is-hers-but-not-his" as the Canonical Unmarried Couple. (Maybe even CUC.) I am using the term "canonical" to refer a standard model or pattern. (This is a holdover from my days as a theoretical linguist.) While there certainly are some unmarried couples that have children together, I think that the "boyfriend scenario" is a bit more common, and it is the scenario which has driven some of the most contentious debate on this board and others.

My position on the CUC remains that he can claim the child as a dependent qualifying relative if the child's mother has no income. With no income, she is not eligible for any of the five tax benefits, and the qualifying child relation does not arise under any of the five code sections until and unless the taxpayer is eligible for the benefit in question.

If the child's mother has income under $3200, she remains his dependent, but she is now eligible for EIC and maybe even the refundable Additional Child Tax Credit. The child is her qualifying child for EIC and CTC. With respect to dependency, however, she remains ineligible. For purposes of dependency, the child is not her qualifying child

The question that arises now is whether the fact that the child is her QC for EIC and CTC means that the child cannot be qualifying relative of her boyfriend.

The strong version of the tiebreaker rules, adopted by the IRS, holds that the child can only be the qualifying child of one person and that this applies to all five benefits, regardless of which benefits the two taxpayers are or are not eligible to claim. On this view, if she claims EIC or CTC, this triggers the tiebreaker rules, which will disallow his claim of the dependency exemption.

The moderate version holds that the tiebreaker rules are only applied when two taxpayers are actually eligible to claim two or more benefits for the same child, and attempt to divide them up. On this view, the tiebreaker rules would not be triggered if he claims the child as a dependent and she claims EIC, because she is not eligible to claim a dependent exemption, and he is not eligible to claim EIC.

The weak version holds that the tiebreaker rules are only triggered if two taxpayers actually claim one benefit for the same child. This view holds that the tiebreaker rules are meant to be applied separately within the scope of each code section. Here again, the rules would not be triggered if she claims EIC and he claims the dependent exemption.

In the original example cited by Bill Tubbs, (unmarried couple has a child together), if she has income over $3200, and is therefore not her boyfriend's dependent, she is eligible to claim the child as a dependent and for CTC. In this case, if he claims the dependent and exemption and CTC, and she claims EIC, the moderate version will trigger the tiebreaker rules, and since both are parents, the rules will award the child to the parent with the higher income, thus disallowing her claim for EIC.

But even in this scenario, one can credibly argue that the couple did not split up any benefits that both are eligible to claim, because his income makes him ineligible for EIC. So even the moderate version may have more than one interpretation.

For the Canonical Unmarried Couple, however, much of this discussion is irrelevant. My position is that if she has no income, the child is the qualifying relative of her boyfriend, and is not her qualifying child under any code section. If she has income under $3200, she is still her boyfriend's dependent, and the child becomes her qualifying child for EIC and CTC, but the child remains the qualifying relative of her boyfriend for dependency. I believe this is a reasonable interpretation, in which IRC 152(c) determines dependency without regard to any other code section. The definition of a QC in IRC 152(c) does not refer to any other code section anywhere. The other four code sections are not relevant to the determination of dependency.

In this scenario, if she claims EIC and CTC, and he claims the dependent, the tiebreaker rules are not triggered because the child is not the qualifying child of more than one person. The child is her qualifying child and his qualifying relative.

This is not prohibited because within the scope of IRC 152, the child is not her qualifying child. Dependency stands apart from the other four benefits, and could arguably be said to have a certain primacy, for at least two reasons: (1) it contains the definition of a QC that is incorporated by reference into the other code sections, so in some sense the other four benefits flow from, or arise out of, the dependency relation, and (2) it is the only benefit that is available for a qualifying relative. The term qualifying relative is not used in any other code section. For HoH and CDCC, the code allows certain qualifying individuals who are not a qualifying child, but the term qualifying relative is not used, and there is no reference to IRC 152(d).

This is certainly an aggressive interpretation of the new law, which strongly favors the Canonical Unmarried Couple. However, the new law is sufficiently ambiguous, as are the IRS instructions and examples, that I believe that this interpetation of the law will not be deemed frivoulous, even if it is ultimately rejected by a court.

I do not intend to prepare returns of this type without adequately advising the client of the possiblity that both returns could be attacked by the IRS.

I'll continue in one more post. I'm running out of room. The post is limited to 10,000 characters!

Burton M. Koss

https://www.usakoss.net

koss@uskoss.net

[Koss]

final

If dependency "rules" the other benefits, and this is one reasonable interpretation, this may mean that someone who cannot claim the child in question as a dependent cannot claim any of the other four benefits. This appears to be the conclusion in Example 4 on page 27 of Pub. 17. But if this is correct, then Form 8901, which supposedly allows a person to claim the CTC for a child that is not their dependent, simply cannot be used.

Someone will respond by saying that Example 4 only addresses the question of dependency, and not other benefits. This is hogwash. Example 4 begins by modifying the facts in Example 1. Example 1 immediately follows an explanation of the "all or nothing" principle, which explicitly refers to all five benefits and the tiebreaker rules. The example appears in a section titled Qualifying Child of More Than One Person. Every other example on the page involves the application of the tiebreaker rules, or an agreement between two taxpayers on who is going to claim the child. But Example 4 reaches the conclusion that only one of the two taxpayers may claim the child, and that the other taxpayer may not treat the child as her qualifying child, because she herself is a dependent. The one who is allowed to claim the child is the child's grandmother. The one who is not allowed to treat the child as a qualifying child is the child's parent. But wait a minute... a parent trumps any other relationship under the tiebreaker rules!

There are only two ways to explain this:

(1) Example 4 is inaccurate and reaches the wrong conclusion, or
(2) Example 4 is correct because it is dealing only with dependency and is only addressing the child's parent. The example is not meant to advise the grandmother on claiming the dependent exemption, nor is it meant to advise the mother on claiming the CTC. It is meant only to inform the mother that she cannot claim the child as a dependent. Therefore, Example 4 is correct in this limited sense. The child's mother can indeed treat the child as a qualifying child for CTC, and if she does, this will trigger the tiebreaker rules, and the IRS will disallow the grandmother's claim for the dependent exemption.

I have come to the conclusion that Example 4 is inaccurate because the law itself is flawed. The law contains internal contradictions in the definitions, and they cannot be resolved.

To assert that Example 4 is only addressing dependency, and that the writer in Example 4 is "only talking to the child's mother, not the grandmother," is not only inconsistent with other examples on the page, it is a linguistic contortion that insults the intelligence of the reader.

When I wrote that only Partner Q can treat Building H as a qualifying facility, I was only addressing Partner T's rights under Paragraph 8 of the contract. I was not addressing Partner Q's rights under the contract, and I was not addressing any rights that arise out of Paragraph 6. I was only informing Partner T that for purposes of Paragraph 8, they cannot treat Building H as a qualifying facility. The memo was only sent to Partner T; it was not sent to Partner Q.

Because Partner T has asserted their right to treat Building H as a qualifying facility for purposes of Paragraph 6, Partner Q cannot treat Building H as a qualifying facility for any purposes at all.

What I wrote in my memo was not wrong; you are reading it out context.

Yeah, right. Next you'll ask us to define the word the. Try this argument on a jury in a breach of contract case, and you'll get drilled a second a**hole. This analysis of Example 4 is utter nonsense, but it is the only way to explain how Example 4 can be correct at the same time that Form 8901 allows the child's mother to claim the Child Tax Credit for a child that is not her dependent.

This linguistic sleight of hand is not a reasonable explanation of Example 4. Example 2 is almost identical, but it applies the tiebreaker rules, and explicitly states that the IRS will disallow the claims of the grandmother. Example 4 reaches a different conclusion: a dependent cannot have a qualifying child. Period.

Or does it conclude that a person who is a qualifying child cannot have a qualifying child?

IRC 32(c)(1)(B) says:

If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.

This is from the code section on EIC, and this part has not been modified by UDC. It means that a person who is a qualifying child of another person cannot claim EIC. Whether this affects their ability to claim other benefits for a person who is their qualifying child is open to interpretation. This restriction does not appear in IRC 24 for the Child Tax Credit. But the definition is "uniform," right? If we are use the definition in IRC 152(c) in the other four code sections, and essentially ignore the modifications made by those code sections when applying the tiebreaker rules, why not drag the "qualifying child of another person is ineligible" restriction over to the other four code sections? What the heck, let's apply all the limitations in each code section to all five benefits: can't claim a dependent unless he's under 13. It says he has to be under 13, right there in IRC 21. We're using the same definition for each benefit, right? Uniform definition for all five benefits.

None of this really provides any answers. All of this proves that the law is flawed. It proves that the IRS itself is having difficulty understanding and interpreting the new law.

The definition of a qualifying child is embedded in the definition a dependent. But other rules make it possible for a person to have a qualifying child who is not a dependent, or to have a dependent who is not a qualifying child.

Form 8901 should not exist. The "Child Tax Credit for a child who is not your dependent" arises out of a clerical error in the text of the law. The prior law unambiguously stated that the Child Tax Credit was only available if you could claim the child as a dependent.

Fixing this error would actually resolve most--but not all--of the internal conflicts. But this only works if you accept my argument that "eligibility of the taxpayer governs qualification of the child." You don't have a qualifying child unless you are actually eligible to claim at least one of the five benefits. Qualification of the child is bound by each individual benefit.

"Eligibility governs qualification" comes with a wink and a nod to a somewhat obsolete linguistic theory developed by Noam Chomsky.

He defended it for years before he finally decided it was wrong.

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[Koss]

The committee reports say the following: “Tie-breaking rules: If a child would be a qualifying child with respect to more than one individual (e.g., a child lives with his or her mother and grand mother in the same residence) and more than one person claims a benefit with respect to that child, then the following "tie-breaking" rules apply…”

The committee report then goes on to repeat the tie breaking rule in Code Section 152. What is interesting about the above language, is that it was said in the context of ALL five benefits, not just the dependency exemption. In other words, it was Congressional intent that only ONE person claim all the benefits, and the loopholes that may be interpreted to allow benefits to be split were not what Congress wanted.

This does not express the intent you ascribe to it. This could be read to mean that the tiebreaker rules are applied to each benefit separately. Your quote says "a benefit," and this is the singular, not the plural form. The court might find that each benefit still stands alone in each code section. And this citation certainly does not address a situation in which Taxpayer A is eligible for Benefit Q, and is not eligible for Benefit P, while Taxpayer B is eligible for Benefit P and is not eligible for Benefit Q, with respect to the same child. The idea that one of these benefits somehow gets "lost" is not expressed in the law, and I doubt that it is expressed in the report.

I am, however, interested in reading the entire text of the report you cited. You may e-mail it to me, or explain where to get it.

Burton M. Koss
koss@usakoss.net

https://www.usakoss.net

[Koss]

En garde

It won't work, headly. You can parse the text all you want. The law and the Congressional committee report are perfectly clear that there is only one uniform definition of Qualifying Child, which is applied in different ways to the various benefits. Since they all live together as one happy family they can choose, but if that SSN shows up on two returns the IRS will use the tiebreaker rules to give the child to the parent with the higher AGI.

Jainen, how do YOU explain Example 4 on Page 27 of Publication 17?

Can the 18 year old mother claim the Child Tax Credit using Form 8901?

If so, read my rather lengthy discussion below.

Burton M. Koss
koss@uskoss.net

https://www.usakoss.net

[Bill Tubbs]

If this law were challenged in court, and the court determined the code to be unclear, the court would turn to the committee reports to see what was the intent of Congress.

The committee reports say the following: “Tie-breaking rules: If a child would be a qualifying child with respect to more than one individual (e.g., a child lives with his or her mother and grand mother in the same residence) and more than one person claims a benefit with respect to that child, then the following "tie-breaking" rules apply…”

Bees Knees,

Where might I be able to access the committee reports on this?

Thanks,
Bill

[Bees Knees]

I subscribe to Kleinrock's Federal TaxExpert. The CD contains the code, regs, revenue rulings, etc. along with court cases, committee reports, and other authoritative sources. I don't know if you can find them on the web without subscribing to a similar service.

It is not logical to assume Congress would intend for the tie breaker rules to apply separately to each benefit, when the whole purposes of messing with the code was to try and make a uniform definition for all five benefits. There intent was to simplify, not make it even more complex. The tie breaker rule mentioned in the committee reports was discussed under the general uniform definition rules. It was not discussed in the context of any one specific provision.

[jainen]

go to sleep

I am not a theoretical linguist but the language in which this law was written happens to be my native tongue. Certainly Example 4 is not a very good presentation of it, which is why Pub 17 is considered useful in its way but not authoritative. Anyway I do think Example 4 is correct even if though it doesn't achieve its main purpose of explaining QC of QC.

Ex 4 is the same as Ex 1 in that the mother has agreed to not claim Jade. If she did not agree, the tiebreaker rules would give her Jade. CTC is a possibility and the exemption is not, in both cases for reasons unrelated to Jade.

The core of our disagreement, Burton, is not that the code has five different versions of Qualifying Child instead of a single Uniform Definition. It is that the term Qualifying Child refers only to the child, and nothing concerning the parent affects that term. It doesn't matter whether the parent has income or not, has attained a certain age, or has a particular relationship to someone else. If the subject meets the four tests, then he or she is a Qualifying Child. Plain and simple.

After you have made that determination, you can match all the other qualifications to see whether this Qualifying Child can be used to claim any of the five benefits.

I'm no fan of Noam Chomsky and I certainly don't turn to him for instruction in communication skills. I come from the old Hayakawa school. You remember, he said "The limits of your language are the limits of your world." That's right, if it's not there in the words it doesn't exist at all. I think you are trying too hard to read between the lines of this new law. The best thing Hayakawa ever did, was when he was a Senator debating all the intricacies of a new law, he would just go to sleep until it was all over.

[Bill Tubbs]

I subscribe to Kleinrock's Federal TaxExpert. The CD contains the code, regs, revenue rulings, etc. along with court cases, committee reports, and other authoritative sources. I don't know if you can find them on the web without subscribing to a similar service..

Is this the committee report of which you're referring:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_reports&docid=f:hr696.108.pdf

Looks like pp. 55-65 discuss the Uniform Definition of a Qualifying Child, with the Tiebreaker text on p.62

It is not logical to assume Congress would intend for the tie breaker rules to apply separately to each benefit, when the whole purposes of messing with the code was to try and make a uniform definition for all five benefits. There intent was to simplify, not make it even more complex.

Did I see you use "logical" and "Congress" in the same sentence?

When does Congress ever simplify things?!? They have just been adding more and more to the tax code.

(both comments tongue-in-cheek)

Bill

[Koss]

One definition or five?

The core of our disagreement, Burton, is not that the code has five different versions of Qualifying Child instead of a single Uniform Definition. It is that the term Qualifying Child refers only to the child, and nothing concerning the parent affects that term. It doesn't matter whether the parent has income or not, has attained a certain age, or has a particular relationship to someone else. If the subject meets the four tests, then he or she is a Qualifying Child. Plain and simple.

After you have made that determination, you can match all the other qualifications to see whether this Qualifying Child can be used to claim any of the five benefits.

I'm no fan of Noam Chomsky and I certainly don't turn to him for instruction in communication skills. I come from the old Hayakawa school. You remember, he said "The limits of your language are the limits of your world." That's right, if it's not there in the words it doesn't exist at all.

Where in the words of the new law do we find the four tests?

In IRC 152(c), which provides a definition for the term dependent. The four tests are embedded within the definition of a dependent. So if a person is treated as having no dependents, then they are treated as having no qualifying children--at least with respect to the question of dependency.

There is no text in the code which refers exclusively to the four tests without some sort of restriction, limitation or modification. There is simply no evidence that the qualifying child relation was ever meant to stand on its own between two individuals, if one of those individuals is not eligible for any of the benefits established by the five code sections.

The relation serves no purpose unless the parent is actually eligible for one of the five benefits, and there is no language in the code that suggests that the four tests by themselves actually establish this relation. Only the IRS publications present this concept.

Suppose I purchased some personal property such as machinery or furniture shortly after 09/11/01. Suppose further that the property I purchased meets all the criteria for the special depreciation allowance that are listed in the relevant IRS publications and instructions. [I realize that the special allowance is no longer in effect for 2005. This is still a good example.]

Jainen, is it your position that this property is "qualifying property" even if I am not using it for any business purpose?

Qualifying for what? For a special depreciation allowance? On personal use property?

Well, it meets all the tests described in the publication...

I can't claim any depreciation because it isn't business-use property.

But somehow it is still "qualifying property?"

This isn't how the law was meant to be read. A person doesn't own qualifying property unless they are eligible to claim depreciation on it. The attributes that define qualifying property are not applicable to personal-use property, because the entire code section that authorizes depreciation is not applicable to personal-use property.

In the same way, the attributes that define a qualifying child do not become applicable unless the taxpayer in question is eligible to claim the benefits available under the code section that describes those attributes.

Much of our disagreement hinges on perspective.

The question you are asking is: Is the qualifying child the qualifying child of another taxpayer?

The question I am asking is: Is there another taxpayer who is eligible to claim any of the five benefits with respect to this child?

Someone with no income simply cannot have a qualifying child. This law was not intended to examine the relationship between a child and an individual who cannot claim any of the benefits in the five code sections.

One final request. After you carefully review IRC 152(d), which contains the definition of a qualfiying relative, try to answer this question...

Suppose someone lives alone all year in an apartment that is contained within the principal office of a corporation, and the corporation is providing more than half the person's support in the form of gifts (not compensation for services). Suppose further that the person's income is under $3200.

Does the corporation have a qualifying relative?

Or do you concede that the relation, as it is defined in IRC 152(d), cannot arise because a corporation is not eligible to claim exemptions for dependents on its tax return?

The corporation is a taxpayer, right?

IRC 152(d) defines "qualifying relative" as a relation between a taxpayer and an individual. The "individual" is the qualifying relative. As far as the party who may have a qualifying relative, there is nothing to suggest that this party must be an indvidual.

This amusing scenario is not entirely absurd. Suppose someone lived all year at a homeless shelter owned by a nonprofit corporation that also provided substantial monetary support, food and clothing for the person.

Is a one week old infant somehow "subject to" a state law that says that all motor vehicles must have insurance, even though he neither owns nor operates a motor vehicle?

At some point you have to concede that certain sections of the law are not applicable to certain individuals and entities.

Burton M. Koss

https://www.usakoss.net

koss@usakoss.net

[jainen]

Come on, Burton

Come on, Burton, don't lose your edge! These are not your strongest arguments.

Your "amusing scenario" about Qualifying Relative is not entirely absurd--yes it is! Only by introducing "a linguistic contortion that insults the intelligence of the reader" can you suggest that a person is a member of a corporation's household.

Hey, Section 168(k)(2)(A) does indeed define "Qualifying Property" solely in terms of the subject property itself, without regard to how a taxpayer might use it. Well, it does. Whether a particular taxpayer might claim a benefit based on that property depends on additional requirements in other parts of the code. One person might use it in a business, another for investment, another as inventory. That will change the deduction, but not the property as it is defined.

I see that definition is "embedded" in another paragraph. If you revoked Section 168 you couldn't use 168(k)(2)(A) anymore, right? No, it is not true that 168 must apply before anything "embedded" in it can have meaning. You might not even know if 168 applies until you work through all the subordinate issues, including this definition.

But what if Section 168 (which is MACRS) didn't apply because of a completely outside reason, like the property wasn't used in a trade or business? Is it totally invalid? MACRS includes the Table of Class Lives, but that very same table is used under code Section 1031 to determine like kind properties. Does that mean you can't have a like kind exchange if the property is not subject to MACRS? No, of course it doesn't mean that at all.

Same here. Qualifying Child is not only a part of determining exemptions. It is also a part of four other code sections that use that particular set of tests. They aren't the only requirements, just as dealing same-class property isn't enough to guarantee 1031 treatment. But they all look directly at the four tests on their own terms without reference to the rest of Section 152 where they are "embedded."

Wouldn't it be lovely if the whole tax code were all laid out in columns like the tax tables?