MFS For Additional Recovery Rebate Credit

I have been reading on another tax forum where posters are advising that preparers not only should, but are obligated, to calculate and advise married clients with qualifying children of the potential savings of married filing separately. The idea is to have one parent claim all qualifying children while reporting half of the EIP #1 and EIP #2. In that way, the claiming parent gets additional recovery rebate credit, while the other spouse does not have to repay his excessive advances from EIP #1 and EIP #2.
Is this legitimate?

I believe if they file separately the spouse claiming the children would claim their and each child's EIP #1 and #2 . The other spouse would only claim their own (not half) EIP #1 and #2

The 1040 instructions state that if EIP 1 and 2 were based on married filing jointly, then its split 50-50.

This is not dissimilar to what could happen in community property states when the CTC phase out was a lot lower. In some cases MFS gave more CTC than MFJ.

If there is nothing in the Code stopping it then it is legitimate. No different from at least one case I have of divorced couples getting more RRC having divorced in 2020.

If there is nothing in the Code stopping it then it is legitimate. No different from at least one case I have of divorced couples getting more RRC having divorced in 2020.

I think that is the concern. Does anyone know of anything in the Code or Regs that would stop it?

Whestsider -could you point me to where the IRS instructions indicate it should be split 50-50 if filing separately? I haven't been able to find that.

It's in the 1040 instructions page 58.

I think this MFS situation is much different than a 2020 divorce. I would think in a situation where married filing separately is an option, the advance payments would follow the child, but I have nothing to back that up.

I think that is the concern. Does anyone know of anything in the Code or Regs that would stop it?

For EIP #1:

There are references in the code that support this approach but also references that indicate IRS can issue further guidance. I am not aware that they have done so, including nothing I could find in all the Q and A’s on the subject. So until such other guidance is issued, this approach seems legitimate to me.

§6428 (e) Coordination with advance refunds of credit.
…………
(2) Joint returns.
In the case of a refund or credit made or allowed under subsection (f) with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return.

Subsection (f) specifies the amount, timing, etc. of the advance payment.

However, there is also this:

§6428 (h) Regulations.
The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including any such measures as are deemed appropriate to avoid allowing multiple credits or rebates to a taxpayer.

For EIP #2, my same opening statement can be applied, but the wording in the code is slightly different.

§6428A(e) Coordination with advance refunds of credit.
…………….
(2) Joint returns.
Except as otherwise provided by the Secretary, in the case of a refund or credit made or allowed under subsection (f) with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return.

§6428A(h) appears to have the exact wording as §6428(h)

I agree with Trailman that based on further review it looks like it is legit and can be done this way. I think I will hold off until the end of the month on anyone that this works for to see if the IRS issues any further guidance. I was already anticipating a lot more MFS returns this year and this will only increase the number. It looks like another wopper of a tax season !!

Anytime you rely on IRS Q&A or generalized instructions, it is risky. Thanks everyone for the input.

As I pointed out in another thread, if you are in a community property state filling out the allocation form gets more complicated. In addition, we have been having many of our 2019 MFS returns with form 8958 held up by the IRS and it has been a real headache. Make sure you charge accordingly. I am figuring it will not be worth it for couples with one kid but will discuss with clients with more than one kid.

Also consider that MFS may result in more tax than MFJ. Dependent care credit, dependent care benefits on W-2, taxable social security, $25,000 passive loss exception, etc.

Add to the possible extra taxes if MFS Additional Medicare Tax if wages are disparate. This will also apply for Community Property states as Additional Medicare Tax is not split.

This MFS filing method should work to claim extra recovery rebate on the 2021 return, as well.

If the EIP3 had been originally based on MFJ status, the credit for the children is considered split 50/50, and one parent should be able to claim the other half again, on their own separate return. Or each parent can take a certain amount of the children on their return, and claim the other half of the EIP3/RRC for those children on their return.

Even if this MFS method was utilized in 2020, the EIP3 received should have been based on the MFJ status of previous years, if parents had filed jointly in 2019 or 2018. So they would be able to continue utilizing this method for the 2021 return.