[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Proposed Rules]
[Pages 6370-6388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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