Only taxpayers with a “qualifying child” get large EICs. A “qualifying child” must meet 3 tests: relationship, age, and residency. The definition of “qualifying child” also requires that the child be younger than the person claiming the child and that the child have not filed their own return. This situation can happen when a person adopts an older adult to insure that benefits or property flow to that person upon death.1

• 1This was a common estate planning technique for same-sex couples before the U.S. Supreme Court legalized same-sex marriage in Obergefell v. Hodges, 576 U.S. 644 (2015).

Under the relationship test, a qualifying child is a child who is the taxpayer’s (a) child, stepchild, adopted child, foster child,1  or a descendant of any of them; or (b) sibling, step-sibling, half-sibling, or a descendant of any of them.

Under the age test, to be a qualifying child, the child at the end of the tax year must be (a) under the age of 19; (b) under the age of 24 and a “full-time” student; or (c) permanently and totally disabled at any time during the year, regardless of age.

• 1An eligible foster child is a child placed by an authorized placement agency, i.e., a court, state or local government agency or a tax-exempt organization licensed by the state. Hegwood v. Comm’r, T.C. Summ. Op. 2002-156.

The majority of issues that arise under the “qualifying child” definition involve the residency test. Generally, the contested issues involve documentation of the child’s residency and not legal issues.

The child must have lived with the taxpayer in the United States for more than half of the year.1  Note that for the EIC, there is no “support” or “household maintenance” test if the taxpayer can properly file as single or married filing jointly. A taxpayer can meet the residency test even if the other parent has custody under a court decree and provided more than half the support.2

A home is anywhere the taxpayer regularly lives and can include nontraditional homes such as homeless shelters. The legislative history of the EIC indicates that determinations of an individual’s principal abode should be made under rules similar to those for the head-of-household filing status.3

Temporary absences can count toward the half-year or whole-year requirements if the taxpayer or child is away from home due to special circumstances such as illness, school attendance,4  business or military service, vacation, detention in a juvenile facility, kidnapping (if not committed by a family member), or disaster displacement. Although not listed in IRS Publication 596, pre-conviction detention in a jail and custody agreements where the child is absent for less than 6 months may also count.5  In Rowe v. Commissioner, the taxpayer was eligible for the EIC even though she was absent from the household for the last 7 months of the year due to her confinement in jail.6

Tax preparation services often counsel a taxpayer not to claim a resident child if someone else has already filed for the EIC based on that child, even if the other person was not eligible to claim the child. The IRS will deny an electronic return where someone else has already filed for the EIC. In this situation, the proper procedure is to file a paper return, which will prompt an IRS examination to determine which taxpayer is entitled to claim the child for the EIC. The taxpayer will then have the chance to offer evidence of residency and to appeal if necessary.

• 1Prior to 2002, an “eligible foster child” had to live with the taxpayer for the whole year in order to be a qualifying child for the taxpayer’s EIC claim.
• 2Webb v. Comm’r, T.C. Memo 1990-581.
• 3H.R. Rep. No. 101-964 (1990).
• 4College attendance cannot count as a “temporary absence” if the child resided away from home at college and does not intend to return to the taxpayer’s home. Schatz v. Comm’r, T.C. Memo 1981-341.
• 5Cf. 26 C.F.R. § 1.2-2(c)(1) (temporary absence pursuant to custody agreement is “special circumstance”); Rowe v. Comm’r, 128 T.C. 13 (2007).
• 6Rowe, 128 T.C. 13.

Sometimes, a child is the “qualifying child” of more than one person. However, only one taxpayer (or a married couple filing jointly) can claim the EIC for the child.

If the EIC is claimed by two individuals who are each eligible to claim the child, a series of tiebreaker rules apply:

1. A parent wins over a non-parent.1
2. Where parents lived apart for some portion of the year, but each lived with child for at least 6 months, the parent who lived with child longer wins.
3. Where the child lived with each parent same amount of time, the parent with the higher AGI wins.
4. If neither parent is an eligible claimant, caretaker with highest AGI wins.

The law presents some planning opportunities for unwed parents who live together, but cannot file as “married.” If both unwed parents are the biological parents of a child, they can decide who claims the child for the EIC. If they have more than 1 child together, they can split their children. If both claim a child, the first tie breaker favors the parent who lived longer with the child. If residency is equal, the parent with the higher AGI wins.

When evaluating cases involving the EIC, take care to check if the claimed dependent was claimed by another household for public benefits, such as housing subsidies, food stamps, or Medicaid. This will be an obstacle to proving residency. If another claimant wrongly claimed the dependent as living in their household, that claimant may be examined if your client prevails on their EIC claim and may have to repay the benefits that were received. This should be explained to the client, especially if the other claimant is a family member.

• 1A parent should win over a step-parent.

The IRS seems to deny any EIC when it finds that the taxpayer does not have a qualifying child. However, a taxpayer whose income is low enough may qualify for the EIC even without a qualifying child.1  To be eligible, such a taxpayer (or the spouse, if filing jointly) must be at least 25 but under 65, not be a dependent or qualifying child of another person, and have lived in the United States more than half of the year.

If a parent’s dependent is not a “qualifying child”, check to see if the dependent qualifies as a “qualified relative.” Receipt of Social Security, food stamps, and rental subsidies may affect an indigent taxpayer’s ability to claim a dependency exemption for a “qualifying relative” as distinguished from a “qualifying child.”

• 1Chandler v. Comm’r, T.C. Summ. Op. 2002-74.