IRS Has Different Definitions For Children | Tax Tip of the Week | No. 197
Do You Know a Child When You See One? Recently the Tax Court ruled on a situation where a taxpayer claimed dependent exemptions and the Child Tax Credit for two children. Here are the facts: the taxpayer cared for two of her cousin’s children as if they were her own. The children resided with her, and she acted as their guardian. They were neither placed in the home as foster children nor did the taxpayer adopt the children. On her tax return, the taxpayer claimed both children as dependents and claimed the $2,000 Child Tax Credit ($1,000 for each child). A dependent is defined as a qualifying child or a qualifying relative. One of the requirements for being a qualified child is that the child must be the taxpayer’s child, brother, sister, stepbrother, stepsister or a descendant of such relatives. A child who does not meet the definition of a qualified child can still be claimed as a dependent if he or she meets the qualifying relative requirements for the year at issue. To be a qualifying relative, the individual must have the same place of abode as the taxpayer and be a member of the taxpayer’s household for the entire year. In addition, the taxpayer must provide over one-half of the individual’s support. By tax code, the Child Tax Credit is allowed with respect to each qualifying child of the taxpayer in the amount of $1,000. Since her cousin’s two children did not fall under the definition for a qualifying child, the IRS was ruled correct in disallowing the Child Tax Credit. However, the IRS was correct in allowing her to claim the children as dependents because they each met the requirement of a qualifying relative. As always, give us a call with any questions or concerns you may have.
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