Gift to son and the question of being a dependent

Client called me today. Their son who is in college earned about $10,000 in 2021. And they asked if the son can file as an independent in 2021. I responded to them by explaining the tax regulations of determining if someone is a dependent. I also emphasized to them that the determination is primarily based on whether the $10,000 was enough for more than 1/2 of the son's total support in 2021. Considering the living costs in this area, I think they know that it was not quite enough. Based on my impression though, they really want their son to file as independent.

Then they asked if they can gift like $20,000 to their son and then the $20,000 would be considered the son's own money and therefore his son can file as an independent. What a creative idea that they could come up with.

What is the opinion of my fellow tax professionals in this forum? Is doing that allowable?

a. You can't make a retroactive gift.
b. If the son banks the $20K it was not used for his support.

c. The kid is the parents' dependent.

I agree.

Why does the kid want to file independently?

I see this a lot, because in some cases, the parents make too much to claim the AOC - and if the kid files on his own, he can get some credit.

But this is not legitimate. If the child is in school and is between 19 and 23, he should most likely be claimed as a dependent on the parent's return (given other circumstances).

The form the kid files and signs (form 1040 of course) says, very specifically, "someone CAN claim you as a dependent".

It does not say someone WILL claim you as a dependent.

EIP - free money.

Not sure this would not have worked if carried out before year end. Parents gift kid money. Kid spends money on support. Total of gift and earned income is over 1/2 support. Bingo get stimulus- but still dosn't get refundable AOC. Why not?

Why not?

Exactly. Parents can gift up to $30,000 per year to each kid with no 709 filing requirement. That alone would most likely cover more than 50% of support for any child. If done properly I don't see why not.

I'm not sure what im talking about, but it sounds like it is really support for the child who is in school and you are just "calling" it a gift to scheme benefits and credits.

Again, disclaimer, I'm not sure I would stand behind that comment. It just feels kind of schemey.I feel like things can go wrong against the taxpayer and preparer when things feel like a scheme.

Different if the kid put that gift into long term savings or used it for a down payment on some real estate.

Did the child turn around and spend that "gift" on support like items?

Smells like support.

It's not EIP. The 3rd (year 2021) round of EIP was paid to dependent college students, too - unlike the two rounds of 2020 EIPs.