IRS Clarifies How Change in Exemption Amount Affects Definition of Qualifying Relative

August 30, 2018 by Ed Zollars, CPA

The IRS has issued Notice 2018-70 to clarify the definition of a qualifying relative and exemption amount following changes made in the Tax Cuts and Jobs Act.

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Court Holds Grandmother Did Not Have Right to Claim Grandchildren Despite Finding the Decision in No Way Could Be Called Just

February 07, 2017 by Ed Zollars, CPA

In the case of Smyth v. Commissioner, TC Memo 2017-29 it seems everyone believed that the just result would have been to allow the taxpayer to keep the refund she had received that was now at risk due to actions of her less than responsible (or apparently wholly honest) son.

The IRS pointed out at trial that it did not defend the justice of the result it was seeking. Ms. Smyth was assisted by counsel who volunteered to help generally at calendar call, was moved by her testimony and entered an appearance for her after trial. The judge deciding the case also noted that it is impossible to accept the result the IRS sought in the case was just—that is, “to send money meant to help those who care for small children to someone who spent it on drugs instead.”

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Fact that Taxpayer Clearly Granted Right to Claim Children for Tax Year Not Relevant When Custodial Parent Did Not Sign Form 8332

August 11, 2016 by Ed Zollars, CPA

Beginning with 2016 tax returns those preparing the returns for taxpayers will be charged with meeting “due diligence” requirements when taxpayers claim the child tax credit and the American Opportunity Credit or face a $510 penalty should the taxpayer not qualify for the credits [IRC §6695(g)]. For this reason, advisers must remember just how strict the rules are for a noncustodial parent to be able to claim a child—and that the mere fact the taxpayers ex is in direct violation of the terms of the decree to release the exemption is not sufficient to allow the noncustodial parent to claim the credit.

This problem is perfectly illustrated in the case of Cappel, Sr. v. Commissioner, TC Memo 2016-150. And the situation is one that, beginning with 2015 returns, could put a preparer who prepared a return claiming these children at risk for the penalty that Congress added in the Protecting Americans from Tax Hikes Act of 2015.