Irina Goldberg, Tax Attorney
A lot of my clients ask who can they claim as a dependent and this question is not as easy to answer as it seems. The IRS has created a rather complicated test with many exceptions that is difficult to follow. Therefore, if you are trying to qualify someone as a dependent, I urge you to review Publication 501. Although this publication is not a quick read, it provides the most in-depth explanation and many helpful examples regarding who qualifies as a dependent. This post is meant to provide merely a cursory overview of the rules in order to paint a road-map to understanding this concept.
(A) The following three tests must be met first:
- Dependent Taxpayer Test: you (or your spouse, if filing jointly) cannot be claimed as a dependent by another taxpayer. AND
- Joint Return Test: you cannot claim a married person who files a joint return as a dependent unless that joint return is merely a claim for refund (no tax liability is owed). AND
- Citizen or Resident Test: you cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.
Note: there are minor exception to these rules that may apply to your specific situation so, again, I urge you to review publication 501.
(B) If all three of the above tests are met, the person that you intend to claim as a dependent must either be a Qualifying Child or a Qualifying Relative. This means that if your child does not qualify under the Qualifying Child test, he or she may be a Qualifying Relative.
Qualifying Child: there are five tests that must be met for a child to qualify.
- Relationship:
The child is your son, daughter, stepchild, foster child or a descendant of any of them (such as a grandchild). OR
The child is your brother, sister, half brother or sister, stepbrother or stepsister or a decedent (such as your niece or nephew). AND
- Age:
The child must be under age 19 at the end of the year and younger than you (or your spouse if filing jointly). OR
A full-time student under age 24 at the end of the year and younger than you (or your spouse if filing jointly). OR
Permanently and totally disabled (at any time during the year). AND
- Residency: the child must have lived with your for more than half the year. There are exceptions to this rule for temporary absences, children who were born or died during the year, children who were kidnapped and children of divorced or separated parents (please review publication 501). AND
- Support: the child cannot have provided more than half of his or her own support for the year. AND
- Joint Return: the child cannot file a joint return for the year (unless the child and his or her spouse file a joint return only as a claim for refund).
Qualifying Relative: there are four tests that must be met for a person to qualify as your dependent.
- Not a qualifying child Test: the person must not be a Qualifying Child of either you or another taxpayer. AND
- Member of household OR Relationship Test: the person must either live with you all year as a member of your household OR be related to you in one of the following ways:
Your child, stepchild, foster child or a descendant of any of them (such as a grandchild) OR
Your brother, sister half brother or sister, stepbrother or stepsister. OR
Your father, mother, stepfather or stepmother, grandparent, or other direct ancestor (but not foster parent) OR
A son or daughter of your brother or sister (or of your half brother or half sister) OR
A brother or sister of your father or mother OR
your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law (please note that death or divorce does not end relationships that were established by marriage). AND
- Gross Income Test: a person's gross income for the year must be less than $3,700 (please note that the IRS provides specific rules regarding what qualifies as gross income-see publication 501). AND
- Support Test: you must provide more than half of a person's total support during the year. If two or more persons provide support but no one person provides more than half of the person's total support, a Multiple Support Declaration many need to be prepared (please review Publication 501 for instructions).
This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
In the process of getting familiar with my Twitter account, I came across a fellow tax attorney named Kelly Phillips (A.K.A taxgirl®) from Philadelphia, PA. While exploring her twitter page and retweeting some of her amusing tweets, I also discovered that she is a blogger for Forbes. One of her blogs, "My Best Tax Advice Ever, Part I: Open Your Mail," hit close to home.
One of the main reasons deadlines are missed and taxpayers are burned by taxing agencies is because they do not open their mail or refuse certified mail. This reminds me of a client I represented two years ago. He came to us hoping that we would fight his case before a California State taxing agency. After hearing his story, we agreed that he had a great case and had a high chance of winning if he could get the merits of the case heard by a judge. Unfortunately, after further investigation, we discovered that not only did he miss the deadline to file for an appeal (if that was all we could have still had a chance to fight his case by arguing lack of notice) he actually refused notice by not accepting certified mail from this agency. Since the agency had written record of this refusal there was little we could do to fight the liability.
Fortunately, this taxpayer still had the option of paying his liability in full and filing a claim for refund. Alternatively, if he could not afford to go this route and wanted to pay off the liability, he could still apply for an installment agreement or an Offer in Compromise (OIC) Doubt as to Collectibility with this agency in order to try to settle his debt for less (please note that in order to qualify for an OIC Doubt as to Collectibility the taxpayer must participate in full financial disclosure and the agency must determine that based on specific guidelines, it would be impossible for the agency to collect the full amount of the liability during the collection period).
Contrary to popular belief, the IRS is actually easier to deal with than California State agencies. Many taxpayers who miss deadlines with the IRS (i.e. deadline to get into Tax Court) still have other options available to them if they want to continue fighting a liability. For example, they can apply for an audit reconsideration or file a claim for refund (as discussed above). Another option is to apply for an OIC Doubt as to Liability. Unlike the OIC Doubt as to Collectibility, discussed above, in order to qualify for an OIC Doubt as to Liability there must be a legitimate doubt from the viewpoint of both the taxpayer and the IRS that an assessed tax liability is correct.
In conclusion, please open your mail from the IRS when you receive it. It will make your life a lot easier and cheaper in the long run. Also, check out taxgirl® at http://blogs.forbes.com/kellyphillipserb/.
This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
The IRS has recently announced that it will reopen its Offshore Voluntary Disclosure Program (OVDP) for the third time. The purpose of this program is to allow people hiding offshore accounts to come clean to the IRS and get current with their taxes.
The previous two programs resulted in collection of more than $4.4 billion in 2009 and 2011. The IRS states that it has closed about 95% of the disclosure cases from the 2009 program, collecting $3.4 billion. The 2011 program has resulted in an additional $1 billion as the IRS continues to process those disclosure cases. Therefore, for those of you who participated in the 2011 OVDP and have not yet heard from the IRS, sit tight. It will probably take another three years before the IRS gets through everyone who participated.
Since the 2011 program expired in September, hundreds of taxpayers continued to make voluntary disclosures. In response, the IRS has decided to treat these taxpayers under the provisions of the 2012 OVDP.
Unlike the previous two programs, the 2012 OVDP has no set deadline to expire. Nevertheless, in return the IRS reserves the right to change the program at any time by increasing penalties or ending it altogether.
Currently the penalty structure for the 2012 OVDP remains the same except for the taxpayers in the highest penalty category. Those individuals will have to pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight tax years prior to disclosure. This is an increase from the 25% penalty during the 2011 OVDP. In limited situations and for smaller accounts, some taxpayers will instead be eligible for the 5% or 12.5% penalties (as they were during the 2011 OVDP). If the taxpayer believes that the penalty is disproportionate, they may opt to be examined by the IRS.
In order to qualify for the program, taxpayers must file all their original and amended tax returns and include payment for taxes owed, interest, accuracy-related and/or delinquency penalties for up to eight years.
IRS Commissioner, Doug Shulman, urges people to come clean before the IRS finds them. He states that “we are following more leads and the risk for people who do not come in continues to increase.”
This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
