How Will the IRS Change the Definition of ‘Dependent’?

In late January, the Internal Revenue Service proposed changes in the way US taxpayers would be able to claim dependents.  Those changes were outlined in a 74-page proposal that included updating statutes in the Working Families Tax Relief Act of 2004 (WFTRA) and the Fostering Connections to Success and Increasing Adoptions Act of 2008. (FCSIAA).

Some of the most notable proposed regulation changes fall under Code Section 152 of WFTRA. The IRS seeks to withdraw proposed regulations that prohibited people who adopted children lawfully from claiming those children as dependents. The definition of a “dependent” and who can and cannot claim a child as a dependent won’t change significantly, but these updates will clear up a lot of confusion and provide greater clarity, especially for taxpayers who adopt children.

“Keeping up with tax law changes is challenging.  CSS combats this with strong communication between our Accounting Firm and capitalizing on some great tax tools out there like Greenshades and Vertex! Says Suzanne Brown, Accounting Manager, CSS.

Important Changes To Be Prepared For

Some of the most talked-about changes include:

  • The Sec. 152(c)(2) relationship test.
  • The definition of “principal place of abode” (expanded to include homeless shelters, temporary housing, or relief housing) and “temporary absence” (including illness, education, business, vacation, military service incarceration, institutionalized care for disabled children), for purposes of the residency test.
  • The definition of “student” for the age test (must be enrolled full-time for at least five months of the tax year).
  • The definition of “support” for the support test.
  • The treatment of noncitizen adopted children.
  • The calculation of adjusted gross income on a joint return for purposes of the Sec. 152(c)(4) tiebreaker rules.
  • The requirements for noncustodial parents who claim a dependency exemption.
  • The rule from Notice 2008-5 that an individual is not a qualifying child of a person if that person is not required to file a return under Sec. 6012 and either does not file a return or files a return solely to obtain a refund.
  • The IRS would assign an “adoption taxpayer identification number” to a child placed with a person through legal adoption.
  • The definition of an “authorized placement agency” for purposes of defining legal adoption or foster care would include all 50 states, 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.

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