01 Nov No Dependency Exemption for Grandchildren of Taxpayer’s Boyfriend
Can a taxpayer claim a dependency exemption for grandchildren of her long-time boyfriend, after he and she were granted temporary guardianship? The U.S. Tax Court considered this question recently in Sharp v. Comm’r., T.C. Memo 2017-208. The taxpayer Ms. Sharp and her live-in boyfriend Mr. Griffin were appointed as temporary guardians of his grandchildren from July 16, 2013 until July 16, 2014. Ms. Sharp and Mr. Griffin did not adopt or foster the grandchildren, who were placed in “kinship care” with them by consent of their mother. Although the arrangement was scheduled to terminate in July 2014, the grandchildren stayed with the Sharp/Griffins until August 2014; and after returning to their mother for several weeks, they resumed the arrangement with the Sharp/Griffins in October 2014.
While her boyfriend’s grandchildren were living with her, Ms. Sharp incurred expenses for their care, including clothing, school materials and activities. Ms. Sharp filed her 2014 federal income tax return as a head of household, claiming the dependency exemption for grandchildren of her live-in boyfriend, as well as the earned income credit and child tax credit.
The IRS sent a deficiency notice to Ms. Sharp, disqualifying her child-related tax deductions and head of household filing status. The Tax Court reviewed the case on appeal.
Tax Code sec. 152(c)(2) authorizes a taxpayer to claim a dependency exemption for a child “if such individual is–(A) a child of the taxpayer or a descendant of such a child, or (B) a brother, sister, stepbrother, or stepsister of the taxpayer or a descendant of any such relative.” Grandchildren are descendants of a taxpayer’s child, so they qualify. A foster child may be claimed as a dependent under sec. 152(f)(1)(A)(ii) if the child is “an individual who is placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.” However, in this case, the child was not the taxpayer’s grandchild and was not a foster child. The Tax Court also found that Ms. Sharp was not the common law wife of Mr. Griffin, which would make Mr. Griffin’s children her step-grandchildren, as she argued. The Tax Court held that the boyfriend’s grandchildren were not qualified as dependents of the taxpayer.
The taxpayer’s head of household filing status, child tax credit and earning income credit, which are all dependent upon the taxpayer’s eligibility to claim a dependency exemption, were disqualified for the same reasons.
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