Just a reminder that changes to the Uniform Definition of a Child went into effect 1/1/09.
Qual. Child now has to be younger than the taxpayer.
Qual. Child can't file a joint return with a spouse unless it is merely to obtain a full refund of withheld taxes.
In the instance when parent(s) have a qualifying child but opt not to claim that child as a qualifying child, no other taxpayer can claim that child as a qualifying child unless that taxpayer has an AGI that is higher than the highest AGI of any parent.
Here's an example: The child is the qualifying child of the parent and grandparent because they all live together. Parent & grandparent could decide in 2008 who should claim the child for the best benefit. Now, if the grandparent has an AGI that is not higher than the parent, the grandparent is SOL. This example presents the same problem for other family members who are all living together and have the same qualifying child. E.g., 2 siblings one of which is the parent of the qualifying child.
If you have a qualifying child under the age of 17 (CTC qualified) you can only obtain the CTC if you actually claim a dependency exemption for that child.
If you want to know who this impacts, see IRS Form 8901.
Thank you for the reminder. I hope these changes are to resolve some of the anomalies and paradoxes created by the original UDC in 2005, as documented in letter to IRS commissioner from president of NAEA on Feb
6, 2006 (which I first read in a discussion in this newsgroup).
The following are not likely to come up much in practice, but for discussion I'm thinking aloud..(pardon my noise).
Does that resolve the "twin paradox"?
"Twin nineteen-year old brothers live together in their home and attend school full-time. Their parents are deceased. The brothers do not provide more than half of their own support. Although they have part time jobs and earn about $5,000 annually, their principal support comes from their aunts and uncles who together contribute about $25,000 per brother towards their household and college expenses. The aunts and uncles do not live with the brothers. Each brother meets the definition of a qualifying child with respect to the other. Putting the dependency rules together with this, if each twin is able to claim the other as a dependent, it means that the other one cannot because a dependent cannot have dependents. However, since neither can be claimed, it means they can have dependents. This loop continues endlessly - we now have the qualifying child paradox. The intent of the law could not have been to create a situation where the outcome of applying the law cannot be determined. "
There previously was a *dependency* requirement involving no MFJ filing, with an exception if three tests were met (involving tax liability if filing separately, etc). This makes that moot, I assume, if the dependency is based on QC instead of QR -- now an exception based on one test, instead of three.
I wonder if the parents can tweak the AGI by filing separately, especially in a community property state where community income is allocated 50-50. Fortunately, it's usually the taxpayer with the higher AGI who will make the household better off by claiming the child anyway (but EIC could push that either way).
As for due diligence, how are paid preparers supposed to document eligibility of Grandparent to claim the dependent (and related tax benefits), if Grandparent knows neither the AGI nor taxpayer ID of the parents? Ditto for the IRS... In other words, if parents do not actually claim the dependent, how will anyone know for sure if the test is met?
That's not one I've ever seen in my recent experience.
A higher AGI may phase out the exemption (although this phaseout is itself phasing out and will vanish in 2010) -- but it has to pretty high.
All people -- the grand-child P1, the parent P2, the grand-parent P3
-- live in the same house. P1 is claimed as a dependent of P3. The computer program will find people who live in the same house as P1 and P3, and will find P2. The computer program has in its database a record of the birthdays of each social security number. If the age difference between P3 and P1 is larger than the age difference between P2 and P1, and the age difference between P2 and P1 is more than 15 (since 15 is about the earliest age to have a kid), then check if the AGI of P3 is larger than the AGI of P2, and if not flag the return for manual check.
I don't want to post a link to a non-tax related site, but if you go to "urban dictionary dot com" and search for "SOL", you will have an accurate answer.
IRS Notice 2008-5, Qualifying Relative for Purposes of Section 152(d)(1) resolved that issue. It noticed that "cannot be the qualifying child of ANY OTHER TAXPAYER" could be resolved by defining Any Other Taxpayer to be someone who:
i) is required to file a tax return, or
ii) is not required, but files only to receive a refund of tax paid.
Nor have I.
It is used to notify the IRS that someone who fails to qualify as a dependent, does qualify for child tax credit.
For example, a person who fails the joint return test cannot be claimed as a dependent. But the child tax credit does not have a joint return test.
correction: "files to receive the EIC". Someone who files only to receive a refund of tax paid is no longer considered "a taxpayer".
That notice resolved the Qualifying Relative (QR) issue, but has nothing to do with the "twin paradox". The QR issue was resolved so that Adult_1 can now claim live-in Adult_2 plus child if Adult_2 is not a taxpayer.
However, I can answer my own question: if the new rule is that QC must be strictly younger than taxpayer, as opposed to "not older than", the twin paradox is resolved as neither brother is a QC with respect to the other (neither is strictly younger than the other).
Sure. Or has more than $400 in netincome from self emoployment.
Or files to claim the stimulus rfund or rebate credit.
My bad. Should have read: files for any reason other than to receive a refund of tax paid.
The twin paradox would be the same if the kids were aged 1 year apart.
So, yes, this new set of rules (Oh, isn't it fun learning a new set of rules under the rubric of "Uniform Definition of Qualifying child ::( " applies a new dfinition of qualifying child -- must be younger than you.
And the new "higher AGI rule" is really a return to those thrilling days of yesteryear, when higher AGI was the rule!
I've never heard about simultaneous births of twins. I have always observed that the births were sequential. As such, one of the twins would be the younger one. I don't believe the IRS would argue the point.
Isn't almost everything related to income-tax granular only down to the daily level, fun discussions on this board about business payments made and received in different time zones on New Year's Eve notwithstanding? ;-)
Consider payments made to the last survivor of a group (a tontine), who only lives 10 minutes longer than the second-last. He (his estate) pays income tax on the proceeds.
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