Claiming Parent as a dependent

[Skye Mendelson]

I have three questions. Below is the background information to answer the questions:

My client, Julie, is a US citizen. Her mother is a US citizen, but is also considered a “landed immigrant” in Canada. Julie’s mother has lived and worked in Canada for the past 30 years.  Her only income will be her pension from her Canadian job which is ~$30,000 USD annually. Julie’s mother has paid Canadian income taxes, but has not filed a US tax return in 30 years.

Julie’s mother is now retired as of this year and has moved back to Georgia to be with Julie.

Question 1: Julie is taking care of her mother. Can she change her tax status from Single to Head of Household and claim her mother as a dependent even if her mother is receiving $30K annually from a pension? Is a pension excluded from “earned income”?

Question 2: The pension Julie’s mom is receiving is in Canadian dollars and deposited to her Canadian bank account. She is then transferring the funds to a US bank account and paying the current exchange rate.  Since Julie’s mom is now living in US as of 2022, does she still need to file a Canadian income tax return in addition to a US tax return?

Question 3: Is Julie’s mom liable for 30 years of back taxes because she is a US citizen and didn’t file a US income tax return for the past 30 years? What would be her first step in rectifying this issue?

[VincentL]

1 - See IRS publication 501, https://www.irs.gov/pub/irs-pdf/p501.pdf for requirements to claim a parent.

2 - The mother has a filing obligation in the U.S. I do not know the filing requirements for Canadian tax laws. Also, she is probably subject to the FBAR and FATCA requirements.

3 -  Your situation is complex and will require a legal opinion. Since the mother failed to file taxes for 30 years and has never filed any FBAR or FATCA forms.

[Skye Mendelson]

Thank you for your response. I read the 501 publication and it doesn't mention pensions. If that is the mother's sole income, then that would be excluded because it isn't "earned income", right?

[VincentL]

As long as you provide over 50% of the support for her regardless of the amount, you are ok.

[Critter-3]

@Skye Mendelson 

Read the pub 501 again ... read up on gross income : https://www.irs.gov/forms-pubs/about-publication-501

Gross Income Test

To meet this test, a person's gross income for the year must be less than $4,300.

Gross income defined.

Gross income is all income in the form of money, property, and services that isn't exempt from tax. (retirement distributions would be included here). 

In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business.

Gross receipts from rental property are gross income. Don't deduct taxes, repairs, or other expenses to determine the gross income from rental property.

Gross income includes a partner's share of the gross (not net) partnership income.

Gross income also includes all taxable unemployment compensation, taxable social security benefits, and certain amounts received as scholarship and fellowship grants. Scholarships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses aren’t generally included in gross income. For more information about scholarships, see chapter 1 of Pub. 970.

[Skye Mendelson]

Thank you for your clarifying answer. So, bottom line is that the mother will have more than $4,300 in taxable income, so it doesn't matter if the daughter pays more than mother's income to support her. The daughter will be unable to claim her mother as a dependent. Right?

[Critter-3]

Correct

[Skye Mendelson]

Thank you very much! I really appreciate it.