The IRS May Owe You Money

On January 14, 2008, the IRS made an important change to the definition of Qualifying Relative that will affect many taxpayers in filing their 2007 return. In addition this definition has been applied to 2005 and 2006 returns allowing filers to recoup past tax liabilities by amending for those years.

Previously, an unrelated child who lived in the taxpayer’s home could not be claimed as a dependent if she was the qualifying child of anyone else, regardless of who was supporting the child financially. For example, the taxpayer could not claim his live-in girlfriend’s child from a previous relationship, even though the child lived with the taxpayer and the taxpayer provided all of the child’s support.

According to the new definition, if a child is living with his parent and the taxpayer, and the child is not related to the taxpayer, the child is not considered to be a qualifying child of the parent if the child’s parent:

• Is not required to file an income tax return and does not file an income tax return, or
• Files an income tax return solely to obtain a refund of withheld income taxes.
  

For example, Tom is 13 years old. He lives with his mother Jane and her boyfriend Jack. Jane does not work. She is not required to file a tax return. Jack provided all of the support for Tom. Jack can claim Tom as his qualifying relative.

The taxpayer, who is supporting the household, may now claim the child as a qualifying relative if:

• The child lived all year with the taxpayer as a member of the household and
• The taxpayer provided over half of the child’s support and
• The child had a gross income of less of than $3,400 in 2007.
  

Emily is 16, and makes $2,500 a year from her summer job. She lives with her mother Anne and her friend Janet. Emily and Anne moved in with Janet when Anne lost her job and was unable to support herself and Emily. Anne made $1,500 last year and had taxes withheld. Anne will file a return to recoup the taxes withheld. Janet can use Emily as her qualifying relative, because Janet paid for her support.

The gross income limits for previous years are $3,300 in 2006 and $3,200 in 2005.

Bring your 2005 and 2006 tax return to any PRO-TAX office and we will review your return for FREE to see if the IRS owes you money. You can find the nearest PRO-TAX location by clicking here.

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