- quote -

I don't know. Sam Alito and I will have to research the law
and look at the specific facts before we can arrive at a
reasonable opinion.

Stu

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- quote -

I looked and didn't see a single case on this specific issue.

- quote -

I don't think that necessarily forecloses other possible
situations. In addition, regulations are not laws
themselves, and have to be consistent with the laws that
implement them.

Stu

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- quote -

Any more unreasonable than not allowing the boyfriend to claim
the child for EIC?

--
Don EA in Upstate NY

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- quote -

I like your idea but unfortunately, the court decisions on
the definition of taxpayer would appear to rule out
manifestly incompatible. In a reply to Phil, I noted that
the conference report includes the example I posted about
the grandparent supporting a grandchild that does not live
with the grandparent. It certainly seems that at least the
joint conference committee was aware that they were going to
deny the exemption to anyone who thought they had a QR if
the child in question is a QC to another "taxpayer."

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Phil Marti wrote:
- quote -

Look at the last example of the grandfather below. Notice
how they tossed in the part thats says "with respect to a
grandson who does not reside with any taxpayer for over one
half the year."

Interaction with present-law rules

Taxpayers generally may claim an individual who does not
meet the uniform definition of qualifying child with respect
to any taxpayer as a dependent if the present-law dependency
requirements (including the gross income and support tests)
are satisfied. Thus, for example, as under present law, a
taxpayer may claim a parent as a dependent if the taxpayer
provides more than one half of the support of the parent and
the parent's gross income is less than the exemption amount.
As another example, under the Senate amendment a
grandparent may claim a dependency exemption with respect to
a grandson who does not reside with any taxpayer for over
one half the year, if the grandparent provides more than one
half of the support of the grandson and the grandson's gross
income is less than the exemption amount.

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"A.G. Kalman" <glendale202-mtmtax[at]yahoo.com> wrote:

- quote -

I read the conference report and found the language anything
but plain. Is there something there that you think
buttresses this conclusion? BTW, I think you're right,
given the judicial interpretation of "taxpayer."

--
Phil Marti
Clarksburg, MD

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"Phil Marti" <prm20871[at]verizon.net> wrote:

- quote -

This isn't an area of the law that I've done research on,
but my guess is that the taxpayer has a good argument. I
figure it would take about 25-50 hours of research to build
the best case possible. At that point we'd have a better
idea about the odds of prevailing if there were litigation.

Stu

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- quote -

I agree that in general "taxpayer" means a person who has no
taxable income but would be subject to income tax if he had
income.

But that doesn't mean that would be the definition in all
situations. In fact section 7701 says that its definitions
apply "where not otherwise distinctly expressed or
manifestly incompatible with the intent thereof...."

In a case like this if the mother makes no income and would
qualify as a dependent of the boyfriend, it might be
unreasonable not to allow the boyfriend to claim the
daughter as a dependent.

Stu

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A.G. Kalman wrote:

- quote -

Yep, I think you got the gist of it. HOWsomeever, there is
one additiional qualification to your analysis.

Remember Clinton? He said it in a nutshell: "It depends on
how you define the word 'is'. " !

Now, one of my clients (BF) had been living with his paramour
(GF) and together they had two children. He worked, but she
never did or never would. Finally in December she was ready
to move back with her mother and yes, with the kids. He
called for advice. I admonished him to do whatever it took
to keep her there until January 1st. Good thing he did, too.
At least he says he did. He probably had to agree to split
the huge refund with her I'm thinking.

I mention this one because it's the same as the first case
above except for the issue of parentage. In the above
example, the kids are her's only, and in my client's case
they are his and hers.

Oh what havoc has congress wrought?

ChEAr$,
Harlan

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"A.G. Kalman" <glendale202-mtmtax[at]yahoo.com> wrote:

- quote -

Evidently that's what the IRS is saying.

In an e-mail Dennis, who posted the Block info, offered
another scenario. Orphaned children are taken in by the next
door neighbor without any formal process or placement.
Since the children are qualifying children of each other, no
tax benefit for the neighbor. OK, in real life this
shouldn't happen, but since when did tax law care about real
life?

I'm hoping that Harlan is right that this is headed for
litigation. I'm thinking maybe some children's advocacy
group might be interested in getting a case going.

--
Phil Marti
Clarksburg, MD

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- quote -

If you browse the court cases on how to interpret sec.
7701(a)(14) it becomes crystal clear that if you are US
citizen or US resident you are "subject to an internal
revenue tax" whether you have any income or not or whether
you have a filing requirement or not. As such, you are a
taxpayer.

I have concluded that there is no wiggle room for any paid
preparer or tax professional to argue otherwise. As such,
the plain language of the code and the conference report
preclude anyone from claiming an exemption for an individual
who is not their qualifying child and is the qualifying
child of some other taxpayer as defined above.

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bono9763[at]yahoo.com wrote:
- quote -

Let me see if I understand this:

In Phil's example of the BF, GF & GF's child all living
together and the GF & child have no income, the GF is a QR
to the BF and worth one exemption. The child is the QC to
the GF and therefore is not a QR to the BF. No one gets the
child's exemption. In the example I posted of the
grandparent supporting her child and grandchild, both of
whom do not reside with the grandparent, the result is the
same. Daughter is QR to the grandparent. Child is QC to the
daughter and therefore disqualified from being a QR to the
grandparent. No one gets the child's exemption.

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- quote -

Appreciate your posting that Dennis.

My position remains, however, that the girlfriend, having no
income nor tax, nor filing requirement does not have a
qualifying child that year.

And if basing anything on what is a taxpayer, then the
child himself is also a taxpayer, since he, IF he had
sufficient income, WOULD BE liable for filing a return.

Trust me, there will be either litigation or vigorous
contention on this issue, probably in tax court.

ChEAr$,
Harlan Lunsford, EA n LA
Fri 3 Feb 2006

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Harlan Lunsford wrote:
- quote -

Here's the quote from the H&R Block newsletter:

IRC 7701(a)(14) defines taxpayer as "any person subject to
any internal revenue tax." Being out of work, not having a
filing requirement, or even being a minor child does not
make one into a "non-taxpayer." We have received
confirmation from both the IRS National Account Manager and
IRS Senior Technical Advisor of Tax Forms and Publications
that this is the correct interpretation of the law. Only a
nonresident alien living outside of the U.S. and who has no
U.S. source income is not subject to the internal revenue
laws and, thus, is not a "taxpayer."

It doesn't explain the reasoning, only the result. So if the
child is the QC of another taxpayer, as defined above, the
child can't be a qualifying relative of anyone else. So if
you are going to support a distant relative or unrelated
person in your household, make sure you don't take in anyone
related closely enough that they could be their qualifying
child.

Dennis

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"Brew1" <brew_one[at]e-mailanywhere.com> wrote:

- quote -

It's still there in the revised law. I have no idea whether
there's ever been an attempt to enforce it.

--
Phil Marti
Clarksburg, MD

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I originally believed the UDC appeared to favor married over
unmarried couples, but then encountered a situation where a
couple was unmarried but the children had been born to both
of them. In this instance: they file separately, divide the
kids up to their advantage and can claim refundable credits.
Completely legitimate under the new guidelines.

It is really only when a boy/girlfriend is taking care of
another person's children that they lose out. And under the
new scenario, the switch from "Do you provide more than half
of this person's support?" to "Does this person provide more
than half of their own support?" means that someone earning
$5,000 to $10,000 a year can get a hefty refund, even though
they aren't providing significant support for their
"dependent." They would win any tie-break scenario except
when the other parent lived with the child the same amount
of time and had a higher AGI.

One aspect I have not seen addressed in the threads I have
read is claiming a dependent when a relationship is in
violation of local/state law. I don't think the IRS removed
that clause from Pub 17.

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Phil Marti wrote:

- quote -

This issue goes beyond unmarried individuals living together.
Take for example a grandparent who has been supporting an adult
child and the adult child's minor child (grandchild). Assume
that all the relevant tests are met and the parent has no income.
If they all live together there is no issue because the
grandchild is the QC to the parent and the grandparent. The two
individuals can decide who takes the exemption. The tiebreaker
rule only comes into play if they both decide to make the claim.
In addition, the adult child is the QR to the grandparent and can
be claimed by the grandparent.

Now change the assumption such that the parent and child don't
live with the grandparent but still get all their support from
the grandparent. The adult child is still the QR to the
grandparent as there is no residency (living with) test for a QR
that meets the relationship test. The parent is now someone who
can be claimed as a dependent and is precluded from claiming any
dependents. The minor child is now only the QC to the parent as
the child fails the residency test for the grandparent.

The question on the table becomes, can the grandparent claim the
grandchild as a QR, just like in 2004?

The wording in the code, the conference report and examples in
the pubs state that in order for a person to be the QR to another
taxpayer, that person can not be the QC of that taxpayer nor the
QC of any other taxpayer. If the parent doesn't have any tax
liability and doesn't file a tax return, I believe that the
parent fails the test of being a taxpayer (one who has a tax
liability). As the law is written expressly using the term
"taxpayer", I believe it is reasonable to conclude that an
individual who doesn't file because they have no tax liability
and doesn't file to claim any tax benefit can't have a QC or a QR
because they don't exist under the definition.

If in the above example, the parent had some income that required
the filing of a tax return, then I would conclude that the
grandparent could not claim the grandchild as the child was the
QC of the parent. I come to the same conclusion if the parent has
a small amount of earned income that does not create a tax
liability nor a requirement to file, but does file to claim the
EITC. The parent now has a qualifying child and as such the
grandparent could not claim the dependency exemption for that
child. (Note that the way the EITC rules are written, even though
the parent is a QR dependent, the parent could still qualify for
the EITC with a QC. As far as I can tell, you can't claim the
EITC if you have a QC and you are the QC to someone. Nor can you
claim the EITC if you don't have a child if you are a dependent
or a QC to someone. Nothing in there about disqualifying a QR
with a child from claiming the EITC.

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Phil Marti wrote:

(snipped.

- quote -

We've all got a dog in this fight I think.

What started out to be SIMPLY a means to achieve a uniform
definition of what a child "IS" has engendered (or
transgendered?) all this controversy.

What I would like to see, and maybe somebody who works for
HRBlock can do this, is to publically here reprint that
"advice" the IRS allegedly imparted to that company.

Otherwise, I can't see it was the intent of congress to
limit exemptions JUST because people aren't married.

ChEAr$,
Harlan Lunsford
tue 31 Jan 2006

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What has bothered me from the beginning has been the concept
that the status of being a qualifying child exists in a
vacuum. The more I look at the law, the less I can see a
rationale for first determining whether an individual is a
qualifying child, then deciding whose qualifying child he
is.

If that was how it's supposed to work, why didn't they just
put the qualifying child definition in 7701 with the other
definitions that apply across the board? It seems to me
that it would then be clear that determining the status of
the child comes before you start applying it to a specific
situation.

Instead, that part of the definition that is truly uniform
is in section 152, requirements for dependents. All the
other provisions, IRC 2 (HofH), IRC 21, (CDCC), IRC 24,
(CTC) and IRC 32 (EIC) look back to 152. Those who have
been to law school would know better than I, but to me that
says 152 is where the action is.

So here comes BF knocking at 152's front door to determine
his dependents. GF is easy. She is clearly a qualifying
relative for dependency. Moreover, she has no choice as to
whether she is or not.

So he looks at the kids. Clearly they are not qualifying
children of his. They fail the relationship test. So he
looks to 152(d)(1) to see if they're qualifying relatives.
He sails through paragraphs A, B and C. We wind up at
152(d)(1)(D), which disqualifies the kid if he is the
qualifying child of any other taxpayer for the taxable year
in question.

Here's where lawyers would be a big help. If we look way
back up at 152(b)(1) we see that GF cannot have any
dependents for this tax year. Since GF is the only taxpayer
for whom the children could possibly be qualifying children,
it boils down to whether they are still her qualifying
children even though they are not her dependents and don't
qualify her for any tax benefit.

To conclude that they are qualifying children, we have to
accept the concept that we have these qualifying children
floating around not qualifying anyone for anything. I may
be simple minded, but that makes no sense.

Far more reasonable to me is the approach that the status of
qualifying child is determined while determining dependency.
It seems to be that this is supported by the fact that all
the other provisions look to this section. (Need lawyers
again. I know there are general precepts of legislative
construction, which may or may not be pertinent to this
discussion.) With this approach the kids are not qualifying
children of any taxpayer and, thus, available to boyfriend
under paragraph D as qualifying relatives.

I've read the conference report, which seems to imply (yes,
it's that fuzzy to me) that Congress intended that no one
would get the kids' exemptions, but it doesn't come out and
say so. Nowhere do they espouse the "look at the kid first"
approach.

I also can't ignore the political climate. It's hard for me
to accept that current Congressional leadership would stick
it to this pseudofamily and the Godless slattern exposing
her children to the shackup without trumpeting their strike
for family values. Haven't heard a peep from them. All
they do is brag about how easy they've made things. OTOH,
they could just be hoping no one will notice since I would
think that most people would find it unfair.

I'm told that IRS has told Block that no one gets the kids'
exemptions, but nothing about what reasoning the IRS
offered. I'm told the same thing at VITA, again without any
analysis. So, it does seem that IRS has decided, but I'd
sure like to see the analysis behind it, because so far I
don't buy it.

--
Phil Marti
Clarksburg, MD

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