IRS Proposes Changes to Definition of ‘Dependent’

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Terry Sheridan
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In a new proposal, the IRS is seeking regulatory changes to issues regarding the definition of “dependent.”

The proposal reflects statutory changes by the Working Families Tax Relief Act of 2004 (WFTRA) and the Fostering Connections to Success and Increasing Adoptions Act of 2008 (FCSIAA).

The IRS on Jan. 19 withdrew proposed regulations issued in 2000 that would have amended Section 1.152-2(c)(2) of the income tax regulations concerning the definition of an “authorized placement agency for a dependency exemption for a child placed for adoption under prior law.”

Those proposed regulations were withdrawn because the WFTRA amended Code Section 152 to provide that a child lawfully placed with a taxpayer for adoption can be claimed as a dependent.

Besides amendments to Section 152, the proposal also reflects statutory amendments to 26 CFR Part 1 under sections 2, 3, 21, 32, 63, 151, 6013, and to Part 301 under Section 6109 to reflect changes by the WFTRA and the FCSIAA. But the regulations also “address certain significant issues arising under these sections and modify certain IRS positions,” the proposal states.

Here’s a sample of some of the other issues regarding dependents in the 74-page proposal:

Dependency exemption. The definition of a dependent moves from Section 151 to 152.

Relationship test. The child isn’t a qualifying child of a person if he or she is not required to file an income tax return under Section 6012, and either doesn’t file an income tax return or files a return solely to claim a refund of estimated or withheld taxes.

Child adoption by someone other than the taxpayer. To fill what the IRS refers to as a “statutory gap,” the proposal applies to any child legally adopted by a “person,” or any child placed with a “person” for legal adoption is treated as a child by blood of that person to meet the relationship tests of sections 152(c)(2) and (d)(2). Likewise, a foster child is one placed with a “person” rather than a taxpayer.

Child placement. Regulations under Section 6109 would be amended to provide that the IRS assigns an adoption taxpayer identification number to a child who has been lawfully placed with a person for legal adoption.

Definition of authorized placement agency. An authorized agency that places children for legal adoption or in foster care may be a state; the District of Columbia; a possession of the United States; a foreign country; an agency or organization authorized by, or a political subdivision of, any of these entities; and an Indian tribal government or an agency or organization or political subdivision of that government.

Residency test-principal place of abode. This is a person’s main home or dwelling but doesn’t have to be the same physical location year-round, and can be temporary housing, such as a homeless shelter or relief housing after displacement by a natural disaster.

The proposal provides that a taxpayer and an individual have the same place of residence despite a temporary absence by either one. A nonpermanent failure to occupy the residence because of illness, education, business, vacation, military service, institutionalized care for a child who is permanently or totally disabled, or incarceration may be considered a temporary absence because of special circumstances. 

An individual is considered having the same residence as the taxpayer for more than half of the tax year if the individual lives with the taxpayer for at least 183 nights during the taxable year or for 184 nights during a leap year.

Age test. The proposal provides that the term “student” is an individual who is a full-time student for at least five calendar months of the taxpayer’s tax year.

Support tests. In general, the amount of support from all sources includes support that the individual provides and income excludable from gross income.

Citizenship. The proposal provides that an adopted child of a taxpayer who is a US citizen or national may qualify as a dependent if, for the taxpayer’s taxable year, the child lives with the taxpayer and otherwise qualifies as a dependent.

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