THE FULLERTON REPORT | JANUARY 2009
Relationship with Nieces Qualified Taxpayer as Head of Household; Entitled Taxpayer to Claim Dependency Exemption, Child Tax Credit, Earned Income Tax Credit (Pavia, TCM)
An unmarried taxpayer who lived with her sister and her sister’s two daughters was entitled to various tax benefits due primarily to the taxpayer’s relationship with her nieces. The taxpayer’s sister did not file a tax return for the year in issue. The taxpayer covered a significant portion of her nieces’ expenses, as well as paying for a significant portion of the general household expenses.
The tests for the tax benefits afforded the taxpayer were all based in one part or another on the test for the dependency exemption under Code Sec. 152. Specifically:
Dependency exemption under Code Sec. 152. The taxpayer was entitled to this exemption because her nieces were her sister’s daughters, the taxpayer lived with the nieces for more than half the year, the nieces were under 19 and the taxpayer credibly testified that the nieces did not provide more than 1/2 of their own support.
Child tax credit under Code Sec. 24. The taxpayer could claim a child credit for her nieces because the girls were qualifying children under Code Sec. 152(c) and they were under age 17.
Earned income tax credit under Code Sec. 32. The taxpayer could claim the earned income tax credit because her nieces were qualifying children with respect to the taxpayer under certain tests of Code Sec. 152(c), as referenced by Code Sec. 32(c).
Head of household status under Code Sec. 2(b). The taxpayer qualified as a head of household for filing purposes because she was not married, she had qualifying children under Code Sec. 152(c) and she provided over half of the funds necessary to maintain her household.
