IRS rules defining dependents and EITC qualification are to be amended.

• Author: Schreiber, Sally P.
• Position: Earned income tax credit

The IRS proposed changing its position on when taxpayers may qualify as childless for purposes of the Sec. 32 earned income tax credit (REG-137604-07).The proposed regulations, issued on Jan. 19, would also make a variety of changes to the definition of "dependent" in the regulations to reflect various statutory changes that have been made to the dependency exemption. Finally, the proposed regulations would amend various regulations on the surviving spouse and head-of-household filing statuses, the tax tables for individuals, the child and dependent care credit, the earned income tax credit (EITC), the standard deduction, joint tax returns, and taxpayer identification numbers (TINs) for children placed for adoption to reflect current law.

The IRS also withdrew old proposed regulations (REG-107279-00) that were issued in 2000, before changes made by the Working Families Tax Relief Act of 2004 (WFTRA), P.L. 108-311.That act amended Sec. 152 to provide that a child lawfully placed with a taxpayer for adoption can qualify as a dependent. Prop. Regs. Sec. 1.152-2(c)(2), promulgated in REG-107279-00, reflected prior law and is withdrawn.

Earned income tax credit

Since 1994, childless taxpayers have been able to claim a reduced EITC if they meet certain requirements. However, since 1995, the IRS has taken the position that if a child meets the definition of "qualifying child" for more than one taxpayer, then the taxpayer for whom the child is not treated as a qualifying child under the tiebreaker rules cannot claim the EITC for childless taxpayers.

Under the proposed regulations, this position would change. The proposed regulations would provide that, if a child meets the definition of "qualifying child" for more than one taxpayer, and the child is not treated as a qualifying child of one of the taxpayers under the tiebreaker rules, then the child is also not treated as a qualifying child for purposes of the EITC. Therefore, if otherwise eligible, that taxpayer could claim the EITC for childless taxpayers.

Dependency rules

The proposed regulations would update the regulations to address several aspects of the dependency rules that were modified by WFTRA. These include:

1. The Sec. 152(c)(2) relationship test;

2. The definition of "principal place of abode" and "temporary absence" for purposes of the residency test;

3. The definition of "student" for the age test;

4. The definition of "support" for the support test;

5. The treatment of noncitizen...