Tax Complexity And Filing Status

Annette Nellen

It doesn’t seem that one’s filing status should be confusing. You’re single or you’re married. But, many people qualify for head-of-household status. That one is confusing because of its multi-faceted definition.

The IRS offers an online questionnaire to help people figure out if they qualify for head-of-household status. For many years, the California Franchise Tax Board mailed questionnaires to individuals who claimed this status to let them know their status would be reviewed and provided information to help them confirm if they selected the proper status. Starting in 2015, the FTB created a new form that must be completed and attached to the California income tax return if the head-of-household status is claimed (Form 3532).

The complexity of the head-of-household status and its interaction with other provisions is highlighted in a recent Tax Court decision. In Walker, TC Summary Opinion 2017-8 (2/13/17), the IRS denied the taxpayer’s claim of head-of-household status. W’s girlfriend and her son lived with him. The girlfriend’s son was not related to W and W had not adopted him. W provided over half the support for the son. On his return, W claimed a dependency exemption for the son, child tax credit, earned income tax credit and head-of-household filing status.

The court found that the son was W’s dependent because W provided over half of his support, and although not a relative, met Code §152(d)(2)(H) – “An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) 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.”

The court denied W’s claim of a child credit under §24 because the girlfriend’s son was not W’s child. The court also denied W’s claim of the EITC under §32 because the son was not a “qualifying child” and W’s income was too high.

The court upheld W’s claiming of head-of-household status though. Per the court: “An individual qualifies as a head of household if, as relevant herein, he or she maintains as his or her home a household that constitutes the principal place of abode of a “qualifying child” as defined in section 152(c) or a dependent under section 151. Sec. 2(b)(1)(A).”

The court did not make any mention of Code §2(b)(3). Instead, the court only referred to §2(b)(A)(ii), finding that because the girlfriend’s son was W’s dependent, W qualified for head-of-household status. If the court had continued reading to §2(b)(3) it would have found that if a child is claimed as a dependent only because of Code §152(d)(2)(H) member of the household, the taxpayer doesn’t qualify for head-of-household status. Thus, the court reached an incorrect result, truly indicating the complexity of the head-of-household status.

Some tax reform proposals have called for repealing the head-of-household status as a simplification measure. For example, see the Tax Reform Act of 2014 (H.R. 1 of the 113rd Congress; also see Joint Committee on Taxation summary).

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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2 comments on “Tax Complexity And Filing Status

  • John R. Dundon II, EA

    Hello Annette! I enjoy your writing. Perhaps a reasonable follow up post worth considering might be to elaborate on why/how aspects of §2(b)(3) dependency claims under §152(d)(2)(H) member of the household should have disqualified head-of-household status from the Walker Opinion.

  • Hi John, Thanks for the comment and suggestion. And thanks for your writings! Yes, tax policy of what head-of-household should be and if it should even exist is a good one today. Thanks.

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