New IRS Guidance On Who Is A Qualifying Relative

A must read for all is IRS Notice 2008-05

formatting link
It basically makes a change on who is a qualifying child of another taxpayer. A taxpayer can not claim a person as a qualifying relative if the person is a qualifying child of another taxpayer. The definition of taxpayer was quite broad and included anyone subject to US tax law. This had the effect of denying dependency exemptions to individuals who completely cared for children who failed the qualifying relative test because they were the qualifying children of their parent even if the parent did not file a tax return. It also eliminated the dependency exemption for those who cared for unrelated children who were siblings as they were a qualifying child of each other.

This notice fixes that by allowing one to treat those children as qualifying relatives (assumes all the other QR tests are met) as long as the parent or anyone with respect to whom the child is defined as a qualifying child, is not required to file a tax return and does not file an income tax return or merely files to obtain a refund of taxes withheld. The notice has examples.

Reply to
Alan
Loading thread data ...

I agree this goes a long way to resolving that issue, and I'm glad to see it.

It does not help in the two sibling case where, let's say, each sibling has capital gains income from sale of stock of, say, $950.

Since each sibling must file a tax return to pay tax, we are back where we started. Even worse, we know we cannot go the Qual Relative route.

Reply to
Arthur Kamlet

I don't believe the law is different. Sections 152 and 7701 remain the same. What changed is that the IRS position, which has been blindly followed by much of the tax professional community, has come into compliance with the rules of statutory construction and the tendancy of the Tax Court to read the law as written. I have defied the previous IRS position since 2005 with full disclosure, hoping for a legal challenge to no avail. The definition of "taxpayer" seemed rather clear to me. I have lots of clients supporting their non-filing girlfriends with children who were told by other tax professionals they could not claim dependent exemptions. This is yet another reason to learn how to read statutes instead of relying on secondary sources, a method I learned early on in my practice not from another attorney, but from Ed Zollars, CPA. I still remain grateful to him for that insight.

Timothy E Kelly Attorney at Law Certified Specialist in Taxation law State Bar of California Board of Legal Specialization

Reply to
Tim

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.