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Dot Your I’s and Cross Your T’s: the IRS is a Tough Grader, Especially for Dependency Exemptions and Child Tax Credits

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By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

McBride v. Comm’r, T.C. Memo. 2015-6, 2015 WL 393011 (2015)

(a) Facts: The taxpayer, his grown son and daughter, and his daughter’s child all lived in the same household. On her federal tax return, the daughter claimed an exemption for her child. On his federal tax return, the taxpayer claimed dependency exemptions for the son, the daughter, and her child. The IRS disallowed all three of the taxpayer’s exemption, and assessed a deficiency.

(b) Issue: Was the taxpayer entitled to a dependency exemption for his son, daughter, and granddaughter?

(c) Answer to Issue: No for all.

(d) Summary of Rationale: The dependency exemption is available only for children less than 19, or under the age of 24 and a student. In addition, the person claiming the exemption must provide more than half of the dependent’s support. The taxpayer did not prove that the son and daughter were under age 24, and did not prove that he provided more than half their support. The dependency exemption was therefore properly denied.

When multiple persons meet the requirements for treating a child as a dependent, and only one is a parent, the parent gets the exemption. I.R.C. § 152(c)(4). The exemption for the daughter’s child therefore belonged to the daughter, not the taxpayer.

Polsky v. Werfel, Civ. Act. No. 14-655, F. Supp. 3d         , 2015 WL 756309 (E.D. Pa. 2015)

(a) Facts: The taxpayers were parents of an adult disabled child. They claimed a child tax credit on their federal tax returns. The IRS denied the credit, and the taxpayers filed an action seeking a refund in federal district court.

(b) Issue: Were the taxpayers entitled to a child tax credit?

(c) Answer to Issue: No.

(d) Summary of Rationale: Federal law imposes age limits on the right to claim a child as a dependent. But those limitations are completely waived for disabled children. “In the case of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during such calendar year, the requirements of subparagraph (A) [the age limit] shall be treated as met with respect to such individual.” I.R.C. § 152(c)(3)(B).

But § 152 governs only the dependency exemption. The child tax credit is governed by I.R.C. § 24. That section imposes an age limit of 17 with no exceptions. I.R.C. § 24(c)(1). Because the child at issue had reached age 17, no child tax credit was available.

 

Rolle v. Comm’r, T.C. Memo. 2015-93, 2015 WL 2226298 (2015)

(a) Facts: A married couple filed separate tax returns. Each return claimed the parties’ two children as dependents. The IRS detected the double exemptions, disallowed the husband’s exemption, and assessed a deficiency.

(b) Issue: Was the husband entitled to the dependency exemption?

(c) Answer to Issue: No.

(d) Summary of Rationale: “If the parents claiming any qualifying child do not file a joint tax return together, the child is treated as the qualifying child of (i) the parent with whom the child resided for the longer period of time during the taxable year, or (ii) if the child resides with both parents for the same amount of time during the taxable year, the parent with the highest adjusted gross income. Sec. 152(c)(4)(B).” 2015 WL 2226298, at *4.

Because the children resided with the wife for a greater portion of the taxable year, the wife was the only parent entitled to claim the exemption.