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MFS and Child Tax Credit

Technical topics regarding tax preparation.
#1
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Have a client filing MFS. Husband already filed return but didn't claim child. Wife's AGI is lower than husband's and a little Googling led me to some commentary saying that the spouse with the higher AGI must claim dependent for Child Tax Credit. I see this being relevant if there were phaseout issues here but both spouses are well under the phaseout so there would be no limitation.

Is it really worth amending husband's return for the $2k credit? I'd rather just try to take it on the wife's and see if we get push back then amend husband's later if we run into issue. Anyone know of code or reg indicating that spouse with higher AGI must take dependent even if under phaseout? I couldn't find anything on Bloomberg.

thanks!
 

#2
HowardS  
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Have you considered the requirements for claiming the child tax credit?
To qualify for the Child Tax Credit, you must have a child or dependent who meets all of the following requirements:

Age: The child must have been 16 or younger on December 31 of the tax year.
Citizenship: The child must be a United States citizen, a United States national, or a resident alien.
Dependent:The child must be claimed as a dependent on your tax return.
Relationship:The child must be related to you in one of the following ways: son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, grandchild, niece, or nephew. This includes any legally adopted child, any child lawfully placed with you in preparation for adoption, and any foster child lawfully placed in your care.
Residency: The child must have lived with you for more than half of the year (stayed with you for at least 183 nights). Temporary absences for special circumstances are generally acceptable, and special rules may apply if you are divorced or for certain other circumstances.
Support: The child must NOT have provided more than half of his or her own financial support for the year.


You seem to be focused on the tie breaker rules.
I suffer from depreciation.
 

#3
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Hi Howard--yes, child totally qualifies and parents live together. I can see technically the tie breaker rules would suggest the higher AGI spouse but it's about $15k difference and both parents are well under $200k phaseout. Technically, the tiebreaker goes to higher AGI if child lives equal amount of time with each parent. But since the IRS has no clue which parent the child lives with more (even though equal in this case), just seems like overkill amending the husband's when we can just take it now on the wife's.
 

#4
EZTAX  
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No tie breaker if no fight.
 

#5
Chay  
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smallreality wrote:just seems like overkill amending the husband's when we can just take it now on the wife's.

When a married couple files MFS, each return is a self-contained entity. Each taxpayer represents under penalties of perjury that he or she is entitled to all of the tax benefits on his/her return.

Under section 152(c)(4)(B)(ii), the wife is not entitled to the child tax credit. If her return ever underwent a full audit, I have no doubt the credit would be disallowed.

If you file the return like that anyways, I doubt you're going to get any "pushback" from the IRS, barring an audit. It's the same as any other factual misrepresentation—the IRS would have no way of knowing.
 

#6
sjrcpa  
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smallreality wrote:Is it really worth amending husband's return for the $2k credit?

IMHO, yes. I'd prepare an amended return to get a client a $2k refund.
 

#7
lucyko  
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With the specific facts given it is my understanding that the tie-Breaking Rules only come into play if the parents cannot come to an agreement who will claim the qualifying child as a dependent. Since the husband did not claim the child the wife can go forward claiming the child and the child tax credit. At least this is what 2019 Master Tax Guide states.
 

#8
Chay  
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Does the 2019 Master Tax Guide cite any sources for its position?
 

#9
Frankly  
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§152(c)(4)(C) tells us that if a parent may claim the qualifying child, but does not claim the child, then another TP may claim the child. This implies that the QC is not locked in to one TP under the tie-breaker rules.
 

#10
HowardS  
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152(c)(4)(B)(ii) applies in this case.
§152(c)(4)(C) does not as A says
Except as provided in subparagraphs (B) and (C)

Chay is correct. File an amended return if you want to do it correctly. Original post did not divulge that parents were living together.
I suffer from depreciation.
 

#11
Frankly  
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I don't believe IRS cares one way or the other who claims the dependent as long as the dependent is a qualifying child of the TP, and the QC is only claimed by one TP.
IRS wrote:Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child.
 

#12
Chay  
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Frankly, all your quote shows is that there are some circumstances under which people can choose who claims the child as the qualifying child. It doesn't get into what those circumstances are.

I pulled the following from Publication 17, which is where your quote appears to originate from:

If the parents don't file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year.

Example 8—Separated parents.
You, your husband, and your 10-year-old son Joey lived together until August 1, 2018, when your husband moved out of the household. In August and September, Joey lived with you. For the rest of the year, Joey lived with your husband, who is Joey's father. Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. At the end of the year, you and your husband still weren't divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) doesn't apply.
You and your husband will file separate returns. Your husband agrees to let you treat Joey as a qualifying child. This means, if your husband doesn't claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. However, your filing status is married filing separately, so you can't claim the EIC or the credit for child and dependent care expenses. See Rule 3.

At first blush, it does seem like the IRS is administering the law the way Frankly says. But does this indicate the IRS will always allow the parents to choose? Is there some basis for this position somewhere?

Wondering this, I re-read the statute I cited earlier (underlines added):

(B) More than 1 parent claiming qualifying child If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i) the parent with whom the child resided for the longest period of time during the taxable year, or
(ii) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

It looks like this can be read so that it's only invoked when two conflicting claims are made at the same time.

What do you think, HowardS? Were we wrong about this?
 

#13
HowardS  
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It's ambiguous enough to take the position that if one parent doesn't want to claim the child the other can and that the tie breaker rules come into play if the parents are at odds. 4(A)(1). (B) and (C) bracket 1 parent. I can live with that.
I suffer from depreciation.
 

#14
Frankly  
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Chay wrote:Frankly, all your quote shows is that there are some circumstances under which people can choose who claims the child as the qualifying child. It doesn't get into what those circumstances are.
Yeah, the publication doesn't get into the circumstances either. The quote comes from the (not substantial authority, but we're not litigating in the tax court so no matter) Pub 501, exemptions for dependents/ qualifying child of more than one person/ tiebreaker rules.

The pub (not substantial authority) quotes verbatim from sec 152 but then adds in the next paragraph "may be able to choose". It could say "must be done this way" or "there is no option", but it doesn't. Now generally, when various writings are ambiguous, somebody's gonna push the envelope one way or the other and a case eventually gets filed in the tax court to get it all figured out. Wonder if that's happened in a case like this …?
 

#15
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Per the Prop Reg:
(g) Child who is eligible to be claimed as a qualifying child by more than one taxpayer.
(1) In general. Under section 152(c)(4), if an individual satisfies the definition of a qualifying child for two or more taxpayers (eligible taxpayers) for a taxable year beginning in the same calendar year, the following rules apply.
(i) More than one eligible parent. If more than one eligible taxpayer is a parent of the individual (eligible parent), any one of the eligible parents may claim the individual as a qualifying child.
 


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