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Franchise Tax Board

Franchise Tax Board

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Franchise Tax Board

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  1. Franchise Tax Board Head of Household FSSAS Linda Watts | Ruth Wagner

  2. Head of Household Franchise Tax Board

  3. Agenda • Registered Domestic Partners • Head of Household (HOH)Program Overview • Requirements Discussion • Case Studies

  4. |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 tospousein this presentation also pertains to an RDP.

  5. Head of Household (HOH) Program Overview • Audit Process • Legal Issues • General Rules • Denial Reasons

  6. Process • Electronic Filer • 1st Audit Letter • 2nd Audit Letter • 3 Ways for Taxpayers to Respond • Mail • Fax • Web

  7. Process |continued| • Notice of Proposed Assessment (NPA) • Audit letter included with no response to NPA • Acceptance letter

  8. Requirements Discussion

  9. General Rules |ALL must apply| • Taxpayer must be either unmarried and not an RDPor meet the requirements to be considered unmarried or considered not in a registered domestic partnershipon the last day of the year. 2. Taxpayer must not be a nonresident alien at any time during the year.

  10. General Rules |ALL must apply | continued| • 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.)

  11. General Rules |ALL must apply | continued| • The qualifying person is the taxpayer’s qualifying childorqualifying relative. 6. The taxpayer must be entitled to a Dependent Exemption Credit for the qualifying child or qualifying relative.

  12. Who is a Qualifying Person? Qualifying Child • Relationship Test • Age Test • Support Test • Special Test • Time In the Home (Residency) Test

  13. Who is a Qualifying Person? |continued| Qualifying Relative • Relationship Test • Gross Income Test • Support Test • Not a Qualifying Child Test

  14. 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.

  15. Who isConsidered Unmarried or Considered Not in a Registered Domestic Partnership? • The qualifying person is taxpayer’s birth child, stepchild, adopted child, or eligible foster child. 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.

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

  17. Who is Considered Unmarried or Considered Not in a Registered Domestic Partnership? |continued| • Taxpayer must be entitled to claim a Dependent Exemption Credit for their child.

  18. Legal Issues Counting Qualifying Time 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:

  19. 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)

  20. 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)

  21. 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.

  22. 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

  23. Eligible Foster Child The 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.

  24. Joint Custody A 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.

  25. 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.

  26. Joint Custody Head of Household Credit |continued| • 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. • Maintains their home as child’s main home for at least 146 days, but not more than 219 days.

  27. Joint Custody Head of Household Credit |continued| • 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.

  28. 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.

  29. Spouses/RDPs with Separate Sleeping Quarters Spouses/RDPs who have separate sleeping quarters in the same dwelling are: • Considered members of the same household. • Not considered unmarried or considered not in a registered domestic partnership for purposes of filing as head of household.

  30. Common Denial Reasons • 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.

  31. Common Denial Reasons |continued| • 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.

  32. Case Studies Head of Household

  33. Case Study u No. 1 • 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.

  34. Case Study u 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.

  35. Case Study u No. 1 |continued| To be considered unmarried or considered not in a registered domestic partnership, all of the following must apply: • Taxpayer’s qualifying person is their birth child, stepchild, adopted child, or eligible foster child. • The taxpayer’s tax return was filed separately from his spouse’s /RDP’s return.

  36. Case Study u No. 1 |continued| • The taxpayer paid more than half the cost of keeping up his home for the year. • The taxpayer’s spouse/RDP did not live in the home at any time during the last six months of the taxable year.

  37. Case Study u No. 1 |continued| • 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. • The taxpayer was entitled to claim a Dependent Exemption Credit for the child.

  38. Case Study u No. 1 |continued| 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.

  39. Case Study u 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.

  40. Case Study u No. 2 |continued| Analysis Taxpayer’s home must be themain homefor themselves and a qualifying person who lived with them formore than half the year.

  41. Case Study u No. 2 |continued| 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)

  42. Case Study u 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.

  43. Case Study u No. 3 |continued| 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.

  44. Case Study u No. 3 |continued| 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.

  45. Case Study u 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.

  46. Case Study u No. 4 |continued| Analysis Taxpayer’s cousin is not one of the relatives who, by law, can qualify a taxpayer for head of household filing status.

  47. Case Study u No. 4 |continued| 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.

  48. Case Study u 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.

  49. Case Study u No. 5 |continued| Analysis • Taxpayer was unmarried and not an RDP (divorced). • Taxpayer paid more than half the cost of keeping up her home. • Her son did not meet the age test to be a qualifying child, but he met the requirements to be a qualifying relative. • Her home was the main home for her and her qualifying relative for more than half the year. • Taxpayer was entitled to the dependent exemption credit for her qualifying person.

  50. Case Study u No. 5 |continued| The four qualifications to be a qualifying relative are: • Relationship Test • Gross Income Test • Support Test • Not a Qualifying Child Test