82_FR_6382 82 FR 6370 - Definition of Dependent

82 FR 6370 - Definition of Dependent

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 82, Issue 12 (January 19, 2017)

Page Range6370-6388
FR Document2017-01056

This document withdraws proposed regulations relating to the definition of an authorized placement agency for purposes of a dependency exemption for a child placed for adoption that were issued prior to the changes made to the law by the Working Families Tax Relief Act of 2004 (WFTRA). This document contains proposed regulations that reflect changes made by WFTRA and by the Fostering Connections to Success and Increasing Adoptions Act of 2008 (FCSIAA) relating to the dependency exemption. This document also contains proposed regulations that, to reflect current law, amend the regulations relating 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. These proposed regulations change the IRS's position regarding the category of taxpayers permitted to claim the childless earned income credit. In determining a taxpayer's eligibility to claim a dependency exemption, these proposed regulations change the IRS's position regarding the adjusted gross income of a taxpayer filing a joint return for purposes of the tiebreaker rules and the source of support of certain payments that originated as governmental payments. These regulations provide guidance to individuals who may claim certain child-related tax benefits.

Federal Register, Volume 82 Issue 12 (Thursday, January 19, 2017)
[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Proposed Rules]
[Pages 6370-6388]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-01056]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-137604-07]
RIN 1545-BI35


Definition of Dependent

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking and notice of 
proposed rulemaking.

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SUMMARY: This document withdraws proposed regulations relating to the 
definition of an authorized placement agency for purposes of a 
dependency exemption for a child placed for adoption that were issued 
prior to the changes made to the law by the Working Families Tax Relief 
Act of 2004 (WFTRA). This document contains proposed regulations that 
reflect changes made by WFTRA and by the Fostering Connections to 
Success and Increasing Adoptions Act of 2008 (FCSIAA) relating to the 
dependency exemption. This document also contains proposed regulations 
that, to reflect current law, amend the regulations relating 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. These proposed 
regulations change the IRS's position regarding the category of 
taxpayers permitted to claim the childless earned income credit. In 
determining a taxpayer's eligibility to claim a dependency exemption, 
these proposed regulations change the IRS's position regarding the 
adjusted gross income of a taxpayer filing a joint return for purposes 
of the tiebreaker rules and the source of support of certain payments 
that originated as governmental payments. These regulations provide 
guidance to individuals who may claim certain child-related tax 
benefits.

DATES: Written or electronic comments and requests for a public hearing 
must be received by April 19, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-137604-07), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
137604-07), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at www.regulations.gov (IRS REG-137604-07).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Victoria J. Driscoll, (202) 317-4718; concerning the submission of 
comments and requests for a public hearing, Regina Johnson, (202) 317-
6901 (not toll-free calls).

SUPPLEMENTARY INFORMATION:

[[Page 6371]]

Background

    This document withdraws a notice of proposed rulemaking (REG-
107279-00) amending Sec.  1.152-2(c)(2) of the Income Tax Regulations 
that was published in the Federal Register (65 FR 71277) on November 
30, 2000 (2000 proposed regulations) relating to the definition of an 
authorized placement agency for purposes of a dependency exemption for 
a child placed for adoption under prior law. Prior law required that a 
child be placed with the taxpayer for adoption by an authorized 
placement agency. Section 152 of the Internal Revenue Code was amended 
by section 201 of WFTRA (Pub. L. 108-311, 118 Stat. 1166, 1169) to 
provide that a qualifying child eligible to be the dependent of a 
taxpayer may include a child lawfully placed with the taxpayer for 
adoption. Accordingly, the proposed regulations in Sec.  1.152-2(c)(2) 
under prior law are withdrawn.
    This document also contains proposed amendments to 26 CFR part 1 
under sections 2, 3, 21, 32, 63, 151, 152, 6013, and to Part 301 under 
section 6109 to reflect the changes made by WFTRA and FCSIAA (Pub. L. 
110-351, 122 Stat. 3949) relating to the dependency exemption, as well 
as changes to these sections by other acts. WFTRA amended section 152, 
in part, to provide a uniform definition of a qualifying child; FCSIAA 
added to the definition of a qualifying child the requirements that the 
child must be younger than the taxpayer and that the child must not 
file a joint return (other than as a claim for refund). FCSIAA also 
amended the rules that apply if two or more taxpayers are eligible to 
claim an individual as a qualifying child.

1. Dependency Rules

    Under section 151, a taxpayer may deduct an exemption amount for a 
dependent as defined in section 152. Prior to WFTRA, section 151 
contained many of the rules related to the definition of a dependent. 
WFTRA moved those rules to section 152. As amended, section 152(a) 
defines a dependent as a qualifying child or a qualifying relative. 
Taxpayers should note that a taxpayer's treatment of the dependency 
exemption under section 151 for a particular qualifying child or 
qualifying relative might have tax consequences under other Code 
provisions, such as the education tax credits under section 25A, the 
premium tax credit under section 36B, and the penalty for failure to 
maintain minimum essential coverage under section 5000A.
a. Individual Not a Dependent
    Section 152(b) provides that an individual who is a qualifying 
child or a qualifying relative of a taxpayer is not a taxpayer's 
dependent in certain circumstances. Section 152(b)(2) provides that, to 
be a dependent of a taxpayer, an individual must not have filed a joint 
return with his or her spouse. However, the WFTRA conference report 
provides that the ``restriction does not apply if the return was filed 
solely to obtain a refund and no tax liability would exist for either 
spouse if they filed separate returns.'' See H.R. Rep. No. 108-696, at 
55 n.38 (2004) (Conf. Rep.).
b. Qualifying Child
    WFTRA established under section 152(c) a uniform definition of a 
qualifying child. The legislative history identifies five child-related 
benefits to which the uniform definition applies: The filing status of 
head of household under section 2(b), the child and dependent care 
credit under section 21, the child tax credit under section 24, the 
earned income credit under section 32, and the dependency exemption 
under section 151. See H.R. Rep. No. 108-696, at 55-65.
    Section 152(c) defines a qualifying child as an individual who 
bears a certain relationship to the taxpayer (qualifying child 
relationship test), has the same principal place of abode as the 
taxpayer for more than one-half of the taxable year (residency test), 
is younger than the taxpayer and is under the age of 19 (or age 24 if a 
full-time student or any age if permanently and totally disabled) (age 
test), does not provide more than one-half of his or her own support 
(qualifying child support test), and does not file a joint return with 
a spouse except to claim a refund of estimated or withheld taxes (joint 
return test).
c. Temporary Absence
    A child is considered to reside in the same principal place of 
abode as a taxpayer during a temporary absence. Under the existing 
section 152 regulations, a nonpermanent failure to occupy a common 
abode by reason of illness, education, business, vacation, military 
service, or a custody agreement may be a temporary absence due to 
special circumstances. The existing regulations under section 2 
defining surviving spouse and head of household include a similar rule 
relating to the effect of a temporary absence on the requirement to 
maintain a household, but add the requirement that it is reasonable to 
assume that the absent person will return to the household. Under case 
law, a factor to consider in determining whether an absence is 
temporary is whether the individual intends to establish a new 
principal place of abode. In Rowe v. Commissioner, 128 T.C. 13 (2007), 
the court concluded that it was reasonable to assume that a taxpayer 
would return to her home after pretrial confinement and that the 
taxpayer's absence was temporary. See also Hein v. Commissioner, 28 
T.C. 826 (1957) (acq., 1958-2 CB 6), and Rev. Rul. 66-28 (1966-1 CB 
31).
d. Two or More Taxpayers Eligible To Claim Individual as Qualifying 
Child
    Section 152(c)(4) provides tiebreaker rules that apply if an 
individual meets the definition of a qualifying child for two or more 
taxpayers (eligible taxpayers). In general, the eligible taxpayer who 
is a parent (eligible parent) of the individual may claim the 
individual as a qualifying child or, if there is no eligible parent, 
then the individual may be claimed by the eligible taxpayer with the 
highest adjusted gross income.
    If more than one of the eligible taxpayers is a parent of the 
individual, more than one eligible parent claims the individual as a 
qualifying child, and the eligible parents claiming the individual do 
not file a joint return with each other, the individual is treated as 
the qualifying child of the eligible parent claiming the individual 
with whom the individual resided for the longest period of time during 
the taxable year. If the individual resided with each eligible parent 
claiming the individual for the same amount of time during the taxable 
year, the individual is treated as the qualifying child of the eligible 
parent claiming the individual with the highest adjusted gross income.
    If at least one, but not all, of two or more eligible taxpayers is 
a parent of the individual, but no eligible parent claims the 
individual as a qualifying child, another eligible taxpayer may claim 
the individual, but only if the eligible taxpayer's adjusted gross 
income is higher than the adjusted gross income of each eligible 
parent. Since 2009, IRS Publication 501, Exemptions, Standard 
Deduction, and Filing Information, has stated that ``[i]f a child's 
parents file a joint return with each other, this rule may be applied 
by dividing the parents' combined AGI equally between the parents.''
    Notice 2006-86 (2006-2 CB 680) provides interim guidance on these 
rules prior to the amendments by FCSIAA. The notice provides that, 
except to the extent that a noncustodial

[[Page 6372]]

parent may claim the child as a qualifying child under the special rule 
for divorced or separated parents in section 152(e), discussed in the 
next paragraph, if more than one taxpayer claims a child as a 
qualifying child, the child is treated as the qualifying child of only 
one taxpayer (as determined under the tiebreaker rules of section 
152(c)(4)) for purposes of the five provisions subject to the uniform 
definition of a qualifying child (the filing status of head of 
household under section 2(b), the child and dependent care credit under 
section 21, the child tax credit under section 24, the earned income 
credit under section 32, and the dependency exemption under section 
151, as well as for purposes of the exclusion for dependent care 
assistance under section 129 (which may apply to the care of a 
dependent qualifying child under age 13)). Thus, in general, the 
tiebreaker rules for determining which taxpayer may claim a child as a 
qualifying child apply to these provisions as a group, rather than on a 
section-by-section basis.
    Notice 2006-86 contains an exception to the rule that only one 
taxpayer may claim a child as a qualifying child for all purposes. 
Section 152(e) has a special rule for divorced or separated parents 
that determines who, as between the custodial and noncustodial parent, 
may claim a child as a qualifying child or qualifying relative if 
certain tests (different from the general tests under sections 152(c) 
and (d)) regarding residency and support are met and the custodial 
parent releases a claim to exemption for the child. The notice provides 
that, if this special rule applies, a noncustodial parent may claim a 
child as a qualifying child for purposes of the dependency exemption 
and the child tax credit (the only two of the provisions addressed in 
the notice to which section 152(e) applies in determining who is a 
qualifying child), and another taxpayer may claim the child for one or 
more of the other benefits to which section 152(e) does not apply.
    Although FCSIAA affects other aspects of section 152(c)(4) and 
Notice 2006-86, there is nothing in FCSIAA that would compel a change 
in the rule described in Notice 2006-86 that an individual is treated 
as the qualifying child of only one taxpayer for the listed child-
related tax benefits, except if the special rule in section 152(e) 
applies.
e. Qualifying Relative
    Under section 152(d), a qualifying relative is an individual who 
bears a certain relationship to the taxpayer, including an individual 
who has the same principal place of abode as the taxpayer and is a 
member of the taxpayer's household for the taxable year (qualifying 
relative relationship test), has gross income less than the exemption 
amount for the taxable year (gross income test), receives more than 
one-half of his or her support from the taxpayer (qualifying relative 
support test), and is not a qualifying child of any taxpayer (not a 
qualifying child test).
    Notice 2008-5 (2008-1 CB 256) addresses whether a taxpayer meets 
the test under section 152(d)(1)(D) to claim an individual as a 
qualifying relative. That provision requires that the individual not be 
a qualifying child of either the taxpayer or any other taxpayer during 
a taxable year beginning in the calendar year in which the taxpayer's 
taxable year begins. The notice provides that, for purposes of section 
152(d)(1)(D), an individual is not a qualifying child of ``any other 
taxpayer'' if the individual's parent (or other person for whom the 
individual is defined as a qualifying child) is not required by section 
6012 to file an income tax return and (1) does not file an income tax 
return, or (2) files an income tax return solely to obtain a refund of 
withheld income taxes.
f. Support Tests
    Under section 152(c)(1)(D), to be a taxpayer's qualifying child, an 
individual must not have provided over one-half of the individual's own 
support for the calendar year. Under section 152(d)(1)(C), to be a 
taxpayer's qualifying relative, a taxpayer must have provided over one-
half of an individual's support for the calendar year.
    Regarding governmental payments to a person with a qualifying need, 
the WFTRA conference report, H.R. Rep. No. 108-696, at 57, states that 
``[g]overnmental payments and subsidies (e.g., Temporary Assistance 
[for] Needy Families, food stamps, and housing) generally are treated 
as support provided by a third party.'' The IRS has successfully 
asserted in litigation that governmental payments provided to a parent 
to aid a family with dependent children and used by the parent for 
support of her children was support of the children provided by the 
government, and not support provided by the parent. See Lutter v. 
Commissioner, 61 T.C. 685 (1974), affd. per curiam, 514 F.2d 1095 (7th 
Cir. 1975).

2. Surviving Spouse and Head of Household, and Conforming Changes

    Prior to amendment by section 803(b) of the Tax Reform Act of 1969 
(Pub. L. 91-172, 83 Stat. 487), section 2(a) provided that the return 
of a surviving spouse is treated as a joint return for purposes of the 
tax rates, the tax tables for individuals, and the standard deduction. 
Following the 1969 amendments, section 2(a) defines the term surviving 
spouse for purposes of section 1. The return of a taxpayer filing as a 
surviving spouse is no longer treated as a joint return under sections 
2, 3, or 63. Section 3 provides tax tables for certain individuals in 
lieu of the tax imposed by section 1. Section 63(c) provides the same 
basic standard deduction for a taxpayer filing as a surviving spouse as 
a taxpayer filing a joint return. Accordingly, a taxpayer filing as a 
surviving spouse is no longer treated as filing a joint return for any 
tax purpose, but rather, a taxpayer filing as a surviving spouse simply 
uses the same tax rates under section 1, the same amounts in the tax 
tables under section 3, and the same standard deduction under section 
63 as a taxpayer filing a joint return.
    Generally, under section 2(b), to qualify as a head of household, a 
taxpayer must maintain a household that is the principal place of abode 
of a qualifying child or other dependent for more than one-half of the 
taxable year. If the dependent is a parent of the taxpayer and the 
parent does not share a principal place of abode with the taxpayer, the 
household maintained by the taxpayer must be the parent's principal 
place of abode for the entire taxable year.
    Prior to WFTRA, section 21 required that a taxpayer maintain a 
household to claim the credit for dependent care expenses, and 
regulations on maintaining a household were published under that 
section. WFTRA removed that requirement from the dependent care credit.

3. Earned Income Credit

    Section 32 provides a tax credit to eligible taxpayers who work and 
have earned income below a certain dollar amount. Before the amendment 
of section 32 by the Omnibus Reconciliation Act of 1993 (Pub. L. 103-
66, 107 Stat. 312), the earned income credit (EIC) was allowable only 
to a taxpayer with one or more qualifying children. If an individual 
met the definition of a qualifying child for more than one taxpayer, a 
tiebreaker rule in section 32 determined which taxpayer was allowed to 
claim the individual as a qualifying child for the EIC. For taxable 
years beginning after 1993, section 32(c)(1)(A)(ii) allows a taxpayer 
without a qualifying child to claim the EIC (childless EIC) if certain

[[Page 6373]]

requirements are met. Although there is no regulatory guidance on this 
issue, since 1995, the IRS has taken the position in IRS Publication 
596, Earned Income Credit, that if an individual meets the definition 
of a qualifying child for more than one taxpayer and the individual is 
not treated as the qualifying child of a taxpayer under the tiebreaker 
rules, then that taxpayer is precluded from claiming the childless EIC. 
WFTRA moved the tiebreaker rules from section 32 to section 152(c)(4).
    Before repeal in 2010, section 3507 allowed advance payment of the 
EIC. Section 3507 was repealed by the FAA Air Transportation 
Modernization and Safety Improvement Act (Pub. L. 111-226, 124 Stat. 
2389).

4. Additional Standard Deduction for the Aged and Blind

    Before the amendments to sections 63 and 151 made by the Tax Reform 
Act of 1986 (Pub. L. 99-514, 100 Stat. 2085), a taxpayer was entitled 
to an additional personal exemption under section 151 for the taxpayer 
or the taxpayer's spouse (or both), if either was age 65 or older or 
was blind at the close of the taxable year. As amended, section 63 
provides an additional standard deduction for age or blindness instead 
of an additional personal exemption under section 151.

Explanation of Provisions

    The proposed regulations reflect statutory amendments to sections 
2, 3, 21, 32, 63, 151, 152, 6013, and 6109. In addition, the 
regulations address certain significant issues arising under these 
sections and modify certain IRS positions, as explained below.

1. Dependency Exemption

    Consistent with the amendments made to sections 151 and 152 by 
WFTRA, the proposed regulations move rules related to the definition of 
a dependent from the regulations under section 151 to the regulations 
under section 152.
a. Relationship Test
i. General Rules
    Section 152(c)(2) provides that a qualifying child must be a child 
or a descendant of a child of the taxpayer, or a brother, sister, 
stepbrother, or stepsister of the taxpayer, or a descendant of any of 
these relatives. Section 152(d)(2) provides that a qualifying relative 
must bear a certain relationship to the taxpayer, which includes a 
child or a descendant of a child, a brother, sister, stepbrother, 
stepsister, parent or ancestor of a parent, or an aunt or uncle of the 
taxpayer. An individual (other than the taxpayer's spouse) who is not 
related to the taxpayer in one of the named relationships nevertheless 
may satisfy the relationship test for a qualifying relative if the 
individual has the same principal place of abode as the taxpayer and is 
a member of the taxpayer's household for the taxpayer's taxable year.
    The proposed regulations adopt the rule in Notice 2008-5 regarding 
whether an individual is a qualifying child of a taxpayer for purposes 
of determining whether that individual may be a qualifying relative. 
That is, the proposed regulations provide that an individual is not a 
qualifying child of a person if that person is not required to file an 
income tax return under section 6012, and either does not file an 
income tax return or files an income tax return solely to claim a 
refund of estimated or withheld taxes.
ii. Adopted Child--Adoption by Individual Other Than the Taxpayer
    Prior to 2005, for purposes of the relationship test, a person's 
legally adopted child was treated as that person's child by blood. 
Specifically, section 152(b)(2) provided that ``a legally adopted child 
of an individual (and a child who is a member of an individual's 
household, if placed with such individual by an authorized placement 
agency for legal adoption by such individual), . . . shall be treated 
as a child of such individual by blood.'' Therefore, a taxpayer other 
than the adopting ``individual'' could be eligible to claim an 
exemption for an adopted child. For example, the parent of the adopting 
parent could claim a dependency exemption for the legally adopted child 
of the taxpayer's son or daughter (just as biological grandparents may 
claim an exemption for a grandchild) if all other requirements were 
met.
    WFTRA amended section 152 to change the reference from a child 
placed by an authorized placement agency for adoption to a child who is 
``lawfully placed'' for legal adoption. In making that change, however, 
WFTRA also changed the reference to the adopting person from ``an 
individual'' to ``the taxpayer,'' so that section 152(f)(1)(B) 
currently provides that a legally adopted individual of the taxpayer is 
treated as a child by blood of the taxpayer. The use of the word 
``taxpayer'' rather than ``individual'' arguably limits the recognition 
of a relationship through adoption only to those situations in which 
the taxpayer claiming a dependency exemption for the child is the 
person who adopts the child. This interpretation of the amended 
statutory language would diverge from the results of a legal adoption 
under property, inheritance, and other nontax law, and from the prior 
tax treatment of adoptions--a significant change in the applicable law. 
However, there is nothing in the legislative history indicating that 
Congress intended to limit the treatment of an adopted child as a child 
by blood in this manner or that otherwise suggests this change in 
language was intended to effect a change in existing law.
    To fill this apparent gap in the statute, the proposed regulations 
provide that any child legally adopted by a ``person,'' or any child 
who is placed with a ``person'' for legal adoption by that ``person,'' 
is treated as a child by blood of that person for purposes of the 
relationship tests under sections 152(c)(2) and 152(d)(2). Similarly, 
the proposed regulations provide that an eligible foster child is a 
child who is placed with a ``person'' rather than with a taxpayer.
iii. Adopted Child and Foster Child--Child Placement
    Although WFTRA removed the reference to an authorized placement 
agency from the provisions relating to an adopted child in section 
152(f)(1)(B), the reference to an authorized placement agency continues 
to appear in section 152(f)(1)(C), relating to an eligible foster 
child. Prior to amendment by WFTRA, section 152 treated a child who was 
a member of an individual's household pending adoption as a child by 
blood of the individual for purposes of the relationship test only if 
the child was a foster child living with the individual or if the child 
was placed with the individual by an authorized placement agency for 
adoption by the individual. Similarly, Sec.  301.6109-3(a) currently 
provides that a taxpayer may obtain an adoption taxpayer identification 
number (ATIN) only for a child who was placed for adoption by an 
authorized placement agency.
    As amended by WFTRA, section 152 treats a child placed for adoption 
as a child by blood of the taxpayer if the child ``is lawfully placed 
with the taxpayer for legal adoption by the taxpayer.'' A child may be 
lawfully placed for legal adoption by an authorized placement agency, 
the child's parents, or other persons authorized by State law to place 
children for legal adoption. These proposed regulations reflect the 
changes made by WFTRA and amend the regulations under section 6109 to 
provide that the IRS will assign an ATIN to a child who has been 
lawfully placed with a person for legal adoption.

[[Page 6374]]

    Under section 152(f)(1)(A)(ii) and Sec.  1.152-1(b)(1)(iii) of 
these proposed regulations, the term child also includes an eligible 
foster child of the taxpayer as defined in 152(f)(1)(C), that is, a 
child who is placed with the taxpayer by an authorized placement agency 
or by the judgment, decree, or other order of a court of competent 
jurisdiction.
iv. Definition of Authorized Placement Agency
    The 2000 proposed regulations under Sec.  1.152-2(c)(2) defined an 
authorized placement agency for purposes of the prior law regarding a 
child placed for legal adoption. These proposed regulations define an 
authorized placement agency for purposes of the definition of an 
eligible foster child and withdraw the 2000 proposed regulations, which 
defined that term without reference to an Indian Tribal Government 
(ITG).
    These proposed regulations provide that an authorized placement 
agency may be a State, the District of Columbia, a possession of the 
United States, a foreign country, an agency or organization authorized 
by, or a political subdivision of, any of these entities to place 
children in foster care or for adoption. Under the Indian Child Welfare 
Act of 1978 (25 U.S.C. chapter 21), ITGs and states perform similar 
functions for foster care and adoption programs. Thus, the proposed 
regulations provide that an authorized placement agency also may be an 
ITG (as defined in section 7701(a)(40)), or an agency or organization 
authorized by, or a political subdivision of, an ITG that places 
children in foster care or for adoption.
b. Residency Test--Principal Place of Abode
    For purposes of determining whether an individual has the same 
principal place of abode as the taxpayer in applying the residency test 
for a qualifying child and the relationship test for a qualifying 
relative who does not have one of the listed relationships to the 
taxpayer, the proposed regulations provide that the term principal 
place of abode means a person's main home or dwelling where the person 
resides. A person's principal place of abode need not be the same 
physical location throughout the taxable year and may be temporary 
lodging such as a homeless shelter or relief housing resulting from 
displacement caused by a natural disaster.
    The proposed regulations further provide that a taxpayer and an 
individual have the same principal place of abode despite a temporary 
absence by either person. A person is temporarily absent if, based on 
the facts and circumstances, the person would have resided with the 
taxpayer but for the temporary absence and it is reasonable to assume 
the person will return to reside at the place of abode. Thus, the 
proposed regulations adopt the ``reasonable to assume'' language from 
the existing regulations under section 2. The proposed regulations 
indicate that a nonpermanent failure to occupy the abode by reason of 
illness, education, business, vacation, military service, 
institutionalized care for a child who is permanently and totally 
disabled (as defined in section 22(e)(3)), or incarceration may be 
treated as a temporary absence due to special circumstances. This 
definition of temporary absence applies to the residency test for a 
qualifying child, to the relationship test for a qualifying relative 
who does not have a listed relationship to the taxpayer, and to the 
requirements to maintain a household for surviving spouse and head of 
household.
    For purposes of the residency test for a qualifying child, the 
proposed regulations provide that an individual is treated as having 
the same principal place of abode as the taxpayer for more than one-
half of the taxable year if the individual resides with the taxpayer 
for at least 183 nights during the taxpayer's taxable year or for at 
least 184 nights during the taxpayer's taxable year that includes a 
leap day (residing for more than one-half of the taxable year). The 
proposed regulations further provide that an individual resides with 
the taxpayer for a night if the individual sleeps (1) at the taxpayer's 
residence, or (2) in the company of the taxpayer when the individual 
does not sleep at the taxpayer's residence (for example, when the 
parent and the child are on vacation). The regulations provide 
additional rules for counting nights if a night extends over two 
taxable years and for taxpayers who work at night.
    The proposed regulations provide special rules for determining 
whether an individual satisfies a residency test if the individual is 
born or dies during the taxable year, is adopted or placed for 
adoption, is an eligible foster child, or is a missing child.
c. Age Test
    The age test for a qualifying child requires that an individual be 
younger than the taxpayer claiming the individual as a qualifying 
child, and the individual must not have attained the age of 19 (or age 
24 if the individual is a student). The age requirement is treated as 
satisfied if the individual is permanently and totally disabled.
    For purposes of this age test, the proposed regulations 
substantially adopt the existing definition of a student. Accordingly, 
the proposed regulations provide that the term student means an 
individual who, during some part of each of 5 calendar months during 
the calendar year in which the taxable year of the taxpayer begins, is 
a full-time student at an educational organization described in section 
170(b)(1)(A)(ii) or is pursuing a full-time course of institutional on-
farm training under the supervision of an accredited agent of an 
educational institution or of a State or political subdivision of a 
State. An educational organization, as defined in section 
170(b)(1)(A)(ii), is a school normally maintaining a regular faculty 
and curriculum and having a regularly enrolled body of students in 
attendance at the place where its educational activities are regularly 
carried on.
d. Support Tests
    In determining whether an individual provided more than one-half of 
the individual's own support (qualifying child support test), or 
whether a taxpayer provided more than one-half of an individual's 
support (qualifying relative support test), the proposed regulations 
compare the amount of support provided by the individual or the 
taxpayer to the total amount of the individual's support from all 
sources. In general, the amount of an individual's support from all 
sources includes support the individual provides and income that is 
excludable from gross income. The proposed regulations further provide 
that the amount of an item of support is the amount of expenses paid or 
incurred to furnish the item of support. If support is furnished in the 
form of property or a benefit (such as lodging), the amount of that 
support is the fair market value of the item furnished (Rev. Rul. 58-
302 (1958-1 CB 62)).
    The proposed regulations provide that the term support includes 
food, shelter, clothing, medical and dental care, education, and 
similar items for the benefit of the supported individual. Support does 
not include Federal, State, and local income taxes, or Social Security 
and Medicare taxes, of an individual paid from the individual's own 
income (Rev. Rul. 58-67 (1958-1 CB 62)), funeral expenses (Rev. Rul. 
65-307 (1965-2 CB 40)), life insurance premiums, or scholarships 
received by a taxpayer's child who is a student as defined in section 
152(f)(2).

[[Page 6375]]

    The proposed regulations provide that medical insurance premiums 
are treated as support. These premiums include Part A Basic Medicare 
premiums, if any, under Title XVIII of the Social Security Act (42 
U.S.C. 1395c to 1395i-5), Part B Supplemental Medicare premiums under 
Title XVIII of the Social Security Act (42 U.S.C. 1395j to 1395w-6), 
Part C Medicare + Choice Program premiums under Title XVIII of the 
Social Security Act (42 U.S.C. 1395w-21 to 1395w-29), and Part D 
Voluntary Prescription Drug Benefit Medicare premiums under Title XVIII 
of the Social Security Act (42 U.S.C. 1395w-101 to 1395w-154). However, 
medical insurance proceeds, including benefits received under Medicare 
Part A, Part B, Part C, and Part D, are not treated as support and are 
disregarded in determining the amount of the individual's support. 
Thus, only the premiums paid and the unreimbursed portion of the 
expenses for the individual's medical care are support. See Rev. Rul. 
64-223 (1964-2 CB 50); and Rev. Rul. 70-341 (1970-2 CB 31), revoked in 
part by Rev. Rul. 79-173 (1979-1 CB 86) to the extent that it held that 
Part A Medicare benefits are included as a recipient's contribution to 
support. In addition, services provided to individuals under the 
medical and dental care provisions of the Armed Forces Act (10 U.S.C. 
chapter 55) are not treated as support and are disregarded in 
determining the amount of the individual's support. Finally, payments 
from a third party (including a third party's insurance company) for 
the medical care of an injured individual in satisfaction of a legal 
claim for the personal injury of the individual are not items of 
support and are disregarded in determining the amount of the 
individual's support. See Rev. Rul. 64-223.
    The proposed regulations provide that, in general, governmental 
payments and subsidies are treated as support provided by a third 
party. Consistent with previously issued rulings and case law, these 
payments and subsidies include, for example, Temporary Assistance for 
Needy Families (TANF) (42 U.S.C. 601-619), low-income housing 
assistance (42 U.S.C. 1437f), benefits under the Supplemental Nutrition 
Assistance Program (7 U.S.C. chapter 51), Supplemental Security Income 
payments (42 U.S.C. 1381-1383f), foster care maintenance payments, and 
adoption assistance payments. See H.R. Rep. No. 108-696, at 57 (2004) 
(Conf. Rep.); Gulvin v. Commissioner, 644 F.2d 2 (5th Cir. 1981); and 
Rev. Rul. 74-153 (1974-1 CB 20).
    However, unlike the subsidies described in the previous paragraph 
that generally are based solely on need, old age benefits under section 
202(b) of Title II of the Social Security Act (SSA) (42 U.S.C. 402) are 
based on an individual's earnings and contributions into the Social 
Security system and thus are treated as support provided by the 
recipient to the extent the recipient uses the payments for support. 
See Rev. Rul. 58-419 (1958-2 CB 57), as modified by Rev. Rul. 64-222 
(1964-2 CB 47). Similarly, Social Security survivor and disability 
insurance benefit payments made under section 202(d) of the SSA to the 
child of a deceased or disabled parent are treated as support provided 
by the child to the extent those payments are used for the child's 
support. See Rev. Rul. 57-344 (1957-2 CB 112) and Rev. Rul. 74-543 
(1974-2 CB 39).
    The proposed regulations provide a special rule for governmental 
payments used by the recipient or other intended beneficiary to support 
another individual. The proposed regulations draw a distinction 
between: (1) Governmental payments (such as Social Security old age 
benefits, or survivor and disability insurance benefits for a child) 
made to a recipient that are intended to benefit a particular named 
individual (whether the recipient, or another intended beneficiary for 
whom the recipient merely acts as the payee on behalf of that other 
intended beneficiary); and (2) governmental payments made to a 
recipient that are intended to support the recipient and other 
individuals (such as TANF). Although the governmental payments of the 
former variety are intended to benefit a particular named individual, 
because money is fungible, the intended beneficiary might use the 
governmental payments to support another individual. In this situation, 
the proposed regulations provide that, if the intended beneficiary 
(whether the recipient or another individual) uses the governmental 
payments to support another individual, that amount would constitute 
support of that other individual provided by the intended beneficiary. 
Similarly, the proposed regulations provide that the use of 
governmental payments of the latter variety by the recipient to support 
another individual would constitute support of that other individual 
provided by the recipient, whereas any part of such a payment used for 
the support of the recipient would constitute support of the recipient 
by a third party. For example, if a mother receives TANF and uses the 
TANF payments to support her children, the proposed regulations treat 
the mother as having provided that support. Thus, the IRS will no 
longer assert the position that it took in Lutter, which concerned 
payments received by a mother under a program that was the predecessor 
of TANF. The Treasury Department and the IRS are proposing this rule 
for the administrative convenience of both the IRS and taxpayers to 
avoid the need to trace the use of such governmental payments, as 
opposed to the use of other funds of the recipient, for the support of 
another individual.
    The Treasury Department and IRS request comments on whether various 
payments made pursuant to the Patient Protection And Affordable Care 
Act (Public Law 111-148, 124 Stat. 119) in the form of a cost-sharing 
reduction, an advanced payment of the premium tax credit, or as a 
reimbursement of health insurance premiums in the form of a premium tax 
credit, when used for the benefit of another individual, are support 
provided by the recipient of those benefits or support provided by a 
third party.
e. Citizenship
    Under section 152(b)(3)(A), an individual who is not a citizen or 
national of the United States is not a dependent unless the individual 
is a resident of the United States, Canada, or Mexico. Nevertheless, 
consistent with the exception for certain adopted children in section 
152(b)(3)(B), the proposed regulations provide that an adopted child of 
a taxpayer who is a U.S. citizen or national may qualify as a dependent 
if, for the taxpayer's taxable year, the child has the same principal 
place of abode as the taxpayer and is a member of the taxpayer's 
household, and otherwise qualifies as the taxpayer's dependent.
f. Tiebreaker Rules
    The proposed regulations change the interpretation in Publication 
501 regarding a taxpayer's adjusted gross income on a joint return and 
provide that, in applying the tiebreaker rules that treat an individual 
as the qualifying child of the eligible taxpayer with the higher or 
highest adjusted gross income, the adjusted gross income of a taxpayer 
who files a joint tax return is the total adjusted gross income shown 
on the return. The prior interpretation is changed to be consistent 
with other Code sections that require the filing of a joint return to 
claim a benefit and therefore calculate income based on the entire 
amount shown on the joint return. For example, the earned income credit 
under section 32 calculates the

[[Page 6376]]

earned income amount based on the entire amount shown on the joint 
return. This joint return rule also is relevant for determining whether 
section 152(c)(4)(C) applies. Under that provision, if an eligible 
parent does not claim an individual as a qualifying child, another 
eligible taxpayer may claim the individual as a qualifying child only 
if that taxpayer's adjusted gross income is higher than the adjusted 
gross income of any eligible parent.
    The proposed regulations also expand the tiebreaker rule in section 
152(c)(4)(C) to address the situation in which an eligible parent does 
not claim an individual as a qualifying child and two or more 
taxpayers, none of whom is a parent, are eligible to claim the 
individual as a qualifying child and each has adjusted gross income 
higher than any eligible parent. In this situation, the proposed 
regulations provide that the individual is treated as the qualifying 
child of the eligible taxpayer with the highest adjusted gross income.
g. Child of Parents Who Are Divorced, Separated, or Living Apart
    Section 152(e) provides, in general, that a child is treated as the 
qualifying child or qualifying relative of a noncustodial parent for a 
calendar year if, among other things, the custodial parent provides to 
the noncustodial parent a written declaration that the custodial parent 
will not claim the child as a dependent for any taxable year beginning 
in that calendar year. Under section 152(e)(2)(B), the noncustodial 
parent must attach the written declaration to his or her return.
    The proposed regulations provide that the noncustodial parent must 
attach a copy of the written declaration to an original or amended 
return. A taxpayer may submit a copy of the written declaration to the 
IRS during an examination of that parent's return. However, to provide 
certainty for both taxpayers and the IRS, the proposed regulations 
provide that a copy of a written declaration attached to an amended 
return or provided during an examination will not meet the requirements 
of section 152(e) and Sec.  1.152-5(e) if the custodial parent signed 
the written declaration after the custodial parent filed a return 
claiming a dependency exemption for the child for the year at issue, 
and the custodial parent has not filed an amended return to remove that 
claim to a dependency exemption. The proposed regulations provide 
similar rules for a parent revoking a written declaration.
h. Filing a Return Solely To Obtain a Refund of Taxes
    Individuals who file an income tax return solely to obtain a refund 
of estimated or withheld taxes are subject to special rules under 
various provisions of section 152. Section 152(c)(1)(E) provides that, 
for an individual to be a qualifying child of a taxpayer, the 
individual cannot have filed a joint return ``other than only for a 
claim of refund.'' Section 152(b)(2) provides that, for an individual 
to be a dependent of a taxpayer, the individual cannot have filed a 
joint return with the individual's spouse. However, the WFTRA 
conference report states that ``[t]his restriction does not apply if 
the return was filed solely to obtain a refund and no tax liability 
would exist for either spouse if they filed separate returns.'' Section 
152(d)(1)(D) provides that, to be a qualifying relative, an individual 
may not be the qualifying child of the taxpayer or of any other 
taxpayer. Notice 2008-5 concludes that an individual is not the 
qualifying child of ``any other taxpayer,'' within the meaning of 
section 152(d)(1)(D), if the person who could have claimed the 
individual as a qualifying child does not have a filing obligation and 
either does not file a return or files a return solely to obtain a 
refund of withheld taxes.
    The proposed regulations provide a similar exception to the rule in 
section 152(b)(1) that a taxpayer cannot have a dependent if the 
taxpayer himself or herself is a dependent of another taxpayer. 
Specifically, the proposed regulations provide that an individual is 
not a dependent of a person if that person is not required to file an 
income tax return under section 6012 and either does not file an income 
tax return or files an income tax return solely to claim a refund of 
estimated or withheld taxes.

2. Surviving Spouse, Head of Household, and Conforming Changes

    The proposed regulations amend the regulations under section 2 
regarding the definition of surviving spouse and the definition of head 
of household to conform to the amendments made by WFTRA. To reflect the 
amendments made by the Tax Reform Act of 1969, the proposed regulations 
remove from the regulations under sections 2, 3, and 6013 references to 
the return of a surviving spouse being treated as a joint return. The 
proposed regulations also revise and move from the regulations under 
section 21 to the regulations under section 2 the definition of 
maintaining a household, in part, to conform to the amendments to 
section 21 made by WFTRA, which removed the requirement that a taxpayer 
maintain a household to claim the credit under section 21.
a. Surviving Spouse
    From the time of the 1969 amendment until the enactment of WFTRA, 
section 2(a)(1)(B) provided that a taxpayer who is a surviving spouse 
described in section 2(a)(1)(A) may file as a surviving spouse (and 
thus may use the tax rates of joint filers) only if the taxpayer 
``maintains as his home a household which constitutes for the taxable 
year the principal place of abode (as a member of such household) of a 
dependent (i) who (within the meaning of section 152) is a son, 
stepson, daughter, or stepdaughter of the taxpayer, and (ii) with 
respect to whom the taxpayer is entitled to a deduction for the taxable 
year under section 151.'' Thus, the member of the taxpayer's household 
had to be a son or daughter or stepson or stepdaughter for whom the 
taxpayer was entitled to a dependency deduction.
    WFTRA amended section 2(a), as well as certain other sections such 
as section 42 relating to the low-income housing credit and section 125 
relating to cafeteria plans, to provide that the reference to section 
152 applies ``without regard to subsections (b)(1), (b)(2), and 
(d)(1)(B).'' These three subsections, respectively: (1) Deny a 
dependency exemption to a dependent, (2) deny a dependency exemption 
for a person filing a joint return with his or her spouse, and (3) 
require the gross income of a qualifying relative to be less than the 
amount of the dependency exemption. Thus, the language inserted by the 
WFTRA technical amendment to section 2(a) was intended to broaden the 
class of individuals whose members could qualify a taxpayer as a 
surviving spouse for purposes of section 2. See also Staff of Joint 
Comm. on Taxation, 108th Cong., General Explanation of Tax Legislation 
Enacted in the 108th Congress 130 (Comm. Print 2005) (``technical and 
conforming amendments . . . provide that an individual may qualify as a 
dependent for certain purposes . . . without regard to whether the 
individual has gross income . . . or is married and files a joint 
return.'')
    However, in amending section 2(a) for this purpose, WFTRA inserted 
the direction to exclude the three referenced provisions after the 
reference to section 152 in section 2(a)(1)(B)(i). Thus, this section 
currently provides, ``(i) who (within the meaning of section 152, 
determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)

[[Page 6377]]

thereof) is a son, stepson, daughter, or stepdaughter of the 
taxpayer.'' Because section 2(a)(1)(B)(ii) continues to require that 
the taxpayer be entitled to a deduction under section 151 for the 
dependent (a requirement that could not be met if any of these three 
sections applied), read literally, section 2(a)(1)(B)(ii) would 
override the intent of the statutory change in section 2(a)(1)(B)(i), 
thus preventing the WFTRA amendment from effecting any change in the 
statute. Therefore, to give effect to the statutory amendment, the 
proposed regulations construe the language added by WFTRA instead to 
modify the section 152 requirements that apply in determining whether 
the taxpayer is entitled to the dependency exemption under section 151 
for purposes of section 2(a)(1)(B)(ii). Accordingly, the proposed 
regulations provide that an individual is a dependent for purposes of 
section 2(a) if the taxpayer may claim a deduction under section 151 
for the individual without applying sections 152(b)(1), (b)(2), and 
(d)(1)(B).
b. Head of Household
    The proposed regulations under section 2(b) update and simplify the 
existing regulations defining head of household. Consistent with the 
statutory amendments to the definition of a dependent, the proposed 
regulations provide rules on qualifying as a head of household by 
maintaining a household that is the principal place of abode of a 
qualifying child or a dependent. The proposed regulations on head of 
household apply the rules in the proposed regulations under section 152 
for determining principal place of abode, including whether an absence 
is temporary.
c. Maintaining a Household
    The proposed regulations provide that a taxpayer maintains a 
household only if the taxpayer pays more than one-half of the cost 
related to operating the household for the relevant period. Expenses 
related to operating the household include property taxes, mortgage 
interest, rent, utility charges, upkeep and repairs, property 
insurance, and food consumed on the premises. A taxpayer may treat a 
home's fair market rental value as a cost of maintaining a household 
(instead of the sum of payments for mortgage interest, property taxes, 
and insurance). The proposed regulations provide rules that, in certain 
circumstances, prorate on a monthly basis the annual cost of 
maintaining a household when a qualifying child or dependent resides in 
the household for less than the entire taxable year. The proposed 
regulations also, in certain circumstances, recognize the creation of a 
new household during a year and treat shared living quarters as 
separate households.

3. Tax Tables for Individuals

    The proposed regulations remove from the regulations under section 
3 references to the return of a surviving spouse being treated as a 
joint return to conform to the amendments made by the Tax Reform Act of 
1969. The proposed regulations also update the regulations under 
section 3 to reflect current law.

4. Earned Income Credit

    The proposed regulations conform the regulations under section 32 
to amendments made to section 32 by WFTRA. Consistent with the 2010 
repeal of section 3507 by the FAA Air Transportation Modernization and 
Safety Improvement Act, the proposed regulations delete the paragraphs 
of the regulations under section 32 discussing advance payment of the 
earned income credit.
    In addition, the proposed regulations reflect a change in the IRS's 
position on the interaction of sections 152(c)(4) and 32. Specifically, 
the proposed regulations provide that, if an individual meets the 
definition of a qualifying child under section 152(c)(1) for more than 
one taxpayer and the individual is not treated as the qualifying child 
of one such taxpayer under the tiebreaker rules of section 152(c)(4), 
then the individual also is not treated as a qualifying child of that 
taxpayer for purposes of section 32(c)(1)(A). Thus, that taxpayer may 
be an eligible individual under section 32(c)(1)(A)(ii) and may claim 
the childless EIC if he or she meets the other requirements of that 
section. The Treasury Department and the IRS have concluded that this 
change in position is consistent with the language and purpose of 
section 32 and will be less confusing to taxpayers and easier for the 
IRS to administer.
    The problems with the current rule may be illustrated by the 
following example. Two sisters (B and C) live together and each of them 
is a low-income taxpayer. Neither has a child and each may claim the 
childless EIC under section 32(c)(1)(A)(ii). Later, B has a child, and 
B's child meets the definition of a qualifying child under section 
152(c)(1) for both B and C. The child is treated as the qualifying 
child of B under the tiebreaker rules of section 152(c)(4), and B may 
claim the EIC as an eligible individual with a qualifying child under 
section 32(c)(1)(A)(i). Under the current rule, C would not be allowed 
to claim the childless EIC under section 32(c)(1)(A)(ii). The Treasury 
Department and the IRS have determined that allowing C to continue to 
claim the childless EIC after the child is born is equitable and 
consistent with the purpose of section 32 to assist working, low-income 
taxpayers. Accordingly, the proposed regulations provide that, if an 
individual is not treated as a qualifying child of a taxpayer after 
applying the tiebreaker rules of section 152(c)(4), then the individual 
will not prevent that taxpayer from qualifying for the childless EIC.

5. Additional Standard Deduction for the Aged and Blind

    The proposed regulations remove the provisions on additional 
exemptions for age and blindness from the regulations under section 151 
and add regulations under section 63 on the additional standard 
deduction for the aged and the blind to reflect the changes made by the 
Tax Reform Act of 1986. The proposed regulations amend the regulations 
under section 63 to remove a cross reference to now-repealed statutory 
provisions relating to a charitable deduction for taxpayers who do not 
itemize. To limit impediments to electronic filing, the proposed 
regulations also delete the requirement that a taxpayer claiming a tax 
benefit for blindness must attach a certificate or statement to the 
taxpayer's tax return. Instead, a taxpayer must maintain the 
certificate or statement in the taxpayer's records.

Applicability Date

    These regulations are proposed to apply to taxable years beginning 
after the date the regulations are published as final regulations in 
the Federal Register. Pending the issuance of the final regulations, 
taxpayers may choose to apply these proposed regulations in any open 
taxable years.

Effect on Other Documents

    When finalized, the proposed regulations will obsolete Rev. Rul. 
57-344, Rev. Rul. 58-67, Rev. Rul. 58-302, Rev. Rul. 64-223, Rev. Rul. 
65-307, Rev. Rul. 70-341, Rev. Rul. 74-153, Rev. Rul. 74-543, Rev. Rul. 
79-173, Rev. Rul. 84-89, Notice 2006-86, and Notice 2008-5.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. The regulations affect individuals and do not impose a

[[Page 6378]]

collection of information on small entities, therefore the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Statement of Availability of IRS Documents

    IRS revenue procedures, revenue rulings, notices and other guidance 
cited in this preamble are published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and are available from the Superintendent of 
Documents, U.S. Government Publishing Office, Washington, DC 20402, or 
by visiting the IRS Web site at http://www.irs.gov.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS, as prescribed in this preamble under the ``Addresses'' 
heading. The IRS and Treasury Department request comments on all 
aspects of the proposed rules. All comments will be available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person that timely submits written 
comments. If a public hearing is scheduled, notice of the date, time, 
and place for the hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Christina 
M. Glendening and Victoria J. Driscoll of the Office of Associate Chief 
Counsel (Income Tax and Accounting). However, other personnel from the 
Treasury Department and the IRS participated in the development of the 
regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Withdrawal of Notice of Proposed Rulemaking

    Accordingly, under authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking (REG-107279-00) that was published in the Federal 
Register on November 30, 2000 (65 FR 71277), is withdrawn.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *

0
 Par. 2. Section 1.2-1 is revised to read as follows:


Sec.  1.2-1  Returns of surviving spouse and head of household.

    (a) In general. Tax is determined under section 1(a) for a return 
of a surviving spouse, as defined in section 2(a) and Sec.  1.2-2(a). 
Tax is determined under section 1(b) for a return of a head of 
household, as defined in section 2(b) and Sec.  1.2-2(b).
    (b) Death of a spouse. If married taxpayers have different taxable 
years solely because of the death of either spouse, the taxable year of 
the deceased spouse is deemed to end on the last day of the surviving 
spouse's taxable year for purposes of determining their eligibility to 
file a joint return for that year. For rules relating to filing a joint 
return in the year a spouse dies, see section 6013 and the related 
regulations.
    (c) Tax tables. For rules on the use of the tax tables that apply 
to individuals, see section 3 and the related regulations.
    (d) Change in rates. For the treatment of taxable years during 
which a change in the tax rates occurs, see section 15.
    (e) Applicability date. This section applies to taxable years 
beginning after the date these regulations are published as final 
regulations in the Federal Register.
0
Par. 3. Section 1.2-2 is revised to read as follows:


Sec.  1.2-2  Definitions and special rules.

    (a) Surviving spouse--(1) In general. If a taxpayer is eligible to 
file a joint return under section 6013 (without applying section 
6013(a)(3)) for the taxable year in which the taxpayer's spouse dies, 
the taxpayer qualifies as a surviving spouse for each of the two 
taxable years immediately following the year of the spouse's death if 
the taxpayer--
    (i) Has not remarried before the close of the taxable year; and
    (ii) Maintains as the taxpayer's home a household that is for the 
taxable year the principal place of abode of a son or daughter 
(including by adoption), stepson, or stepdaughter who is a member of 
the taxpayer's household and who is a dependent of the taxpayer within 
the meaning of paragraph (a)(2) of this section.
    (2) Dependent. An individual is a dependent of a taxpayer for 
purposes of this paragraph (a) if the taxpayer may claim a deduction 
under section 151 for the individual, without applying sections 
152(b)(1), (b)(2), and (d)(1)(B).
    (b) Head of household--(1) In general. A taxpayer qualifies as a 
head of household if the taxpayer is not married at the end of the 
taxable year, is not a surviving spouse, as defined in paragraph (a) of 
this section, and either--
    (i) Maintains as the taxpayer's home a household that is for more 
than one-half of the taxable year the principal place of abode of a 
qualifying child or dependent of the taxpayer, within the meaning of 
paragraph (b)(2) of this section, who is a member of the taxpayer's 
household during that period; or
    (ii) Maintains a household, whether or not the taxpayer's home, 
that is for the taxable year the principal place of abode of a parent 
of the taxpayer, within the meaning of paragraph (b)(3) of this 
section.
    (2) Qualifying child or dependent--(i) Qualifying child. An 
individual is a qualifying child for purposes of this paragraph (b) if 
the individual is a qualifying child of the taxpayer as defined in 
section 152(c) and the related regulations, determined without applying 
section 152(e). However, if the individual is married at the end of the 
taxpayer's taxable year, the individual is not a qualifying child for 
purposes of this section if the individual is not the taxpayer's 
dependent because of the limitations of section 152(b)(2) (relating to 
an individual filing a joint return with his or her spouse) or 
152(b)(3) (relating to individuals who are citizens or nationals of 
other countries).
    (ii) Dependent. An individual is a dependent for purposes of this 
paragraph (b) if the individual is the taxpayer's dependent, within the 
meaning of section 152 without applying sections 152(d)(2)(H) (relating 
to an individual qualifying as a member of the household) and 152(d)(3) 
(relating to the special rule for multiple support agreements) for whom 
the taxpayer may claim a deduction under section 151.
    (3) Parent. An individual is a parent of the taxpayer for purposes 
of this paragraph (b) if the individual is the taxpayer's father or 
mother, including a father or mother who legally adopted the taxpayer, 
and is the taxpayer's dependent within the meaning of section 152 
without applying section 152(d)(3), relating to the special rule for

[[Page 6379]]

multiple support agreements, for whom the taxpayer may claim a 
deduction under section 151.
    (4) Limitation. An individual may qualify only one taxpayer as a 
head of household for taxable years beginning in the same calendar 
year.
    (5) Marital status. For purposes of this paragraph (b), the marital 
status of a taxpayer is determined at the end of the taxpayer's taxable 
year. A taxpayer is considered not married if the taxpayer is legally 
separated from the taxpayer's spouse under a decree of divorce or 
separate maintenance, if at any time during the taxable year the 
taxpayer's spouse is a nonresident alien, or if the provisions of 
section 7703(b) are satisfied. A taxpayer is considered married if the 
taxpayer's spouse, other than a spouse who is a nonresident alien, dies 
during the taxable year.
    (6) Nonresident alien. A taxpayer does not qualify as a head of 
household if the taxpayer is a nonresident alien, as defined in section 
7701(b)(1)(B), at any time during the taxable year.
    (c) Member of the household. An individual is a member of a 
taxpayer's household if the individual and the taxpayer reside in the 
same living quarters and the taxpayer maintains the household, in part, 
for the benefit of the individual. An individual is a member of a 
taxpayer's household despite a temporary absence due to special 
circumstances. An individual is not treated as a member of the 
taxpayer's household if, at any time during the taxable year of the 
taxpayer, the relationship between the individual and the taxpayer 
violates local law. See Sec.  1.152-4(c)(2) for rules relating to 
temporary absences.
    (d) Maintaining a household--(1) In general. A taxpayer maintains a 
household only if during the taxable year the taxpayer pays more than 
one-half of the cost of operating the household for the mutual benefit 
of the residents. These expenses include property taxes, mortgage 
interest, rent, utility charges, upkeep and repairs, property 
insurance, and food consumed on the premises. A taxpayer may treat a 
home's fair market rental value as a cost of maintaining a household, 
instead of the sum of payments for property taxes, mortgage interest, 
and property insurance. Expenses of maintaining a household do not 
include--
    (i) The cost of clothing, education, medical treatment, vacations, 
life insurance, and transportation;
    (ii) The value of services performed in the household by the 
taxpayer or any other person qualifying the taxpayer as a head of 
household or as a surviving spouse; or
    (iii) An expense paid or reimbursed by any other person.
    (2) Proration of costs. In determining whether a taxpayer pays more 
than one-half of the cost of maintaining a household that is the 
principal place of abode of a qualifying child or dependent for less 
than a taxable year, the cost for the entire taxable year is prorated 
on the basis of the number of calendar months the qualifying child or 
dependent resides in the household. A period of less than a calendar 
month is treated as a full calendar month. Thus, for example, if the 
cost of maintaining a household for a taxable year is $30,000, and a 
taxpayer shares a principal place of abode with a qualifying child or 
dependent from May 20 to December 31, the taxpayer must furnish more 
than $10,000 (8/12 of $30,000 x 50 percent) in maintaining the 
household from May 1 to December 31 to satisfy the requirements of this 
paragraph (d).
    (3) New household. If a new household is established during the 
taxpayer's taxable year (for example, if spouses separate and one moves 
out of the family home with the child), the cost of maintaining the new 
household for the year is the cost of maintaining that household 
beginning with the date the new household is established. If one spouse 
and the child remain in the family home and the other parent moves out 
of the home, the cost of maintaining the household for the year is the 
cost of maintaining the household beginning with the date the other 
spouse moves out.
    (4) Birth, death, adoption, or placement. If an individual is a 
member of a household for less than a taxable year as a result of the 
individual's birth, death, adoption, or placement with a taxpayer for 
adoption or in foster care during that year, the requirement that the 
individual be a member of the household for more than one-half of the 
taxable year is satisfied if the individual is a member of the 
household for more than one-half of the period after the individual's 
birth, adoption, or placement for adoption or in foster care or before 
the individual's death.
    (5) Shared residence--(i) In general. If two or more taxpayers not 
filing a joint return reside in the same living quarters, each taxpayer 
may be treated as maintaining a separate household if each provides 
more than one-half of the cost of maintaining the separate household. 
For this purpose, two households in the same living quarters are not 
considered separate households if any individual in one household is 
the spouse of any individual in the other household, or if any 
individual in one household may claim, or would have priority under the 
tiebreaker rules in section 152(c)(4) to claim, any individual in the 
other household as a dependent.
    (ii) Examples. The following examples illustrate the rules in this 
paragraph (d)(5). In each example, assume that if a taxpayer may be 
treated as residing in a separate household, that taxpayer provides 
more than one-half of the cost of maintaining that household.

    Example 1.  Two sisters and their respective children reside in 
the same living quarters. Neither sister may claim the other sister 
as a dependent. Each sister pays more than one-half of the expenses 
for herself and her children, and each sister claims each of her own 
children as a dependent. Because neither sister may claim the other 
sister as a dependent, and because neither sister would have 
priority to claim any of the other sister's children as a qualifying 
child under the tiebreaker rules of section 152(c)(4), each sister 
is treated as maintaining a separate household.
    Example 2.  A and B, an unmarried couple, have two children 
together (C1 and C2) and all four individuals live in the same 
living quarters for the entire tax year. Both A and B contribute to 
paying the expenses of the couple and the two children. A has higher 
adjusted gross income than B. Each parent files a tax return. Under 
the tiebreaker rules in section 152(c)(4), the parent with the 
higher adjusted gross income (in this case, A) would have priority 
to claim each child as a qualifying child if both claimed the child. 
As a result, B may not be treated as maintaining a separate 
household with either child or both children. Therefore, if B may be 
claimed as A's dependent, then all four individuals are members of 
the same household. However, if B may not be claimed as A's 
dependent, B may be treated as maintaining a separate household 
consisting solely of B, even if B claims one of the children as a 
dependent on B's return.
    Example 3.  The facts are the same as in Example 2 of this 
paragraph (d)(5)(ii) except that A and B do not have any children 
together; C1 is the child of A and C2 is the child of B. Neither A 
nor B may claim the other as a dependent, and each parent pays more 
than one-half of the expenses for himself or herself and his or her 
child. Because neither A nor B may claim the other adult or the 
other adult's child as a dependent, each adult is treated as 
maintaining a separate household.
    Example 4.  Grandparent, Parent, and Child live together and 
Child meets the definition of a qualifying child for both Parent and 
Grandparent. Both Parent and Grandparent pay their respective 
expenses, and both contribute to paying Child's expenses. Neither 
Parent nor Grandparent may claim the other as a dependent. Under the 
tiebreaker rules of section 152(c)(4), Parent would have priority 
over Grandparent to claim Child as a qualifying child. Therefore, 
Grandparent may not be treated as maintaining a household for 
Grandparent and Child separate from the household of Parent. 
However, Parent may be treated as maintaining a household for Parent 
and

[[Page 6380]]

Child separate from the household of Grandparent.

    (e) Special rules for maintaining a household--(1) Principal place 
of abode. For purposes of this section, the term principal place of 
abode has the same meaning as in section 152 and Sec.  1.152-4(c).
    (2) Part-year residence. If, during the taxable year, an individual 
who may qualify a taxpayer as head of household is born or dies, is 
adopted or lawfully placed for adoption with the taxpayer, is an 
eligible foster child, or is a missing child, whether the taxpayer 
maintained a household that is the principal place of abode of the 
individual for the required period is determined under Sec.  1.152-4(d) 
and (e).
    (3) Change of location. A taxpayer may maintain a household even 
though the physical location of the household changes.
    (f) Certain married individuals living apart. An individual who is 
considered not married under section 7703(b) also is considered not 
married for all purposes of part I of subchapter A of chapter 1 of the 
Code.
    (g) Applicability date. This section applies to taxable years 
beginning after the date these regulations are published as final 
regulations in the Federal Register.
0
Par. 4. Section 1.3-1 is revised to read as follows:


Sec.  1.3-1  Tax tables for individuals.

    (a) In general. Except as otherwise provided in paragraph (b) of 
this section, in lieu of the tax imposed by section 1, an individual 
who does not itemize deductions for the taxable year and whose taxable 
income for the taxable year does not exceed the ceiling amount as 
defined in paragraph (c) of this section, must determine his or her tax 
liability under the prescribed tax tables in tax forms and publications 
of the Internal Revenue Service. The individual must use the 
appropriate tax rate category under the tax tables. The tax imposed 
under section 3 and this section shall be treated as tax imposed by 
section 1.
    (b) Exceptions. Section 3 and this section do not apply to (1) an 
individual making a return for a period of fewer than 12 months as a 
result of a change in annual accounting period, or (2) an estate or 
trust.
    (c) Ceiling amount defined. The ceiling amount means the highest 
amount of taxable income for which a tax amount is determined in the 
tax tables for the tax rate category in which the taxpayer falls.
    (d) Special rule for surviving spouse. A taxpayer filing as a 
surviving spouse uses the same tax rate category as a taxpayer filing a 
joint return.
    (e) Applicability date. This section applies to taxable years 
beginning after the date these regulations are published as final 
regulations in the Federal Register.
0
Par. 5. Section 1.21-1 is amended by revising paragraph (a)(1), 
removing paragraph (h), redesignating paragraphs (j), (k), and (l) as 
paragraphs (h), (j), and (k), and revising newly redesignated paragraph 
(k) to read as follows:


Sec.  1.21-1  Expenses for household and dependent care services 
necessary for gainful employment.

    (a) In general. (1) Section 21 allows a credit to a taxpayer 
against the tax imposed by chapter 1 for employment-related expenses 
for household services and care (as defined in paragraph (d) of this 
section) of a qualifying individual (as defined in paragraph (b) of 
this section). The purpose of the expenses must be to enable the 
taxpayer to be gainfully employed (as defined in paragraph (c) of this 
section). For taxable years beginning after December 31, 2004, a 
qualifying individual must have the same principal place of abode (as 
defined by paragraph (g) of this section) as the taxpayer for more than 
one-half of the taxable year.
* * * * *
    (k) Applicability date--(1) In general. Except as provide in 
paragraph (k)(2) of this section, this section and Sec. Sec.  1.21-2 
through 1.21-4 apply to taxable years ending after August 14, 2007.
    (2) Exception. Paragraph (a)(1) of this section applies to taxable 
years beginning after the date these regulations are published as final 
regulations in the Federal Register.
0
Par. 6. Section 1.32-2 is amended by revising the section heading, 
adding paragraph (c)(3), and revising paragraph (e) to read as follows:


Sec.  1.32-2  Earned income credit.

* * * * *
    (c) * * *
    (3) Qualifying child--(i) In general. For purposes of this section, 
a qualifying child of the taxpayer is a qualifying child as defined in 
section 152(c), determined without applying sections 152(c)(1)(D) and 
152(e).
    (ii) Application of tie-breaker rules. For purposes of determining 
whether a taxpayer is an eligible individual under section 32(c)(1)(A), 
if an individual meets the definition of a qualifying child under 
paragraph (c)(3)(i) of this section for more than one taxpayer and the 
individual is treated as the qualifying child of a taxpayer under the 
tiebreaker rules of section 152(c)(4) and the related regulations, then 
that taxpayer may be an eligible individual under section 
32(c)(1)(A)(i) and may claim the earned income credit for a taxpayer 
with a qualifying child if all other requirements of section 32 are 
satisfied. If an individual meets the definition of a qualifying child 
under paragraph (c)(3)(i) of this section for more than one taxpayer 
and the individual is not treated as the qualifying child of a taxpayer 
under the tiebreaker rules of section 152(c)(4) and the related 
regulations, then the individual also is not treated as a qualifying 
child of that taxpayer in the taxable year for purposes of section 
32(c)(1)(A). Thus, that taxpayer may be an eligible individual under 
section 32(c)(1)(A)(ii) and may claim the earned income credit for a 
taxpayer without a qualifying child if all other requirements are 
satisfied.
    (iii) Examples. The following examples illustrate the rules of this 
paragraph (c). In each example, the taxpayer uses the calendar year as 
the taxpayer's taxable year and, except to the extent indicated, each 
taxpayer meets the requirements to claim the benefit(s) described in 
the example.

    Example 1.  Child, Parent, and Grandparent share the same 
principal place of abode for the taxable year. Child meets the 
definition of a qualifying child under paragraph (c)(3)(i) of this 
section for both Parent and Grandparent (and for no other person) 
for the taxable year. Parent claims the earned income credit with 
Child as Parent's qualifying child. Under the tiebreaker rules of 
section 152(c)(4)(A) and the related regulations, Child is treated 
as the qualifying child of Parent and is not treated as the 
qualifying child of Grandparent. Under section 32(c)(1) and 
paragraph (c)(3)(ii) of this section, Parent is an eligible 
individual under section 32(c)(1)(A)(i) who may claim the earned 
income credit for a taxpayer with a qualifying child, and 
Grandparent is an eligible individual under section 32(c)(1)(A)(ii) 
who may claim the earned income credit for a taxpayer without a 
qualifying child.
    Example 2.  The facts are the same as in Example 1 of this 
paragraph (c)(3)(iii), except that Grandparent, rather than Parent, 
claims Child as a qualifying child, and Grandparent's adjusted gross 
income is higher than Parent's adjusted gross income. Under the 
tiebreaker rules of section 152(c)(4)(C) and the related 
regulations, Child is treated as the qualifying child of Grandparent 
and is not treated as the qualifying child of Parent. Under section 
32(c)(1) and paragraph (c)(3)(ii) of this section, Grandparent is an 
eligible individual under section 32(c)(1)(A)(i) who may claim the 
earned income credit for a taxpayer with a qualifying child, and 
Parent is an eligible individual under section 32(c)(1)(A)(ii) who

[[Page 6381]]

may claim the earned income credit for a taxpayer without a 
qualifying child.
* * * * *
    (e) Applicability date--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to taxable years 
beginning after March 5, 2003.
    (2) Exception. Paragraph (c)(3) of this section applies to taxable 
years beginning after the date these regulations are published as final 
regulations in the Federal Register.


Sec.  1.63-1  [Amended]

0
Par. 7. Section 1.63-1 is amended by:
0
1. Removing the language ``the zero bracket amount and'' from the 
section heading.
0
2. Removing the language ``section 63(g)'' and replacing it with the 
language ``section 63(e)'' in paragraph (a).
0
Par. 8. Section 1.63-2 is revised to read as follows:


Sec.  1.63-2  Standard deduction.

    The standard deduction means the sum of the basic standard 
deduction and the additional standard deduction.
0
Par. 9. Section 1.63-3 is added to read as follows:


Sec.  1.63-3  Additional standard deduction for the aged and blind.

    (a) In general. A taxpayer who, at the end of the taxable year, has 
attained age 65 or is blind is entitled to an additional standard 
deduction amount. The additional standard deduction amount is the sum 
of the amounts to which the taxpayer is entitled under paragraphs (b) 
and (c) of this section. If an individual meets the requirements for 
both the additional amount for the aged and the additional amount for 
the blind, the taxpayer is entitled to both additional amounts.
    (b) Additional amount for the aged--(1) Aged taxpayer or spouse. A 
taxpayer is entitled to an additional amount under section 63(f)(1) if 
the taxpayer has attained age 65 before the end of the taxable year. If 
spouses file a joint return, each spouse who has attained age 65 before 
the end of the taxable year for which the spouses file the joint return 
is entitled to an additional amount. A married taxpayer who files a 
separate return is entitled to an additional amount for the taxpayer's 
spouse if the spouse has attained age 65 before the end of the taxable 
year and, for the calendar year in which the taxable year of the 
taxpayer begins, the spouse has no gross income and is not the 
dependent of another taxpayer. The taxpayer is not entitled to an 
additional amount if the spouse dies before attaining age 65, even 
though the spouse would have attained age 65 before the end of the 
taxpayer's taxable year.
    (2) Age determined. For purposes of section 63(f) and this 
paragraph (b), a taxpayer's age is determined as of the last day of the 
taxpayer's taxable year. A person attains the age of 65 on the first 
moment of the day preceding his or her sixty-fifth birthday.
    (c) Additional amount for the blind--(1) Blind taxpayer or spouse. 
A taxpayer is entitled to an additional amount under section 63(f)(2) 
if the taxpayer is blind at the end of the taxable year. If spouses 
file a joint return, each spouse who is blind at the end of the taxable 
year for which the spouses file the joint return is entitled to an 
additional amount. A married taxpayer who files a separate return is 
entitled to an additional amount for the taxpayer's spouse if the 
spouse is blind and, for the calendar year in which the taxable year of 
the taxpayer begins, the spouse has no gross income and is not the 
dependent of another taxpayer. If the spouse dies during the taxable 
year, the date of death is the time for determining the spouse's 
blindness.
    (2) Blindness determined. A taxpayer who claims an additional 
amount allowed by section 63(f)(2) for the blind must maintain in the 
taxpayer's records a statement from a physician skilled in the diseases 
of the eye or a registered optometrist stating that the physician or 
optometrist has examined the person for whom the additional amount is 
claimed and, in the opinion of the physician or optometrist, the 
person's central visual acuity did not exceed 20/200 in the better eye 
with correcting lenses, or the person's visual acuity was accompanied 
by a limitation in the field of vision such that the widest diameter of 
the visual field subtends an angle no greater than 20 degrees. The 
statement must provide that the physician or optometrist examined the 
person in the taxpayer's taxable year for which the amount is claimed, 
or that the physician or optometrist examined the person in an earlier 
year and that the visual impairment is irreversible.
    (d) Applicability date. This section and Sec. Sec.  1.63-1(a) and 
1.63-2 apply to taxable years beginning after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 10. Section 1.151-1 is amended by revising paragraphs (a)(1), (c), 
and (d) to read as follows:


Sec.  1.151-1  Deductions for personal exemptions.

    (a) * * * (1) In computing taxable income, an individual is allowed 
a deduction for the exemptions for an individual taxpayer and spouse 
(the personal exemptions) and the exemption for a dependent of the 
taxpayer.
* * * * *
    (c) Additional exemption for dependent. Section 151(c) allows a 
taxpayer an exemption for each individual who is a dependent (as 
defined in section 152) of the taxpayer for the taxable year. See 
Sec. Sec.  1.152-1 through 1.152-5 for rules relating to dependents.
    (d) Applicability date. Paragraphs (a)(1) and (c) of this section 
apply to taxable years beginning after the date these regulations are 
published as final regulations in the Federal Register.


Sec. Sec.  1.151-2, 1.151-3, and 1.151-4   [Removed]

0
Par. 11. Sections 1.151-2, 1.151-3, and 1.151-4 are removed.
0
Par. 12. Section 1.152-0 is added under the undesignated center heading 
Deductions for Personal Exemptions to read as follows:


Sec.  1.152-0  Table of contents.

    This section lists the captions contained in Sec.  1.152-1 through 
Sec.  1.152-5.

Sec.  1.152-1 General rules for dependents.
    (a) In general.
    (1) Dependent defined.
    (2) Exceptions.
    (i) Dependents ineligible.
    (ii) Married dependents.
    (iii) Citizens or nationals of other countries.
    (b) Definitions.
    (1) Child.
    (i) In general.
    (ii) Adopted child.
    (iii) Eligible foster child.
    (iv) Authorized placement agency.
    (2) Student.
    (3) Brother and sister.
    (4) Parent.
    (c) Applicability date.
Sec.  1.152-2 Qualifying child.
    (a) In general.
    (b) Qualifying child relationship test.
    (c) Residency test.
    (d) Age test.
    (1) In general.
    (2) Disabled individual.
    (e) Qualifying child support test.
    (f) Joint return test.
    (g) Child who is eligible to be claimed as a qualifying child by 
more than one taxpayer.
    (1) In general.
    (i) More than one eligible parent.
    (ii) Eligible parent not claiming.
    (iii) One eligible parent and other eligible taxpayer(s).
    (iv) No eligible parent.
    (2) Determination of adjusted gross income of a person who files 
a joint return.
    (3) Coordination with other provisions.
    (4) Examples.
Sec.  1.152-3 Qualifying relative.
    (a) In general.

[[Page 6382]]

    (b) Qualifying relative relationship test.
    (c) Gross income test.
    (1) In general.
    (2) Income of disabled or handicapped individuals.
    (d) Qualifying relative support test.
    (1) In general.
    (2) Certain income of taxpayer's spouse.
    (3) Support from stepparent.
    (4) Multiple support agreements.
    (e) Not a qualifying child test.
    (1) In general.
    (2) Examples.
Sec.  1.152-4 Rules for a qualifying child and a qualifying 
relative.
    (a) Support.
    (1) In general.
    (2) Payments made during the year for unpaid or future support.
    (3) Governmental payments.
    (i) Governmental payments as support.
    (A) In general.
    (B) Examples.
    (ii) Governmental payments based on a taxpayer's contributions.
    (A) In general.
    (B) Examples.
    (iii) Payments used for support of another individual.
    (4) Medical insurance.
    (5) Medical care payments from personal injury claim.
    (6) Scholarships.
    (b) Relationship test.
    (1) Joint return.
    (2) Divorce or death of spouse.
    (c) Principal place of abode.
    (1) In general.
    (2) Temporary absence.
    (3) Residing with taxpayer for more than one-half of the taxable 
year.
    (i) In general.
    (ii) Nights of residence.
    (A) Nights counted.
    (B) Night straddling two taxable years.
    (C) Exception for a parent who works at night.
    (D) Absences.
    (4) Examples.
    (d) Residence for a portion of a taxable year because of special 
circumstances.
    (1) Individual who is born or dies during the year.
    (2) Adopted child or foster child.
    (e) Missing child.
    (1) Qualifying child.
    (2) Qualifying relative.
    (3) Age limitation.
    (4) Application.
Sec.  1.152-5 Special rule for a child of divorced or separated 
parents or parents who live apart.
    (a) In general.
    (b) Release of claim by custodial parent.
    (1) In general.
    (2) Support, custody, and parental status.
    (i) In general.
    (ii) Multiple support agreement.
    (3) Release of claim to child.
    (c) Custody.
    (d) Custodial parent.
    (1) In general.
    (2) Night straddling taxable years.
    (3) Absences.
    (4) Special rule for equal number of nights.
    (5) Exception for a parent who works at night.
    (e) Written declaration.
    (1) Form of declaration.
    (i) In general.
    (ii) Form designated by IRS.
    (2) Attachment to return.
    (i) In general.
    (ii) Examples.
    (3) Revocation of written declaration.
    (i) In general.
    (ii) Form of revocation.
    (iii) Attachment to return.
    (4) Ineffective declaration or revocation.
    (5) Written declaration executed in a taxable year beginning on 
or before July 2, 2008.
    (f) Coordination with other sections.
    (g) Examples.
    (h) Applicability date.
    (1) In general.
    (2) Exception.

0
Par. 13. Section 1.152-1 is revised to read as follows:


Sec.  1.152-1  General rules for dependents.

    (a) In general--(1) Dependent defined. Except as provided in 
section 152(b) and paragraph (a)(2) of this section, the term dependent 
means a qualifying child as described in Sec.  1.152-2 or a qualifying 
relative as described in Sec.  1.152-3. In general, an individual may 
be treated as the dependent of only one taxpayer for taxable years 
beginning in the same calendar year.
    (2) Exceptions--(i) Dependents ineligible. If an individual is a 
dependent of a taxpayer for a taxable year of the taxpayer, the 
individual is treated as having no dependents for purposes of section 
152 and the related regulations in the individual's taxable year 
beginning in the calendar year in which that taxable year of the 
taxpayer begins. For purposes of this paragraph (a)(2)(i), an 
individual is not a dependent of a person if that person is not 
required to file an income tax return under section 6012 and either 
does not file an income tax return or files an income tax return solely 
to claim a refund of estimated or withheld taxes.
    (ii) Married dependents. An individual is not treated as a 
dependent of a taxpayer for a taxable year of the taxpayer if the 
individual files a joint return, other than solely to claim a refund of 
estimated or withheld taxes, with the individual's spouse under section 
6013 for the taxable year beginning in the calendar year in which that 
taxable year of the taxpayer begins.
    (iii) Citizens or nationals of other countries. An individual who 
is not a citizen or national of the United States is not treated as a 
dependent of a taxpayer unless the individual is a resident, as defined 
in section 7701(b), of the United States or of a country contiguous to 
the United States (Canada or Mexico). This limitation, however, does 
not apply to an adopted child, as defined in section 152(f)(1)(B) and 
paragraph (b)(1)(ii) of this section, if the taxpayer is a citizen or 
national of the United States and the child has the same principal 
place of abode as the taxpayer and is a member of the taxpayer's 
household, within the meaning of Sec. Sec.  1.152-4(c) and 1.2-2(c), 
respectively, for the taxpayer's taxable year. See Sec.  1.152-4(d)(2) 
for rules relating to residence for a portion of a taxable year. A 
taxpayer and the child have the same principal place of abode for the 
taxpayer's taxable year if the taxpayer and child have the same 
principal place of abode for the entire portion of the taxable year 
following the placement of the child with the taxpayer.
    (b) Definitions. The following definitions apply for purposes of 
section 152 and the related regulations.
    (1) Child--(i) In general. The term child means a son, daughter, 
stepson, or stepdaughter, or an eligible foster child, within the 
meaning of paragraph (b)(1)(iii) of this section, of the taxpayer.
    (ii) Adopted child. In determining whether an individual bears any 
of the relationships described in paragraph (b)(1)(i) of this section, 
Sec.  1.152-2(b), or Sec.  1.152-3(b), a legally adopted child of a 
person, or a child who is lawfully placed with a person for legal 
adoption by that person, is treated as a child by blood of that person. 
A child lawfully placed with a person for legal adoption by that person 
includes a child placed for legal adoption by a parent, an authorized 
placement agency, or any other person(s) authorized by law to place a 
child for legal adoption.
    (iii) Eligible foster child. The term eligible foster child means a 
child who is placed with a person by an authorized placement agency or 
by judgment, decree, or other order of any court of competent 
jurisdiction.
    (iv) Authorized placement agency. The term authorized placement 
agency means a State, the District of Columbia, a possession of the 
United States, a foreign country, an Indian Tribal Government (ITG) (as 
defined in section 7701(a)(40)), or an agency or organization that is 
authorized by a State, the District of Columbia, a possession of the 
United States, a foreign country, an ITG, or a political subdivision of 
any of the foregoing, to place children for legal adoption or in foster 
care.
    (2) Student. The term student means an individual who, for some 
part of each of five calendar months, whether or not consecutive, 
during the calendar year in which the taxable year of the taxpayer 
begins, either is a full-time student at an

[[Page 6383]]

educational organization, as defined in section 170(b)(1)(A)(ii), or is 
pursuing a full-time course of institutional on-farm training under the 
supervision of an accredited agent of an educational organization or of 
a State or political subdivision of a State. A full-time student is one 
who is enrolled for the number of hours or courses that the educational 
organization considers full-time attendance.
    (3) Brother and sister. The terms brother and sister include a 
brother or sister by half blood.
    (4) Parent. The term parent refers to a biological or adoptive 
parent of an individual. It does not include a stepparent who has not 
adopted the individual.
    (c) Applicability date. This section, and Sec. Sec.  1.152-2, 
1.152-3, and 1.152-4 apply to taxable years beginning after the date 
these regulations are published as final regulations in the Federal 
Register.
0
Par. 14. Section 1.152-2 is revised to read as follows:


Sec.  1.152-2  Qualifying child.

    (a) In general. The term qualifying child of a taxpayer for a 
taxable year means an individual who satisfies the tests described in 
paragraphs (b), (c), (d), (e), and (f) of this section. If an 
individual satisfies the definition of a qualifying child for more than 
one taxpayer, then the tiebreaker rules in paragraph (g) of this 
section apply. See, however, section 152(e) and Sec.  1.152-5 for a 
special rule for a child of divorced or separated parents or parents 
who live apart.
    (b) Qualifying child relationship test. The individual must bear 
one of the following relationships to the taxpayer--
    (1) A child of the taxpayer or descendant of such a child; or
    (2) A brother, sister, stepbrother, or stepsister of the taxpayer, 
or a descendant of any of these relatives.
    (c) Residency test. The individual must have the same principal 
place of abode as the taxpayer for more than one-half of the taxable 
year. Generally, an individual has the same principal place of abode as 
the taxpayer for more than one-half of the taxable year if the 
individual resides with the taxpayer for more than one-half of the 
taxable year. See Sec.  1.152-4(c) for rules relating to principal 
place of abode and temporary absence and for determining whether an 
individual resides with the taxpayer for more than one-half of the 
taxable year.
    (d) Age test--(1) In general. The individual must be younger than 
the taxpayer claiming the individual as a qualifying child and must not 
have attained the age of 19, or age 24 if the individual is a student 
within the meaning of Sec.  1.152-1(b)(2), as of the end of the 
calendar year in which the taxpayer's taxable year begins. For purposes 
of this section, an individual attains an age on the anniversary of the 
individual's birth.
    (2) Disabled individual. This age requirement is treated as 
satisfied if the individual is permanently and totally disabled, as 
defined in section 22(e)(3), at any time during the calendar year.
    (e) Qualifying child support test. The individual must not provide 
more than one-half of the individual's own support for the calendar 
year in which the taxpayer's taxable year begins. See Sec.  1.152-4(a) 
for rules relating to the definition and sources of an individual's 
support.
    (f) Joint return test. The individual must not file a joint return, 
other than solely to claim a refund of estimated or withheld taxes, 
under section 6013 with the individual's spouse for the taxable year 
beginning in the calendar year in which the taxpayer's taxable year 
begins.
    (g) Child who is eligible to be claimed as a qualifying child by 
more than one taxpayer--(1) In general. Under section 152(c)(4), if an 
individual satisfies the definition of a qualifying child for two or 
more taxpayers (eligible taxpayers) for a taxable year beginning in the 
same calendar year, the following rules apply.
    (i) More than one eligible parent. If more than one eligible 
taxpayer is a parent of the individual (eligible parent), any one of 
the eligible parents may claim the individual as a qualifying child. 
However, if more than one eligible parent claims the individual as a 
qualifying child, and those eligible parents do not file a joint return 
with each other, the individual is treated as the qualifying child of 
the eligible parent claiming the individual with whom the individual 
resides for the longest period of time during the taxable year as 
determined under Sec.  1.152-4(c)(3). If the individual resides for the 
same amount of time during the taxable year with each eligible parent 
claiming the child, the individual is treated as the qualifying child 
of the eligible parent with the highest adjusted gross income who 
claims the individual.
    (ii) Eligible parent not claiming. If at least one eligible 
taxpayer is a parent of the individual, but no eligible parent claims 
the individual as a qualifying child, the individual may be treated as 
the qualifying child of another eligible taxpayer only if that 
taxpayer's adjusted gross income exceeds both the adjusted gross income 
of each eligible parent of the individual and the adjusted gross income 
of each other eligible taxpayer, if any.
    (iii) One eligible parent and other eligible taxpayer(s). Except as 
provided in paragraph (g)(1)(i) or (ii) of this section, if there are 
two or more eligible taxpayers, only one of whom is the parent of the 
individual, the individual is treated as the qualifying child of the 
eligible parent.
    (iv) No eligible parent. If no eligible taxpayer is a parent of the 
individual, the individual is treated as the qualifying child of the 
eligible taxpayer with the highest adjusted gross income for the 
taxable year.
    (2) Determination of adjusted gross income of a person who files a 
joint return. For purposes of section 152 and the related regulations, 
the adjusted gross income of each person who files a joint return is 
the total adjusted gross income shown on the joint return.
    (3) Coordination with other provisions. Except to the extent that 
section 152(e) and Sec.  1.152-5 apply, if more than one taxpayer may 
claim a child as a qualifying child, the child is treated as the 
qualifying child of only one taxpayer for purposes of head of household 
filing status under section 2(b), the child and dependent care credit 
under section 21, the child tax credit under section 24, the earned 
income credit under section 32, the exclusion from income for dependent 
care assistance under section 129, and the dependency exemption under 
section 151. Thus, the taxpayer claiming the individual as a qualifying 
child under any one of these sections is the only taxpayer who may 
claim any credit or exemption under these other sections for that same 
individual for a taxable year beginning in the same calendar year as 
the taxpayer's taxable year. If section 152(e) applies, however, the 
noncustodial parent may claim the child as a qualifying child for 
purposes of the dependency exemption and the child tax credit, and 
another person may claim the child for purposes of one or more of these 
other provisions. See Sec.  1.152-5 for rules under section 152(e).
    (4) Examples. The following examples illustrate the rules in this 
paragraph (g). In the examples, each taxpayer uses the calendar year as 
the taxpayer's taxable year, the child is a qualifying child (as 
described in section 152(c) and this section) of each taxpayer, and, 
except to the extent indicated, each taxpayer meets the requirements to 
claim the benefit(s) described in the example.

    Example 1.  (i) A and B, parents of Child, are married to each 
other. A, B, and Child share the same principal place of abode for 
the first 8 months of the year. Thus, both parents satisfy the 
qualifying child residency

[[Page 6384]]

test of paragraph (c) of this section. For the last 4 months of the 
year, the parents live apart from each other, and B and Child share 
the same principal place of abode. Section 152(e), relating to 
divorced or separated parents, does not apply. The parents file as 
married filing separately for the taxable year, and both parents 
claim Child as a qualifying child.
    (ii) Under paragraph (g)(1)(i) of this section, Child is treated 
as a qualifying child of B for all purposes, because Child resided 
with B for the longer period of time during the taxable year. 
Because section 152(e) does not apply, Child may not be treated as a 
qualifying child of A for any purpose.
    Example 2.  (i) The facts are the same as in Example 1 of this 
paragraph (g)(4), except that B does not claim Child as a qualifying 
child.
    (ii) Because A and B are not both claiming the same child as a 
qualifying child, under paragraph (g)(1)(i) of this section, Child 
is treated as a qualifying child of A.
    Example 3.  (i) Child, Child's parent (D), and Grandparent share 
the same principal place of abode. D is not married and is not a 
qualifying child or dependent of Grandparent, and Grandparent is not 
D's dependent. Section 152(e), relating to divorced or separated 
parents, does not apply. Under paragraph (a) of this section, Child 
meets the definition of a qualifying child of both D and 
Grandparent. D claims Child as a qualifying child for purposes of 
the child and dependent care credit under section 21, the earned 
income credit under section 32, and the dependency exemption under 
section 151. Grandparent claims Child as a qualifying child for 
purposes of head of household filing status under section 2(b).
    (ii) Under paragraph (g)(1)(iii) of this section, Child is 
treated as the qualifying child of D for all purposes, because D is 
eligible to claim and claims Child as D's qualifying child. Because 
D is eligible to claim and claims Child as D's qualifying child, 
under paragraph (g)(3) of this section, Child may not be treated as 
a qualifying child of Grandparent for any purpose. Grandparent 
erroneously claimed Child as Grandparent's qualifying child for 
purposes of head of household filing status under section 2(b). If D 
had not claimed Child as D's qualifying child for any purpose, under 
paragraph (g)(1)(ii) of this section, Grandparent could have claimed 
Child as Grandparent's qualifying child if Grandparent's adjusted 
gross income (AGI) exceeded D's AGI. In that situation, under 
paragraph (g)(3) of this section, Grandparent could have claimed 
Child as Grandparent's qualifying child for purposes of any of the 
child-related tax benefits, provided that Grandparent had met the 
requirements of those sections.
    Example 4.  (i) The facts are the same as in Example 3 of this 
paragraph (g)(4), except that Child's parents, D and E, are married 
to each other and share the same principal place of abode with Child 
and Grandparent for the entire taxable year. Under paragraph (a) of 
this section, Child meets the definition of a qualifying child of 
both parents and Grandparent. D and E file a joint return for the 
taxable year and do not claim Child as a qualifying child for any 
purpose.
    (ii) Because D or E may claim Child as a qualifying child but 
neither claims Child as a qualifying child for any purpose, under 
paragraph (g)(1)(ii) of this section, Grandparent may claim Child as 
a qualifying child if Grandparent's AGI exceeds the total AGI 
reported on the joint return of D and E.
    Example 5.  (i) The facts are the same as in Example 4 of this 
paragraph (g)(4), except that D and E are divorced from each other, 
E moved into a separate residence during that year and is the 
noncustodial parent, and section 152(e), relating to divorced or 
separated parents, applies. E attaches to E's return a Form 8332 on 
which D agrees to release D's claim to a dependency exemption for 
Child and E claims Child as a qualifying child for purposes of the 
dependency exemption and the child tax credit.
    (ii) Under paragraph (g)(3) of this section, Child is treated as 
a qualifying child of E for purposes of the dependency exemption and 
the child tax credit. Child may be treated as a qualifying child of 
D for purposes of the earned income credit. If D claims Child as a 
qualifying child for purposes of the earned income credit, under 
paragraph (g)(1)(iii) of this section, Child may not be treated as a 
qualifying child of Grandparent for any purpose.
    Example 6.  (i) F and G, parents of two children, are married to 
each other. F, G, and both children share the same principal place 
of abode for the entire taxable year. F and G file as married filing 
separately for the taxable year. F claims the older child as a 
qualifying child for purposes of the child tax credit, dependency 
exemption, and the child and dependent care credit. G claims the 
younger child as a qualifying child for purposes of the same three 
tax benefits.
    (ii) The older child is treated as a qualifying child of F and 
the younger child is treated as a qualifying child of G. The 
tiebreaker rule of paragraph (g)(1)(i) of this section does not 
apply because F and G are not claiming the same child as a 
qualifying child.

0
Par. 15. Section 1.152-3 is revised to read as follows:


Sec.  1.152-3  Qualifying relative.

    (a) In general. The term qualifying relative of a taxpayer for a 
taxable year means an individual who satisfies the tests described in 
paragraphs (b), (c), (d), and (e) of this section. See, however, 
section 152(e) and Sec.  1.152-5 for a special rule for a child of 
divorced or separated parents or parents who live apart.
    (b) Qualifying relative relationship test. The individual must bear 
one of the following relationships to the taxpayer:
    (1) A child or descendant of a child;
    (2) A brother, sister, stepbrother, or stepsister;
    (3) A father or mother, or an ancestor of either;
    (4) A stepfather or stepmother;
    (5) A niece or nephew;
    (6) An aunt or uncle;
    (7) A son-in-law, daughter-in-law, father-in-law, mother-in-law, 
brother-in-law, or sister-in-law; or
    (8) An individual (other than one who at any time during the 
taxable year was the taxpayer's spouse, determined without regard to 
section 7703) who for the taxable year of the taxpayer has the same 
principal place of abode as the taxpayer and is a member of the 
taxpayer's household. See Sec.  1.2-2(c) for the definition of a member 
of the household, and Sec.  1.152-4(c) for rules relating to the 
meaning of principal place of abode and the meaning of temporary 
absence.
    (c) Gross income test--(1) In general. The individual's gross 
income for the calendar year in which the taxable year begins must be 
less than the exemption amount as defined in section 151(d).
    (2) Income of disabled or handicapped individuals. For purposes of 
paragraph (c)(1) of this section, the gross income of an individual who 
is permanently and totally disabled, as defined in section 22(e)(3), at 
any time during the taxable year does not include income for services 
performed by the individual at a sheltered workshop, as defined in 
section 152(d)(4)(B), if--
    (i) The principal reason for the individual's presence at the 
workshop is the availability of medical care there; and
    (ii) The individual's income arises solely from activities at the 
workshop that are incident to the medical care.
    (d) Qualifying relative support test--(1) In general. The 
individual must receive over one-half of the individual's support from 
the taxpayer for the calendar year in which the taxpayer's taxable year 
begins. See Sec.  1.152-4(a) for rules relating to support.
    (2) Certain income of taxpayer's spouse. A payment to a spouse that 
is includible in the payee spouse's gross income under section 71 
(relating to alimony and separate maintenance payments) or section 682 
(relating to income of an estate or trust in the case of divorce) is 
not treated as a payment by the payor spouse for the support of any 
dependent.
    (3) Support from stepparent. Any support provided to or for the 
benefit of an individual by a stepparent of the individual is treated 
as support provided by the individual's parent who is married to the 
stepparent.
    (4) Multiple support agreements. If more than one-half of an 
individual's support is provided by two or more persons together, a 
taxpayer is treated as having contributed over one-half of the support 
of that individual for the calendar year if--

[[Page 6385]]

    (i) No one person contributes more than one-half of the 
individual's support;
    (ii) Each member of the group that collectively contributes more 
than one-half of the support of the individual would have been entitled 
to claim the individual as a dependent for a taxable year beginning in 
that calendar year but for the fact that the group member alone did not 
contribute more than one-half of the individual's support;
    (iii) The taxpayer claiming the individual as a qualifying relative 
contributes more than 10 percent of the individual's support; and
    (iv) Each other group member who contributes more than 10 percent 
of the support of the individual furnishes to the taxpayer claiming the 
individual as a dependent a written declaration that the other person 
will not claim the individual as a dependent for any taxable year 
beginning in that calendar year.
    (e) Not a qualifying child test--(1) In general. The individual 
must not be a qualifying child of the taxpayer or of any other taxpayer 
for any taxable year beginning in the calendar year in which the 
taxpayer's taxable year begins. An individual is not a qualifying child 
of a person, however, if that person is not required to file an income 
tax return under section 6012, and either does not file an income tax 
return or files an income tax return solely to claim a refund of 
estimated or withheld taxes.
    (2) Examples. The following examples illustrate the rules in this 
paragraph (e). In each example, each taxpayer uses the calendar year as 
the taxpayer's taxable year, and except to the extent otherwise 
indicated, each taxpayer meets the requirements to claim the benefits 
described in the example.

    Example 1.  For the taxable year, B provides more than one-half 
of the support of an unrelated friend, C, and C's 3-year-old child, 
D, who are members of B's household. No taxpayer other than C is 
eligible to claim D as a qualifying child. C has no gross income, is 
not required by section 6012 to file a Federal income tax return, 
and does not file a Federal income tax return for the taxable year. 
Under paragraph (e)(1) of this section, because C does not have a 
filing requirement and does not file an income tax return, D is not 
treated as a qualifying child of C, and B may claim both C and D as 
B's qualifying relatives.
    Example 2.  The facts are the same as in Example 1 of this 
paragraph (e)(2) except that C has earned income of $1,500 during 
the taxable year, had income tax withheld from C's wages, and is not 
required by section 6012 to file an income tax return. C files an 
income tax return solely to obtain a refund of withheld taxes and 
does not claim the earned income credit under section 32. Under 
paragraph (e)(1) of this section, because C does not have a filing 
requirement and files only to obtain a refund of withheld taxes, D 
is not treated as a qualifying child of C, and B may claim both C 
and D as B's qualifying relatives.
    Example 3.  The facts are the same as in Example 2 of this 
paragraph (e)(2) except that C's earned income is more than the 
amount of the dependency exemption for that year. C files an income 
tax return for the taxable year to obtain a refund of withheld taxes 
and claims the earned income credit. Because C filed an income tax 
return to obtain the earned income credit and not solely to obtain a 
refund of withheld taxes, D is a qualifying child of a taxpayer (C), 
and B may not claim D as a qualifying relative. B also may not claim 
C as a qualifying relative because C fails the gross income test 
under paragraph (c) of this section.

0
Par. 16. Redesignate Sec.  1.152-4 as Sec.  1.152-5, and add a new 
Sec.  1.152-4 to read as follows:


Sec.  1.152-4  Rules for a qualifying child and a qualifying relative.

    (a) Support--(1) In general. The term support includes food, 
shelter, clothing, medical and dental care, education, and similar 
items. Support does not include an individual's Federal, State, and 
local income taxes paid from the individual's own income or assets, 
Social Security and Medicare taxes under section 3101 paid from the 
individual's own income, life insurance premiums, or funeral expenses. 
In determining whether an individual provided more than one-half of the 
individual's own support for purposes of Sec.  1.152-2(e), or whether a 
taxpayer provided more than one-half of an individual's support for 
purposes of Sec.  1.152-3(d), the amount of support provided by the 
individual, or the taxpayer, is compared to the total amount of the 
individual's support from all sources. For these purposes, except as 
otherwise provided in this paragraph (a), the amount of an individual's 
total support is the amount of support from all sources, and includes 
support the individual provides and amounts that are excludable from 
gross income. Generally, the amount of an item of support is the amount 
of expense paid or incurred to furnish the item of support. If the item 
of support furnished is property or a benefit, such as lodging, 
however, the amount of the item of support is the fair market value of 
the item.
    (2) Payments made during the year for unpaid or future support. For 
purposes of determining the amount of support provided in a calendar 
year, an amount paid in a calendar year after the calendar year in 
which the liability is incurred is treated as paid in the year of 
payment. An amount paid in a calendar year before due, whether or not 
made in the form of a lump sum payment in settlement of a person's 
liability for support, is treated as support paid during the calendar 
year of payment rather than the calendar year when payment is due. A 
payment of a liability from amounts set aside in trust in a prior year 
is treated as made in the year in which the liability is paid.
    (3) Governmental payments--(i) Governmental payments as support--
(A) In general. Except as provided in paragraph (a)(3)(iii) of this 
section, governmental payments and subsidies for an item of support are 
support provided by a third party, the government.
    (B) Examples. Payments of Temporary Assistance for Needy Families 
(42 U.S.C. 601-619), low-income housing assistance (42 U.S.C. 1437f), 
Supplemental Nutrition Assistance Program benefits (7 U.S.C. chapter 
51), Supplemental Security Income payments (42 U.S.C. 1381-1383f), 
foster care maintenance payments, and adoption assistance payments are 
governmental payments and subsidies for an item of support as described 
in paragraph (a)(3)(i)(A) of this section.
    (ii) Governmental payments based on a taxpayer's contributions--(A) 
In general. Except as provided in paragraph (a)(3)(iii) of this 
section, governmental payments based on a taxpayer's earnings and 
contributions into the Social Security system are support provided by 
the individual for whose benefit the payments are made to the extent 
those payments are used for that individual's support.
    (B) Examples. Social Security old age benefits under section 202(b) 
of Title II of the Social Security Act (SSA) (42 U.S.C. 402) are 
governmental payments based on a taxpayer's earnings and contributions 
into the Social Security system as described in paragraph (a)(3)(ii)(A) 
of this section. Similarly, Social Security survivor and disability 
insurance benefits paid under section 202(d) of the SSA to, or for the 
benefit of, the child of a deceased or disabled parent are treated as 
support provided by the child to the extent those payments are used for 
the child's support.
    (iii) Payments used for support of another individual. Governmental 
payments and subsidies described in paragraph (a)(3)(i) of this section 
and governmental payments described in paragraph (a)(3)(ii) of this 
section that are used by the recipient or other intended beneficiary to 
support another person are support of that person provided by the 
recipient or other intended beneficiary, rather than support provided 
by a third party, the government.

[[Page 6386]]

    (4) Medical insurance. Medical insurance premiums, including Part A 
Basic Medicare premiums, if any, under Title XVIII of the Social 
Security Act (42 U.S.C. 1395c to 1395i-5), Part B Supplemental Medicare 
premiums under Title XVIII of the Social Security Act (42 U.S.C. 1395j 
to 1395w-6), Part C Medicare + Choice Program premiums under Title 
XVIII of the Social Security Act (42 U.S.C. 1395w-21 to 1395w-29), and 
Part D Voluntary Prescription Drug Benefit Medicare premiums under 
Title XVIII of the Social Security Act (42 U.S.C. 1395w-101 to 1395w-
154), are treated as support. Medical insurance proceeds, including 
benefits received under Medicare Part A, Part B, Part C, and Part D, 
are not treated as items of support and are disregarded in determining 
the amount of the individual's support. Services provided to an 
individual under the medical and dental care provisions of the Armed 
Forces Act (10 U.S.C. chapter 55) are not treated as support and are 
disregarded in determining the amount of the individual's support.
    (5) Medical care payments from personal injury claim. Payments for 
the medical care of an injured individual from a third party, including 
a third party's insurance company, in satisfaction of a legal claim for 
the personal injury of the individual are not treated as items of 
support and are disregarded in determining the amount of the 
individual's support.
    (6) Scholarships. Amounts a student who is the child of the 
taxpayer receives as a scholarship for study at an educational 
organization described in section 170(b)(1)(A)(ii) are not treated as 
an item of support and are disregarded in determining the amount of the 
student's support.
    (b) Relationship test--(1) Joint return. A taxpayer may satisfy the 
relationship test described in Sec.  1.152-2(b) (relating to a 
qualifying child) or in Sec.  1.152-3(b) (relating to a qualifying 
relative) if a described relationship exists between an individual and 
the taxpayer claiming that individual as a qualifying child or 
qualifying relative, even though the taxpayer files a joint return with 
his or her spouse who does not have a described relationship with the 
individual.
    (2) Divorce or death of spouse. If the relationship between the 
taxpayer and an individual claimed by that taxpayer as a dependent 
results from a marriage, the taxpayer's qualifying relationship with 
the individual continues after the termination of the marriage by 
divorce or death.
    (c) Principal place of abode--(1) In general. The term principal 
place of abode of a person means the primary or main home or dwelling 
where the person resides. A person's principal place of abode need not 
be the same physical location throughout the taxable year and may be 
temporary lodging such as a homeless shelter or relief housing 
resulting from displacement caused by a natural disaster.
    (2) Temporary absence. The taxpayer and an individual have the same 
principal place of abode despite a temporary absence by either person 
because of special circumstances. An absence is temporary if the person 
would have resided at the place of abode but for the absence and, under 
the facts and circumstances, it is reasonable to assume that the person 
will return to reside at the place of abode. An individual who does not 
reside with the taxpayer because of a temporary absence is treated as 
residing with the taxpayer. For example, a nonpermanent failure to 
occupy the abode by reason of illness, education, business, vacation, 
military service, institutionalized care for a child who is totally and 
permanently disabled (as defined in section 22(e)(3)), or incarceration 
may be treated as a temporary absence because of special circumstances. 
If an infant must remain in a hospital for a period of time after birth 
and would have resided with the taxpayer during that period but for the 
hospitalization, the infant is treated as having the same principal 
place of abode as the taxpayer during the period of hospitalization.
    (3) Residing with taxpayer for more than one-half of the taxable 
year--(i) In general. An individual has the same principal place of 
abode as the taxpayer for more than one-half of the taxable year if the 
individual resides with the taxpayer for at least 183 nights during the 
taxpayer's taxable year, or 184 nights if the taxable year includes a 
leap day.
    (ii) Nights of residence--(A) Nights counted. For purposes of 
determining whether an individual resides with the taxpayer for more 
than one-half of the taxable year, an individual resides with a 
taxpayer for a night if the individual sleeps--
    (1) At the taxpayer's principal place of abode, whether or not the 
taxpayer is present; or
    (2) In the company of the taxpayer when the individual does not 
sleep at the taxpayer's principal place of abode (for example, when the 
taxpayer and the individual are on vacation).
    (B) Night straddling two taxable years. If an individual resides 
with a taxpayer for a night that extends over two taxable years, that 
night is allocated to the taxable year in which the night begins.
    (C) Exception for a parent who works at night. If, in a calendar 
year, because of a taxpayer's nighttime work schedule, an individual 
resides for at least 183 days, or 184 days if the taxable year includes 
a leap day, but not nights with the taxpayer, the individual is treated 
as residing with the taxpayer for more than one-half of the taxable 
year.
    (D) Absences. An individual who does not reside with a taxpayer for 
a night because of a temporary absence as described in paragraph (c)(2) 
of this section is treated as residing with the taxpayer for that night 
if the individual would have resided with the taxpayer for that night 
but for the absence.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (c). In each example, each taxpayer uses the calendar taxable 
year, and section 152(e) does not apply.

    Example 1.  B and C are the divorced parents of Child. In 2015, 
Child sleeps at B's principal place of abode for 210 nights and at 
C's principal place of abode for 155 nights. Under paragraph (c)(3) 
of this section, Child resides with B for at least 183 nights during 
2015 and has the same principal place of abode as B for more than 
one-half of 2015.
    Example 2.  D and E are the divorced parents of Child, and 
Grandparent is E's parent. In 2015, Child resides with D for 140 
nights, with E for 135 nights, and with Grandparent for the last 90 
nights of the year. None of these periods is a temporary absence. 
Under paragraph (c)(3) of this section, Child does not have the same 
principal place of abode as D, E, or Grandparent for more than one-
half of 2015.
    Example 3.  The facts are the same as in Example 2 of this 
paragraph (c)(4), except that, for the 90-day period that Child 
lives with Grandparent, E is temporarily absent on military service. 
Child would have lived with E if E had not been absent during that 
period. Under paragraphs (c)(2) and (c)(3)(ii)(D) of this section, 
Child is treated as residing with E for 225 nights in 2015 and, 
therefore, Child has the same principal place of abode as E for more 
than one-half of 2015.
    Example 4.  The facts are the same as in Example 2 of this 
paragraph (c)(4), except that, for the last 90 days of the year 
Child, who is 18, moves into Child's own apartment and begins full-
time employment. Because Child's absence is not temporary, under 
paragraph (c)(2) of this section, Child is not treated as residing 
with D or E for the 90 nights. Under paragraph (c) of this section, 
Child does not have the same principal place of abode as D or E for 
more than one-half of 2015.
    Example 5.  F and G are the divorced parents of Child. In 2015, 
Child sleeps at F's principal place of abode for 170 nights and at 
G's principal place of abode for 170 nights. Child spends 25 nights 
of the year away from F and G at a summer camp. Child would have 
spent those nights with F if Child had not gone to summer camp. 
Under paragraphs (c)(2) and (c)(3)(ii)(D) of this section, Child is 
treated as residing with F for 195 nights and,

[[Page 6387]]

therefore, Child has the same principal place of abode as F for more 
than one-half of 2015.
    Example 6.  H and J are the divorced parents of Child. In 2015, 
Child sleeps at H's principal place of abode for 180 nights and at 
J's principal place of abode for 180 nights. For 5 nights during 
that year, Child sleeps at Grandparent's abode or at the house of a 
friend. Child would have spent all 5 nights at H's house if Child 
had not slept at Grandparent's or a friend's house. Under paragraphs 
(c)(2) and (c)(3)(ii)(D) of this section, Child is treated as 
residing with H for 185 nights and, therefore, Child has the same 
principal place of abode as H for more than one-half of 2015.

    (d) Residence for a portion of a taxable year because of special 
circumstances--(1) Individual who is born or dies during the year. If 
an individual is born or dies during a taxpayer's taxable year, the 
residency test for a qualifying child is treated as met if the taxpayer 
and the individual have the same principal place of abode for more than 
one-half of the portion of the taxable year during which the individual 
is alive. If an individual is born or dies during a taxpayer's taxable 
year, the relationship test for a qualifying relative who is a member 
of the taxpayer's household is treated as met if the taxpayer and the 
individual have the same principal place of abode for the entire 
portion of the taxable year during which the individual is alive.
    (2) Adopted child or foster child. If, during a taxpayer's taxable 
year, the taxpayer adopts a child, a child is lawfully placed with a 
taxpayer for legal adoption by that taxpayer, or an eligible foster 
child is placed with a taxpayer, the residency test for a qualifying 
child and the residency requirement under Sec.  1.152-1(a)(2)(iii) for 
a child who is not a citizen or national of the United States are 
treated as met if the taxpayer and the child have the same principal 
place of abode for more than one-half of the portion of the taxable 
year as required for a qualifying child, or for the entire taxable year 
as required for a noncitizen, following the placement of the child with 
the taxpayer.
    (e) Missing child--(1) Qualifying child. A child of the taxpayer 
who is presumed by law enforcement authorities to have been kidnapped 
by someone who is not a member of the family of either the child or the 
taxpayer, and who had for the taxable year in which the kidnapping 
occurred the same principal place of abode as the taxpayer for more 
than one-half of the portion of the taxable year before the date of the 
kidnapping, is treated as meeting the residency test for a qualifying 
child, as described in Sec.  1.152-2(c), of the taxpayer for all 
taxable years ending during the period that the child is missing. Also, 
the child is treated as meeting the residency test in the year of the 
child's return if the child has the same principal place of abode as 
the taxpayer for more than one-half of the portion of the taxable year 
following the date of the child's return.
    (2) Qualifying relative. A child of the taxpayer who is presumed by 
law enforcement authorities to have been kidnapped by someone who is 
not a member of the family of either the child or the taxpayer, and who 
was a qualifying relative of the taxpayer for the portion of the 
taxable year before the date of the kidnapping, is treated as a 
qualifying relative, as described in section 152(d) and Sec.  1.152-3, 
of the taxpayer for all taxable years ending during the period that the 
child is missing. Also, the child is treated as a qualifying relative 
of the taxpayer in the year of the child's return if the child is a 
qualifying relative of the taxpayer for the portion of the taxable year 
following the date of the child's return.
    (3) Age limitation. The special rules provided in this paragraph 
(e) cease to apply as of the first taxable year of the taxpayer 
beginning after the calendar year in which there is a determination 
that the child is dead or, if earlier, in which the child would have 
attained age 18.
    (4) Application. This paragraph (e) applies solely for purposes of 
determining surviving spouse or head of household filing status under 
section 2, the child tax credit under section 24, the earned income 
credit under section 32, and the dependency exemption under section 
151.
0
Par. 17 In newly redesignated Sec.  1.152-5, paragraphs (e)(2), 
(e)(3)(iii), and (h) are revised to read as follows:


Sec.  1.152-5  Special rule for a child of divorced or separated 
parents or parents who live apart.

* * * * *
    (e) * * *
    (2) Attachment to return--(i) In general. A noncustodial parent 
must attach a copy of the written declaration to the parent's original 
or amended return for each taxable year for which the noncustodial 
parent claims an exemption for the child. A noncustodial parent may 
submit a copy of the written declaration to the IRS during an 
examination to substantiate a claim to a dependency exemption for a 
child. A copy of a written declaration attached to an amended return, 
or provided during an examination, will not meet the requirement of 
this paragraph (e) if the custodial parent signed the written 
declaration after the custodial parent filed a return claiming a 
dependency exemption for the child for the year at issue, and the 
custodial parent has not filed an amended return to remove that claim 
to a dependency exemption for the child.
    (ii) Examples. The following examples illustrate the rules of this 
paragraph (e).

    Example 1.  Custodial parent (CP) files her 2015 return on March 
1, 2016, and claims a dependency exemption for Child. At 
noncustodial parent's (NCP) request, CP signs a Form 8332 for the 
2015 tax year on April 15, 2016. On April 15, NCP files his return 
claiming a dependency exemption for Child and attaches the signed 
Form 8332 to his return. Under section 152(e) and paragraph (b) of 
this section, NCP is allowed a dependency exemption for Child for 
2015, and CP is not allowed a dependency exemption for Child for 
that year.
    Example 2.  The facts are the same as in Example 1 of this 
paragraph (e)(2)(ii), except NCP files on April 15, 2016, a request 
for an extension to file his tax return because he does not have a 
signed Form 8332. CP signs the Form 8332 for the 2015 tax year in 
August of 2016, and NCP files his return a week later. NCP claims a 
dependency exemption for Child and attaches the signed Form 8332 to 
his return. Under section 152(e) and paragraph (b) of this section, 
NCP is allowed a dependency exemption for Child for 2015, and CP is 
not allowed a dependency exemption for Child for that year.
    Example 3.  CP files his 2015 return on March 1, 2016, and 
claims a dependency exemption for Child. NCP files her return on 
April 15, 2016, and does not claim a dependency exemption for Child, 
even though her divorce decree allocates the dependency exemption 
for Child to her. CP signs a Form 8332 for the 2015 tax year in 
August of 2016, and NCP files an amended return a week later and 
attaches the signed Form 8332 to her amended return claiming a 
dependency exemption for Child. Under paragraph (e)(2) of this 
section, NCP is not allowed a dependency exemption for Child for 
2015 if CP has not amended his return to remove a claim to the 
dependency exemption for Child for that year.
    (3) * * *
    (iii) Attachment to return. The parent revoking the written 
declaration must attach a copy of the revocation to the parent's 
original or amended return for each taxable year for which the parent 
claims a child as a dependent as a result of the revocation. The parent 
revoking the written declaration must keep a copy of the revocation and 
evidence of delivery of the notice to the other parent, or of the 
reasonable efforts to provide actual notice. A parent may submit a copy 
of a revocation to the IRS during an examination to substantiate a 
claim to a dependency exemption for the child.
* * * * *
    (h) Applicability date--(1) In general. Except as provided in 
paragraph (h)(2)

[[Page 6388]]

of this section, this section applies to taxable years beginning after 
July 2, 2008.
    (2) Exception. Paragraphs (e)(2) and (e)(3)(iii) of this section 
apply to taxable years beginning after the date these regulations are 
published as final regulations in the Federal Register.


Sec.  1.6013-1  [Amended]

0
Par. 18. Section 1.6013-1 is amended by removing paragraph (e).

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 19. The authority citation for part 301 continues to read in part 
as follows:

    Authority:  26 U.S.C. 7805 * * *

0
Par. 20. Section 301.6109-3 is amended by:
0
1. Revising the first sentence and adding a sentence to the end of the 
paragraph in paragraph (a)(1).
0
2. Revising paragraphs (b), (c)(1)(ii), the fourth and fifth sentences 
of (c)(2) introductory text, and paragraph (d).
    The revisions and addition read as follows:


Sec.  301.6109-3  IRS adoption taxpayer identification numbers.

    (a) In general--(1) Definition. An IRS adoption taxpayer 
identification number (ATIN) is a temporary taxpayer identifying number 
assigned by the Internal Revenue Service (IRS) to a child (other than 
an alien individual as defined in Sec.  301.6109-1(d)(3)(i)) who has 
been placed lawfully with a prospective adoptive parent for legal 
adoption by that person. * * * A child lawfully placed with a 
prospective adoptive parent for legal adoption includes a child placed 
for legal adoption by the child's parent or parents by blood, an 
authorized placement agency, or any other person authorized by State 
law to place a child for legal adoption.
* * * * *
    (b) Definitions--(1) Authorized placement agency has the same 
meaning as in Sec.  1.152-1(b)(1)(iv).
    (2) Child means a child who has not been adopted but has been 
placed lawfully with a prospective adoptive parent for legal adoption 
by that person.
    (3) Prospective adoptive parent means a person in whose household a 
child has been placed lawfully for legal adoption by that person.
    (c) * * *
    (1) * * *
    (ii) The child has been placed lawfully with the prospective 
adoptive parent for legal adoption by that person;
* * * * *
    (2) * * * In addition, the application must include documentary 
evidence the IRS prescribes to establish that a child has been placed 
lawfully with the prospective adoptive parent for legal adoption by 
that person. Examples of acceptable documentary evidence establishing 
lawful placement for a legal adoption may include--
* * * * *
    (d) Applicability date--(1) In general. Except as otherwise 
provided in paragraph (d)(2) of this section, the provisions of this 
section apply to income tax returns due (without regard to extension) 
on or after April 15, 1998.
    (2) Exception. Paragraphs (a)(1), (b), (c)(1)(ii), and (c)(2) of 
this section apply to income tax returns due (without regard to 
extension) on or after the date these regulations are published as 
final regulations in the Federal Register.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2017-01056 Filed 1-18-17; 8:45 am]
 BILLING CODE 4830-01-P



                                                      6370                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      elsewhere in this issue of the Federal                  ■ 1. Revising paragraph (a)(3).                        SUMMARY:    This document withdraws
                                                      Register].                                              ■ 2. Adding paragraphs (a)(1)(iii), (c)(8),            proposed regulations relating to the
                                                      *      *     *     *    *                               and (c)(9).                                            definition of an authorized placement
                                                                                                              ■ 3. Revising paragraph (h)(3).                        agency for purposes of a dependency
                                                         (g) [The text of proposed § 1.704–3(g)
                                                                                                              ■ 4. Adding paragraphs (j)(4) and (j)(5).              exemption for a child placed for
                                                      is the same as the text of § 1.704–3T(g)
                                                      published elsewhere in this issue of the                § 1.6038B–2 Reporting of certain transfers             adoption that were issued prior to the
                                                      Federal Register].                                      to foreign partnerships.                               changes made to the law by the Working
                                                      ■ Par. 5. Section 1.721(c)–1 is added to                  (a) * * *                                            Families Tax Relief Act of 2004
                                                      read as follows:                                          (1) * * *                                            (WFTRA). This document contains
                                                                                                                (iii) [The text of proposed § 1.6038B–               proposed regulations that reflect
                                                      § 1.721(c)–1 Overview, definitions, and                 2(a)(1)(iii) is the same as the text of                changes made by WFTRA and by the
                                                      rules of general application.
                                                                                                              § 1.6038B–2T(a)(1)(iii) published                      Fostering Connections to Success and
                                                        [The text of proposed § 1.721(c)–1 is                 elsewhere in this issue of the Federal                 Increasing Adoptions Act of 2008
                                                      the same as the text of § 1.721(c)–1T                   Register].                                             (FCSIAA) relating to the dependency
                                                      published elsewhere in this issue of the                                                                       exemption. This document also contains
                                                                                                              *      *      *     *    *
                                                      Federal Register].                                        (3) [The text of proposed § 1.6038B–                 proposed regulations that, to reflect
                                                      ■ Par. 6. Section 1.721(c)–2 is added to                                                                       current law, amend the regulations
                                                                                                              2(a)(3) is the same as the text of
                                                      read as follows:                                        § 1.6038B–2T(a)(3) published elsewhere                 relating to the surviving spouse and
                                                      § 1.721(c)–2 Recognition of gain on certain             in this issue of the Federal Register].                head of household filing statuses, the
                                                      contributions of property to partnerships               *      *      *     *    *                             tax tables for individuals, the child and
                                                      with related foreign partners.                            (c) * * *                                            dependent care credit, the earned
                                                        [The text of proposed § 1.721(c)–2 is                   (8) [The text of proposed § 1.6038B–                 income credit, the standard deduction,
                                                      the same as the text of § 1.721(c)–2T                   2(c)(8) is the same as the text of                     joint tax returns, and taxpayer
                                                      published elsewhere in this issue of the                § 1.6038B–2T(c)(8) published elsewhere                 identification numbers for children
                                                      Federal Register].                                      in this issue of the Federal Register].                placed for adoption. These proposed
                                                      ■ Par. 7. Section 1.721(c)–3 is added to                  (9) [The text of proposed § 1.6038B–                 regulations change the IRS’s position
                                                      read as follows:                                        2(c)(9) is the same as the text of                     regarding the category of taxpayers
                                                                                                              § 1.6038B–2T(c)(9) published elsewhere                 permitted to claim the childless earned
                                                      § 1.721(c)–3     Gain deferral method.                  in this issue of the Federal Register].                income credit. In determining a
                                                        [The text of proposed § 1.721(c)–3 is                 *      *      *     *    *                             taxpayer’s eligibility to claim a
                                                      the same as the text of § 1.721(c)–3T                     (h) * * *                                            dependency exemption, these proposed
                                                      published elsewhere in this issue of the                  (3) [The text of proposed § 1.6038B–                 regulations change the IRS’s position
                                                      Federal Register].                                      2(h)(3) is the same as the text of                     regarding the adjusted gross income of
                                                      ■ Par. 8. Section 1.721(c)–4 is added to                § 1.6038B–2T(h)(3) published elsewhere                 a taxpayer filing a joint return for
                                                      read as follows:                                        in this issue of the Federal Register].                purposes of the tiebreaker rules and the
                                                                                                              *      *      *     *    *                             source of support of certain payments
                                                      § 1.721(c)–4     Acceleration events.                                                                          that originated as governmental
                                                                                                                (j) * * *
                                                        [The text of proposed § 1.721(c)–4 is                   (4) [The text of proposed § 1.6038B–                 payments. These regulations provide
                                                      the same as the text of § 1.721(c)–4T                   2(j)(4) is the same as the text of                     guidance to individuals who may claim
                                                      published elsewhere in this issue of the                § 1.6038B–2T(j)(4) published elsewhere                 certain child-related tax benefits.
                                                      Federal Register].                                      in this issue of the Federal Register].
                                                      ■ Par. 9. Section 1.721(c)–5 is added to
                                                                                                                                                                     DATES: Written or electronic comments
                                                                                                                (5) [The text of proposed § 1.6038B–
                                                      read as follows:                                                                                               and requests for a public hearing must
                                                                                                              2(j)(5) is the same as the text of
                                                                                                                                                                     be received by April 19, 2017.
                                                      § 1.721(c)–5     Acceleration event
                                                                                                              § 1.6038B–2T(j)(5) published elsewhere
                                                      exceptions.                                             in this issue of the Federal Register].                ADDRESSES:   Send submissions to:
                                                                                                                                                                     CC:PA:LPD:PR (REG–137604–07), Room
                                                        [The text of proposed § 1.721(c)–5 is                 John Dalrymple,
                                                                                                                                                                     5203, Internal Revenue Service, P.O.
                                                      the same as the text of § 1.721(c)–5T                   Deputy Commissioner for Services and
                                                                                                                                                                     Box 7604, Ben Franklin Station,
                                                      published elsewhere in this issue of the                Enforcement.
                                                                                                                                                                     Washington, DC 20044. Submissions
                                                      Federal Register].                                      [FR Doc. 2017–01048 Filed 1–18–17; 8:45 am]
                                                                                                                                                                     may be hand-delivered Monday through
                                                      ■ Par. 10. Section 1.721(c)–6 is added to               BILLING CODE 4830–01–P
                                                                                                                                                                     Friday between the hours of 8 a.m. and
                                                      read as follows:
                                                                                                                                                                     4 p.m. to CC:PA:LPD:PR (REG–137604–
                                                      § 1.721(c)–6 Procedural and reporting                                                                          07), Courier’s Desk, Internal Revenue
                                                                                                              DEPARTMENT OF THE TREASURY
                                                      requirements.                                                                                                  Service, 1111 Constitution Avenue NW.,
                                                        [The text of proposed § 1.721(c)–6 is                 Internal Revenue Service                               Washington, DC 20224, or sent
                                                      the same as the text of § 1.721(c)–6T                                                                          electronically via the Federal
                                                      published elsewhere in this issue of the                26 CFR Parts 1 and 301                                 eRulemaking Portal at
                                                      Federal Register].                                                                                             www.regulations.gov (IRS REG–137604–
                                                                                                              [REG–137604–07]                                        07).
                                                      ■ Par. 11. Section 1.721(c)–7 is added to
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS




                                                      read as follows:                                        RIN 1545–BI35
                                                                                                                                                                     FOR FURTHER INFORMATION CONTACT:
                                                      § 1.721(c)–7     Examples.                              Definition of Dependent                                Concerning the proposed regulations,
                                                                                                                                                                     Victoria J. Driscoll, (202) 317–4718;
                                                        [The text of proposed § 1.721(c)–7 is                 AGENCY: Internal Revenue Service (IRS),                concerning the submission of comments
                                                      the same as the text of § 1.721(c)–7T                   Treasury.                                              and requests for a public hearing,
                                                      published elsewhere in this issue of the
                                                                                                              ACTION: Withdrawal of notice of                        Regina Johnson, (202) 317–6901 (not
                                                      Federal Register].
                                                                                                              proposed rulemaking and notice of                      toll-free calls).
                                                      ■ Par. 12. Section 1.6038B–2 is
                                                                                                              proposed rulemaking.
                                                      amended by:                                                                                                    SUPPLEMENTARY INFORMATION:



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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                            6371

                                                      Background                                              a. Individual Not a Dependent                          person will return to the household.
                                                                                                                 Section 152(b) provides that an                     Under case law, a factor to consider in
                                                        This document withdraws a notice of                                                                          determining whether an absence is
                                                      proposed rulemaking (REG–107279–00)                     individual who is a qualifying child or
                                                                                                              a qualifying relative of a taxpayer is not             temporary is whether the individual
                                                      amending § 1.152–2(c)(2) of the Income                                                                         intends to establish a new principal
                                                      Tax Regulations that was published in                   a taxpayer’s dependent in certain
                                                                                                                                                                     place of abode. In Rowe v.
                                                      the Federal Register (65 FR 71277) on                   circumstances. Section 152(b)(2)
                                                                                                                                                                     Commissioner, 128 T.C. 13 (2007), the
                                                      November 30, 2000 (2000 proposed                        provides that, to be a dependent of a
                                                                                                                                                                     court concluded that it was reasonable
                                                                                                              taxpayer, an individual must not have
                                                      regulations) relating to the definition of                                                                     to assume that a taxpayer would return
                                                                                                              filed a joint return with his or her
                                                      an authorized placement agency for                                                                             to her home after pretrial confinement
                                                                                                              spouse. However, the WFTRA
                                                      purposes of a dependency exemption                                                                             and that the taxpayer’s absence was
                                                                                                              conference report provides that the
                                                      for a child placed for adoption under                                                                          temporary. See also Hein v.
                                                                                                              ‘‘restriction does not apply if the return
                                                      prior law. Prior law required that a child                                                                     Commissioner, 28 T.C. 826 (1957) (acq.,
                                                                                                              was filed solely to obtain a refund and
                                                      be placed with the taxpayer for adoption                                                                       1958–2 CB 6), and Rev. Rul. 66–28
                                                                                                              no tax liability would exist for either
                                                      by an authorized placement agency.                                                                             (1966–1 CB 31).
                                                                                                              spouse if they filed separate returns.’’
                                                      Section 152 of the Internal Revenue                     See H.R. Rep. No. 108–696, at 55 n.38                  d. Two or More Taxpayers Eligible To
                                                      Code was amended by section 201 of                      (2004) (Conf. Rep.).                                   Claim Individual as Qualifying Child
                                                      WFTRA (Pub. L. 108–311, 118 Stat.
                                                      1166, 1169) to provide that a qualifying                b. Qualifying Child                                       Section 152(c)(4) provides tiebreaker
                                                      child eligible to be the dependent of a                                                                        rules that apply if an individual meets
                                                                                                                 WFTRA established under section                     the definition of a qualifying child for
                                                      taxpayer may include a child lawfully                   152(c) a uniform definition of a                       two or more taxpayers (eligible
                                                      placed with the taxpayer for adoption.                  qualifying child. The legislative history              taxpayers). In general, the eligible
                                                      Accordingly, the proposed regulations                   identifies five child-related benefits to              taxpayer who is a parent (eligible
                                                      in § 1.152–2(c)(2) under prior law are                  which the uniform definition applies:                  parent) of the individual may claim the
                                                      withdrawn.                                              The filing status of head of household                 individual as a qualifying child or, if
                                                        This document also contains                           under section 2(b), the child and                      there is no eligible parent, then the
                                                      proposed amendments to 26 CFR part 1                    dependent care credit under section 21,                individual may be claimed by the
                                                      under sections 2, 3, 21, 32, 63, 151, 152,              the child tax credit under section 24, the             eligible taxpayer with the highest
                                                      6013, and to Part 301 under section                     earned income credit under section 32,                 adjusted gross income.
                                                      6109 to reflect the changes made by                     and the dependency exemption under                        If more than one of the eligible
                                                      WFTRA and FCSIAA (Pub. L. 110–351,                      section 151. See H.R. Rep. No. 108–696,                taxpayers is a parent of the individual,
                                                      122 Stat. 3949) relating to the                         at 55–65.                                              more than one eligible parent claims the
                                                      dependency exemption, as well as                           Section 152(c) defines a qualifying                 individual as a qualifying child, and the
                                                      changes to these sections by other acts.                child as an individual who bears a                     eligible parents claiming the individual
                                                      WFTRA amended section 152, in part,                     certain relationship to the taxpayer                   do not file a joint return with each
                                                      to provide a uniform definition of a                    (qualifying child relationship test), has              other, the individual is treated as the
                                                      qualifying child; FCSIAA added to the                   the same principal place of abode as the               qualifying child of the eligible parent
                                                      definition of a qualifying child the                    taxpayer for more than one-half of the                 claiming the individual with whom the
                                                      requirements that the child must be                     taxable year (residency test), is younger              individual resided for the longest period
                                                      younger than the taxpayer and that the                  than the taxpayer and is under the age                 of time during the taxable year. If the
                                                      child must not file a joint return (other               of 19 (or age 24 if a full-time student or             individual resided with each eligible
                                                      than as a claim for refund). FCSIAA also                any age if permanently and totally                     parent claiming the individual for the
                                                      amended the rules that apply if two or                  disabled) (age test), does not provide                 same amount of time during the taxable
                                                      more taxpayers are eligible to claim an                 more than one-half of his or her own                   year, the individual is treated as the
                                                      individual as a qualifying child.                       support (qualifying child support test),               qualifying child of the eligible parent
                                                                                                              and does not file a joint return with a                claiming the individual with the highest
                                                      1. Dependency Rules                                     spouse except to claim a refund of                     adjusted gross income.
                                                                                                              estimated or withheld taxes (joint return                 If at least one, but not all, of two or
                                                        Under section 151, a taxpayer may                     test).                                                 more eligible taxpayers is a parent of the
                                                      deduct an exemption amount for a                                                                               individual, but no eligible parent claims
                                                      dependent as defined in section 152.                    c. Temporary Absence
                                                                                                                                                                     the individual as a qualifying child,
                                                      Prior to WFTRA, section 151 contained                      A child is considered to reside in the              another eligible taxpayer may claim the
                                                      many of the rules related to the                        same principal place of abode as a                     individual, but only if the eligible
                                                      definition of a dependent. WFTRA                        taxpayer during a temporary absence.                   taxpayer’s adjusted gross income is
                                                      moved those rules to section 152. As                    Under the existing section 152                         higher than the adjusted gross income of
                                                      amended, section 152(a) defines a                       regulations, a nonpermanent failure to                 each eligible parent. Since 2009, IRS
                                                      dependent as a qualifying child or a                    occupy a common abode by reason of                     Publication 501, Exemptions, Standard
                                                      qualifying relative. Taxpayers should                   illness, education, business, vacation,                Deduction, and Filing Information, has
                                                      note that a taxpayer’s treatment of the                 military service, or a custody agreement               stated that ‘‘[i]f a child’s parents file a
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS




                                                      dependency exemption under section                      may be a temporary absence due to                      joint return with each other, this rule
                                                      151 for a particular qualifying child or                special circumstances. The existing                    may be applied by dividing the parents’
                                                      qualifying relative might have tax                      regulations under section 2 defining                   combined AGI equally between the
                                                      consequences under other Code                           surviving spouse and head of household                 parents.’’
                                                      provisions, such as the education tax                   include a similar rule relating to the                    Notice 2006–86 (2006–2 CB 680)
                                                      credits under section 25A, the premium                  effect of a temporary absence on the                   provides interim guidance on these
                                                      tax credit under section 36B, and the                   requirement to maintain a household,                   rules prior to the amendments by
                                                      penalty for failure to maintain minimum                 but add the requirement that it is                     FCSIAA. The notice provides that,
                                                      essential coverage under section 5000A.                 reasonable to assume that the absent                   except to the extent that a noncustodial


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                                                      6372                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      parent may claim the child as a                         same principal place of abode as the                   91–172, 83 Stat. 487), section 2(a)
                                                      qualifying child under the special rule                 taxpayer and is a member of the                        provided that the return of a surviving
                                                      for divorced or separated parents in                    taxpayer’s household for the taxable                   spouse is treated as a joint return for
                                                      section 152(e), discussed in the next                   year (qualifying relative relationship                 purposes of the tax rates, the tax tables
                                                      paragraph, if more than one taxpayer                    test), has gross income less than the                  for individuals, and the standard
                                                      claims a child as a qualifying child, the               exemption amount for the taxable year                  deduction. Following the 1969
                                                      child is treated as the qualifying child                (gross income test), receives more than                amendments, section 2(a) defines the
                                                      of only one taxpayer (as determined                     one-half of his or her support from the                term surviving spouse for purposes of
                                                      under the tiebreaker rules of section                   taxpayer (qualifying relative support                  section 1. The return of a taxpayer filing
                                                      152(c)(4)) for purposes of the five                     test), and is not a qualifying child of any            as a surviving spouse is no longer
                                                      provisions subject to the uniform                       taxpayer (not a qualifying child test).                treated as a joint return under sections
                                                      definition of a qualifying child (the                      Notice 2008–5 (2008–1 CB 256)                       2, 3, or 63. Section 3 provides tax tables
                                                      filing status of head of household under                addresses whether a taxpayer meets the                 for certain individuals in lieu of the tax
                                                      section 2(b), the child and dependent                   test under section 152(d)(1)(D) to claim               imposed by section 1. Section 63(c)
                                                      care credit under section 21, the child                 an individual as a qualifying relative.                provides the same basic standard
                                                      tax credit under section 24, the earned                 That provision requires that the                       deduction for a taxpayer filing as a
                                                      income credit under section 32, and the                 individual not be a qualifying child of                surviving spouse as a taxpayer filing a
                                                      dependency exemption under section                      either the taxpayer or any other taxpayer              joint return. Accordingly, a taxpayer
                                                      151, as well as for purposes of the                     during a taxable year beginning in the                 filing as a surviving spouse is no longer
                                                      exclusion for dependent care assistance                 calendar year in which the taxpayer’s                  treated as filing a joint return for any tax
                                                      under section 129 (which may apply to                   taxable year begins. The notice provides               purpose, but rather, a taxpayer filing as
                                                      the care of a dependent qualifying child                that, for purposes of section                          a surviving spouse simply uses the same
                                                      under age 13)). Thus, in general, the                   152(d)(1)(D), an individual is not a                   tax rates under section 1, the same
                                                      tiebreaker rules for determining which                  qualifying child of ‘‘any other taxpayer’’             amounts in the tax tables under section
                                                      taxpayer may claim a child as a                         if the individual’s parent (or other                   3, and the same standard deduction
                                                      qualifying child apply to these                         person for whom the individual is                      under section 63 as a taxpayer filing a
                                                      provisions as a group, rather than on a                 defined as a qualifying child) is not                  joint return.
                                                      section-by-section basis.                               required by section 6012 to file an                       Generally, under section 2(b), to
                                                         Notice 2006–86 contains an exception                 income tax return and (1) does not file                qualify as a head of household, a
                                                      to the rule that only one taxpayer may                  an income tax return, or (2) files an                  taxpayer must maintain a household
                                                      claim a child as a qualifying child for all             income tax return solely to obtain a                   that is the principal place of abode of a
                                                      purposes. Section 152(e) has a special                  refund of withheld income taxes.                       qualifying child or other dependent for
                                                      rule for divorced or separated parents                                                                         more than one-half of the taxable year.
                                                      that determines who, as between the                     f. Support Tests                                       If the dependent is a parent of the
                                                      custodial and noncustodial parent, may                     Under section 152(c)(1)(D), to be a                 taxpayer and the parent does not share
                                                      claim a child as a qualifying child or                  taxpayer’s qualifying child, an                        a principal place of abode with the
                                                      qualifying relative if certain tests                    individual must not have provided over                 taxpayer, the household maintained by
                                                      (different from the general tests under                 one-half of the individual’s own support               the taxpayer must be the parent’s
                                                      sections 152(c) and (d)) regarding                      for the calendar year. Under section                   principal place of abode for the entire
                                                      residency and support are met and the                   152(d)(1)(C), to be a taxpayer’s                       taxable year.
                                                      custodial parent releases a claim to                    qualifying relative, a taxpayer must have                 Prior to WFTRA, section 21 required
                                                      exemption for the child. The notice                     provided over one-half of an                           that a taxpayer maintain a household to
                                                      provides that, if this special rule                     individual’s support for the calendar                  claim the credit for dependent care
                                                      applies, a noncustodial parent may                      year.                                                  expenses, and regulations on
                                                      claim a child as a qualifying child for                    Regarding governmental payments to                  maintaining a household were
                                                      purposes of the dependency exemption                    a person with a qualifying need, the                   published under that section. WFTRA
                                                      and the child tax credit (the only two of               WFTRA conference report, H.R. Rep.                     removed that requirement from the
                                                      the provisions addressed in the notice to               No. 108–696, at 57, states that                        dependent care credit.
                                                      which section 152(e) applies in                         ‘‘[g]overnmental payments and
                                                                                                                                                                     3. Earned Income Credit
                                                      determining who is a qualifying child),                 subsidies (e.g., Temporary Assistance
                                                      and another taxpayer may claim the                      [for] Needy Families, food stamps, and                    Section 32 provides a tax credit to
                                                      child for one or more of the other                      housing) generally are treated as support              eligible taxpayers who work and have
                                                      benefits to which section 152(e) does                   provided by a third party.’’ The IRS has               earned income below a certain dollar
                                                      not apply.                                              successfully asserted in litigation that               amount. Before the amendment of
                                                         Although FCSIAA affects other                        governmental payments provided to a                    section 32 by the Omnibus
                                                      aspects of section 152(c)(4) and Notice                 parent to aid a family with dependent                  Reconciliation Act of 1993 (Pub. L. 103–
                                                      2006–86, there is nothing in FCSIAA                     children and used by the parent for                    66, 107 Stat. 312), the earned income
                                                      that would compel a change in the rule                  support of her children was support of                 credit (EIC) was allowable only to a
                                                      described in Notice 2006–86 that an                     the children provided by the                           taxpayer with one or more qualifying
                                                      individual is treated as the qualifying                 government, and not support provided                   children. If an individual met the
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                                                      child of only one taxpayer for the listed               by the parent. See Lutter v.                           definition of a qualifying child for more
                                                      child-related tax benefits, except if the               Commissioner, 61 T.C. 685 (1974), affd.                than one taxpayer, a tiebreaker rule in
                                                      special rule in section 152(e) applies.                 per curiam, 514 F.2d 1095 (7th Cir.                    section 32 determined which taxpayer
                                                                                                              1975).                                                 was allowed to claim the individual as
                                                      e. Qualifying Relative                                                                                         a qualifying child for the EIC. For
                                                         Under section 152(d), a qualifying                   2. Surviving Spouse and Head of                        taxable years beginning after 1993,
                                                      relative is an individual who bears a                   Household, and Conforming Changes                      section 32(c)(1)(A)(ii) allows a taxpayer
                                                      certain relationship to the taxpayer,                      Prior to amendment by section 803(b)                without a qualifying child to claim the
                                                      including an individual who has the                     of the Tax Reform Act of 1969 (Pub. L.                 EIC (childless EIC) if certain


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                             6373

                                                      requirements are met. Although there is                 spouse) who is not related to the                      language would diverge from the results
                                                      no regulatory guidance on this issue,                   taxpayer in one of the named                           of a legal adoption under property,
                                                      since 1995, the IRS has taken the                       relationships nevertheless may satisfy                 inheritance, and other nontax law, and
                                                      position in IRS Publication 596, Earned                 the relationship test for a qualifying                 from the prior tax treatment of
                                                      Income Credit, that if an individual                    relative if the individual has the same                adoptions—a significant change in the
                                                      meets the definition of a qualifying                    principal place of abode as the taxpayer               applicable law. However, there is
                                                      child for more than one taxpayer and                    and is a member of the taxpayer’s                      nothing in the legislative history
                                                      the individual is not treated as the                    household for the taxpayer’s taxable                   indicating that Congress intended to
                                                      qualifying child of a taxpayer under the                year.                                                  limit the treatment of an adopted child
                                                      tiebreaker rules, then that taxpayer is                    The proposed regulations adopt the                  as a child by blood in this manner or
                                                      precluded from claiming the childless                   rule in Notice 2008–5 regarding whether                that otherwise suggests this change in
                                                      EIC. WFTRA moved the tiebreaker rules                   an individual is a qualifying child of a               language was intended to effect a
                                                      from section 32 to section 152(c)(4).                   taxpayer for purposes of determining                   change in existing law.
                                                         Before repeal in 2010, section 3507                  whether that individual may be a                          To fill this apparent gap in the statute,
                                                      allowed advance payment of the EIC.                     qualifying relative. That is, the proposed             the proposed regulations provide that
                                                      Section 3507 was repealed by the FAA                    regulations provide that an individual is              any child legally adopted by a ‘‘person,’’
                                                      Air Transportation Modernization and                    not a qualifying child of a person if that             or any child who is placed with a
                                                      Safety Improvement Act (Pub. L. 111–                    person is not required to file an income               ‘‘person’’ for legal adoption by that
                                                      226, 124 Stat. 2389).                                   tax return under section 6012, and                     ‘‘person,’’ is treated as a child by blood
                                                                                                              either does not file an income tax return              of that person for purposes of the
                                                      4. Additional Standard Deduction for
                                                                                                              or files an income tax return solely to                relationship tests under sections
                                                      the Aged and Blind
                                                                                                              claim a refund of estimated or withheld                152(c)(2) and 152(d)(2). Similarly, the
                                                         Before the amendments to sections 63                 taxes.                                                 proposed regulations provide that an
                                                      and 151 made by the Tax Reform Act of                                                                          eligible foster child is a child who is
                                                      1986 (Pub. L. 99–514, 100 Stat. 2085), a                ii. Adopted Child—Adoption by
                                                                                                                                                                     placed with a ‘‘person’’ rather than with
                                                      taxpayer was entitled to an additional                  Individual Other Than the Taxpayer
                                                                                                                                                                     a taxpayer.
                                                      personal exemption under section 151                       Prior to 2005, for purposes of the
                                                      for the taxpayer or the taxpayer’s spouse               relationship test, a person’s legally                  iii. Adopted Child and Foster Child—
                                                      (or both), if either was age 65 or older                adopted child was treated as that                      Child Placement
                                                      or was blind at the close of the taxable                person’s child by blood. Specifically,                    Although WFTRA removed the
                                                      year. As amended, section 63 provides                   section 152(b)(2) provided that ‘‘a                    reference to an authorized placement
                                                      an additional standard deduction for age                legally adopted child of an individual                 agency from the provisions relating to
                                                      or blindness instead of an additional                   (and a child who is a member of an                     an adopted child in section 152(f)(1)(B),
                                                      personal exemption under section 151.                   individual’s household, if placed with                 the reference to an authorized
                                                                                                              such individual by an authorized                       placement agency continues to appear
                                                      Explanation of Provisions
                                                                                                              placement agency for legal adoption by                 in section 152(f)(1)(C), relating to an
                                                        The proposed regulations reflect                      such individual), . . . shall be treated as            eligible foster child. Prior to amendment
                                                      statutory amendments to sections 2, 3,                  a child of such individual by blood.’’                 by WFTRA, section 152 treated a child
                                                      21, 32, 63, 151, 152, 6013, and 6109. In                Therefore, a taxpayer other than the                   who was a member of an individual’s
                                                      addition, the regulations address certain               adopting ‘‘individual’’ could be eligible              household pending adoption as a child
                                                      significant issues arising under these                  to claim an exemption for an adopted                   by blood of the individual for purposes
                                                      sections and modify certain IRS                         child. For example, the parent of the                  of the relationship test only if the child
                                                      positions, as explained below.                          adopting parent could claim a                          was a foster child living with the
                                                      1. Dependency Exemption                                 dependency exemption for the legally                   individual or if the child was placed
                                                                                                              adopted child of the taxpayer’s son or                 with the individual by an authorized
                                                         Consistent with the amendments                       daughter (just as biological grandparents              placement agency for adoption by the
                                                      made to sections 151 and 152 by                         may claim an exemption for a                           individual. Similarly, § 301.6109–3(a)
                                                      WFTRA, the proposed regulations move                    grandchild) if all other requirements                  currently provides that a taxpayer may
                                                      rules related to the definition of a                    were met.                                              obtain an adoption taxpayer
                                                      dependent from the regulations under                       WFTRA amended section 152 to                        identification number (ATIN) only for a
                                                      section 151 to the regulations under                    change the reference from a child placed               child who was placed for adoption by
                                                      section 152.                                            by an authorized placement agency for                  an authorized placement agency.
                                                      a. Relationship Test                                    adoption to a child who is ‘‘lawfully                     As amended by WFTRA, section 152
                                                                                                              placed’’ for legal adoption. In making                 treats a child placed for adoption as a
                                                      i. General Rules                                        that change, however, WFTRA also                       child by blood of the taxpayer if the
                                                         Section 152(c)(2) provides that a                    changed the reference to the adopting                  child ‘‘is lawfully placed with the
                                                      qualifying child must be a child or a                   person from ‘‘an individual’’ to ‘‘the                 taxpayer for legal adoption by the
                                                      descendant of a child of the taxpayer, or               taxpayer,’’ so that section 152(f)(1)(B)               taxpayer.’’ A child may be lawfully
                                                      a brother, sister, stepbrother, or                      currently provides that a legally adopted              placed for legal adoption by an
                                                      stepsister of the taxpayer, or a                        individual of the taxpayer is treated as               authorized placement agency, the
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                                                      descendant of any of these relatives.                   a child by blood of the taxpayer. The                  child’s parents, or other persons
                                                      Section 152(d)(2) provides that a                       use of the word ‘‘taxpayer’’ rather than               authorized by State law to place
                                                      qualifying relative must bear a certain                 ‘‘individual’’ arguably limits the                     children for legal adoption. These
                                                      relationship to the taxpayer, which                     recognition of a relationship through                  proposed regulations reflect the changes
                                                      includes a child or a descendant of a                   adoption only to those situations in                   made by WFTRA and amend the
                                                      child, a brother, sister, stepbrother,                  which the taxpayer claiming a                          regulations under section 6109 to
                                                      stepsister, parent or ancestor of a parent,             dependency exemption for the child is                  provide that the IRS will assign an ATIN
                                                      or an aunt or uncle of the taxpayer. An                 the person who adopts the child. This                  to a child who has been lawfully placed
                                                      individual (other than the taxpayer’s                   interpretation of the amended statutory                with a person for legal adoption.


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                                                      6374                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                        Under section 152(f)(1)(A)(ii) and                    absence by either person. A person is                  treated as satisfied if the individual is
                                                      § 1.152–1(b)(1)(iii) of these proposed                  temporarily absent if, based on the facts              permanently and totally disabled.
                                                      regulations, the term child also includes               and circumstances, the person would                       For purposes of this age test, the
                                                      an eligible foster child of the taxpayer                have resided with the taxpayer but for                 proposed regulations substantially
                                                      as defined in 152(f)(1)(C), that is, a child            the temporary absence and it is                        adopt the existing definition of a
                                                      who is placed with the taxpayer by an                   reasonable to assume the person will                   student. Accordingly, the proposed
                                                      authorized placement agency or by the                   return to reside at the place of abode.                regulations provide that the term
                                                      judgment, decree, or other order of a                   Thus, the proposed regulations adopt                   student means an individual who,
                                                      court of competent jurisdiction.                        the ‘‘reasonable to assume’’ language                  during some part of each of 5 calendar
                                                      iv. Definition of Authorized Placement                  from the existing regulations under                    months during the calendar year in
                                                      Agency                                                  section 2. The proposed regulations                    which the taxable year of the taxpayer
                                                                                                              indicate that a nonpermanent failure to                begins, is a full-time student at an
                                                        The 2000 proposed regulations under                   occupy the abode by reason of illness,                 educational organization described in
                                                      § 1.152–2(c)(2) defined an authorized                   education, business, vacation, military                section 170(b)(1)(A)(ii) or is pursuing a
                                                      placement agency for purposes of the                    service, institutionalized care for a child            full-time course of institutional on-farm
                                                      prior law regarding a child placed for                  who is permanently and totally disabled                training under the supervision of an
                                                      legal adoption. These proposed                          (as defined in section 22(e)(3)), or                   accredited agent of an educational
                                                      regulations define an authorized                        incarceration may be treated as a                      institution or of a State or political
                                                      placement agency for purposes of the                    temporary absence due to special                       subdivision of a State. An educational
                                                      definition of an eligible foster child and              circumstances. This definition of                      organization, as defined in section
                                                      withdraw the 2000 proposed                              temporary absence applies to the                       170(b)(1)(A)(ii), is a school normally
                                                      regulations, which defined that term                    residency test for a qualifying child, to              maintaining a regular faculty and
                                                      without reference to an Indian Tribal                   the relationship test for a qualifying                 curriculum and having a regularly
                                                      Government (ITG).                                       relative who does not have a listed
                                                        These proposed regulations provide                                                                           enrolled body of students in attendance
                                                                                                              relationship to the taxpayer, and to the               at the place where its educational
                                                      that an authorized placement agency
                                                                                                              requirements to maintain a household                   activities are regularly carried on.
                                                      may be a State, the District of Columbia,
                                                                                                              for surviving spouse and head of
                                                      a possession of the United States, a                                                                           d. Support Tests
                                                                                                              household.
                                                      foreign country, an agency or
                                                      organization authorized by, or a                           For purposes of the residency test for                 In determining whether an individual
                                                      political subdivision of, any of these                  a qualifying child, the proposed                       provided more than one-half of the
                                                      entities to place children in foster care               regulations provide that an individual is              individual’s own support (qualifying
                                                      or for adoption. Under the Indian Child                 treated as having the same principal                   child support test), or whether a
                                                      Welfare Act of 1978 (25 U.S.C. chapter                  place of abode as the taxpayer for more                taxpayer provided more than one-half of
                                                      21), ITGs and states perform similar                    than one-half of the taxable year if the               an individual’s support (qualifying
                                                      functions for foster care and adoption                  individual resides with the taxpayer for               relative support test), the proposed
                                                      programs. Thus, the proposed                            at least 183 nights during the taxpayer’s              regulations compare the amount of
                                                      regulations provide that an authorized                  taxable year or for at least 184 nights                support provided by the individual or
                                                      placement agency also may be an ITG                     during the taxpayer’s taxable year that                the taxpayer to the total amount of the
                                                      (as defined in section 7701(a)(40)), or an              includes a leap day (residing for more                 individual’s support from all sources. In
                                                      agency or organization authorized by, or                than one-half of the taxable year). The                general, the amount of an individual’s
                                                      a political subdivision of, an ITG that                 proposed regulations further provide                   support from all sources includes
                                                      places children in foster care or for                   that an individual resides with the                    support the individual provides and
                                                      adoption.                                               taxpayer for a night if the individual                 income that is excludable from gross
                                                                                                              sleeps (1) at the taxpayer’s residence, or             income. The proposed regulations
                                                      b. Residency Test—Principal Place of                    (2) in the company of the taxpayer when                further provide that the amount of an
                                                      Abode                                                   the individual does not sleep at the                   item of support is the amount of
                                                         For purposes of determining whether                  taxpayer’s residence (for example, when                expenses paid or incurred to furnish the
                                                      an individual has the same principal                    the parent and the child are on                        item of support. If support is furnished
                                                      place of abode as the taxpayer in                       vacation). The regulations provide                     in the form of property or a benefit
                                                      applying the residency test for a                       additional rules for counting nights if a              (such as lodging), the amount of that
                                                      qualifying child and the relationship                   night extends over two taxable years                   support is the fair market value of the
                                                      test for a qualifying relative who does                 and for taxpayers who work at night.                   item furnished (Rev. Rul. 58–302 (1958–
                                                      not have one of the listed relationships                   The proposed regulations provide                    1 CB 62)).
                                                      to the taxpayer, the proposed                           special rules for determining whether an                  The proposed regulations provide that
                                                      regulations provide that the term                       individual satisfies a residency test if               the term support includes food, shelter,
                                                      principal place of abode means a                        the individual is born or dies during the              clothing, medical and dental care,
                                                      person’s main home or dwelling where                    taxable year, is adopted or placed for                 education, and similar items for the
                                                      the person resides. A person’s principal                adoption, is an eligible foster child, or              benefit of the supported individual.
                                                      place of abode need not be the same                     is a missing child.                                    Support does not include Federal, State,
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                                                      physical location throughout the taxable                                                                       and local income taxes, or Social
                                                                                                              c. Age Test
                                                      year and may be temporary lodging such                                                                         Security and Medicare taxes, of an
                                                      as a homeless shelter or relief housing                    The age test for a qualifying child                 individual paid from the individual’s
                                                      resulting from displacement caused by a                 requires that an individual be younger                 own income (Rev. Rul. 58–67 (1958–1
                                                      natural disaster.                                       than the taxpayer claiming the                         CB 62)), funeral expenses (Rev. Rul. 65–
                                                         The proposed regulations further                     individual as a qualifying child, and the              307 (1965–2 CB 40)), life insurance
                                                      provide that a taxpayer and an                          individual must not have attained the                  premiums, or scholarships received by a
                                                      individual have the same principal                      age of 19 (or age 24 if the individual is              taxpayer’s child who is a student as
                                                      place of abode despite a temporary                      a student). The age requirement is                     defined in section 152(f)(2).


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                            6375

                                                         The proposed regulations provide that                  However, unlike the subsidies                        payments to support her children, the
                                                      medical insurance premiums are treated                  described in the previous paragraph that               proposed regulations treat the mother as
                                                      as support. These premiums include                      generally are based solely on need, old                having provided that support. Thus, the
                                                      Part A Basic Medicare premiums, if any,                 age benefits under section 202(b) of                   IRS will no longer assert the position
                                                      under Title XVIII of the Social Security                Title II of the Social Security Act (SSA)              that it took in Lutter, which concerned
                                                      Act (42 U.S.C. 1395c to 1395i–5), Part B                (42 U.S.C. 402) are based on an                        payments received by a mother under a
                                                      Supplemental Medicare premiums                          individual’s earnings and contributions                program that was the predecessor of
                                                      under Title XVIII of the Social Security                into the Social Security system and thus               TANF. The Treasury Department and
                                                      Act (42 U.S.C. 1395j to 1395w–6), Part                  are treated as support provided by the                 the IRS are proposing this rule for the
                                                      C Medicare + Choice Program premiums                    recipient to the extent the recipient uses             administrative convenience of both the
                                                      under Title XVIII of the Social Security                the payments for support. See Rev. Rul.                IRS and taxpayers to avoid the need to
                                                      Act (42 U.S.C. 1395w–21 to 1395w–29),                   58–419 (1958–2 CB 57), as modified by                  trace the use of such governmental
                                                      and Part D Voluntary Prescription Drug                  Rev. Rul. 64–222 (1964–2 CB 47).                       payments, as opposed to the use of other
                                                      Benefit Medicare premiums under Title                   Similarly, Social Security survivor and                funds of the recipient, for the support of
                                                      XVIII of the Social Security Act (42                    disability insurance benefit payments                  another individual.
                                                      U.S.C. 1395w–101 to 1395w–154).                         made under section 202(d) of the SSA                      The Treasury Department and IRS
                                                      However, medical insurance proceeds,                    to the child of a deceased or disabled                 request comments on whether various
                                                      including benefits received under                       parent are treated as support provided                 payments made pursuant to the Patient
                                                      Medicare Part A, Part B, Part C, and Part               by the child to the extent those                       Protection And Affordable Care Act
                                                      D, are not treated as support and are                   payments are used for the child’s                      (Public Law 111–148, 124 Stat. 119) in
                                                      disregarded in determining the amount                   support. See Rev. Rul. 57–344 (1957–2                  the form of a cost-sharing reduction, an
                                                      of the individual’s support. Thus, only                 CB 112) and Rev. Rul. 74–543 (1974–2                   advanced payment of the premium tax
                                                      the premiums paid and the                               CB 39).                                                credit, or as a reimbursement of health
                                                      unreimbursed portion of the expenses                                                                           insurance premiums in the form of a
                                                                                                                The proposed regulations provide a
                                                      for the individual’s medical care are                                                                          premium tax credit, when used for the
                                                                                                              special rule for governmental payments
                                                      support. See Rev. Rul. 64–223 (1964–2                                                                          benefit of another individual, are
                                                                                                              used by the recipient or other intended
                                                      CB 50); and Rev. Rul. 70–341 (1970–2                                                                           support provided by the recipient of
                                                                                                              beneficiary to support another
                                                      CB 31), revoked in part by Rev. Rul. 79–                                                                       those benefits or support provided by a
                                                                                                              individual. The proposed regulations                   third party.
                                                      173 (1979–1 CB 86) to the extent that it                draw a distinction between: (1)
                                                      held that Part A Medicare benefits are                  Governmental payments (such as Social                  e. Citizenship
                                                      included as a recipient’s contribution to               Security old age benefits, or survivor                    Under section 152(b)(3)(A), an
                                                      support. In addition, services provided                 and disability insurance benefits for a                individual who is not a citizen or
                                                      to individuals under the medical and                    child) made to a recipient that are                    national of the United States is not a
                                                      dental care provisions of the Armed                     intended to benefit a particular named                 dependent unless the individual is a
                                                      Forces Act (10 U.S.C. chapter 55) are not               individual (whether the recipient, or                  resident of the United States, Canada, or
                                                      treated as support and are disregarded                  another intended beneficiary for whom                  Mexico. Nevertheless, consistent with
                                                      in determining the amount of the                        the recipient merely acts as the payee on              the exception for certain adopted
                                                      individual’s support. Finally, payments                 behalf of that other intended                          children in section 152(b)(3)(B), the
                                                      from a third party (including a third                   beneficiary); and (2) governmental                     proposed regulations provide that an
                                                      party’s insurance company) for the                      payments made to a recipient that are                  adopted child of a taxpayer who is a
                                                      medical care of an injured individual in                intended to support the recipient and                  U.S. citizen or national may qualify as
                                                      satisfaction of a legal claim for the                   other individuals (such as TANF).                      a dependent if, for the taxpayer’s taxable
                                                      personal injury of the individual are not               Although the governmental payments of                  year, the child has the same principal
                                                      items of support and are disregarded in                 the former variety are intended to                     place of abode as the taxpayer and is a
                                                      determining the amount of the                           benefit a particular named individual,                 member of the taxpayer’s household,
                                                      individual’s support. See Rev. Rul. 64–                 because money is fungible, the intended                and otherwise qualifies as the taxpayer’s
                                                      223.                                                    beneficiary might use the governmental                 dependent.
                                                         The proposed regulations provide                     payments to support another individual.
                                                      that, in general, governmental payments                 In this situation, the proposed                        f. Tiebreaker Rules
                                                      and subsidies are treated as support                    regulations provide that, if the intended                 The proposed regulations change the
                                                      provided by a third party. Consistent                   beneficiary (whether the recipient or                  interpretation in Publication 501
                                                      with previously issued rulings and case                 another individual) uses the                           regarding a taxpayer’s adjusted gross
                                                      law, these payments and subsidies                       governmental payments to support                       income on a joint return and provide
                                                      include, for example, Temporary                         another individual, that amount would                  that, in applying the tiebreaker rules
                                                      Assistance for Needy Families (TANF)                    constitute support of that other                       that treat an individual as the qualifying
                                                      (42 U.S.C. 601–619), low-income                         individual provided by the intended                    child of the eligible taxpayer with the
                                                      housing assistance (42 U.S.C. 1437f),                   beneficiary. Similarly, the proposed                   higher or highest adjusted gross income,
                                                      benefits under the Supplemental                         regulations provide that the use of                    the adjusted gross income of a taxpayer
                                                      Nutrition Assistance Program (7 U.S.C.                  governmental payments of the latter                    who files a joint tax return is the total
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                                                      chapter 51), Supplemental Security                      variety by the recipient to support                    adjusted gross income shown on the
                                                      Income payments (42 U.S.C. 1381–                        another individual would constitute                    return. The prior interpretation is
                                                      1383f), foster care maintenance                         support of that other individual                       changed to be consistent with other
                                                      payments, and adoption assistance                       provided by the recipient, whereas any                 Code sections that require the filing of
                                                      payments. See H.R. Rep. No. 108–696, at                 part of such a payment used for the                    a joint return to claim a benefit and
                                                      57 (2004) (Conf. Rep.); Gulvin v.                       support of the recipient would                         therefore calculate income based on the
                                                      Commissioner, 644 F.2d 2 (5th Cir.                      constitute support of the recipient by a               entire amount shown on the joint
                                                      1981); and Rev. Rul. 74–153 (1974–1 CB                  third party. For example, if a mother                  return. For example, the earned income
                                                      20).                                                    receives TANF and uses the TANF                        credit under section 32 calculates the


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                                                      6376                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      earned income amount based on the                       h. Filing a Return Solely To Obtain a                  21 made by WFTRA, which removed
                                                      entire amount shown on the joint                        Refund of Taxes                                        the requirement that a taxpayer
                                                      return. This joint return rule also is                     Individuals who file an income tax                  maintain a household to claim the credit
                                                      relevant for determining whether                        return solely to obtain a refund of                    under section 21.
                                                      section 152(c)(4)(C) applies. Under that                estimated or withheld taxes are subject                a. Surviving Spouse
                                                      provision, if an eligible parent does not               to special rules under various
                                                      claim an individual as a qualifying                                                                               From the time of the 1969 amendment
                                                                                                              provisions of section 152. Section                     until the enactment of WFTRA, section
                                                      child, another eligible taxpayer may                    152(c)(1)(E) provides that, for an
                                                      claim the individual as a qualifying                                                                           2(a)(1)(B) provided that a taxpayer who
                                                                                                              individual to be a qualifying child of a               is a surviving spouse described in
                                                      child only if that taxpayer’s adjusted                  taxpayer, the individual cannot have
                                                      gross income is higher than the adjusted                                                                       section 2(a)(1)(A) may file as a surviving
                                                                                                              filed a joint return ‘‘other than only for             spouse (and thus may use the tax rates
                                                      gross income of any eligible parent.                    a claim of refund.’’ Section 152(b)(2)                 of joint filers) only if the taxpayer
                                                         The proposed regulations also expand                 provides that, for an individual to be a               ‘‘maintains as his home a household
                                                      the tiebreaker rule in section                          dependent of a taxpayer, the individual                which constitutes for the taxable year
                                                      152(c)(4)(C) to address the situation in                cannot have filed a joint return with the              the principal place of abode (as a
                                                      which an eligible parent does not claim                 individual’s spouse. However, the                      member of such household) of a
                                                      an individual as a qualifying child and                 WFTRA conference report states that                    dependent (i) who (within the meaning
                                                      two or more taxpayers, none of whom                     ‘‘[t]his restriction does not apply if the             of section 152) is a son, stepson,
                                                      is a parent, are eligible to claim the                  return was filed solely to obtain a                    daughter, or stepdaughter of the
                                                      individual as a qualifying child and                    refund and no tax liability would exist                taxpayer, and (ii) with respect to whom
                                                      each has adjusted gross income higher                   for either spouse if they filed separate               the taxpayer is entitled to a deduction
                                                      than any eligible parent. In this                       returns.’’ Section 152(d)(1)(D) provides               for the taxable year under section 151.’’
                                                      situation, the proposed regulations                     that, to be a qualifying relative, an                  Thus, the member of the taxpayer’s
                                                      provide that the individual is treated as               individual may not be the qualifying                   household had to be a son or daughter
                                                      the qualifying child of the eligible                    child of the taxpayer or of any other                  or stepson or stepdaughter for whom the
                                                      taxpayer with the highest adjusted gross                taxpayer. Notice 2008–5 concludes that                 taxpayer was entitled to a dependency
                                                      income.                                                 an individual is not the qualifying child              deduction.
                                                                                                              of ‘‘any other taxpayer,’’ within the                     WFTRA amended section 2(a), as well
                                                      g. Child of Parents Who Are Divorced,                   meaning of section 152(d)(1)(D), if the                as certain other sections such as section
                                                      Separated, or Living Apart                              person who could have claimed the                      42 relating to the low-income housing
                                                                                                              individual as a qualifying child does not              credit and section 125 relating to
                                                         Section 152(e) provides, in general,
                                                                                                              have a filing obligation and either does               cafeteria plans, to provide that the
                                                      that a child is treated as the qualifying
                                                                                                              not file a return or files a return solely             reference to section 152 applies
                                                      child or qualifying relative of a
                                                                                                              to obtain a refund of withheld taxes.                  ‘‘without regard to subsections (b)(1),
                                                      noncustodial parent for a calendar year                    The proposed regulations provide a                  (b)(2), and (d)(1)(B).’’ These three
                                                      if, among other things, the custodial                   similar exception to the rule in section               subsections, respectively: (1) Deny a
                                                      parent provides to the noncustodial                     152(b)(1) that a taxpayer cannot have a                dependency exemption to a dependent,
                                                      parent a written declaration that the                   dependent if the taxpayer himself or                   (2) deny a dependency exemption for a
                                                      custodial parent will not claim the child               herself is a dependent of another                      person filing a joint return with his or
                                                      as a dependent for any taxable year                     taxpayer. Specifically, the proposed                   her spouse, and (3) require the gross
                                                      beginning in that calendar year. Under                  regulations provide that an individual is              income of a qualifying relative to be less
                                                      section 152(e)(2)(B), the noncustodial                  not a dependent of a person if that                    than the amount of the dependency
                                                      parent must attach the written                          person is not required to file an income               exemption. Thus, the language inserted
                                                      declaration to his or her return.                       tax return under section 6012 and either               by the WFTRA technical amendment to
                                                         The proposed regulations provide that                does not file an income tax return or                  section 2(a) was intended to broaden the
                                                      the noncustodial parent must attach a                   files an income tax return solely to                   class of individuals whose members
                                                      copy of the written declaration to an                   claim a refund of estimated or withheld                could qualify a taxpayer as a surviving
                                                      original or amended return. A taxpayer                  taxes.                                                 spouse for purposes of section 2. See
                                                      may submit a copy of the written                                                                               also Staff of Joint Comm. on Taxation,
                                                      declaration to the IRS during an                        2. Surviving Spouse, Head of                           108th Cong., General Explanation of
                                                      examination of that parent’s return.                    Household, and Conforming Changes                      Tax Legislation Enacted in the 108th
                                                      However, to provide certainty for both                    The proposed regulations amend the                   Congress 130 (Comm. Print 2005)
                                                      taxpayers and the IRS, the proposed                     regulations under section 2 regarding                  (‘‘technical and conforming
                                                      regulations provide that a copy of a                    the definition of surviving spouse and                 amendments . . . provide that an
                                                      written declaration attached to an                      the definition of head of household to                 individual may qualify as a dependent
                                                      amended return or provided during an                    conform to the amendments made by                      for certain purposes . . . without regard
                                                      examination will not meet the                           WFTRA. To reflect the amendments                       to whether the individual has gross
                                                      requirements of section 152(e) and                      made by the Tax Reform Act of 1969,                    income . . . or is married and files a
                                                      § 1.152–5(e) if the custodial parent                    the proposed regulations remove from                   joint return.’’)
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                                                      signed the written declaration after the                the regulations under sections 2, 3, and                  However, in amending section 2(a) for
                                                      custodial parent filed a return claiming                6013 references to the return of a                     this purpose, WFTRA inserted the
                                                      a dependency exemption for the child                    surviving spouse being treated as a joint              direction to exclude the three referenced
                                                      for the year at issue, and the custodial                return. The proposed regulations also                  provisions after the reference to section
                                                      parent has not filed an amended return                  revise and move from the regulations                   152 in section 2(a)(1)(B)(i). Thus, this
                                                      to remove that claim to a dependency                    under section 21 to the regulations                    section currently provides, ‘‘(i) who
                                                      exemption. The proposed regulations                     under section 2 the definition of                      (within the meaning of section 152,
                                                      provide similar rules for a parent                      maintaining a household, in part, to                   determined without regard to
                                                      revoking a written declaration.                         conform to the amendments to section                   subsections (b)(1), (b)(2), and (d)(1)(B)


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                            6377

                                                      thereof) is a son, stepson, daughter, or                proposed regulations also, in certain                  the current rule, C would not be allowed
                                                      stepdaughter of the taxpayer.’’ Because                 circumstances, recognize the creation of               to claim the childless EIC under section
                                                      section 2(a)(1)(B)(ii) continues to require             a new household during a year and treat                32(c)(1)(A)(ii). The Treasury Department
                                                      that the taxpayer be entitled to a                      shared living quarters as separate                     and the IRS have determined that
                                                      deduction under section 151 for the                     households.                                            allowing C to continue to claim the
                                                      dependent (a requirement that could not                                                                        childless EIC after the child is born is
                                                                                                              3. Tax Tables for Individuals
                                                      be met if any of these three sections                                                                          equitable and consistent with the
                                                      applied), read literally, section                          The proposed regulations remove                     purpose of section 32 to assist working,
                                                      2(a)(1)(B)(ii) would override the intent                from the regulations under section 3                   low-income taxpayers. Accordingly, the
                                                      of the statutory change in section                      references to the return of a surviving                proposed regulations provide that, if an
                                                      2(a)(1)(B)(i), thus preventing the                      spouse being treated as a joint return to              individual is not treated as a qualifying
                                                      WFTRA amendment from effecting any                      conform to the amendments made by                      child of a taxpayer after applying the
                                                      change in the statute. Therefore, to give               the Tax Reform Act of 1969. The                        tiebreaker rules of section 152(c)(4),
                                                      effect to the statutory amendment, the                  proposed regulations also update the                   then the individual will not prevent that
                                                      proposed regulations construe the                       regulations under section 3 to reflect                 taxpayer from qualifying for the
                                                      language added by WFTRA instead to                      current law.                                           childless EIC.
                                                      modify the section 152 requirements                     4. Earned Income Credit
                                                      that apply in determining whether the                                                                          5. Additional Standard Deduction for
                                                      taxpayer is entitled to the dependency                     The proposed regulations conform the                the Aged and Blind
                                                      exemption under section 151 for                         regulations under section 32 to                           The proposed regulations remove the
                                                      purposes of section 2(a)(1)(B)(ii).                     amendments made to section 32 by                       provisions on additional exemptions for
                                                      Accordingly, the proposed regulations                   WFTRA. Consistent with the 2010                        age and blindness from the regulations
                                                      provide that an individual is a                         repeal of section 3507 by the FAA Air                  under section 151 and add regulations
                                                      dependent for purposes of section 2(a)                  Transportation Modernization and                       under section 63 on the additional
                                                      if the taxpayer may claim a deduction                   Safety Improvement Act, the proposed                   standard deduction for the aged and the
                                                      under section 151 for the individual                    regulations delete the paragraphs of the               blind to reflect the changes made by the
                                                      without applying sections 152(b)(1),                    regulations under section 32 discussing                Tax Reform Act of 1986. The proposed
                                                      (b)(2), and (d)(1)(B).                                  advance payment of the earned income                   regulations amend the regulations under
                                                                                                              credit.                                                section 63 to remove a cross reference
                                                      b. Head of Household                                       In addition, the proposed regulations
                                                                                                                                                                     to now-repealed statutory provisions
                                                         The proposed regulations under                       reflect a change in the IRS’s position on
                                                                                                                                                                     relating to a charitable deduction for
                                                      section 2(b) update and simplify the                    the interaction of sections 152(c)(4) and
                                                                                                                                                                     taxpayers who do not itemize. To limit
                                                      existing regulations defining head of                   32. Specifically, the proposed
                                                                                                                                                                     impediments to electronic filing, the
                                                      household. Consistent with the statutory                regulations provide that, if an
                                                                                                                                                                     proposed regulations also delete the
                                                      amendments to the definition of a                       individual meets the definition of a
                                                                                                                                                                     requirement that a taxpayer claiming a
                                                      dependent, the proposed regulations                     qualifying child under section 152(c)(1)
                                                                                                                                                                     tax benefit for blindness must attach a
                                                      provide rules on qualifying as a head of                for more than one taxpayer and the
                                                                                                                                                                     certificate or statement to the taxpayer’s
                                                      household by maintaining a household                    individual is not treated as the
                                                                                                                                                                     tax return. Instead, a taxpayer must
                                                      that is the principal place of abode of a               qualifying child of one such taxpayer
                                                                                                                                                                     maintain the certificate or statement in
                                                      qualifying child or a dependent. The                    under the tiebreaker rules of section
                                                                                                                                                                     the taxpayer’s records.
                                                      proposed regulations on head of                         152(c)(4), then the individual also is not
                                                      household apply the rules in the                        treated as a qualifying child of that                  Applicability Date
                                                      proposed regulations under section 152                  taxpayer for purposes of section                          These regulations are proposed to
                                                      for determining principal place of                      32(c)(1)(A). Thus, that taxpayer may be                apply to taxable years beginning after
                                                      abode, including whether an absence is                  an eligible individual under section                   the date the regulations are published as
                                                      temporary.                                              32(c)(1)(A)(ii) and may claim the                      final regulations in the Federal Register.
                                                                                                              childless EIC if he or she meets the                   Pending the issuance of the final
                                                      c. Maintaining a Household                              other requirements of that section. The                regulations, taxpayers may choose to
                                                         The proposed regulations provide that                Treasury Department and the IRS have                   apply these proposed regulations in any
                                                      a taxpayer maintains a household only                   concluded that this change in position                 open taxable years.
                                                      if the taxpayer pays more than one-half                 is consistent with the language and
                                                      of the cost related to operating the                    purpose of section 32 and will be less                 Effect on Other Documents
                                                      household for the relevant period.                      confusing to taxpayers and easier for the                When finalized, the proposed
                                                      Expenses related to operating the                       IRS to administer.                                     regulations will obsolete Rev. Rul. 57–
                                                      household include property taxes,                          The problems with the current rule                  344, Rev. Rul. 58–67, Rev. Rul. 58–302,
                                                      mortgage interest, rent, utility charges,               may be illustrated by the following                    Rev. Rul. 64–223, Rev. Rul. 65–307, Rev.
                                                      upkeep and repairs, property insurance,                 example. Two sisters (B and C) live                    Rul. 70–341, Rev. Rul. 74–153, Rev. Rul.
                                                      and food consumed on the premises. A                    together and each of them is a low-                    74–543, Rev. Rul. 79–173, Rev. Rul. 84–
                                                      taxpayer may treat a home’s fair market                 income taxpayer. Neither has a child                   89, Notice 2006–86, and Notice 2008–5.
                                                      rental value as a cost of maintaining a                 and each may claim the childless EIC
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                                                      household (instead of the sum of                        under section 32(c)(1)(A)(ii). Later, B                Special Analyses
                                                      payments for mortgage interest, property                has a child, and B’s child meets the                     Certain IRS regulations, including
                                                      taxes, and insurance). The proposed                     definition of a qualifying child under                 these, are exempt from the requirements
                                                      regulations provide rules that, in certain              section 152(c)(1) for both B and C. The                of Executive Order 12866, as
                                                      circumstances, prorate on a monthly                     child is treated as the qualifying child               supplemented and reaffirmed by
                                                      basis the annual cost of maintaining a                  of B under the tiebreaker rules of section             Executive Order 13563. Therefore, a
                                                      household when a qualifying child or                    152(c)(4), and B may claim the EIC as an               regulatory impact assessment is not
                                                      dependent resides in the household for                  eligible individual with a qualifying                  required. The regulations affect
                                                      less than the entire taxable year. The                  child under section 32(c)(1)(A)(i). Under              individuals and do not impose a


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                                                      6378                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      collection of information on small                      November 30, 2000 (65 FR 71277), is                    who is a dependent of the taxpayer
                                                      entities, therefore the Regulatory                      withdrawn.                                             within the meaning of paragraph (a)(2)
                                                      Flexibility Act (5 U.S.C. chapter 6) does                                                                      of this section.
                                                                                                              Proposed Amendments to the                                (2) Dependent. An individual is a
                                                      not apply. Pursuant to section 7805(f) of
                                                                                                              Regulations                                            dependent of a taxpayer for purposes of
                                                      the Code, this notice of proposed
                                                      rulemaking will be submitted to the                       Accordingly, 26 CFR parts 1 and 301                  this paragraph (a) if the taxpayer may
                                                      Chief Counsel for Advocacy of the Small                 are proposed to be amended as follows:                 claim a deduction under section 151 for
                                                      Business Administration for comment                                                                            the individual, without applying
                                                      on its impact on small business.                        PART 1—INCOME TAXES                                    sections 152(b)(1), (b)(2), and (d)(1)(B).
                                                                                                                                                                        (b) Head of household—(1) In general.
                                                      Statement of Availability of IRS                        ■ Paragraph 1. The authority citation                  A taxpayer qualifies as a head of
                                                      Documents                                               for part 1 continues to read, in part, as              household if the taxpayer is not married
                                                         IRS revenue procedures, revenue                      follows:                                               at the end of the taxable year, is not a
                                                      rulings, notices and other guidance                         Authority: 26 U.S.C. 7805 * * *                    surviving spouse, as defined in
                                                      cited in this preamble are published in                 ■ Par. 2. Section 1.2–1 is revised to read             paragraph (a) of this section, and
                                                      the Internal Revenue Bulletin (or                       as follows:                                            either—
                                                      Cumulative Bulletin) and are available                                                                            (i) Maintains as the taxpayer’s home
                                                      from the Superintendent of Documents,                   § 1.2–1 Returns of surviving spouse and                a household that is for more than one-
                                                      U.S. Government Publishing Office,                      head of household.                                     half of the taxable year the principal
                                                      Washington, DC 20402, or by visiting                      (a) In general. Tax is determined                    place of abode of a qualifying child or
                                                      the IRS Web site at http://www.irs.gov.                 under section 1(a) for a return of a                   dependent of the taxpayer, within the
                                                                                                              surviving spouse, as defined in section                meaning of paragraph (b)(2) of this
                                                      Comments and Requests for a Public                                                                             section, who is a member of the
                                                                                                              2(a) and § 1.2–2(a). Tax is determined
                                                      Hearing                                                                                                        taxpayer’s household during that
                                                                                                              under section 1(b) for a return of a head
                                                        Before these proposed regulations are                 of household, as defined in section 2(b)               period; or
                                                      adopted as final regulations,                           and § 1.2–2(b).                                           (ii) Maintains a household, whether or
                                                      consideration will be given to any                         (b) Death of a spouse. If married                   not the taxpayer’s home, that is for the
                                                      comments that are submitted timely to                   taxpayers have different taxable years                 taxable year the principal place of abode
                                                      the IRS, as prescribed in this preamble                 solely because of the death of either                  of a parent of the taxpayer, within the
                                                      under the ‘‘Addresses’’ heading. The                    spouse, the taxable year of the deceased               meaning of paragraph (b)(3) of this
                                                      IRS and Treasury Department request                     spouse is deemed to end on the last day                section.
                                                      comments on all aspects of the proposed                 of the surviving spouse’s taxable year                    (2) Qualifying child or dependent—(i)
                                                      rules. All comments will be available at                for purposes of determining their                      Qualifying child. An individual is a
                                                      www.regulations.gov or upon request. A                  eligibility to file a joint return for that            qualifying child for purposes of this
                                                      public hearing will be scheduled if                     year. For rules relating to filing a joint             paragraph (b) if the individual is a
                                                      requested in writing by any person that                 return in the year a spouse dies, see                  qualifying child of the taxpayer as
                                                      timely submits written comments. If a                   section 6013 and the related regulations.              defined in section 152(c) and the related
                                                      public hearing is scheduled, notice of                     (c) Tax tables. For rules on the use of             regulations, determined without
                                                      the date, time, and place for the hearing               the tax tables that apply to individuals,              applying section 152(e). However, if the
                                                      will be published in the Federal                        see section 3 and the related regulations.             individual is married at the end of the
                                                      Register.                                                  (d) Change in rates. For the treatment              taxpayer’s taxable year, the individual is
                                                                                                              of taxable years during which a change                 not a qualifying child for purposes of
                                                      Drafting Information                                                                                           this section if the individual is not the
                                                                                                              in the tax rates occurs, see section 15.
                                                         The principal authors of these                          (e) Applicability date. This section                taxpayer’s dependent because of the
                                                      proposed regulations are Christina M.                   applies to taxable years beginning after               limitations of section 152(b)(2) (relating
                                                      Glendening and Victoria J. Driscoll of                  the date these regulations are published               to an individual filing a joint return
                                                      the Office of Associate Chief Counsel                   as final regulations in the Federal                    with his or her spouse) or 152(b)(3)
                                                      (Income Tax and Accounting). However,                   Register.                                              (relating to individuals who are citizens
                                                      other personnel from the Treasury                       ■ Par. 3. Section 1.2–2 is revised to read             or nationals of other countries).
                                                      Department and the IRS participated in                  as follows:                                               (ii) Dependent. An individual is a
                                                      the development of the regulations.                                                                            dependent for purposes of this
                                                                                                              § 1.2–2    Definitions and special rules.              paragraph (b) if the individual is the
                                                      List of Subjects
                                                                                                                 (a) Surviving spouse—(1) In general. If             taxpayer’s dependent, within the
                                                      26 CFR Part 1                                           a taxpayer is eligible to file a joint return          meaning of section 152 without
                                                        Income taxes, Reporting and                           under section 6013 (without applying                   applying sections 152(d)(2)(H) (relating
                                                      recordkeeping requirements.                             section 6013(a)(3)) for the taxable year               to an individual qualifying as a member
                                                                                                              in which the taxpayer’s spouse dies, the               of the household) and 152(d)(3) (relating
                                                      26 CFR Part 301                                         taxpayer qualifies as a surviving spouse               to the special rule for multiple support
                                                        Employment taxes, Estate taxes,                       for each of the two taxable years                      agreements) for whom the taxpayer may
                                                      Excise taxes, Gift taxes, Income taxes,                 immediately following the year of the                  claim a deduction under section 151.
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                                                      Penalties, Reporting and recordkeeping                  spouse’s death if the taxpayer—                           (3) Parent. An individual is a parent
                                                      requirements.                                              (i) Has not remarried before the close              of the taxpayer for purposes of this
                                                                                                              of the taxable year; and                               paragraph (b) if the individual is the
                                                      Withdrawal of Notice of Proposed                           (ii) Maintains as the taxpayer’s home               taxpayer’s father or mother, including a
                                                      Rulemaking                                              a household that is for the taxable year               father or mother who legally adopted
                                                        Accordingly, under authority of 26                    the principal place of abode of a son or               the taxpayer, and is the taxpayer’s
                                                      U.S.C. 7805, the notice of proposed                     daughter (including by adoption),                      dependent within the meaning of
                                                      rulemaking (REG–107279–00) that was                     stepson, or stepdaughter who is a                      section 152 without applying section
                                                      published in the Federal Register on                    member of the taxpayer’s household and                 152(d)(3), relating to the special rule for


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                                 6379

                                                      multiple support agreements, for whom                      (iii) An expense paid or reimbursed                 have priority under the tiebreaker rules
                                                      the taxpayer may claim a deduction                      by any other person.                                   in section 152(c)(4) to claim, any
                                                      under section 151.                                         (2) Proration of costs. In determining              individual in the other household as a
                                                         (4) Limitation. An individual may                    whether a taxpayer pays more than one-                 dependent.
                                                      qualify only one taxpayer as a head of                  half of the cost of maintaining a                        (ii) Examples. The following
                                                      household for taxable years beginning in                household that is the principal place of               examples illustrate the rules in this
                                                      the same calendar year.                                 abode of a qualifying child or dependent               paragraph (d)(5). In each example,
                                                         (5) Marital status. For purposes of this             for less than a taxable year, the cost for             assume that if a taxpayer may be treated
                                                      paragraph (b), the marital status of a                  the entire taxable year is prorated on the             as residing in a separate household, that
                                                      taxpayer is determined at the end of the                basis of the number of calendar months                 taxpayer provides more than one-half of
                                                      taxpayer’s taxable year. A taxpayer is                  the qualifying child or dependent                      the cost of maintaining that household.
                                                      considered not married if the taxpayer                  resides in the household. A period of                     Example 1. Two sisters and their
                                                      is legally separated from the taxpayer’s                less than a calendar month is treated as               respective children reside in the same living
                                                      spouse under a decree of divorce or                     a full calendar month. Thus, for                       quarters. Neither sister may claim the other
                                                      separate maintenance, if at any time                    example, if the cost of maintaining a                  sister as a dependent. Each sister pays more
                                                      during the taxable year the taxpayer’s                  household for a taxable year is $30,000,               than one-half of the expenses for herself and
                                                      spouse is a nonresident alien, or if the                and a taxpayer shares a principal place                her children, and each sister claims each of
                                                      provisions of section 7703(b) are                       of abode with a qualifying child or                    her own children as a dependent. Because
                                                      satisfied. A taxpayer is considered                     dependent from May 20 to December 31,                  neither sister may claim the other sister as a
                                                                                                                                                                     dependent, and because neither sister would
                                                      married if the taxpayer’s spouse, other                 the taxpayer must furnish more than                    have priority to claim any of the other sister’s
                                                      than a spouse who is a nonresident                      $10,000 (8/12 of $30,000 × 50 percent)                 children as a qualifying child under the
                                                      alien, dies during the taxable year.                    in maintaining the household from May                  tiebreaker rules of section 152(c)(4), each
                                                         (6) Nonresident alien. A taxpayer does               1 to December 31 to satisfy the                        sister is treated as maintaining a separate
                                                      not qualify as a head of household if the               requirements of this paragraph (d).                    household.
                                                      taxpayer is a nonresident alien, as                        (3) New household. If a new                            Example 2. A and B, an unmarried couple,
                                                      defined in section 7701(b)(1)(B), at any                household is established during the                    have two children together (C1 and C2) and
                                                      time during the taxable year.                           taxpayer’s taxable year (for example, if               all four individuals live in the same living
                                                         (c) Member of the household. An                      spouses separate and one moves out of                  quarters for the entire tax year. Both A and
                                                      individual is a member of a taxpayer’s                                                                         B contribute to paying the expenses of the
                                                                                                              the family home with the child), the
                                                                                                                                                                     couple and the two children. A has higher
                                                      household if the individual and the                     cost of maintaining the new household                  adjusted gross income than B. Each parent
                                                      taxpayer reside in the same living                      for the year is the cost of maintaining                files a tax return. Under the tiebreaker rules
                                                      quarters and the taxpayer maintains the                 that household beginning with the date                 in section 152(c)(4), the parent with the
                                                      household, in part, for the benefit of the              the new household is established. If one               higher adjusted gross income (in this case, A)
                                                      individual. An individual is a member                   spouse and the child remain in the                     would have priority to claim each child as a
                                                      of a taxpayer’s household despite a                     family home and the other parent moves                 qualifying child if both claimed the child. As
                                                      temporary absence due to special                        out of the home, the cost of maintaining               a result, B may not be treated as maintaining
                                                      circumstances. An individual is not                     the household for the year is the cost of              a separate household with either child or
                                                      treated as a member of the taxpayer’s                                                                          both children. Therefore, if B may be claimed
                                                                                                              maintaining the household beginning                    as A’s dependent, then all four individuals
                                                      household if, at any time during the                    with the date the other spouse moves                   are members of the same household.
                                                      taxable year of the taxpayer, the                       out.                                                   However, if B may not be claimed as A’s
                                                      relationship between the individual and                    (4) Birth, death, adoption, or                      dependent, B may be treated as maintaining
                                                      the taxpayer violates local law. See                    placement. If an individual is a member                a separate household consisting solely of B,
                                                      § 1.152–4(c)(2) for rules relating to                   of a household for less than a taxable                 even if B claims one of the children as a
                                                      temporary absences.                                     year as a result of the individual’s birth,            dependent on B’s return.
                                                         (d) Maintaining a household—(1) In                   death, adoption, or placement with a                      Example 3. The facts are the same as in
                                                      general. A taxpayer maintains a                         taxpayer for adoption or in foster care                Example 2 of this paragraph (d)(5)(ii) except
                                                                                                              during that year, the requirement that                 that A and B do not have any children
                                                      household only if during the taxable
                                                                                                                                                                     together; C1 is the child of A and C2 is the
                                                      year the taxpayer pays more than one-                   the individual be a member of the                      child of B. Neither A nor B may claim the
                                                      half of the cost of operating the                       household for more than one-half of the                other as a dependent, and each parent pays
                                                      household for the mutual benefit of the                 taxable year is satisfied if the individual            more than one-half of the expenses for
                                                      residents. These expenses include                       is a member of the household for more                  himself or herself and his or her child.
                                                      property taxes, mortgage interest, rent,                than one-half of the period after the                  Because neither A nor B may claim the other
                                                      utility charges, upkeep and repairs,                    individual’s birth, adoption, or                       adult or the other adult’s child as a
                                                      property insurance, and food consumed                   placement for adoption or in foster care               dependent, each adult is treated as
                                                                                                              or before the individual’s death.                      maintaining a separate household.
                                                      on the premises. A taxpayer may treat
                                                                                                                 (5) Shared residence—(i) In general. If                Example 4. Grandparent, Parent, and
                                                      a home’s fair market rental value as a                                                                         Child live together and Child meets the
                                                      cost of maintaining a household, instead                two or more taxpayers not filing a joint               definition of a qualifying child for both
                                                      of the sum of payments for property                     return reside in the same living quarters,             Parent and Grandparent. Both Parent and
                                                      taxes, mortgage interest, and property                  each taxpayer may be treated as                        Grandparent pay their respective expenses,
                                                      insurance. Expenses of maintaining a                    maintaining a separate household if                    and both contribute to paying Child’s
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                                                      household do not include—                               each provides more than one-half of the                expenses. Neither Parent nor Grandparent
                                                         (i) The cost of clothing, education,                 cost of maintaining the separate                       may claim the other as a dependent. Under
                                                      medical treatment, vacations, life                      household. For this purpose, two                       the tiebreaker rules of section 152(c)(4),
                                                                                                              households in the same living quarters                 Parent would have priority over Grandparent
                                                      insurance, and transportation;
                                                                                                                                                                     to claim Child as a qualifying child.
                                                         (ii) The value of services performed in              are not considered separate households                 Therefore, Grandparent may not be treated as
                                                      the household by the taxpayer or any                    if any individual in one household is                  maintaining a household for Grandparent
                                                      other person qualifying the taxpayer as                 the spouse of any individual in the                    and Child separate from the household of
                                                      a head of household or as a surviving                   other household, or if any individual in               Parent. However, Parent may be treated as
                                                      spouse; or                                              one household may claim, or would                      maintaining a household for Parent and



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                                                      6380                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      Child separate from the household of                    uses the same tax rate category as a                   the related regulations, then that
                                                      Grandparent.                                            taxpayer filing a joint return.                        taxpayer may be an eligible individual
                                                         (e) Special rules for maintaining a                     (e) Applicability date. This section                under section 32(c)(1)(A)(i) and may
                                                      household—(1) Principal place of                        applies to taxable years beginning after               claim the earned income credit for a
                                                      abode. For purposes of this section, the                the date these regulations are published               taxpayer with a qualifying child if all
                                                      term principal place of abode has the                   as final regulations in the Federal                    other requirements of section 32 are
                                                      same meaning as in section 152 and                      Register.                                              satisfied. If an individual meets the
                                                      § 1.152–4(c).                                           ■ Par. 5. Section 1.21–1 is amended by                 definition of a qualifying child under
                                                         (2) Part-year residence. If, during the              revising paragraph (a)(1), removing                    paragraph (c)(3)(i) of this section for
                                                      taxable year, an individual who may                     paragraph (h), redesignating paragraphs                more than one taxpayer and the
                                                      qualify a taxpayer as head of household                 (j), (k), and (l) as paragraphs (h), (j), and          individual is not treated as the
                                                      is born or dies, is adopted or lawfully                 (k), and revising newly redesignated                   qualifying child of a taxpayer under the
                                                      placed for adoption with the taxpayer,                  paragraph (k) to read as follows:                      tiebreaker rules of section 152(c)(4) and
                                                      is an eligible foster child, or is a missing                                                                   the related regulations, then the
                                                                                                              § 1.21–1 Expenses for household and
                                                      child, whether the taxpayer maintained                  dependent care services necessary for
                                                                                                                                                                     individual also is not treated as a
                                                      a household that is the principal place                 gainful employment.                                    qualifying child of that taxpayer in the
                                                      of abode of the individual for the                                                                             taxable year for purposes of section
                                                                                                                 (a) In general. (1) Section 21 allows a
                                                      required period is determined under                                                                            32(c)(1)(A). Thus, that taxpayer may be
                                                                                                              credit to a taxpayer against the tax
                                                      § 1.152–4(d) and (e).                                                                                          an eligible individual under section
                                                                                                              imposed by chapter 1 for employment-
                                                         (3) Change of location. A taxpayer                                                                          32(c)(1)(A)(ii) and may claim the earned
                                                                                                              related expenses for household services
                                                      may maintain a household even though                                                                           income credit for a taxpayer without a
                                                                                                              and care (as defined in paragraph (d) of
                                                      the physical location of the household                                                                         qualifying child if all other
                                                                                                              this section) of a qualifying individual
                                                      changes.                                                                                                       requirements are satisfied.
                                                         (f) Certain married individuals living               (as defined in paragraph (b) of this
                                                                                                              section). The purpose of the expenses                     (iii) Examples. The following
                                                      apart. An individual who is considered                                                                         examples illustrate the rules of this
                                                      not married under section 7703(b) also                  must be to enable the taxpayer to be
                                                                                                              gainfully employed (as defined in                      paragraph (c). In each example, the
                                                      is considered not married for all                                                                              taxpayer uses the calendar year as the
                                                      purposes of part I of subchapter A of                   paragraph (c) of this section). For
                                                                                                              taxable years beginning after December                 taxpayer’s taxable year and, except to
                                                      chapter 1 of the Code.                                                                                         the extent indicated, each taxpayer
                                                         (g) Applicability date. This section                 31, 2004, a qualifying individual must
                                                                                                              have the same principal place of abode                 meets the requirements to claim the
                                                      applies to taxable years beginning after
                                                                                                              (as defined by paragraph (g) of this                   benefit(s) described in the example.
                                                      the date these regulations are published
                                                      as final regulations in the Federal                     section) as the taxpayer for more than                    Example 1. Child, Parent, and
                                                      Register.                                               one-half of the taxable year.                          Grandparent share the same principal place
                                                      ■ Par. 4. Section 1.3–1 is revised to read              *      *     *     *     *                             of abode for the taxable year. Child meets the
                                                      as follows:                                                (k) Applicability date—(1) In general.              definition of a qualifying child under
                                                                                                              Except as provide in paragraph (k)(2) of               paragraph (c)(3)(i) of this section for both
                                                      § 1.3–1   Tax tables for individuals.                   this section, this section and §§ 1.21–2               Parent and Grandparent (and for no other
                                                         (a) In general. Except as otherwise                  through 1.21–4 apply to taxable years                  person) for the taxable year. Parent claims the
                                                      provided in paragraph (b) of this                       ending after August 14, 2007.                          earned income credit with Child as Parent’s
                                                      section, in lieu of the tax imposed by                     (2) Exception. Paragraph (a)(1) of this             qualifying child. Under the tiebreaker rules
                                                      section 1, an individual who does not                                                                          of section 152(c)(4)(A) and the related
                                                                                                              section applies to taxable years
                                                      itemize deductions for the taxable year                                                                        regulations, Child is treated as the qualifying
                                                                                                              beginning after the date these                         child of Parent and is not treated as the
                                                      and whose taxable income for the                        regulations are published as final                     qualifying child of Grandparent. Under
                                                      taxable year does not exceed the ceiling                regulations in the Federal Register.                   section 32(c)(1) and paragraph (c)(3)(ii) of
                                                      amount as defined in paragraph (c) of                   ■ Par. 6. Section 1.32–2 is amended by                 this section, Parent is an eligible individual
                                                      this section, must determine his or her                 revising the section heading, adding                   under section 32(c)(1)(A)(i) who may claim
                                                      tax liability under the prescribed tax                  paragraph (c)(3), and revising paragraph               the earned income credit for a taxpayer with
                                                      tables in tax forms and publications of                 (e) to read as follows:                                a qualifying child, and Grandparent is an
                                                      the Internal Revenue Service. The                                                                              eligible individual under section
                                                      individual must use the appropriate tax                 § 1.32–2    Earned income credit.                      32(c)(1)(A)(ii) who may claim the earned
                                                      rate category under the tax tables. The                 *       *    *    *      *                             income credit for a taxpayer without a
                                                      tax imposed under section 3 and this                       (c) * * *                                           qualifying child.
                                                      section shall be treated as tax imposed                    (3) Qualifying child—(i) In general.                   Example 2. The facts are the same as in
                                                      by section 1.                                           For purposes of this section, a                        Example 1 of this paragraph (c)(3)(iii), except
                                                         (b) Exceptions. Section 3 and this                   qualifying child of the taxpayer is a                  that Grandparent, rather than Parent, claims
                                                      section do not apply to (1) an individual               qualifying child as defined in section                 Child as a qualifying child, and
                                                      making a return for a period of fewer                   152(c), determined without applying                    Grandparent’s adjusted gross income is
                                                      than 12 months as a result of a change                  sections 152(c)(1)(D) and 152(e).                      higher than Parent’s adjusted gross income.
                                                                                                                 (ii) Application of tie-breaker rules.              Under the tiebreaker rules of section
                                                      in annual accounting period, or (2) an
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                                                                                                              For purposes of determining whether a                  152(c)(4)(C) and the related regulations,
                                                      estate or trust.                                                                                               Child is treated as the qualifying child of
                                                         (c) Ceiling amount defined. The                      taxpayer is an eligible individual under
                                                                                                                                                                     Grandparent and is not treated as the
                                                      ceiling amount means the highest                        section 32(c)(1)(A), if an individual                  qualifying child of Parent. Under section
                                                      amount of taxable income for which a                    meets the definition of a qualifying                   32(c)(1) and paragraph (c)(3)(ii) of this
                                                      tax amount is determined in the tax                     child under paragraph (c)(3)(i) of this                section, Grandparent is an eligible individual
                                                      tables for the tax rate category in which               section for more than one taxpayer and                 under section 32(c)(1)(A)(i) who may claim
                                                      the taxpayer falls.                                     the individual is treated as the                       the earned income credit for a taxpayer with
                                                         (d) Special rule for surviving spouse.               qualifying child of a taxpayer under the               a qualifying child, and Parent is an eligible
                                                      A taxpayer filing as a surviving spouse                 tiebreaker rules of section 152(c)(4) and              individual under section 32(c)(1)(A)(ii) who



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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                                6381

                                                      may claim the earned income credit for a                attaining age 65, even though the spouse               individual taxpayer and spouse (the
                                                      taxpayer without a qualifying child.                    would have attained age 65 before the                  personal exemptions) and the
                                                      *     *     *     *     *                               end of the taxpayer’s taxable year.                    exemption for a dependent of the
                                                        (e) Applicability date—(1) In general.                   (2) Age determined. For purposes of                 taxpayer.
                                                      Except as provided in paragraph (e)(2)                  section 63(f) and this paragraph (b), a                *      *    *      *     *
                                                      of this section, this section applies to                taxpayer’s age is determined as of the                    (c) Additional exemption for
                                                      taxable years beginning after March 5,                  last day of the taxpayer’s taxable year.               dependent. Section 151(c) allows a
                                                      2003.                                                   A person attains the age of 65 on the                  taxpayer an exemption for each
                                                        (2) Exception. Paragraph (c)(3) of this               first moment of the day preceding his or               individual who is a dependent (as
                                                      section applies to taxable years                        her sixty-fifth birthday.                              defined in section 152) of the taxpayer
                                                      beginning after the date these                             (c) Additional amount for the blind—                for the taxable year. See §§ 1.152–1
                                                      regulations are published as final                      (1) Blind taxpayer or spouse. A taxpayer               through 1.152–5 for rules relating to
                                                      regulations in the Federal Register.                    is entitled to an additional amount                    dependents.
                                                                                                              under section 63(f)(2) if the taxpayer is                 (d) Applicability date. Paragraphs
                                                      § 1.63–1   [Amended]                                    blind at the end of the taxable year. If               (a)(1) and (c) of this section apply to
                                                      ■ Par. 7. Section 1.63–1 is amended by:                 spouses file a joint return, each spouse               taxable years beginning after the date
                                                      ■ 1. Removing the language ‘‘the zero                   who is blind at the end of the taxable                 these regulations are published as final
                                                      bracket amount and’’ from the section                   year for which the spouses file the joint              regulations in the Federal Register.
                                                      heading.                                                return is entitled to an additional
                                                      ■ 2. Removing the language ‘‘section                    amount. A married taxpayer who files a                 §§ 1.151–2, 1.151–3, and 1.151–4
                                                      63(g)’’ and replacing it with the                       separate return is entitled to an                      [Removed]
                                                      language ‘‘section 63(e)’’ in paragraph                 additional amount for the taxpayer’s                   ■ Par. 11. Sections 1.151–2, 1.151–3,
                                                      (a).                                                    spouse if the spouse is blind and, for the             and 1.151–4 are removed.
                                                      ■ Par. 8. Section 1.63–2 is revised to                  calendar year in which the taxable year                ■ Par. 12. Section 1.152–0 is added
                                                      read as follows:                                        of the taxpayer begins, the spouse has                 under the undesignated center heading
                                                                                                              no gross income and is not the                         Deductions for Personal Exemptions to
                                                      § 1.63–2   Standard deduction.                                                                                 read as follows:
                                                                                                              dependent of another taxpayer. If the
                                                        The standard deduction means the                      spouse dies during the taxable year, the
                                                      sum of the basic standard deduction and                                                                        § 1.152–0   Table of contents.
                                                                                                              date of death is the time for determining                 This section lists the captions
                                                      the additional standard deduction.                      the spouse’s blindness.
                                                      ■ Par. 9. Section 1.63–3 is added to read                                                                      contained in § 1.152–1 through § 1.152–
                                                                                                                 (2) Blindness determined. A taxpayer
                                                      as follows:                                                                                                    5.
                                                                                                              who claims an additional amount
                                                                                                              allowed by section 63(f)(2) for the blind              § 1.152–1 General rules for dependents.
                                                      § 1.63–3 Additional standard deduction for                                                                        (a) In general.
                                                      the aged and blind.                                     must maintain in the taxpayer’s records
                                                                                                                                                                        (1) Dependent defined.
                                                                                                              a statement from a physician skilled in
                                                         (a) In general. A taxpayer who, at the                                                                         (2) Exceptions.
                                                                                                              the diseases of the eye or a registered                   (i) Dependents ineligible.
                                                      end of the taxable year, has attained age
                                                                                                              optometrist stating that the physician or                 (ii) Married dependents.
                                                      65 or is blind is entitled to an additional
                                                                                                              optometrist has examined the person for                   (iii) Citizens or nationals of other
                                                      standard deduction amount. The
                                                                                                              whom the additional amount is claimed                  countries.
                                                      additional standard deduction amount
                                                                                                              and, in the opinion of the physician or                   (b) Definitions.
                                                      is the sum of the amounts to which the                                                                            (1) Child.
                                                                                                              optometrist, the person’s central visual
                                                      taxpayer is entitled under paragraphs (b)                                                                         (i) In general.
                                                                                                              acuity did not exceed 20/200 in the
                                                      and (c) of this section. If an individual                                                                         (ii) Adopted child.
                                                                                                              better eye with correcting lenses, or the
                                                      meets the requirements for both the                                                                               (iii) Eligible foster child.
                                                                                                              person’s visual acuity was accompanied                    (iv) Authorized placement agency.
                                                      additional amount for the aged and the
                                                                                                              by a limitation in the field of vision                    (2) Student.
                                                      additional amount for the blind, the
                                                                                                              such that the widest diameter of the                      (3) Brother and sister.
                                                      taxpayer is entitled to both additional
                                                                                                              visual field subtends an angle no greater                 (4) Parent.
                                                      amounts.
                                                         (b) Additional amount for the aged—                  than 20 degrees. The statement must                       (c) Applicability date.
                                                                                                              provide that the physician or                          § 1.152–2 Qualifying child.
                                                      (1) Aged taxpayer or spouse. A taxpayer                                                                           (a) In general.
                                                      is entitled to an additional amount                     optometrist examined the person in the
                                                                                                              taxpayer’s taxable year for which the                     (b) Qualifying child relationship test.
                                                      under section 63(f)(1) if the taxpayer has                                                                        (c) Residency test.
                                                      attained age 65 before the end of the                   amount is claimed, or that the physician                  (d) Age test.
                                                      taxable year. If spouses file a joint                   or optometrist examined the person in                     (1) In general.
                                                      return, each spouse who has attained                    an earlier year and that the visual                       (2) Disabled individual.
                                                      age 65 before the end of the taxable year               impairment is irreversible.                               (e) Qualifying child support test.
                                                                                                                 (d) Applicability date. This section                   (f) Joint return test.
                                                      for which the spouses file the joint                                                                              (g) Child who is eligible to be claimed as
                                                                                                              and §§ 1.63–1(a) and 1.63–2 apply to
                                                      return is entitled to an additional                                                                            a qualifying child by more than one taxpayer.
                                                                                                              taxable years beginning after the date
                                                      amount. A married taxpayer who files a                                                                            (1) In general.
                                                                                                              these regulations are published as final
                                                      separate return is entitled to an                                                                                 (i) More than one eligible parent.
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                                                                                                              regulations in the Federal Register.
                                                      additional amount for the taxpayer’s                    ■ Par. 10. Section 1.151–1 is amended
                                                                                                                                                                        (ii) Eligible parent not claiming.
                                                      spouse if the spouse has attained age 65                                                                          (iii) One eligible parent and other eligible
                                                                                                              by revising paragraphs (a)(1), (c), and (d)            taxpayer(s).
                                                      before the end of the taxable year and,                 to read as follows:
                                                      for the calendar year in which the                                                                                (iv) No eligible parent.
                                                                                                                                                                        (2) Determination of adjusted gross income
                                                      taxable year of the taxpayer begins, the                § 1.151–1 Deductions for personal
                                                                                                                                                                     of a person who files a joint return.
                                                      spouse has no gross income and is not                   exemptions.
                                                                                                                                                                        (3) Coordination with other provisions.
                                                      the dependent of another taxpayer. The                    (a) * * * (1) In computing taxable                      (4) Examples.
                                                      taxpayer is not entitled to an additional               income, an individual is allowed a                     § 1.152–3 Qualifying relative.
                                                      amount if the spouse dies before                        deduction for the exemptions for an                       (a) In general.



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                                                      6382                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                         (b) Qualifying relative relationship test.             (e) Written declaration.                             does not apply to an adopted child, as
                                                         (c) Gross income test.                                 (1) Form of declaration.                             defined in section 152(f)(1)(B) and
                                                         (1) In general.                                        (i) In general.                                      paragraph (b)(1)(ii) of this section, if the
                                                         (2) Income of disabled or handicapped                  (ii) Form designated by IRS.                         taxpayer is a citizen or national of the
                                                      individuals.                                              (2) Attachment to return.
                                                         (d) Qualifying relative support test.                  (i) In general.
                                                                                                                                                                     United States and the child has the
                                                         (1) In general.                                        (ii) Examples.                                       same principal place of abode as the
                                                         (2) Certain income of taxpayer’s spouse.               (3) Revocation of written declaration.               taxpayer and is a member of the
                                                         (3) Support from stepparent.                           (i) In general.                                      taxpayer’s household, within the
                                                         (4) Multiple support agreements.                       (ii) Form of revocation.                             meaning of §§ 1.152–4(c) and 1.2–2(c),
                                                         (e) Not a qualifying child test.                       (iii) Attachment to return.                          respectively, for the taxpayer’s taxable
                                                         (1) In general.                                        (4) Ineffective declaration or revocation.           year. See § 1.152–4(d)(2) for rules
                                                         (2) Examples.                                          (5) Written declaration executed in a                relating to residence for a portion of a
                                                      § 1.152–4 Rules for a qualifying child and a            taxable year beginning on or before July 2,
                                                            qualifying relative.                                                                                     taxable year. A taxpayer and the child
                                                                                                              2008.                                                  have the same principal place of abode
                                                         (a) Support.                                           (f) Coordination with other sections.
                                                         (1) In general.                                        (g) Examples.
                                                                                                                                                                     for the taxpayer’s taxable year if the
                                                         (2) Payments made during the year for                  (h) Applicability date.                              taxpayer and child have the same
                                                      unpaid or future support.                                 (1) In general.                                      principal place of abode for the entire
                                                         (3) Governmental payments.                             (2) Exception.                                       portion of the taxable year following the
                                                         (i) Governmental payments as support.                                                                       placement of the child with the
                                                         (A) In general.                                      ■ Par. 13. Section 1.152–1 is revised to               taxpayer.
                                                         (B) Examples.                                        read as follows:
                                                         (ii) Governmental payments based on a
                                                                                                                                                                        (b) Definitions. The following
                                                      taxpayer’s contributions.                               § 1.152–1    General rules for dependents.             definitions apply for purposes of section
                                                         (A) In general.                                                                                             152 and the related regulations.
                                                                                                                 (a) In general—(1) Dependent defined.                  (1) Child—(i) In general. The term
                                                         (B) Examples.
                                                                                                              Except as provided in section 152(b)                   child means a son, daughter, stepson, or
                                                         (iii) Payments used for support of another
                                                      individual.                                             and paragraph (a)(2) of this section, the              stepdaughter, or an eligible foster child,
                                                         (4) Medical insurance.                               term dependent means a qualifying                      within the meaning of paragraph
                                                         (5) Medical care payments from personal              child as described in § 1.152–2 or a                   (b)(1)(iii) of this section, of the taxpayer.
                                                      injury claim.                                           qualifying relative as described in                       (ii) Adopted child. In determining
                                                         (6) Scholarships.                                    § 1.152–3. In general, an individual may
                                                         (b) Relationship test.
                                                                                                                                                                     whether an individual bears any of the
                                                                                                              be treated as the dependent of only one                relationships described in paragraph
                                                         (1) Joint return.                                    taxpayer for taxable years beginning in
                                                         (2) Divorce or death of spouse.                                                                             (b)(1)(i) of this section, § 1.152–2(b), or
                                                         (c) Principal place of abode.
                                                                                                              the same calendar year.                                § 1.152–3(b), a legally adopted child of
                                                         (1) In general.                                         (2) Exceptions—(i) Dependents                       a person, or a child who is lawfully
                                                         (2) Temporary absence.                               ineligible. If an individual is a                      placed with a person for legal adoption
                                                         (3) Residing with taxpayer for more than             dependent of a taxpayer for a taxable                  by that person, is treated as a child by
                                                      one-half of the taxable year.                           year of the taxpayer, the individual is                blood of that person. A child lawfully
                                                         (i) In general.                                      treated as having no dependents for                    placed with a person for legal adoption
                                                         (ii) Nights of residence.                            purposes of section 152 and the related
                                                         (A) Nights counted.                                                                                         by that person includes a child placed
                                                                                                              regulations in the individual’s taxable                for legal adoption by a parent, an
                                                         (B) Night straddling two taxable years.
                                                         (C) Exception for a parent who works at
                                                                                                              year beginning in the calendar year in                 authorized placement agency, or any
                                                      night.                                                  which that taxable year of the taxpayer                other person(s) authorized by law to
                                                         (D) Absences.                                        begins. For purposes of this paragraph                 place a child for legal adoption.
                                                         (4) Examples.                                        (a)(2)(i), an individual is not a                         (iii) Eligible foster child. The term
                                                         (d) Residence for a portion of a taxable year        dependent of a person if that person is                eligible foster child means a child who
                                                      because of special circumstances.                       not required to file an income tax return              is placed with a person by an authorized
                                                         (1) Individual who is born or dies during            under section 6012 and either does not                 placement agency or by judgment,
                                                      the year.                                               file an income tax return or files an
                                                         (2) Adopted child or foster child.                                                                          decree, or other order of any court of
                                                         (e) Missing child.
                                                                                                              income tax return solely to claim a                    competent jurisdiction.
                                                         (1) Qualifying child.                                refund of estimated or withheld taxes.                    (iv) Authorized placement agency.
                                                         (2) Qualifying relative.                                (ii) Married dependents. An                         The term authorized placement agency
                                                         (3) Age limitation.                                  individual is not treated as a dependent               means a State, the District of Columbia,
                                                         (4) Application.                                     of a taxpayer for a taxable year of the                a possession of the United States, a
                                                      § 1.152–5 Special rule for a child of                   taxpayer if the individual files a joint               foreign country, an Indian Tribal
                                                            divorced or separated parents or parents          return, other than solely to claim a                   Government (ITG) (as defined in section
                                                            who live apart.                                   refund of estimated or withheld taxes,                 7701(a)(40)), or an agency or
                                                         (a) In general.
                                                         (b) Release of claim by custodial parent.
                                                                                                              with the individual’s spouse under                     organization that is authorized by a
                                                         (1) In general.                                      section 6013 for the taxable year                      State, the District of Columbia, a
                                                         (2) Support, custody, and parental status.           beginning in the calendar year in which                possession of the United States, a
                                                         (i) In general.                                      that taxable year of the taxpayer begins.              foreign country, an ITG, or a political
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                                                         (ii) Multiple support agreement.                        (iii) Citizens or nationals of other                subdivision of any of the foregoing, to
                                                         (3) Release of claim to child.                       countries. An individual who is not a                  place children for legal adoption or in
                                                         (c) Custody.                                         citizen or national of the United States               foster care.
                                                         (d) Custodial parent.                                is not treated as a dependent of a                        (2) Student. The term student means
                                                         (1) In general.
                                                         (2) Night straddling taxable years.
                                                                                                              taxpayer unless the individual is a                    an individual who, for some part of each
                                                         (3) Absences.                                        resident, as defined in section 7701(b),               of five calendar months, whether or not
                                                         (4) Special rule for equal number of nights.         of the United States or of a country                   consecutive, during the calendar year in
                                                         (5) Exception for a parent who works at              contiguous to the United States (Canada                which the taxable year of the taxpayer
                                                      night.                                                  or Mexico). This limitation, however,                  begins, either is a full-time student at an


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                               6383

                                                      educational organization, as defined in                 attained the age of 19, or age 24 if the               income of each other eligible taxpayer,
                                                      section 170(b)(1)(A)(ii), or is pursuing a              individual is a student within the                     if any.
                                                      full-time course of institutional on-farm               meaning of § 1.152–1(b)(2), as of the end                 (iii) One eligible parent and other
                                                      training under the supervision of an                    of the calendar year in which the                      eligible taxpayer(s). Except as provided
                                                      accredited agent of an educational                      taxpayer’s taxable year begins. For                    in paragraph (g)(1)(i) or (ii) of this
                                                      organization or of a State or political                 purposes of this section, an individual                section, if there are two or more eligible
                                                      subdivision of a State. A full-time                     attains an age on the anniversary of the               taxpayers, only one of whom is the
                                                      student is one who is enrolled for the                  individual’s birth.                                    parent of the individual, the individual
                                                      number of hours or courses that the                        (2) Disabled individual. This age                   is treated as the qualifying child of the
                                                      educational organization considers full-                requirement is treated as satisfied if the             eligible parent.
                                                      time attendance.                                        individual is permanently and totally                     (iv) No eligible parent. If no eligible
                                                         (3) Brother and sister. The terms                    disabled, as defined in section 22(e)(3),              taxpayer is a parent of the individual,
                                                      brother and sister include a brother or                 at any time during the calendar year.                  the individual is treated as the
                                                      sister by half blood.                                      (e) Qualifying child support test. The              qualifying child of the eligible taxpayer
                                                         (4) Parent. The term parent refers to                individual must not provide more than                  with the highest adjusted gross income
                                                      a biological or adoptive parent of an                   one-half of the individual’s own support               for the taxable year.
                                                      individual. It does not include a                       for the calendar year in which the                        (2) Determination of adjusted gross
                                                      stepparent who has not adopted the                      taxpayer’s taxable year begins. See                    income of a person who files a joint
                                                      individual.                                             § 1.152–4(a) for rules relating to the                 return. For purposes of section 152 and
                                                         (c) Applicability date. This section,                definition and sources of an individual’s              the related regulations, the adjusted
                                                      and §§ 1.152–2, 1.152–3, and 1.152–4                    support.                                               gross income of each person who files
                                                      apply to taxable years beginning after                     (f) Joint return test. The individual               a joint return is the total adjusted gross
                                                      the date these regulations are published                must not file a joint return, other than               income shown on the joint return.
                                                      as final regulations in the Federal                     solely to claim a refund of estimated or                  (3) Coordination with other
                                                      Register.                                               withheld taxes, under section 6013 with                provisions. Except to the extent that
                                                      ■ Par. 14. Section 1.152–2 is revised to                the individual’s spouse for the taxable                section 152(e) and § 1.152–5 apply, if
                                                      read as follows:                                        year beginning in the calendar year in                 more than one taxpayer may claim a
                                                                                                              which the taxpayer’s taxable year                      child as a qualifying child, the child is
                                                      § 1.152–2   Qualifying child.                           begins.                                                treated as the qualifying child of only
                                                        (a) In general. The term qualifying                      (g) Child who is eligible to be claimed             one taxpayer for purposes of head of
                                                      child of a taxpayer for a taxable year                  as a qualifying child by more than one                 household filing status under section
                                                      means an individual who satisfies the                   taxpayer—(1) In general. Under section                 2(b), the child and dependent care
                                                      tests described in paragraphs (b), (c), (d),            152(c)(4), if an individual satisfies the              credit under section 21, the child tax
                                                      (e), and (f) of this section. If an                     definition of a qualifying child for two               credit under section 24, the earned
                                                      individual satisfies the definition of a                or more taxpayers (eligible taxpayers)                 income credit under section 32, the
                                                      qualifying child for more than one                      for a taxable year beginning in the same               exclusion from income for dependent
                                                      taxpayer, then the tiebreaker rules in                  calendar year, the following rules apply.              care assistance under section 129, and
                                                      paragraph (g) of this section apply. See,                  (i) More than one eligible parent. If               the dependency exemption under
                                                      however, section 152(e) and § 1.152–5                   more than one eligible taxpayer is a                   section 151. Thus, the taxpayer claiming
                                                      for a special rule for a child of divorced              parent of the individual (eligible                     the individual as a qualifying child
                                                      or separated parents or parents who live                parent), any one of the eligible parents               under any one of these sections is the
                                                      apart.                                                  may claim the individual as a qualifying               only taxpayer who may claim any credit
                                                         (b) Qualifying child relationship test.              child. However, if more than one                       or exemption under these other sections
                                                      The individual must bear one of the                     eligible parent claims the individual as               for that same individual for a taxable
                                                      following relationships to the                          a qualifying child, and those eligible                 year beginning in the same calendar
                                                      taxpayer—                                               parents do not file a joint return with                year as the taxpayer’s taxable year. If
                                                         (1) A child of the taxpayer or                       each other, the individual is treated as               section 152(e) applies, however, the
                                                      descendant of such a child; or                          the qualifying child of the eligible                   noncustodial parent may claim the child
                                                         (2) A brother, sister, stepbrother, or               parent claiming the individual with                    as a qualifying child for purposes of the
                                                      stepsister of the taxpayer, or a                        whom the individual resides for the                    dependency exemption and the child
                                                      descendant of any of these relatives.                   longest period of time during the taxable              tax credit, and another person may
                                                         (c) Residency test. The individual                   year as determined under § 1.152–                      claim the child for purposes of one or
                                                      must have the same principal place of                   4(c)(3). If the individual resides for the             more of these other provisions. See
                                                      abode as the taxpayer for more than one-                same amount of time during the taxable                 § 1.152–5 for rules under section 152(e).
                                                      half of the taxable year. Generally, an                 year with each eligible parent claiming                   (4) Examples. The following examples
                                                      individual has the same principal place                 the child, the individual is treated as the            illustrate the rules in this paragraph (g).
                                                      of abode as the taxpayer for more than                  qualifying child of the eligible parent                In the examples, each taxpayer uses the
                                                      one-half of the taxable year if the                     with the highest adjusted gross income                 calendar year as the taxpayer’s taxable
                                                      individual resides with the taxpayer for                who claims the individual.                             year, the child is a qualifying child (as
                                                      more than one-half of the taxable year.                    (ii) Eligible parent not claiming. If at            described in section 152(c) and this
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                                                      See § 1.152–4(c) for rules relating to                  least one eligible taxpayer is a parent of             section) of each taxpayer, and, except to
                                                      principal place of abode and temporary                  the individual, but no eligible parent                 the extent indicated, each taxpayer
                                                      absence and for determining whether an                  claims the individual as a qualifying                  meets the requirements to claim the
                                                      individual resides with the taxpayer for                child, the individual may be treated as                benefit(s) described in the example.
                                                      more than one-half of the taxable year.                 the qualifying child of another eligible
                                                                                                                                                                       Example 1. (i) A and B, parents of Child,
                                                         (d) Age test—(1) In general. The                     taxpayer only if that taxpayer’s adjusted              are married to each other. A, B, and Child
                                                      individual must be younger than the                     gross income exceeds both the adjusted                 share the same principal place of abode for
                                                      taxpayer claiming the individual as a                   gross income of each eligible parent of                the first 8 months of the year. Thus, both
                                                      qualifying child and must not have                      the individual and the adjusted gross                  parents satisfy the qualifying child residency



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                                                      6384                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      test of paragraph (c) of this section. For the             (ii) Because D or E may claim Child as a               (7) A son-in-law, daughter-in-law,
                                                      last 4 months of the year, the parents live             qualifying child but neither claims Child as           father-in-law, mother-in-law, brother-in-
                                                      apart from each other, and B and Child share            a qualifying child for any purpose, under              law, or sister-in-law; or
                                                      the same principal place of abode. Section              paragraph (g)(1)(ii) of this section,
                                                      152(e), relating to divorced or separated
                                                                                                                                                                        (8) An individual (other than one who
                                                                                                              Grandparent may claim Child as a qualifying
                                                      parents, does not apply. The parents file as            child if Grandparent’s AGI exceeds the total           at any time during the taxable year was
                                                      married filing separately for the taxable year,         AGI reported on the joint return of D and E.           the taxpayer’s spouse, determined
                                                      and both parents claim Child as a qualifying               Example 5. (i) The facts are the same as            without regard to section 7703) who for
                                                      child.                                                  in Example 4 of this paragraph (g)(4), except          the taxable year of the taxpayer has the
                                                         (ii) Under paragraph (g)(1)(i) of this               that D and E are divorced from each other,             same principal place of abode as the
                                                      section, Child is treated as a qualifying child         E moved into a separate residence during that          taxpayer and is a member of the
                                                      of B for all purposes, because Child resided            year and is the noncustodial parent, and               taxpayer’s household. See § 1.2–2(c) for
                                                      with B for the longer period of time during             section 152(e), relating to divorced or
                                                      the taxable year. Because section 152(e) does
                                                                                                                                                                     the definition of a member of the
                                                                                                              separated parents, applies. E attaches to E’s
                                                      not apply, Child may not be treated as a                                                                       household, and § 1.152–4(c) for rules
                                                                                                              return a Form 8332 on which D agrees to
                                                      qualifying child of A for any purpose.                  release D’s claim to a dependency exemption            relating to the meaning of principal
                                                         Example 2. (i) The facts are the same as             for Child and E claims Child as a qualifying           place of abode and the meaning of
                                                      in Example 1 of this paragraph (g)(4), except           child for purposes of the dependency                   temporary absence.
                                                      that B does not claim Child as a qualifying             exemption and the child tax credit.                       (c) Gross income test—(1) In general.
                                                      child.                                                     (ii) Under paragraph (g)(3) of this section,        The individual’s gross income for the
                                                         (ii) Because A and B are not both claiming           Child is treated as a qualifying child of E for        calendar year in which the taxable year
                                                      the same child as a qualifying child, under             purposes of the dependency exemption and
                                                      paragraph (g)(1)(i) of this section, Child is
                                                                                                                                                                     begins must be less than the exemption
                                                                                                              the child tax credit. Child may be treated as          amount as defined in section 151(d).
                                                      treated as a qualifying child of A.                     a qualifying child of D for purposes of the
                                                         Example 3. (i) Child, Child’s parent (D),            earned income credit. If D claims Child as a
                                                                                                                                                                        (2) Income of disabled or
                                                      and Grandparent share the same principal                qualifying child for purposes of the earned            handicapped individuals. For purposes
                                                      place of abode. D is not married and is not             income credit, under paragraph (g)(1)(iii) of          of paragraph (c)(1) of this section, the
                                                      a qualifying child or dependent of                      this section, Child may not be treated as a            gross income of an individual who is
                                                      Grandparent, and Grandparent is not D’s                 qualifying child of Grandparent for any                permanently and totally disabled, as
                                                      dependent. Section 152(e), relating to                  purpose.                                               defined in section 22(e)(3), at any time
                                                      divorced or separated parents, does not                    Example 6. (i) F and G, parents of two              during the taxable year does not include
                                                      apply. Under paragraph (a) of this section,             children, are married to each other. F, G, and
                                                      Child meets the definition of a qualifying
                                                                                                                                                                     income for services performed by the
                                                                                                              both children share the same principal place           individual at a sheltered workshop, as
                                                      child of both D and Grandparent. D claims               of abode for the entire taxable year. F and G
                                                      Child as a qualifying child for purposes of             file as married filing separately for the
                                                                                                                                                                     defined in section 152(d)(4)(B), if—
                                                      the child and dependent care credit under               taxable year. F claims the older child as a               (i) The principal reason for the
                                                      section 21, the earned income credit under              qualifying child for purposes of the child tax         individual’s presence at the workshop is
                                                      section 32, and the dependency exemption                credit, dependency exemption, and the child            the availability of medical care there;
                                                      under section 151. Grandparent claims Child             and dependent care credit. G claims the                and
                                                      as a qualifying child for purposes of head of           younger child as a qualifying child for                   (ii) The individual’s income arises
                                                      household filing status under section 2(b).             purposes of the same three tax benefits.               solely from activities at the workshop
                                                         (ii) Under paragraph (g)(1)(iii) of this                (ii) The older child is treated as a
                                                      section, Child is treated as the qualifying                                                                    that are incident to the medical care.
                                                                                                              qualifying child of F and the younger child
                                                      child of D for all purposes, because D is                                                                         (d) Qualifying relative support test—
                                                                                                              is treated as a qualifying child of G. The
                                                      eligible to claim and claims Child as D’s               tiebreaker rule of paragraph (g)(1)(i) of this         (1) In general. The individual must
                                                      qualifying child. Because D is eligible to              section does not apply because F and G are             receive over one-half of the individual’s
                                                      claim and claims Child as D’s qualifying                not claiming the same child as a qualifying            support from the taxpayer for the
                                                      child, under paragraph (g)(3) of this section,          child.                                                 calendar year in which the taxpayer’s
                                                      Child may not be treated as a qualifying child                                                                 taxable year begins. See § 1.152–4(a) for
                                                      of Grandparent for any purpose. Grandparent             ■ Par. 15. Section 1.152–3 is revised to               rules relating to support.
                                                      erroneously claimed Child as Grandparent’s              read as follows:
                                                      qualifying child for purposes of head of
                                                                                                                                                                        (2) Certain income of taxpayer’s
                                                      household filing status under section 2(b). If          § 1.152–3    Qualifying relative.                      spouse. A payment to a spouse that is
                                                      D had not claimed Child as D’s qualifying                 (a) In general. The term qualifying                  includible in the payee spouse’s gross
                                                      child for any purpose, under paragraph                  relative of a taxpayer for a taxable year              income under section 71 (relating to
                                                      (g)(1)(ii) of this section, Grandparent could           means an individual who satisfies the                  alimony and separate maintenance
                                                      have claimed Child as Grandparent’s
                                                                                                              tests described in paragraphs (b), (c), (d),           payments) or section 682 (relating to
                                                      qualifying child if Grandparent’s adjusted                                                                     income of an estate or trust in the case
                                                      gross income (AGI) exceeded D’s AGI. In that            and (e) of this section. See, however,
                                                                                                              section 152(e) and § 1.152–5 for a                     of divorce) is not treated as a payment
                                                      situation, under paragraph (g)(3) of this                                                                      by the payor spouse for the support of
                                                      section, Grandparent could have claimed                 special rule for a child of divorced or
                                                      Child as Grandparent’s qualifying child for             separated parents or parents who live                  any dependent.
                                                      purposes of any of the child-related tax                apart.                                                    (3) Support from stepparent. Any
                                                      benefits, provided that Grandparent had met                                                                    support provided to or for the benefit of
                                                                                                                (b) Qualifying relative relationship
                                                      the requirements of those sections.                                                                            an individual by a stepparent of the
                                                                                                              test. The individual must bear one of the
                                                         Example 4. (i) The facts are the same as                                                                    individual is treated as support
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                                                      in Example 3 of this paragraph (g)(4), except
                                                                                                              following relationships to the taxpayer:
                                                                                                                                                                     provided by the individual’s parent who
                                                      that Child’s parents, D and E, are married to             (1) A child or descendant of a child;                is married to the stepparent.
                                                      each other and share the same principal                   (2) A brother, sister, stepbrother, or                  (4) Multiple support agreements. If
                                                      place of abode with Child and Grandparent               stepsister;                                            more than one-half of an individual’s
                                                      for the entire taxable year. Under paragraph              (3) A father or mother, or an ancestor
                                                      (a) of this section, Child meets the definition
                                                                                                                                                                     support is provided by two or more
                                                                                                              of either;                                             persons together, a taxpayer is treated as
                                                      of a qualifying child of both parents and
                                                      Grandparent. D and E file a joint return for              (4) A stepfather or stepmother;                      having contributed over one-half of the
                                                      the taxable year and do not claim Child as                (5) A niece or nephew;                               support of that individual for the
                                                      a qualifying child for any purpose.                       (6) An aunt or uncle;                                calendar year if—


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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                           6385

                                                         (i) No one person contributes more                   because C does not have a filing requirement           settlement of a person’s liability for
                                                      than one-half of the individual’s                       and files only to obtain a refund of withheld          support, is treated as support paid
                                                      support;                                                taxes, D is not treated as a qualifying child          during the calendar year of payment
                                                         (ii) Each member of the group that                   of C, and B may claim both C and D as B’s
                                                                                                              qualifying relatives.
                                                                                                                                                                     rather than the calendar year when
                                                      collectively contributes more than one-                    Example 3. The facts are the same as in             payment is due. A payment of a liability
                                                      half of the support of the individual                   Example 2 of this paragraph (e)(2) except that         from amounts set aside in trust in a
                                                      would have been entitled to claim the                   C’s earned income is more than the amount              prior year is treated as made in the year
                                                      individual as a dependent for a taxable                 of the dependency exemption for that year.             in which the liability is paid.
                                                      year beginning in that calendar year but                C files an income tax return for the taxable              (3) Governmental payments—(i)
                                                      for the fact that the group member alone                year to obtain a refund of withheld taxes and          Governmental payments as support—
                                                      did not contribute more than one-half of                claims the earned income credit. Because C             (A) In general. Except as provided in
                                                                                                              filed an income tax return to obtain the               paragraph (a)(3)(iii) of this section,
                                                      the individual’s support;                               earned income credit and not solely to obtain
                                                         (iii) The taxpayer claiming the                      a refund of withheld taxes, D is a qualifying
                                                                                                                                                                     governmental payments and subsidies
                                                      individual as a qualifying relative                     child of a taxpayer (C), and B may not claim           for an item of support are support
                                                      contributes more than 10 percent of the                 D as a qualifying relative. B also may not             provided by a third party, the
                                                      individual’s support; and                               claim C as a qualifying relative because C             government.
                                                         (iv) Each other group member who                     fails the gross income test under paragraph               (B) Examples. Payments of Temporary
                                                      contributes more than 10 percent of the                 (c) of this section.                                   Assistance for Needy Families (42
                                                      support of the individual furnishes to                  ■ Par. 16. Redesignate § 1.152–4 as                    U.S.C. 601–619), low-income housing
                                                      the taxpayer claiming the individual as                 § 1.152–5, and add a new § 1.152–4 to                  assistance (42 U.S.C. 1437f),
                                                      a dependent a written declaration that                  read as follows:                                       Supplemental Nutrition Assistance
                                                      the other person will not claim the                                                                            Program benefits (7 U.S.C. chapter 51),
                                                      individual as a dependent for any                       § 1.152–4 Rules for a qualifying child and             Supplemental Security Income
                                                      taxable year beginning in that calendar                 a qualifying relative.                                 payments (42 U.S.C. 1381–1383f), foster
                                                      year.                                                      (a) Support—(1) In general. The term                care maintenance payments, and
                                                         (e) Not a qualifying child test—(1) In               support includes food, shelter, clothing,              adoption assistance payments are
                                                      general. The individual must not be a                   medical and dental care, education, and                governmental payments and subsidies
                                                      qualifying child of the taxpayer or of                  similar items. Support does not include                for an item of support as described in
                                                      any other taxpayer for any taxable year                 an individual’s Federal, State, and local              paragraph (a)(3)(i)(A) of this section.
                                                      beginning in the calendar year in which                 income taxes paid from the individual’s                   (ii) Governmental payments based on
                                                      the taxpayer’s taxable year begins. An                  own income or assets, Social Security                  a taxpayer’s contributions—(A) In
                                                      individual is not a qualifying child of a               and Medicare taxes under section 3101                  general. Except as provided in
                                                      person, however, if that person is not                  paid from the individual’s own income,                 paragraph (a)(3)(iii) of this section,
                                                      required to file an income tax return                   life insurance premiums, or funeral                    governmental payments based on a
                                                      under section 6012, and either does not                 expenses. In determining whether an                    taxpayer’s earnings and contributions
                                                      file an income tax return or files an                   individual provided more than one-half                 into the Social Security system are
                                                      income tax return solely to claim a                     of the individual’s own support for                    support provided by the individual for
                                                      refund of estimated or withheld taxes.                  purposes of § 1.152–2(e), or whether a                 whose benefit the payments are made to
                                                         (2) Examples. The following examples                 taxpayer provided more than one-half of                the extent those payments are used for
                                                      illustrate the rules in this paragraph (e).             an individual’s support for purposes of                that individual’s support.
                                                      In each example, each taxpayer uses the                 § 1.152–3(d), the amount of support                       (B) Examples. Social Security old age
                                                      calendar year as the taxpayer’s taxable                 provided by the individual, or the                     benefits under section 202(b) of Title II
                                                      year, and except to the extent otherwise                taxpayer, is compared to the total                     of the Social Security Act (SSA) (42
                                                      indicated, each taxpayer meets the                      amount of the individual’s support from                U.S.C. 402) are governmental payments
                                                      requirements to claim the benefits                      all sources. For these purposes, except                based on a taxpayer’s earnings and
                                                      described in the example.                               as otherwise provided in this paragraph                contributions into the Social Security
                                                                                                              (a), the amount of an individual’s total               system as described in paragraph
                                                         Example 1. For the taxable year, B                                                                          (a)(3)(ii)(A) of this section. Similarly,
                                                                                                              support is the amount of support from
                                                      provides more than one-half of the support
                                                      of an unrelated friend, C, and C’s 3-year-old           all sources, and includes support the                  Social Security survivor and disability
                                                      child, D, who are members of B’s household.             individual provides and amounts that                   insurance benefits paid under section
                                                      No taxpayer other than C is eligible to claim           are excludable from gross income.                      202(d) of the SSA to, or for the benefit
                                                      D as a qualifying child. C has no gross                 Generally, the amount of an item of                    of, the child of a deceased or disabled
                                                      income, is not required by section 6012 to              support is the amount of expense paid                  parent are treated as support provided
                                                      file a Federal income tax return, and does not          or incurred to furnish the item of                     by the child to the extent those
                                                      file a Federal income tax return for the                support. If the item of support furnished              payments are used for the child’s
                                                      taxable year. Under paragraph (e)(1) of this
                                                                                                              is property or a benefit, such as lodging,             support.
                                                      section, because C does not have a filing
                                                      requirement and does not file an income tax             however, the amount of the item of                        (iii) Payments used for support of
                                                      return, D is not treated as a qualifying child          support is the fair market value of the                another individual. Governmental
                                                      of C, and B may claim both C and D as B’s               item.                                                  payments and subsidies described in
                                                      qualifying relatives.                                      (2) Payments made during the year for               paragraph (a)(3)(i) of this section and
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                                                         Example 2. The facts are the same as in              unpaid or future support. For purposes                 governmental payments described in
                                                      Example 1 of this paragraph (e)(2) except that          of determining the amount of support                   paragraph (a)(3)(ii) of this section that
                                                      C has earned income of $1,500 during the                provided in a calendar year, an amount                 are used by the recipient or other
                                                      taxable year, had income tax withheld from              paid in a calendar year after the                      intended beneficiary to support another
                                                      C’s wages, and is not required by section
                                                      6012 to file an income tax return. C files an
                                                                                                              calendar year in which the liability is                person are support of that person
                                                      income tax return solely to obtain a refund             incurred is treated as paid in the year of             provided by the recipient or other
                                                      of withheld taxes and does not claim the                payment. An amount paid in a calendar                  intended beneficiary, rather than
                                                      earned income credit under section 32.                  year before due, whether or not made in                support provided by a third party, the
                                                      Under paragraph (e)(1) of this section,                 the form of a lump sum payment in                      government.


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                                                      6386                   Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                         (4) Medical insurance. Medical                       abode of a person means the primary or                    (C) Exception for a parent who works
                                                      insurance premiums, including Part A                    main home or dwelling where the                        at night. If, in a calendar year, because
                                                      Basic Medicare premiums, if any, under                  person resides. A person’s principal                   of a taxpayer’s nighttime work schedule,
                                                      Title XVIII of the Social Security Act (42              place of abode need not be the same                    an individual resides for at least 183
                                                      U.S.C. 1395c to 1395i–5), Part B                        physical location throughout the taxable               days, or 184 days if the taxable year
                                                      Supplemental Medicare premiums                          year and may be temporary lodging such                 includes a leap day, but not nights with
                                                      under Title XVIII of the Social Security                as a homeless shelter or relief housing                the taxpayer, the individual is treated as
                                                      Act (42 U.S.C. 1395j to 1395w–6), Part                  resulting from displacement caused by a                residing with the taxpayer for more than
                                                      C Medicare + Choice Program premiums                    natural disaster.                                      one-half of the taxable year.
                                                      under Title XVIII of the Social Security                   (2) Temporary absence. The taxpayer                    (D) Absences. An individual who
                                                      Act (42 U.S.C. 1395w–21 to 1395w–29),                   and an individual have the same                        does not reside with a taxpayer for a
                                                      and Part D Voluntary Prescription Drug                  principal place of abode despite a                     night because of a temporary absence as
                                                      Benefit Medicare premiums under Title                   temporary absence by either person                     described in paragraph (c)(2) of this
                                                      XVIII of the Social Security Act (42                    because of special circumstances. An                   section is treated as residing with the
                                                      U.S.C. 1395w–101 to 1395w–154), are                     absence is temporary if the person                     taxpayer for that night if the individual
                                                      treated as support. Medical insurance                   would have resided at the place of                     would have resided with the taxpayer
                                                      proceeds, including benefits received                   abode but for the absence and, under the               for that night but for the absence.
                                                      under Medicare Part A, Part B, Part C,                  facts and circumstances, it is reasonable                 (4) Examples. The following examples
                                                      and Part D, are not treated as items of                 to assume that the person will return to               illustrate the rules of this paragraph (c).
                                                      support and are disregarded in                          reside at the place of abode. An                       In each example, each taxpayer uses the
                                                      determining the amount of the                           individual who does not reside with the                calendar taxable year, and section 152(e)
                                                      individual’s support. Services provided                 taxpayer because of a temporary absence                does not apply.
                                                      to an individual under the medical and                  is treated as residing with the taxpayer.
                                                                                                                                                                        Example 1. B and C are the divorced
                                                      dental care provisions of the Armed                     For example, a nonpermanent failure to                 parents of Child. In 2015, Child sleeps at B’s
                                                      Forces Act (10 U.S.C. chapter 55) are not               occupy the abode by reason of illness,                 principal place of abode for 210 nights and
                                                      treated as support and are disregarded                  education, business, vacation, military                at C’s principal place of abode for 155 nights.
                                                      in determining the amount of the                        service, institutionalized care for a child            Under paragraph (c)(3) of this section, Child
                                                      individual’s support.                                   who is totally and permanently disabled                resides with B for at least 183 nights during
                                                         (5) Medical care payments from                       (as defined in section 22(e)(3)), or                   2015 and has the same principal place of
                                                      personal injury claim. Payments for the                 incarceration may be treated as a                      abode as B for more than one-half of 2015.
                                                      medical care of an injured individual                   temporary absence because of special                      Example 2. D and E are the divorced
                                                      from a third party, including a third                   circumstances. If an infant must remain                parents of Child, and Grandparent is E’s
                                                                                                                                                                     parent. In 2015, Child resides with D for 140
                                                      party’s insurance company, in                           in a hospital for a period of time after
                                                                                                                                                                     nights, with E for 135 nights, and with
                                                      satisfaction of a legal claim for the                   birth and would have resided with the                  Grandparent for the last 90 nights of the year.
                                                      personal injury of the individual are not               taxpayer during that period but for the                None of these periods is a temporary absence.
                                                      treated as items of support and are                     hospitalization, the infant is treated as              Under paragraph (c)(3) of this section, Child
                                                      disregarded in determining the amount                   having the same principal place of                     does not have the same principal place of
                                                      of the individual’s support.                            abode as the taxpayer during the period                abode as D, E, or Grandparent for more than
                                                         (6) Scholarships. Amounts a student                  of hospitalization.                                    one-half of 2015.
                                                      who is the child of the taxpayer receives                  (3) Residing with taxpayer for more                    Example 3. The facts are the same as in
                                                      as a scholarship for study at an                        than one-half of the taxable year—(i) In               Example 2 of this paragraph (c)(4), except
                                                      educational organization described in                   general. An individual has the same                    that, for the 90-day period that Child lives
                                                      section 170(b)(1)(A)(ii) are not treated as                                                                    with Grandparent, E is temporarily absent on
                                                                                                              principal place of abode as the taxpayer
                                                                                                                                                                     military service. Child would have lived with
                                                      an item of support and are disregarded                  for more than one-half of the taxable                  E if E had not been absent during that period.
                                                      in determining the amount of the                        year if the individual resides with the                Under paragraphs (c)(2) and (c)(3)(ii)(D) of
                                                      student’s support.                                      taxpayer for at least 183 nights during                this section, Child is treated as residing with
                                                         (b) Relationship test—(1) Joint return.              the taxpayer’s taxable year, or 184                    E for 225 nights in 2015 and, therefore, Child
                                                      A taxpayer may satisfy the relationship                 nights if the taxable year includes a leap             has the same principal place of abode as E
                                                      test described in § 1.152–2(b) (relating to             day.                                                   for more than one-half of 2015.
                                                      a qualifying child) or in § 1.152–3(b)                     (ii) Nights of residence—(A) Nights                    Example 4. The facts are the same as in
                                                      (relating to a qualifying relative) if a                counted. For purposes of determining                   Example 2 of this paragraph (c)(4), except
                                                      described relationship exists between an                whether an individual resides with the                 that, for the last 90 days of the year Child,
                                                      individual and the taxpayer claiming                                                                           who is 18, moves into Child’s own apartment
                                                                                                              taxpayer for more than one-half of the
                                                                                                                                                                     and begins full-time employment. Because
                                                      that individual as a qualifying child or                taxable year, an individual resides with               Child’s absence is not temporary, under
                                                      qualifying relative, even though the                    a taxpayer for a night if the individual               paragraph (c)(2) of this section, Child is not
                                                      taxpayer files a joint return with his or               sleeps—                                                treated as residing with D or E for the 90
                                                      her spouse who does not have a                             (1) At the taxpayer’s principal place of            nights. Under paragraph (c) of this section,
                                                      described relationship with the                         abode, whether or not the taxpayer is                  Child does not have the same principal place
                                                      individual.                                             present; or                                            of abode as D or E for more than one-half of
                                                         (2) Divorce or death of spouse. If the                  (2) In the company of the taxpayer                  2015.
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                                                      relationship between the taxpayer and                   when the individual does not sleep at                     Example 5. F and G are the divorced
                                                      an individual claimed by that taxpayer                  the taxpayer’s principal place of abode                parents of Child. In 2015, Child sleeps at F’s
                                                      as a dependent results from a marriage,                 (for example, when the taxpayer and the                principal place of abode for 170 nights and
                                                                                                                                                                     at G’s principal place of abode for 170 nights.
                                                      the taxpayer’s qualifying relationship                  individual are on vacation).                           Child spends 25 nights of the year away from
                                                      with the individual continues after the                    (B) Night straddling two taxable years.             F and G at a summer camp. Child would
                                                      termination of the marriage by divorce                  If an individual resides with a taxpayer               have spent those nights with F if Child had
                                                      or death.                                               for a night that extends over two taxable              not gone to summer camp. Under paragraphs
                                                         (c) Principal place of abode—(1) In                  years, that night is allocated to the                  (c)(2) and (c)(3)(ii)(D) of this section, Child is
                                                      general. The term principal place of                    taxable year in which the night begins.                treated as residing with F for 195 nights and,



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                                                                             Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules                                               6387

                                                      therefore, Child has the same principal place           that the child is missing. Also, the child             exemption for the child for the year at
                                                      of abode as F for more than one-half of 2015.           is treated as meeting the residency test               issue, and the custodial parent has not
                                                         Example 6. H and J are the divorced                  in the year of the child’s return if the               filed an amended return to remove that
                                                      parents of Child. In 2015, Child sleeps at H’s
                                                      principal place of abode for 180 nights and
                                                                                                              child has the same principal place of                  claim to a dependency exemption for
                                                      at J’s principal place of abode for 180 nights.         abode as the taxpayer for more than one-               the child.
                                                      For 5 nights during that year, Child sleeps at          half of the portion of the taxable year                   (ii) Examples. The following
                                                      Grandparent’s abode or at the house of a                following the date of the child’s return.              examples illustrate the rules of this
                                                      friend. Child would have spent all 5 nights                (2) Qualifying relative. A child of the             paragraph (e).
                                                      at H’s house if Child had not slept at                  taxpayer who is presumed by law                           Example 1. Custodial parent (CP) files her
                                                      Grandparent’s or a friend’s house. Under                enforcement authorities to have been                   2015 return on March 1, 2016, and claims a
                                                      paragraphs (c)(2) and (c)(3)(ii)(D) of this             kidnapped by someone who is not a                      dependency exemption for Child. At
                                                      section, Child is treated as residing with H                                                                   noncustodial parent’s (NCP) request, CP signs
                                                      for 185 nights and, therefore, Child has the
                                                                                                              member of the family of either the child
                                                                                                              or the taxpayer, and who was a                         a Form 8332 for the 2015 tax year on April
                                                      same principal place of abode as H for more                                                                    15, 2016. On April 15, NCP files his return
                                                      than one-half of 2015.                                  qualifying relative of the taxpayer for
                                                                                                                                                                     claiming a dependency exemption for Child
                                                                                                              the portion of the taxable year before the
                                                        (d) Residence for a portion of a                                                                             and attaches the signed Form 8332 to his
                                                                                                              date of the kidnapping, is treated as a                return. Under section 152(e) and paragraph
                                                      taxable year because of special
                                                                                                              qualifying relative, as described in                   (b) of this section, NCP is allowed a
                                                      circumstances—(1) Individual who is
                                                                                                              section 152(d) and § 1.152–3, of the                   dependency exemption for Child for 2015,
                                                      born or dies during the year. If an
                                                                                                              taxpayer for all taxable years ending                  and CP is not allowed a dependency
                                                      individual is born or dies during a                                                                            exemption for Child for that year.
                                                      taxpayer’s taxable year, the residency                  during the period that the child is
                                                                                                              missing. Also, the child is treated as a                  Example 2. The facts are the same as in
                                                      test for a qualifying child is treated as                                                                      Example 1 of this paragraph (e)(2)(ii), except
                                                      met if the taxpayer and the individual                  qualifying relative of the taxpayer in the
                                                                                                                                                                     NCP files on April 15, 2016, a request for an
                                                      have the same principal place of abode                  year of the child’s return if the child is             extension to file his tax return because he
                                                      for more than one-half of the portion of                a qualifying relative of the taxpayer for              does not have a signed Form 8332. CP signs
                                                      the taxable year during which the                       the portion of the taxable year following              the Form 8332 for the 2015 tax year in
                                                      individual is alive. If an individual is                the date of the child’s return.                        August of 2016, and NCP files his return a
                                                                                                                 (3) Age limitation. The special rules               week later. NCP claims a dependency
                                                      born or dies during a taxpayer’s taxable                                                                       exemption for Child and attaches the signed
                                                                                                              provided in this paragraph (e) cease to
                                                      year, the relationship test for a                                                                              Form 8332 to his return. Under section 152(e)
                                                                                                              apply as of the first taxable year of the
                                                      qualifying relative who is a member of                                                                         and paragraph (b) of this section, NCP is
                                                                                                              taxpayer beginning after the calendar
                                                      the taxpayer’s household is treated as                                                                         allowed a dependency exemption for Child
                                                                                                              year in which there is a determination
                                                      met if the taxpayer and the individual                                                                         for 2015, and CP is not allowed a
                                                                                                              that the child is dead or, if earlier, in              dependency exemption for Child for that
                                                      have the same principal place of abode
                                                                                                              which the child would have attained                    year.
                                                      for the entire portion of the taxable year
                                                                                                              age 18.                                                   Example 3. CP files his 2015 return on
                                                      during which the individual is alive.                      (4) Application. This paragraph (e)
                                                        (2) Adopted child or foster child. If,                                                                       March 1, 2016, and claims a dependency
                                                                                                              applies solely for purposes of                         exemption for Child. NCP files her return on
                                                      during a taxpayer’s taxable year, the                                                                          April 15, 2016, and does not claim a
                                                                                                              determining surviving spouse or head of
                                                      taxpayer adopts a child, a child is                                                                            dependency exemption for Child, even
                                                                                                              household filing status under section 2,
                                                      lawfully placed with a taxpayer for legal                                                                      though her divorce decree allocates the
                                                                                                              the child tax credit under section 24, the
                                                      adoption by that taxpayer, or an eligible                                                                      dependency exemption for Child to her. CP
                                                                                                              earned income credit under section 32,
                                                      foster child is placed with a taxpayer,                                                                        signs a Form 8332 for the 2015 tax year in
                                                                                                              and the dependency exemption under                     August of 2016, and NCP files an amended
                                                      the residency test for a qualifying child
                                                                                                              section 151.                                           return a week later and attaches the signed
                                                      and the residency requirement under                     ■ Par. 17 In newly redesignated
                                                      § 1.152–1(a)(2)(iii) for a child who is not                                                                    Form 8332 to her amended return claiming
                                                                                                              § 1.152–5, paragraphs (e)(2), (e)(3)(iii),             a dependency exemption for Child. Under
                                                      a citizen or national of the United States              and (h) are revised to read as follows:                paragraph (e)(2) of this section, NCP is not
                                                      are treated as met if the taxpayer and the                                                                     allowed a dependency exemption for Child
                                                      child have the same principal place of                  § 1.152–5 Special rule for a child of                  for 2015 if CP has not amended his return to
                                                      abode for more than one-half of the                     divorced or separated parents or parents               remove a claim to the dependency exemption
                                                      portion of the taxable year as required                 who live apart.                                        for Child for that year.
                                                      for a qualifying child, or for the entire               *      *    *     *    *                                  (3) * * *
                                                      taxable year as required for a noncitizen,                 (e) * * *                                              (iii) Attachment to return. The parent
                                                      following the placement of the child                       (2) Attachment to return—(i) In                     revoking the written declaration must
                                                      with the taxpayer.                                      general. A noncustodial parent must                    attach a copy of the revocation to the
                                                        (e) Missing child—(1) Qualifying                      attach a copy of the written declaration               parent’s original or amended return for
                                                      child. A child of the taxpayer who is                   to the parent’s original or amended                    each taxable year for which the parent
                                                      presumed by law enforcement                             return for each taxable year for which                 claims a child as a dependent as a result
                                                      authorities to have been kidnapped by                   the noncustodial parent claims an                      of the revocation. The parent revoking
                                                      someone who is not a member of the                      exemption for the child. A noncustodial                the written declaration must keep a
                                                      family of either the child or the                       parent may submit a copy of the written                copy of the revocation and evidence of
                                                      taxpayer, and who had for the taxable                   declaration to the IRS during an                       delivery of the notice to the other
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                                                      year in which the kidnapping occurred                   examination to substantiate a claim to a               parent, or of the reasonable efforts to
                                                      the same principal place of abode as the                dependency exemption for a child. A                    provide actual notice. A parent may
                                                      taxpayer for more than one-half of the                  copy of a written declaration attached to              submit a copy of a revocation to the IRS
                                                      portion of the taxable year before the                  an amended return, or provided during                  during an examination to substantiate a
                                                      date of the kidnapping, is treated as                   an examination, will not meet the                      claim to a dependency exemption for
                                                      meeting the residency test for a                        requirement of this paragraph (e) if the               the child.
                                                      qualifying child, as described in                       custodial parent signed the written                    *       *    *    *     *
                                                      § 1.152–2(c), of the taxpayer for all                   declaration after the custodial parent                    (h) Applicability date—(1) In general.
                                                      taxable years ending during the period                  filed a return claiming a dependency                   Except as provided in paragraph (h)(2)


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                                                      6388                    Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Proposed Rules

                                                      of this section, this section applies to                   (2) * * * In addition, the application               comparable provisions implementing
                                                      taxable years beginning after July 2,                    must include documentary evidence the                  title II of the Americans with
                                                      2008.                                                    IRS prescribes to establish that a child               Disabilities Act; and make other non-
                                                        (2) Exception. Paragraphs (e)(2) and                   has been placed lawfully with the                      substantive clarifying edits, including
                                                      (e)(3)(iii) of this section apply to taxable             prospective adoptive parent for legal                  updating outdated terminology and
                                                      years beginning after the date these                     adoption by that person. Examples of                   references that currently exist in 28 CFR
                                                      regulations are published as final                       acceptable documentary evidence                        part 42, such as changing the word
                                                      regulations in the Federal Register.                     establishing lawful placement for a legal              ‘‘handicapped’’ and similar variations of
                                                                                                               adoption may include—                                  that word to language referencing
                                                      § 1.6013–1       [Amended]                                                                                      ‘‘individuals with disabilities,’’
                                                                                                               *     *      *      *     *
                                                      ■ Par. 18. Section 1.6013–1 is amended                     (d) Applicability date—(1) In general.               modifying the order of the regulatory
                                                      by removing paragraph (e).                               Except as otherwise provided in                        provisions to group like provisions
                                                                                                               paragraph (d)(2) of this section, the                  together, and adding some headings to
                                                      PART 301—PROCEDURE AND                                                                                          make the regulation more user-friendly.
                                                      ADMINISTRATION                                           provisions of this section apply to
                                                                                                               income tax returns due (without regard                 DATES: All comments must be submitted
                                                      ■ Par. 19. The authority citation for part               to extension) on or after April 15, 1998.              on or before March 20, 2017.
                                                      301 continues to read in part as follows:                  (2) Exception. Paragraphs (a)(1), (b),               ADDRESSES: You may submit comments,
                                                          Authority: 26 U.S.C. 7805 * * *                      (c)(1)(ii), and (c)(2) of this section apply           identified by RIN 1105–AB50, by any
                                                                                                               to income tax returns due (without                     one of the following methods:
                                                      ■ Par. 20. Section 301.6109–3 is                         regard to extension) on or after the date                 • Federal eRulemaking portal: http://
                                                      amended by:                                              these regulations are published as final               www.regulations.gov. Follow the Web
                                                      ■ 1. Revising the first sentence and                     regulations in the Federal Register.                   site’s instructions for submitting
                                                      adding a sentence to the end of the                                                                             comments.
                                                                                                               John Dalrymple,
                                                      paragraph in paragraph (a)(1).                                                                                     • Regular U.S. mail: Disability Rights
                                                      ■ 2. Revising paragraphs (b), (c)(1)(ii),                Deputy Commissioner for Services and
                                                                                                                                                                      Section, Civil Rights Division, U.S.
                                                      the fourth and fifth sentences of (c)(2)                 Enforcement.
                                                                                                                                                                      Department of Justice, P.O. Box 2885,
                                                      introductory text, and paragraph (d).                    [FR Doc. 2017–01056 Filed 1–18–17; 8:45 am]
                                                                                                                                                                      Fairfax, VA 22031–0885.
                                                        The revisions and addition read as                     BILLING CODE 4830–01–P                                    • Overnight, courier, or hand
                                                      follows:                                                                                                        delivery: Disability Rights Section, Civil
                                                                                                                                                                      Rights Division, U.S. Department of
                                                      § 301.6109–3 IRS adoption taxpayer
                                                      identification numbers.
                                                                                                               DEPARTMENT OF JUSTICE                                  Justice, 1425 New York Avenue NW.,
                                                                                                                                                                      Suite 4055, Washington, DC 20005.
                                                        (a) In general—(1) Definition. An IRS                  Office of the Attorney General                         FOR FURTHER INFORMATION CONTACT:
                                                      adoption taxpayer identification number
                                                      (ATIN) is a temporary taxpayer                                                                                  Rebecca Bond, Chief, Disability Rights
                                                                                                               28 CFR Part 42                                         Section, Civil Rights Division, U.S.
                                                      identifying number assigned by the
                                                      Internal Revenue Service (IRS) to a child                [Docket No. OAG 154; AG Order No. 3818–                Department of Justice, at (202) 307–0663
                                                      (other than an alien individual as                       2017]                                                  (voice or TTY) (not a toll-free number);
                                                      defined in § 301.6109–1(d)(3)(i)) who                                                                           or Michael Alston, Director, Office for
                                                                                                               RIN 1105–AB50
                                                      has been placed lawfully with a                                                                                 Civil Rights, Office of Justice Programs,
                                                      prospective adoptive parent for legal                    Amendment of Regulations                               U.S. Department of Justice, at (202) 307–
                                                      adoption by that person. * * * A child                   Implementing Section 504 of the                        0690 (not a toll-free number).
                                                      lawfully placed with a prospective                       Rehabilitation Act of 1973—                            Information may also be obtained from
                                                      adoptive parent for legal adoption                       Nondiscrimination Based on Disability                  the Department’s toll-free ADA
                                                      includes a child placed for legal                        in Federally Assisted Programs or                      Information Line at (800) 514–0301
                                                      adoption by the child’s parent or                        Activities                                             (voice), or (800) 514–0383 (TTY).
                                                                                                                                                                         You may obtain copies of this notice
                                                      parents by blood, an authorized
                                                                                                               AGENCY:   Department of Justice.                       of proposed rulemaking (NPRM) in an
                                                      placement agency, or any other person
                                                                                                               ACTION:   Notice of proposed rulemaking.               alternative format by calling the ADA
                                                      authorized by State law to place a child
                                                                                                                                                                      Information Line at (800) 514–0301
                                                      for legal adoption.
                                                                                                               SUMMARY:   The Department of Justice is                (voice), or (800) 514–0383 (TTY). This
                                                      *      *    *     *    *                                 issuing this notice of proposed                        NPRM is also available on the ADA
                                                        (b) Definitions—(1) Authorized                         rulemaking to revise its regulation                    Home Page at http://www.ada.gov.
                                                      placement agency has the same meaning                    implementing section 504 of the                        SUPPLEMENTARY INFORMATION:
                                                      as in § 1.152–1(b)(1)(iv).                               Rehabilitation Act of 1973, as applicable
                                                        (2) Child means a child who has not                    to programs and activities receiving                   Electronic Submission of Comments
                                                      been adopted but has been placed                         financial assistance from the                          and Posting of Public Comments
                                                      lawfully with a prospective adoptive                     Department, in order to incorporate                       You may submit electronic comments
                                                      parent for legal adoption by that person.                amendments to the statute, including                   to http://www.regulations.gov. When
                                                        (3) Prospective adoptive parent means                  the changes in the meaning and                         submitting comments electronically,
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                                                      a person in whose household a child                      interpretation of the applicable                       you must include ‘‘RIN 1105–AB50’’ in
                                                      has been placed lawfully for legal                       definition of disability required by the               the subject field, and you must include
                                                      adoption by that person.                                 ADA Amendments Act of 2008;                            your full name and address. Electronic
                                                        (c) * * *                                              incorporate requirements stemming                      files should avoid the use of special
                                                        (1) * * *                                              from judicial decisions; update                        characters or any form of encryption
                                                        (ii) The child has been placed                         accessibility standards applicable to                  and should be free of any defects or
                                                      lawfully with the prospective adoptive                   new construction and alteration of                     viruses.
                                                      parent for legal adoption by that person;                buildings and facilities; update certain                  Please note that all comments
                                                      *      *    *     *    *                                 provisions to promote consistency with                 received are considered part of the


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Document Created: 2018-02-01 15:15:42
Document Modified: 2018-02-01 15:15:42
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionWithdrawal of notice of proposed rulemaking and notice of proposed rulemaking.
DatesWritten or electronic comments and requests for a public hearing must be received by April 19, 2017.
ContactConcerning the proposed regulations, Victoria J. Driscoll, (202) 317-4718; concerning the submission of comments and requests for a public hearing, Regina Johnson, (202) 317- 6901 (not toll-free calls).
FR Citation82 FR 6370 
RIN Number1545-BI35
CFR Citation26 CFR 1
26 CFR 301
CFR AssociatedIncome Taxes; Reporting and Recordkeeping Requirements; Employment Taxes; Estate Taxes; Excise Taxes; Gift Taxes and Penalties

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