January 19, 2017, the IRS issued proposed regulations that reflect changes to the definition of dependent under Code §152 and other IRS Code provisions made by the Working Families Tax Relief Act of 2004 (WFTRA) and by the Fostering Connections to Success and Increasing Adoptions Act of 2008 (FCSIAA). Under WFTRA, the Code was amended so that a taxpayer could only claim a “qualifying child” or ‘qualifying relative” as a dependent under Code § 152. The definition of “Qualifying child” was further modified under subsequent legislation.
Most notable in the proposed regulations are as follows:
Proposed regulations that , to reflect current law, amend the regulations related to the surviving spouse and head of household filing statuses, the tax tables for individuals, the child and dependent care credit, the earned income credit, the standard deduction, joint tax returns, and taxpayer identification numbers for children placed for adoption.
- Proposed regulations would update existing regulations to reflect the current Code provisions and related IRS guidance.
- The preamble reflects a change in the IRS option as it relates to how to determine adjusted gross income under the “tiebreaker” rules when a child can be claimed by more than one taxpayer and the source of support of certain payments that originated as governmental payments.
- Proposed regulations address the Code’s relationship, residency, age, support, and joint return tests as it relates to the determination of qualifying child of a taxpayer.
- Proposed regulations address the relationship, income, support and not-a-qualifying child tests as it relates to the determination of a qualifying relative of a taxpayer.
- Proposed regulations address how to determine the sources of an individual support, residing with taxpayer for more than half the taxable year, how to count nights of residence, exceptions for parent who works nights, temporary absences, etc.
- Proposed regulations provide clarifications regarding dependent status determination for students, children placed for adoption and foster children. In addition, clarification is provided on the determination of who is considered a parent. Several helpful examples are provided for illustration purposes.
The federal definition of dependent is used to determine whether someone like a domestic partner or a child that is over the age of 27, can receive employer provided health insurance coverage on tax free basis. These rules also assist in the determination of whether expenses are eligible under a dependent care flexible spending account (DCFSA).
Written or electronic comments and requests for a public hearing must be received by April 19, 2017.
Applicability date: The regulations are proposed to apply for taxable years beginning after the final regulations are published. The preamble of the proposed regulations; however, indicate that taxpayers can apply the proposed regulations in any open taxable year.
It remains to be seen how President Trump’s freeze on new regulations will impact the timeline for finalizing these proposed regulations.