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Ethical?


kathyc2
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27 minutes ago, mcb39 said:

Yes, it is a tie-breaker rule because the child is the qualifying child of both parents.   However Tie-breaker rule #5 for Unmarried parents clearly states that Mom, Dad and child live together.  Child is the qualifying child of Dad because he has the greater AGI and Dad gets every Credit available to him if his income isn't too high. (for example: EIC)

The tie-breaker rules only come into play when 2 people try to claim the child and the IRS needs to make a determination as to which one gets it.  If the parents agree which will claim, then tie-breaker rules do not apply.

 

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18 hours ago, Lion EA said:

A tie-breaker rule comes into play when two taxpayers claim the same child. When all the taxpayers agree on the child's dependency, there is no tie.

That is mostly true.  But a non-parent (like a grandparent) can only claim a child if their AGI is higher than any other person (including a parent) who qualifies to claim the child.  It doesn't matter if the others agree, it's not allowed if the non-parent's AGI is lower.  (Between parents, they can agree to let the lower AGI parent claim the child.)

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19 hours ago, mcb39 said:

Yes, it is a tie-breaker rule because the child is the qualifying child of both parents.   However Tie-breaker rule #5 for Unmarried parents clearly states that Mom, Dad and child live together.  Child is the qualifying child of Dad because he has the greater AGI and Dad gets every Credit available to him if his income isn't too high. (for example: EIC)

Can you please identify where you are looking at the tie-breaker rules?  My understanding was that the tie-breaker rules only applied if both parents claimed the child, or if no parent claimed the child. 

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26 minutes ago, Gail in Virginia said:

My understanding was that the tie-breaker rules only applied if both parents claimed the child, or if no parent claimed the child. 

I agree.  There are plenty of examples in Pub 501, starting on page 15.  mcb39 should look at example 8.

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1 hour ago, Gail in Virginia said:

Can you please identify where you are looking at the tie-breaker rules?  My understanding was that the tie-breaker rules only applied if both parents claimed the child, or if no parent claimed the child. 

I am looking at the tie-breaker test for Qualifying child if the child is the qualifying child of both parents. Quickfinder Page 4-2 Section 5: Unmarried parents "Mom, Dad and Child live together"  The Dad's AGI is greater; therefore the child is his qualifying child for all credits.

IMO:  I cannot ethically allow the mom to reap the benefits of HOH, CTC and EIC when she makes half as much money as dad and they are all living together and living very well.  I only have (had) one situation like this and burned my brain in order to decipher this.  Since they are both my clients; we all agreed and he shared the CTC with her.  Thankfully, they got married in 2021, had another child and all things will be normal this year.  Dad also has a small side business that he is doing very well at.  Since this discussion was under "Ethical", I am telling you that from what I read and according to my ethics, Mom filed Single and Dad got all the credits allowed.  I stand by my decision, even though I know that they could have reaped the harvest by giving the deductions to the mom.

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If the law and regulations are structured such that either parent may claim the child, and the EITC/CTC regardless of higher AGI, etc. and I don't allow the parents to maximize the tax savings WITHIN THE LETTER OF THE LAW because I know that one has more income and therefore provide more support than the other and my personal opinion is that it is wrong, then I think that is unethical.  Congress can, and does, change the law anytime they choose.  My responsibility is to my client as long as I obey the law as it is written and not as I think that it should be written. 

I looked at the Quickfinder example you cited,, and it clearly says 1)mom, dad and child live together 2) Mom's AGI is $8,000 ad Dad's AGI is $18,000 3) Mom and Dad both claim the child on their returns.  This example for the tie-breaker section clearly references both parents claiming the child. 

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Gail is correct that tiebreaker would only apply in this situation if both unmarried parents try to claim the same child.  Pub 501 has 2 clear examples of this in the "Dependents" section an under the tiebreaker explanations:

Quote

Example 8—unmarried parents.

You, your 5-year-old son, and your son's father lived together in the United States all year. You and your son's father aren't married. Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. Your AGI is $12,000 and your son's father's AGI is $14,000. Your son's father agrees to let you claim the child as a qualifying child. This means you can claim him as a qualifying child for the refundable child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father doesn't claim your son as a qualifying child for any of those tax benefits).

Example 9—unmarried parents claim same child.

The facts are the same as in Example 8 except you and your son's father both claim your son as a qualifying child. In this case, only your son's father will be allowed to treat your son as a qualifying child. This is because his AGI, $14,000, is more than your AGI, $12,000. If you claimed the refundable child tax credit for your son, the IRS will disallow your claim to this credit. If you don't have another qualifying child or dependent, the IRS will also disallow your claim to head of household filing status, the credit for child and dependent care expenses, and the exclusion for dependent care benefits. However, you may be able to claim the earned income credit as a taxpayer without a qualifying child.

 

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32 minutes ago, jklcpa said:

Gail is correct that tiebreaker would only apply in this situation if both unmarried parents try to claim the same child.  Pub 501 has 2 clear examples of this in the "Dependents" section an under the tiebreaker explanations:

 

I concede, but I do not concur on the grounds of ethics.  Also, Master Guide Page 103, PPG 139 states that "If the child resided with both parents equally during the year and the parents do not file a joint return, then the child is the qualifying child of the parent with the highest adjusted gross income.(AGI)"

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I have no clue whether my client the father has an income greater than his girlfriend the mother of his child. In any case she claims a child from her prior marriage. Good grief. I just attended an IRS webinar today and it looks like tax simplification has gone south yet again. I came away with a brain fog not unlike these people who have had Covid. For my part I am with cb my client list is moving toward the easier returns as I simply no longer have the stamina to research all these opaque rules.

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8 hours ago, mcb39 said:

"If the child resided with both parents equally during the year and the parents do not file a joint return, then the child is the qualifying child of the parent with the highest adjusted gross income.(AGI)"

That would be the case if both parents tried to claim the child per the tie breaker rules, Sect 152(c)(4)(ii)

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10 hours ago, mcb39 said:

IMO:  I cannot ethically allow the mom to reap the benefits of HOH, CTC and EIC when she makes half as much money

I see an ethical issue with you withholding knowledge of the tax code from your client that would be to his advantage.

I believe there is a professional standard to advise your clients on the best options available to them under the code.

If you have an ethical problem in filing a return with a legitimate deduction or credit, you should decline the engagement.

So how did you answer question 9(c) of form 8867 in this situation in carrying out your obligation of due diligence?

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