Trick question

[jainen]

Carol supports her adult daughter Barbara and Barbara's child Ann who lived with her all year. Ann's father did not live with them but has claimed Ann for several years because Barbara signed a permanent Form 8332. In November Barbara received $20,000 settlement for back wages, which she used to buy herself a car. In February she gets a W-2 and decides to claim Ann as a dependent with EIC. Can she do that?

[Pacun]

Yes. As long as she is breathing with her in the same household for more than 6 months in the tax year she can claim Ann regardless what papers she signed to the father.

I love this type of info "back wages", Back wages because she worked in September and her pay check came in November (two months later) or "back wages" because she worked 5 years ago and she just got paid?

Asssuming that her wages were held for 2 months, yes she can claim EIC.

If the wages were for previous years, no, because EIC is for working people.

[mcb39]

She would lose in the tie-breaker because she did not use the money to support the child. (IMO) No time right now for a cite.

[Pacun]

After re-reading the "trick question" I have to question what "adult daughter" means. Is she adult because she is more than 18 years old but under 19 at the end of the tax year? Is she an adult under 24 and going to an accredited school full time? Is she adult and "permanently and completely disabled"?

If none of the above questions is answered yes, then my previous answer stands.

It will be nice to know Barbara's age at the end of the tax year.

If Barbara is the qualifying child of Carol, then she cannot claim EIC. (Barbara would not be the qualifying child of Carol if she is not a full time student or is not "permanently and completely" disabled AT THE END of the tax year). Again this is dependant on whether or not the income was earned in the tax year or her age or the other requirements.

[kcjenkins]

Clearly, the original 'trick' in this one is that there is not nearly enough info provided to be able to answer the question. I'd want to know the ages of all the people in this one, since all we know at this point is that Barb is 'an adult', and Carol is a grandmother, and we have no idea at all about Ann's age. Maybe Ann is too old to be eligible for EIC? We do know that the money earned was not used to support Ann, so my basic starting point would be "No". But honestly, it's impossible to answer this one with this amount of info.

[jainen]

>>it's impossible to answer this one with this amount of info<<

In my opinion, for the issues you all raised the question has enough information within itself. Yes, Barbara might be disabled or a student, in which case we would have to determine if $20,000 was more than half her own support. But even in the real world we might only ask for such additional facts if something in the scenario suggested it was incomplete or inconsistent. We could not do our work if we had to factually eliminate every issue that does not apply. Now, other criteria like citizenship and SSN and filing requirements DO call for an affirmative fact or at least assumption, but none of that came up.

The trick was simply that Form 8332 is not valid because Ann's parents do not support her. In my opinion, Barbara can claim her daughter.

[kcjenkins]

Agree on that point, but without knowing the age of Ann, how can we know if she can claim her, or whether Ann qualifies for EIC? Carol might be 80, Barb 50, and Ann 26, for all we know. Just because the father claimed her in the past does not mean that she's not too old now, does it?

[Yeah, I'm being picky, but hey, knowing you, if we'd just said "Yes, because the 8332 does not control" you would have brought up the age issue! LOL}

[Pacun]

>>it's impossible to answer this one with this amount of info<<

In my opinion, for the issues you all raised the question has enough information within itself. Yes, Barbara might be disabled or a student, in which case we would have to determine if $20,000 was more than half her own support.

How can you ask that if you already said that she used the money to purchase a car? It is unlikely that purchasing a car will contribute to more than half of her own support.

[SaraEA]

Of course the ages of everyone involved will matter for the final determination. Many responses thusfar mention support, but that really shouldn't have anything to do with it. For a qualifying child, the only support rule is that the child can't provide more than half of his or her own support. For EITC, the only rules are age, relationship, and residency (and no joint return)--support is not part of it. Are some of you thinking of the old rules when you had to provide more than half the child's support to claim the exemption?

I think the "trick" in this question is whether the mother can revoke the 8332. She sure can. Part 3 of the form itself is used for the revocation. The other trick is that the wages were for a prior year. Well, she's getting paid for them this year so they should count as wages. This is not unlike those who get paid every other week. If the calendar works out that the pay is doled out the first week in January, that incomes counts for the following year even though one week of it was earned in the prior year, does it not?

[Pacun]

If the calendar works out that the pay is doled out the first week in January, that incomes counts for the following year even though one week of it was earned in the prior year, does it not?

Yes, but in this case, the mother probably didn't work at all during the tax year and a condition for EIC is that you work and earn the money. I think "work" is key in the qualification for EIC and therefore she wouldn't qualify.

[kcjenkins]

Pacun, I don't think you can ASSUME that 'back wages' were automatically for a prior year. That term 'back wages' could mean anything, time wise. And W-2 wages are treated for EIC purposes as 'earned income' in the year received, period. Even if they include adjustments from a prior year, that is a detail the regs do not address. You are simply assuming, when you say "the mother probably didn't work at all during the tax year", she might have worked half the year, the company she worked for filed bankruptcy, she got no pay for that year, and finally, in the next year, she got paid once the bankruptcy liquidated some assets and had funds to pay the wages owed. Not likely, but possible......