Larry wrote:

- quote -

When the families are not related by blood, this is easy to
prove. However, this situation has one family being a
descendant [family] of the other - a much harder situation
to prove that there are two separate units instead of one
extended family. Families of siblings are easier to
separate than three generations under one physical roof.

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Phoebe Roberts, EA wrote:
- quote -

You are right that the state doesn't require "grandmothers"
to be licensed ;-) But it does require generic child care
providers with more than (varies with state) to be licensed.

- quote -

Agreed.

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Not necessarily...If two or more families occupy living
quarters in common, each of the families is treated as a
separate household. The taxpayer who provides more than
one-half of the costs of maintaining one of those separate
households is treated as maintaining that household. Regs.
1.44A-1(d)(2)

Plus the requirement to maintain the household was
eliminated for tax years after 2004 with the passage of the
Working Families Tax Relief Act.

On the payments to the mother, I agree with Harlan.

In Langlois v. Comr., the Sixth Circuit allowed a credit for
payments to a married couple's 20-year-old daughter who was
not claimed as a dependent and who provided babysitting
services while both taxpayers were gainfully employed.

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Rick Merrill wrote:

- quote -

Not relevant. The grandmother isn't required by state law
to be licensed, and doesn't care for more than 6 children,
so isn't required by the 2441 to be licensed. She pays tax
on the income regardless of her licensing status.

IMHO, if the mother qualifies as HOH (by maintaining a
separate household within the home, which she pays more than
half the cost of keeping up), she can take the credit, but
otherwise not.

Phoebe

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D. Stussy wrote:
- quote -

I would have to say you are correct, UNLESS the grandmother
is a licensed Child Care provider and has a state tax id
number and therefore pays taxes on the income, THEN the
payer (an at arms lenght customer) can deduct the child care
payments (up to the limit per child). - RM

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D. Stussy wrote:
- quote -

This is not a "sham transaction" if the girl actually pays
her mother and has receipts, proof of said payments.

- quote -

All I see on that page pertaining to this is that the person
paid not be "a spouse or a person for whom you can claim as
a dependent." Which does allow parents as care givers for
the credit.

- quote -

That is true of course, and my comments did not address this
issue.

ChEAr$,
Harlan Lunsford, EA n LA

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Harlan Lunsford wrote:
- quote -

I disagree. This is a sham transaction. This case is not
significantly different from the case LISTED IN THE
INSTRUCTIONS (form 2441, page 2 [Package X, Vol 1, p. 338],
for "Who can take ...?"), item #5, which disallows the
caretaker from being a spouse or dependent. You can't pay
an ancestor or sibling (under age 19) of the child and take
the credit.

Look also at #3 in the form's instructions for "Who can
take....?" Here, the mother isn't keeping up the home
because it's the GRANDPARENTS' home. That separately
disqualifies the credit.

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D. Stussy wrote:
- quote -

Do you have a more authoritative cite for that than the
instructions to Form 2441, which says "5. The person who
provided the care was not your spouse or a person whom you
can claim as a dependent. If your child provided the care,
he or she must have been age 19 or older by the end of
2004"?

Phoebe

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D. Stussy wrote:

- quote -

Dave, take a look at the appropriate chapter in publication 17
and you'll see that it does qualify.

ChEAr$,
Harlan Lunsford, EA n LA
Mon 31 Jan 2005

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Cjosh wrote:

- quote -

Let's get the easy part out of the way. Of course it is
taxable gross income and must be reported. The other issue
is whether grandma is a household employee of the daughter
or whether the grandma is running a day care service (she is
self-employed). I conclude that grandma is running a day
care service because she is performing the service in her
home.

She would report the income on Form 1040 Schedule C. She
can also deduct any ordinary and necessary business expenses
that she incurred to provide that service. She may include
in that expense the business use of her home. See IRS Pub
587, Business Use of Home for more details

(http://www.irs.gov/publications/index.html)

- quote -

It is taxable to grandma. If the mother wants the child and
dependent care credit, the mother must list who she paid and
identify that person by either the SSA # or employer ID
number.

--
Alan
http://taxtopics.net

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Cjosh wrote:

- quote -

Yes, it will be taxable income to the grandparents, plus,
since the care is in your home, i.e. the house where you
live, they are employees and you must comply with
requirements of household help and file a shedule H with
your 1040. This means of course social security and federal
unemployment tax on their income. AND in some, many ,
states, they are also subject to state unemployment taxes.

- quote -

As implied above, yes, this credit is therefore available.

ChEAr$,
Harlan Lunsford, EA n LA
Sun 30 Jan 2005

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Cjosh wrote:

- quote -

Technically, yes, but it could equally be argued just to be
part of the share of household expenses within a family.
This could be safely ignored.

- quote -

No. Payments to a relative don't qualify. It doesn't
matter if it's a "real day-care center" (i.e. cares for
unrelated children also).

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A divorced mother and her infant child permanently reside in
her parents' home.

The mother is employed and in order to work pays her parent
(the child's grandmother) $100 weekly specifically to
provide care for the infant child.

Questions:
1. Is the $100 week (=$5000 year) for child care of the
resident-grandchild taxable income to the grandparent?

2. Can the amount paid by the mother to the grandparent for
child care correctly be claimed on the mother's return for
the child care credt? (without regard to whether it is
taxable to the grandparent).

Can someone who deals with childcare clarify and also
provide or guide me to a IRC or reg cite?

TIA

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