Cousin Denied Child Tax Credits on Relatives She Raised

House One taxpayer discovered the hard way that, while she undoubtedly performed valuable assistance to her family when she undertook caring for two children of her cousin, this did not entitle her to claim child tax credits on the children, as her relationship to the children was not one of the types included in the child tax credit statute. However, because the statute for certain dependency exemption deductions contained a broader definition of “qualifying child,” the taxpayer could claim those deductions, the court in Gentry v. Commissioner determined.

La Tashia Gentry’s case revolved around her claiming certain child tax credits in 2008. At that time, Gentry provided care for two children, who were the offspring of her first cousin, as if they were her children. Although the woman acted as the children’s guardian, she had not adopted them and was their legal foster parent.

The woman claimed her two young cousins as dependents and claimed child tax credits on them totaling $1,950. The Internal Revenue Service originally denied all of Gentry’s claimed credits and deductions regarding her cousins, but later acknowledged that the woman was entitled to claim certain dependency exemption deductions, leaving the child tax credits in dispute.

The U.S. Tax Court concluded that the IRS was correct to deny the credits. The court pointed out that the tax code entitled the woman to the dependency exemption deductions because that statute contained a wider class of relatives who meet the definition of “qualifying child.” In that case, not only did a taxpayer’s children, siblings, step-siblings or descendents of those relatives qualify, so did a relative who “has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household, and for whom the taxpayer provides over one-half of the support.”

The class of individuals who are qualifying children for the child tax credit is smaller, the court noted. For that credit, the governing statute included only a taxpayer’s children, siblings, step-siblings or descendants of those relatives in the group of qualifying children. Congress’s intent was very clear in the law at issue in Gentry’s case, creating a “specifically defined” list of qualifying relationships and leaving the court no choice but to uphold the disallowance, the court concluded. Even though the boundaries of the statute might appear “arbitrary or unfair” to Gentry, Congress nevertheless “did not adopt a definition that includes children of a cousin. Congress chooses the beneficiaries of special tax exemptions or benefits, and neither the Commissioner nor the Court can deviate from the statutory provisions,” the court wrote.

The statutes containing the rules for the myriad tax deductions and credits contain a multitude of inclusions and exclusions that, although they may seem arbitrary to the layperson, must nevertheless be followed strictly in order to avoid problems with your return. Consult the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. to ensure that your return contains all the credits and deductions it should, and none that it should not. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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