franchise tax boardhead of household fssas linda watts | ruth wagner

Franchise Tax Board Head of Household

FSSASLinda Watts | Ruth Wagner

Franchise Tax Board Head of Household2

2007

Head of HouseholdFranchise Tax Board


Agenda Registered Domestic Partners

Head of Household (HOH)

Program Overview Requirements Discussion Case Studies


2007

|Starting 01.01.07| Registered Domestic Partners (RDPs)

California now treats a registered domestic partner (RDP) the same as a married person.

RDPs are generally required to file a joint or separate return the same as a married person.

Any reference to spouse in this presentation also pertains to an RDP.


2007

Head of Household (HOH) Program Overview Audit Process

Legal Issues General Rules

Denial Reasons


Process

Electronic Filer

1st Audit Letter

2nd Audit Letter

3 Ways for Taxpayers to Respond

• Mail

• Fax

• Web


Notice of Proposed Assessment (NPA)

• Audit letter included with no response to NPA

Process |continued|

• Acceptance letter


2007

RequirementsDiscussion


General Rules |ALL must apply|

1. Taxpayer must be either unmarried and not an RDP or meet the requirements to be considered unmarried or considered not in a registered domestic partnership on the last day of the year.

2. Taxpayer must not be a nonresident alien at any time during the year.


General Rules |ALL must apply | continued|3. Taxpayer paid more than half the cost of keeping

a home for the year.

4. Taxpayer’s home is the main home for themselves and a qualifying person who lived with them for more than half the year. (Note: A taxpayer’s parent/stepparent is the exception.)


General Rules |ALL must apply | continued|5. The qualifying person is the taxpayer’s

qualifying child or qualifying relative.

6. The taxpayer must be entitled to a Dependent Exemption Credit for the qualifying child or qualifying relative.


Who is a Qualifying Person?Qualifying Child

• Relationship Test

• Age Test

• Support Test

• Special Test

• Time In the Home (Residency) Test


Who is a Qualifying Person? |continued|Qualifying Relative


• Gross Income Test

• Support Test

• Not a Qualifying Child Test


Who is Unmarried and not an RDP?

• Never married and never an RDP.

• Marriage or registered domestic partnership annulled and never remarried or entered into another registered domestic partnership.• Taxpayer’s spouse/RDP died in a prior year and taxpayer never remarried or entered into a registered domestic partnership.• Final decree of divorce or legal separation and not remarried or entered into a registered domestic partnership.• Spouse/RDP is a nonresident alien.


1. The qualifying person is taxpayer’s birth child, stepchild, adopted child, or eligible foster child.

Who is Considered Unmarried or Considered Not in a Registered Domestic Partnership?

2. Taxpayer filed a tax return separate from their spouse’s/RDP’s tax return.

3. Taxpayer paid more than half the cost of keeping up their home for the year.


Who is Considered Unmarried or Considered Not in a Registered Domestic Partnership? |continued|

4. Taxpayer did not live with their spouse/RDP during any of the last six months of the tax year (July 1 – Dec 31).

5. Taxpayer’s home was the main home for taxpayer and their child for more than half the year.


Who is Considered Unmarried or Considered Not in a Registered Domestic Partnership?

|continued|6. Taxpayer must be entitled to claim a Dependent

Exemption Credit for their child.


Taxpayer Unmarried and not an RDP

If the taxpayer was married or an RDP at any time during the year, but was divorced, legally separated, or their registered domestic partnership was legally terminated by the last day of the year, they count the time with their child as follows:

Counting Qualifying TimeLegal Issues


Counting Qualifying Time |continued|

• Half of the days the taxpayer and the child lived in the taxpayer’s home with the spouse/RDP (ex-spouse/ex-RDP).

and

• All of the days the taxpayer and the child lived together in the taxpayer’s home without the spouse/RDP (ex-spouse/ex-RDP).

(Appeal of William Tierney)


Counting Qualifying Time |continued|Married Taxpayer

• Taxpayers who are married or an RDP as of the last day of the tax year must also apply the Tierney rules.

• If the spouse/RDP lives in the home at any time during the last six months, the taxpayer does not meet the requirements to be considered unmarried or considered not in a registered domestic partnership and cannot qualify for head of household filing status.

(Appeal of Barbara Godek)


Example:Husband, wife, and child lived together until 4/30 when the husband moved out.

The child continued living with his mother until 7/31 and then moved in with his father.

Their divorce was final on 8/31.


Example |continued|January – April = 4 monthsEach parent is allowed 2 months

Ex-Wife has 3 additional months(May – July) 2 + 3 = 5 months total

Ex-Husband has 5 additional months(Aug – Dec) 2 + 5 = 7 months total


Eligible Foster ChildThe child must be placed with the taxpayer by an authorized placement agency or by a judgment, decree, or other order of a court of competent jurisdiction. Generally, formal placement ends when the child reaches the age of 18.


Joint CustodyA taxpayer who shares joint physical custody of a child does not automatically qualify for head of household filing status. The taxpayer and the child must live together in the taxpayer’s home for more than half the year.


Joint Custody Head of Household Credit

1. Taxpayer is unmarried and not an RDP on the last day of the tax year, or files using the married/RDP filing separately filing status, and lives apart from his or her spouse/RDP for the entire year.


Joint Custody Head of Household Credit |continued|

2. Pays more than half the costs of maintaining his or her home as the main home for a birth child, step child, adopted child, or grandchild.

3. Maintains their home as child’s main home for at least 146 days, but not more than 219 days.


Joint Custody Head of Household Credit |continued|

4. One of the following documents defines the taxpayer’s home as the child’s main home for the above period:

• Decree of dissolution of marriage or registered domestic partnership.

• Decree of legal separation.

• Written agreement entered into after the proceedings for divorce, dissolution of registered domestic partnership, or legal separation began, but before the final decree was issued.


Multiple Families Occupying the Same Dwelling

If two or more families occupy the same dwelling, each family may be treated as keeping up a separate household if both of the following requirements are met:

•Each family maintains separate finances.•Neither family contributes to the support of the other family.


Spouses/RDPs who have separate sleeping quarters in the same dwelling are:

1. Considered members of the same household.

2. Not considered unmarried or considered not in a registered domestic partnership for purposes of filing as head of household.

Spouses/RDPs with Separate Sleeping Quarters


Common Denial Reasons

1. Qualifying person did not meet the gross income test.

2. Taxpayer was married or an RDP and lived with spouse/RDP at some time during the last six months of the year.

3. Qualifying person did not live with taxpayer more than half the year.


Common Denial Reasons |continued|

4. Taxpayer was legally married or an RDP and claiming a parent or relative other than a child as a qualifying person.

5. Taxpayer claimed a nonrelative as a qualifying person.


2007

Case StudiesHead of Household


• The taxpayer is still legally married as of the last day of the year.

• The taxpayer lived with his spouse from January 1 to November 12.

• The taxpayer’s teenage daughter lived with him all year.

Case Study No. 1


Case Study No. 1 |continued|

Analysis

To qualify for head of household filing status, the taxpayer must be either unmarried and not an RDP or meet the requirements to be considered unmarried or considered not in a registered domestic partnership on the last day of the year.


To be considered unmarried or considered not in a registered

domestic partnership, all of the following must apply:

1. Taxpayer’s qualifying person is their birth child, stepchild, adopted child, or eligible foster child.

2. The taxpayer’s tax return was filed separately from his spouse’s /RDP’s return.




3. The taxpayer paid more than half the cost of keeping up his home for the year.

4. The taxpayer’s spouse/RDP did not live in the home at any time during the last six months of the taxable year.



5. For more than half of the year, the taxpayer’s home was the main home for their birth child, stepchild, adopted child, or eligible foster child.

6. The taxpayer was entitled to claim a Dependent Exemption Credit for the child.



The Determination

This taxpayer does not qualify for the head of household filing status.

• Taxpayer cannot be considered unmarried. He was legally married and lived with his spouse from July 1 to November 12 which is a portion of the last six months of the year.


Case Study No. 2

• The taxpayer is divorced as of December 31 and did not live with her spouse during the tax year.

• The taxpayer’s 8-year-old daughter lived with her for five months during the year. The daughter lived with the other parent the rest of the year.



Analysis

Taxpayer’s home must be the main home for themselves and a qualifying person who lived with them for more than half the year.


The Determination

The taxpayer does not qualify for the head of household filing status.

More than half the year is 183 days; in a leap year it is 184 days. (5 months is < 183 days)



Case Study No. 3

• The taxpayer was legally married, but did not live with his spouse during the tax year.

• The taxpayer’s 12-year-old brother lived with him from January 1 to September 1.



Analysis

Taxpayer is legally married at the end of the year.

To use the head of household filing status, the taxpayer must be considered unmarried.



The Determination

The taxpayer does not qualify to file using the head of household filing status because a brother is not a qualifying person for a taxpayer who is considered unmarried or considered not in a registered domestic partnership.


Case Study No. 4

• The taxpayer is unmarried and not an RDP.

• The taxpayer paid all of the costs of maintaining his home where his cousin lived with him all year.

• The cousin was 17 years old and had $2,500 in wages from a part-time job.



Analysis

Taxpayer’s cousin is not one of the relatives who, by law, can qualify a taxpayer for head of household filing status.



The Determination

The taxpayer does not qualify to file using the head of household filing status. Taxpayer does not have either a qualifying child or a qualifying relative.


Case Study No. 5

• The taxpayer was divorced 15 years ago.

• Her 32-year-old son, who was unmarried and not an RDP, lived with her the entire year and had gross income of $2,000.

• The taxpayer provided more than half of her son’s support and paid all of the costs of keeping up the home.


Case Study No. 5 |continued|Analysis

1. Taxpayer was unmarried and not an RDP (divorced).

2. Taxpayer paid more than half the cost of keeping up her home.

3. Her son did not meet the age test to be a qualifying child, but he met the requirements to be a qualifying relative.

4. Her home was the main home for her and her qualifying relative for more than half the year.

5. Taxpayer was entitled to the dependent exemption credit for her qualifying person.



The four qualifications to be a qualifying relative are:


• Gross Income Test

• Support Test

• Not a Qualifying Child Test



The Determination

Taxpayer qualifies because she met all of the tests.


• The taxpayer was married and lived with her spouse and her 17-year-old daughter until September 26. The taxpayer’s divorce was final on November 16. The taxpayer did not remarry or enter into a registered domestic partnership.

• The taxpayer paid all of the costs of keeping up the home for herself and her daughter, who lived with her from January 1 to December 15. The daughter had no income.

Case Study No. 6


Case Study No. 6 |continued|Although the taxpayer lived with her spouse during the last six months of the year:

• She was unmarried and not an RDP as of December 31.

• She paid more than half the cost of keeping up her home.

• Her home was the main home for her qualifying child for more than half the year.



To determine how many days the taxpayer’s home was the main home of the child, follow the guidelines below:

1.Count half the days when the taxpayer and the child lived together in the taxpayer’s home while the taxpayer’s ex-spouse/ex-RDP was also living there.

2.January 1 to September 26 is 269 days. Divide 269 by 2, the result is 134.5 days allowed for each parent.



3. Then add all the days the taxpayer and the qualifying child lived together in the taxpayer’s home without the taxpayer’s spouse/RDP (ex-spouse/ex-RDP):

• September 27 to December 15 is 80 days.

• The taxpayer’s child lived with the taxpayer for 214.5 days (134.5 + 80).



The Determination

Taxpayer qualifies for head of household filing status because using the Tierney rule, her qualifying person lived with her for more than half the year


Case Study No. 7

• The taxpayer is unmarried and not an RDP.

• The taxpayer claimed his girlfriend’s 12-year-old son as his qualifying person.

• His girlfriend and her son lived with the taxpayer for the entire year.

• The taxpayer paid all of the costs of keeping up the home.

• The son had no income.



Analysis

The girlfriend’s son is not one of the relatives who, by law, can qualify a taxpayer for head of household filing status.

He is not the taxpayer’s birth child, adopted child, stepchild, or eligible foster child.


The Determination

• The taxpayer does not qualify for the head of household filing status. He may be entitled to a Dependent Exemption Credit for his girlfriend and her child if all of the Dependent Exemption Credit tests are met.

• See FTB Publication 1540, definition for Dependent Exemption Credit for requirements to claim the credit.



Case Study No. 8

• The taxpayer was married as of the last day of the year, but did not live with her spouse during the tax year.

• The taxpayer’s 22-year-old son lived with the taxpayer the entire year, was not a student, and had gross income of $8,500.

• The taxpayer paid all of the costs of maintaining her home.



Analysis

A qualifying child must be under 19 years of age, or under 24 years of age if a full-time student, to meet the age test.

A qualifying relative cannot earn more than the federal dependent exemption amount for the year in question.



The Determination

The taxpayer does not qualify for the head of household filing status because her son does not meet the requirements to be either a qualifying child or a qualifying relative.


Head of Household Information

Practitioners Hotline 916.845.7057

Taxpayer Service Center 800.852.5711

Contacts


2007

Thank You

franchise tax boardhead of household fssas linda watts | ruth wagner

Documents

qualifying child test

qualifying person

home residency test

acceptance letter slide

requirements discussion

taxpayers home

married person

taxpayers birth child