Lucho Posted February 5, 2012 Report Share Posted February 5, 2012 Scenario: There is a family where one of the adult children wants to claim his minor brother as dependent in order to claim the EIC. I said he can not because the whole family lives in the same house and also his father has a higher AGI; besides this minor brother is also his parents qualified child. Am I right or wrong? Any enlighten would be appreciated. Thank you, Lucho Quote Link to comment Share on other sites More sharing options...
jainen Posted February 5, 2012 Report Share Posted February 5, 2012 >>his father has a higher AGI<< This year we have to attach the due diligence Form 8867 to the return, so let's finally get around to actually reading it. See the instructions to line 13c, which say "If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person’s AGI is higher than the highest AGI of any of the child’s parents who can claim the child." In other words, you are right. This form also boasts one of my favorite lines in all of IRS-dom, right below what I just quoted. Line 13c has boxes for "Yes," "No," or "Don't know." But if you select that third box, you haven't done your due diligence! 1 Quote Link to comment Share on other sites More sharing options...
Lucho Posted February 5, 2012 Author Report Share Posted February 5, 2012 Thank you again, jainen Lucho Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 6, 2012 Report Share Posted February 6, 2012 Agree with Jainen. You are correct. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted February 7, 2012 Report Share Posted February 7, 2012 Lucho, this stuff can be so confusing and if you read it enough times you can get even further confused. I think there still is a choice here and it depends if they each want to claim the EITC then the tie breaker rules apply. Here is an example from the EITC pub. Note if a choice is made then the party who gives up the right to claim the child as their qualifying child also gives up the other tax benefits associated with credits when claiming a dependent child. You, your 5-year-old son, and your son's father lived together all year. You and your son's father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Neither of you had any other income. <<<Your son's father agrees to let you treat the child as a qualifying child.>>>>>> This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed on page 16, you can claim him as a qualifying child for the EIC and any other tax benefits listed on page 16 for which you qualify. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 7, 2012 Report Share Posted February 7, 2012 >>You, your 5-year-old son, and your son's father<< Sorry, this example is not at all the same. In the original post, the players are you, your brother, and the father of both of you. The rule was added specifically to EIC, not to qualifying child. Since the minor is a qualifying child to both his brother and his parents, either can claim him for dependent, Head of Household, child tax credit, and/or dependent care (if otherwise eligible). But NOT Earned Income Credit. Read my quote carefully in its own context. The situation in the original post is exactly why we have this rule. The EIC was intended as an incentive for welfare families to return to work. The IRS noticed that MANY wealthy families, especially with exemptions phased out, were allocating children to maximize the refundable credit. You know they didn't think of this on their own; we tax professionals pushed it. Apparently some of us still think it's a pretty good idea even after Congress closed the loophole. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted February 7, 2012 Report Share Posted February 7, 2012 >>You, your 5-year-old son, and your son's father<< Sorry, this example is not at all the same. In the original post, the players are you, your brother, and the father of both of you. The rule was added specifically to EIC, not to qualifying child. Since the minor is a qualifying child to both his brother and his parents, either can claim him for dependent, Head of Household, child tax credit, and/or dependent care (if otherwise eligible). But NOT Earned Income Credit. Read my quote carefully in its own context. The situation in the original post is exactly why we have this rule. The EIC was intended as an incentive for welfare families to return to work. The IRS noticed that MANY wealthy families, especially with exemptions phased out, were allocating children to maximize the refundable credit. You know they didn't think of this on their own; we tax professionals pushed it. Apparently some of us still think it's a pretty good idea even after Congress closed the loophole. As always Jainen, I appreciate your input. Like Terry, I had processed some returns with children of both parents living in the same home, one allowing the other to claim, ect.... At first I though I was wrong and was about to go and do more research on it, however Terry turned up exactly what I had remembered researching in the past. At least now I can breath a little easier. This year the EIC has definitely put a strain on my brain. I have not and never would willingly give this credit to someone who does not deserve it. However going back to the form we have to file this year, when it gets down to the question on can this child be claimed by anyone else, and it asks about the tie breaker rules, well in the case of two parents living in same home with same qualifying child, obviously one's AGI is going to be higher how should we answer that question? It's confusing because the parents have agreed on who claim. So I guess the answer would be yes the one claiming qualifies? Deb! Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 7, 2012 Report Share Posted February 7, 2012 Between parents, the tie breaker rules are applied ONLY when both claim the child, correct? Quote Link to comment Share on other sites More sharing options...
jainen Posted February 7, 2012 Report Share Posted February 7, 2012 >>the parents have agreed on who claim<< The tiebreakers only apply when they can NOT agree and both claim the child, and only if the child lived with each of them for more than half the year. Presumably that means they all lived together for some time. In terms of the original post, the tiebreakers also apply for whoever can claim the child, including siblings. If everyone agrees, they can do it whichever way they want (except for EIC). If the parents were separated the custodial parent rules apply instead. Those are closer to qualifying relative than to qualifying child. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted February 7, 2012 Report Share Posted February 7, 2012 I do agree with Jainen again with the original post from Lucho as it is a different scenario then what I posted. It just proves that we should agree that each scenario is unique and there is not a one size fits all scenario. My situation , is the parents did choose and agreed to the choice simply because they will be getting married this year. The currently share all expenses and put income into one checking account so they "Chose" which way would benefit them the most. Again, confusing and I am sure that I will miss some questions on the competency test or EA exam with these scenarios. Quote Link to comment Share on other sites More sharing options...
the boss Posted February 7, 2012 Report Share Posted February 7, 2012 What all of this means is that the EITC should be eliminated due to its complexity and susceptibility for fraud. The IRS should have the people that qualify or think they qualify go to an IRS office so that their staff can determine eligebility and hand them a check. With the money they will save from false claims the will be able to more than cover any expense they will incur. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 7, 2012 Report Share Posted February 7, 2012 >>the people that qualify or think they qualify go to an IRS office so that their staff can determine eligebility<< You want the government to audit ANYBODY with kids who struggles on low wages? Why not audit Schedule C instead? It is even more complex with vastly more chance of fraud including unlimited deductions. At least EIC is capped at 5K. 2 Quote Link to comment Share on other sites More sharing options...
the boss Posted February 9, 2012 Report Share Posted February 9, 2012 >>the people that qualify or think they qualify go to an IRS office so that their staff can determine eligebility<< You want the government to audit ANYBODY with kids who struggles on low wages? Why not audit Schedule C instead? It is even more complex with vastly more chance of fraud including unlimited deductions. At least EIC is capped at 5K. You are right about that.......but those people with low wages and kids are easier targets for the IRS. And also, why target Schedule C only, how bout S Corps, LLC's and Partnerships? Quote Link to comment Share on other sites More sharing options...
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