Dependent tie breaker rules

[Opus 17]

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@Critter-3 wrote:

Correct ... due to the child's age the tie breaker rules don't apply so the regular dependent child or relative dependent rules apply. 

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I don't want to nitpick this to death, but if you read the entire discussion, you will see that this is not entirely clear.  The IRS publications don't say "default to the regular rules," they definitely say "the child does not live with either parent."  If that is taken literally, it means that the entire classification as "qualifying child" is off the table, and only the "qualifying relative" rules can be used.  If the default rules apply, then IRS example 6 (from both pubs 501 and 504) is decided incorrectly by the IRS.

Defaulting to the normal rules seems logical, but that's not what it says in plain English.

What is really needed here is a look at the audit manual, or a law review or accounting journal article that examines the law and any court cases to tell us how such cases are actually decided.  In the absence of that, I think we have to acknowledge that the instructions are not really clear, and that either interpretation is only the opinion of one or the other of a group of self-appointed anonymous internet "experts" and worth exactly as much as paid for.

Best of luck to the taxpayer.

[ColinW1972]

@Opus 17 

I agreed with your statement above and asked specifically that when I spoke to the IRS's tax law expert.  She told me that since the qualifying person was under 24 and in school, he would be treated as a qualifying child and not a qualifying relative.  She said the the qualifying child rule #2 in table 5 clearly states that a person under 24 and in full time school is a qualifying child and not a relative.  So in my case he could only be treated as a child.  The main finding the IRS had was that if the child is considered "emancipated" or at the age of majority in the state the child resides for more than half the tax year, all the rules of divorced or separated parents do NOT apply.  It also means that the "custodial parent" rule does not apply since the child is considered NOT living with either parent (if emancipated for more than half the year).  So in my situation, since we both claimed the child, we had to go through the tie breaker rules.  Of the 5 tie breaker rules, the first two did not apply, but the third rule was in question.  Since the child was considered not living with either parent for the whole year, rule #3 did not apply either.  So we go to rule #4 which I had the higher AGI, therefore could claim the dependent.

The bottom line is that if a child is at the age of majority (emancipated) in the state where they live, none of those days after count for the parent who wants to claim the dependent.  It seemed very confusing to me as well, but after talking with the IRS it's actually quite simple.  And it does seem that the standard rules do apply with the exception of the divorced or separated parents and custodial parent rules do not.

[Opus 17]

I'm going to drop out here because I don't have the time to invest further in this.  The verbal explanation you got directly conflicts with the written instructions (and those written instructions aren't just someone's interpretation that was dumbed-down for the publications.  It's the exact language in the Treasury Regulations.

It's interesting that the Tax Code does not discuss emancipation.

https://www.law.cornell.edu/uscode/text/26/152

The regulations, which are written to implement the law, and which must go through an extensive comment and revision process before being adopted, are where the details are found.

https://www.law.cornell.edu/cfr/text/26/1.152-4

Again, it clearly says, "A child is treated as residing with neither parent if the child is emancipated under state law."  This is section 1.152(4)(d)(1).

What it does not say clearly, is one of these two following statements:

• "In the case of emancipated children, the special rules in §1.152-4 no longer apply, but the general rules in §1.152-1, §1.152-2 and §1.152-3, including residency, apply normally."
• or
• "In the case of emancipated children, the child is treated as residing with neither parent for all purposes under §1.152 et seq."

Your operator at the IRS took the view that the normal rules apply when the child is emancipated.  But the plain language says "treated as living with neither parent" and does not include a qualifier as to whether that only applies to the special rules or to all rules.

Usually, if the regulation is unclear, then someone will eventually challenge them in court, and judge needs to look first at the plain language of the regulation, and if it is not clear, then they look back to the section of the law that authorizes the regulation to make sure the regulation matches the law.  That's what I want to see in this kind of situation and that I don't have the time to look for.   

If your ex-wife also claims your child as a dependent, both of you will get investigated, and the first key point is whether the examiner on the case has the same view as the operator you spoke to.  If there is an internal audit manual, that explains such cases are judged, it could very well be that both the operator and the examiner in your case will be reading from the same page and come to the same conclusion.  But again, for me to agree without reservation, I would want to see that page.  It's also possible that the examiner will look at the situation differently, and you won't be able to use your verbal phone call as a defense, because that's just how the IRS operates.  (You could use the phone call as a defense against a penalty, on the grounds that you acted in good faith, but you would not be able to use the call as a defense against a tax assessment, because if the examiner finds against you, that's final.  You can appeal to tax court, but not the phone operator. 

All of which is to take a very long-winded way of saying that, while you can certainly rely on the operator's information if you like, I still view the situation in my own mind as unclear, because the plain language of the regulation disagrees with the common-sense interpretation, unless we add words that are not there.  And I would really like to see the audit manual or a court case, to know how this language discrepancy is actually handled.