On April 15, 2002, Treasury Secretary Paul O'Neill announced the issuance by the Treasury Department of the first in a series of proposals to simplify the U.S. tax code. "Our tax code is so complicated," he said, "we've made it nearly impossible for even the Internal Revenue Service to understand."

Priorities

Topics of highest priority involve the tax treatment of families and children. Subsequent proposals will focus on the simplification of tax laws related to businesses. The initial topics to be addressed are as follows.

1. Uniform definition of a qualifying child.
2. Determination of taxpayers' filing status (e.g., head of household).
3. Earned Income Tax Credit.
4. Taxation of dependents.

First Proposal

In its first proposal, Treasury suggests three tests that would need to be met to satisfy the uniform definition of a qualifying child. The tests involve relationship, residence and age. The new definition would incorporate these tests and would replace the five different definitions that now apply under various provisions of the tax law. (Currently, the provisions for the dependent exemption, head of household, Child Tax Credit, Dependent Care Tax Credit, and Earned Income Tax Credit all have their own definitions of qualified child.)

Download the paper to get a complete explanation of the proposed definition, along with a comparison with each of the five current definitions.

-Rosemary Schlank