Question on Economic Stimulus Act of 2008 - HR 5140

Just a simple question on the "Final version (Enrolled Bill) as passed by both Houses" of this bill. It can be found on the Library of Congress THOMAS server:

formatting link
Question:. Arranging to qualify under (b)(2)(B)(ii):

I'll quote the relevant parts of the bill here; the assumed taxpayer scenario follows:

(b)(1) IN GENERAL- In the case of a taxpayer described in paragraph (2)-- (A) the amount determined under subsection (a) shall not be less than $300 ($600 in the case of a joint return), and (B) the amount determined under subsection (a) (after the application of subparagraph (A)) shall be increased by the product of $300 multiplied by the number of qualifying children (within the meaning of section 24(c)) of the taxpayer.

(2) TAXPAYER DESCRIBED- A taxpayer is described in this paragraph if the taxpayer-- (A) has qualifying income of at least $3,000, or (B) has-- (i) net income tax liability which is greater than zero, and (ii) gross income which is greater than the sum of the basic standard deduction plus the exemption amount (twice the exemption amount in the case of a joint return).

Assume that (b)(2)(B)(ii) is true for my hypothetical taxpayer, that his income is all from interest (so not "qualifying income" under (b)(2)(A)), and that his AGI is less than $75,000. Suppose this taxpayer's itemized deductions are just large enough to bring his income tax liability to zero. But realizing that by not claiming some of those itemized deductions (e.g. some of his medical expenses) he would incur a very small tax liability of $10, say. Then under these circumstances would he qualify for the credit of $300 ($600 for joint return) plus $300 x (qualifying children) under the terms of (b)(1)(A) and (B), quoted above, thus earning a rebate check?

Reply to
EB
Loading thread data ...

The original bill passed by the House had the same basic rule. I.e., to get a minimum of $300 plus $300 for each CTC qualifying child you had to have at least $3000 of earned income or a positive tax liability without counting the CTC and EITC AND GI had to exceed the sum of the basic std ded. plus personal exemption. The Senate added the clause that changed $3000 of earned income to at least $3000 of earned, SSA and/or VA income.

As such, your analysis is correct. Without any earned income, SSA benefits or VA benefits to pass the $3000 test, a taxpayer would have to have a positive tax liability (note that this has a very specific definition. e.g., it excludes self-employment taxes) and GI in excess of the std deduction plus personal exemption.

Reply to
Alan

... ,,,

Then am I correct in assuming that it is "legal" to omit claiming legitimate deductions? That is, deductions are discretionary (for the taxpayer to claim), and not mandatory? (as contrasted to income declaration, which is mandatory).

Reply to
EB

EB wrote: [snip]

This issue pops up on this board almost every year. Other than some part of the code that requires you not distort income, I have never seen an argument that would prevent one from selectively reducing itemized deductions. Besides, how can the average taxpayer even remember exactly what they are entitled to deduct. And.. in addition.. Was that crystal goblet I donated worth $300 or $20? Where is that receipt for my church contribution? What happened to my mileage log I was keeping?

Reply to
Alan

NO, it is not legal to omit claiming legitimate deductions. However, the choice between the standard deduction or itemizing is an election that any taxpayer may make (with the one limitation on those filing as MFS that both returns must choose the same option).

You can't claim "some" itemized deductions. You claim all or nothing (standard deduction as available).

Reply to
D. Stussy

It's not OK with IRS to omit Schedule C expenses for the purpose of inflating earned income tax credit. See the linked IRS counsel opinion.

formatting link

Condor

Reply to
Condor

Oh now, I have to disagree with you there. If one has enough state income taxes plus mortgage interest (that exceeds standard of course) which is enough to lower taxable income to zero, there's no need to go to extremes and also list real estate taxes and even the second mortgage interest, or even charitable contributions.

Itemizing deductions and choosing which ones is an individual choice.

Think of it this way. An individual who knows he gave $8000 to the church last year can't find his receipt and doesn't even need the deduction.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

"Condor" wrote

True, but what happens if they - can't support the deductions - are they then required to count for tax purposes expenses for which they can not support? I would find it odd though, if the supportable expenses are only those necessary to max out EIC, but stranger things have happened.

Reply to
Paul Thomas, CPA

Take them and hope for an audit in which they get rejected :-)

Seth

Reply to
Seth

AGree. Take the expenses anyway, since those funds were expended legitimately, receipts or no. IRS can't fault you for wanting to faithfully reflect accurate income.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

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.