[Federal Register Volume 91, Number 160 (Thursday, August 20, 2026)]
[Proposed Rules]
[Pages 53812-53827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-16985]



[[Page 53812]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-119882-25]
RIN 1545-BS06


Application of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 to the Refunded Portion of Certain Federal 
Refundable Tax Credits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that would provide 
that the refunded portion of certain refundable Federal income tax 
credits available to individuals is a ``Federal public benefit'' under 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (PRWORA). As a result, aliens who are not ``qualified aliens'' 
under PRWORA would be ineligible to receive the refunded portion of 
these refundable credits. These regulations would generally affect 
taxpayers claiming the following Federal income tax credits: the 
adoption tax credit, the American opportunity tax credit, the child tax 
credit, and the earned income credit. As required by PRWORA, this 
document also provides notice to the public and notifies recipients of 
proposed changes regarding eligibility for the refunded portion of such 
Federal income tax credits under PRWORA.

DATES: Written or electronic comments must be received by October 5, 
2026. A public hearing on this proposed regulation has been scheduled 
for October 14, 2026. Requests to speak and outlines of topics to be 
discussed at the public hearing must be received by October 5, 2026. If 
no outlines are received October 5, 2026, the public hearing will be 
cancelled. Requests to attend the public hearing must be received by 5 
p.m. ET on October 9, 2026.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-119882-
25) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish for public availability any comments submitted 
electronically, and comments submitted on paper to the IRS's public 
docket. Send paper submissions to: CC:PA:01:PR (REG-119882-25), Room 
5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Branch 4 of the Office of Associate Chief Counsel (Income Tax & 
Accounting), (202) 317-4718 (not a toll-free number); concerning 
submissions of comments or the public hearing, the Publications and 
Regulations Section at (202) 317-6901 (not toll-free numbers) or by 
email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Authority

    This notice of proposed rulemaking contains proposed amendments to 
the Income Tax Regulations (26 CFR part 1) under sections 23, 24, 25A, 
and 32 of the Internal Revenue Code (Code) under the authority of 
section 7805(a) of the Code, which authorizes the Secretary of the 
Treasury or the Secretary's delegate (Secretary) to prescribe all 
needful rules and regulations for the enforcement of the Code, 
including all rules and regulations as may be necessary by reason of 
any alteration of law in relation to internal revenue.
    The proposed regulations are also issued under the authority of 
section 404 of PRWORA, Public Law 104-193, 110 Stat. 2105, 2267 (Aug. 
22, 1996) (8 U.S.C. 1614), which requires a Federal agency 
administering a Federal public benefit to post information and provide 
general notification to the public and to benefit recipients of the 
changes regarding eligibility for any such benefit pursuant to subtitle 
A of Title IV of PRWORA.

Background

I. Personal Responsibility and Work Opportunity Reconciliation Act

    Section 401(a) of PRWORA (8 U.S.C. 1611(a)) provides that aliens 
who are not qualified aliens (as that term is defined in 8 U.S.C. 1641) 
are not eligible for any Federal public benefit (as defined in 8 U.S.C. 
1611(c)), with certain narrow exceptions.\1\
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    \1\ 8 U.S.C. 1611(b) (listing exceptions). See also A.G. Order 
No. 6335-2025, 90 FR 32023 (July 11, 2025) (no benefits are exempt 
from PRWORA other than the provision of police, fire, ambulance, 
transportation, sanitation, and other similar services).
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    Section 401(c)(1)(B) of PRWORA (8 U.S.C. 1611(c)(1)(B)) defines the 
term ``Federal public benefit,'' in relevant part, as ``any retirement, 
welfare, health, disability, public or assisted housing, postsecondary 
education, food assistance, unemployment benefit, or any other similar 
benefit for which payments or assistance are provided to an individual, 
household, or family eligibility unit by an agency of the United States 
or by appropriated funds of the United States.''
    Section 431(b) of PRWORA (8 U.S.C. 1641(b)) defines the term 
``qualified alien'' as ``an alien who, at the time the alien applies 
for, receives, or attempts to receive a Federal public benefit is: (1) 
an alien who is lawfully admitted for permanent residence under the 
Immigration and Nationality Act, (2) an alien who is granted asylum 
under section 208 of such Act, (3) a refugee who is admitted to the 
United States under section 207 of such Act, (4) an alien who is 
paroled into the United States under section 212(d)(5) of such Act for 
a period of at least 1 year, (5) an alien whose deportation is being 
withheld under section 243(h) of such Act (as in effect immediately 
before the effective date of section 307 of division C of Public Law 
104-208) or section 241(b)(3) of such Act (as amended by section 305(a) 
of division C of Public Law 104-208), (6) an alien who is granted 
conditional entry pursuant to section 203(a)(7) of such Act as in 
effect prior to April 1, 1980, (7) an alien who is a Cuban and Haitian 
entrant (as defined in section 501(e) of the Refugee Education 
Assistance Act of 1980), or (8) an individual who lawfully resides in 
the United States in accordance with a Compact of Free Association 
referred to in section 1612(b)(2)(G) of [title 8].''
    The term ``qualified alien'' also includes certain aliens who have 
been battered or subject to extreme cruelty in the United States 
provided they meet certain requirements including a substantial 
connection between such battery or cruelty and the need for the 
benefits to be provided. See 8 U.S.C. 1641(c).
    Section 404 of PRWORA (8 U.S.C. 1614) requires each Federal agency 
that administers a program to which section 1611 of title 8, United 
States Code, applies, to post information and provide general 
notification to the public and to program recipients of the changes 
regarding eligibility for such Federal public benefits.

II. Executive Actions

    Prior to 2018, the Treasury Department and the IRS had not viewed 
tax benefits, including refundable credits, as constituting Federal 
public benefits under PRWORA. In 2018, the Treasury Department began to

[[Page 53813]]

reconsider the potential applicability of PRWORA's eligibility 
restrictions to the refunded portions of three individual refundable 
income tax credits: (1) the earned income credit under section 32 
(EITC), (2) the child tax credit under section 24 (CTC), and (3) the 
American opportunity tax credit under section 25A (AOTC). In connection 
with that reconsideration, the General Counsel's office of the Treasury 
Department requested an opinion from the Office of Legal Counsel (OLC) 
at the Department of Justice as to whether the refundable portions of 
each of these three credits ``may reasonably be construed as a `Federal 
public benefit' within the meaning of PRWORA's provision on aliens' 
ineligibility for such benefits.'' \2\
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    \2\ See Memorandum for Brian Callanan, General Counsel, 
Department of the Treasury, from Jennifer L. Mascott, Deputy 
Assistant Attorney General, Office of Legal Counsel, Re: Aliens' 
Limited Eligibility for Certain Refundable Tax Credits at 1 (Dec. 9, 
2020) (2020 OLC Opinion), available at www.justice.gov/olc/media/1419266/dl?inline.
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    On December 9, 2020, OLC sent a memorandum to the General Counsel 
of the Treasury Department opining that the refunded portion of the 
named tax credits may reasonably be construed as a ``Federal public 
benefit'' for which nonqualified aliens are generally ineligible under 
PRWORA.\3\ OLC reasoned that the EITC, CTC, and AOTC provide direct 
payments to individual taxpayers and households; are materially similar 
to other kinds of monetary payments that the Federal government makes 
to individuals outside of the tax system; and each satisfies PRWORA's 
definition of a Federal public benefit either as a welfare benefit, 
postsecondary education benefit, or other similar benefit. The 2020 OLC 
Opinion stated, however, that ``you have not asked us to consider, and 
we do not reach, the question whether this is the only permissible 
reading of the statute.'' \4\
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    \3\ 2020 OLC Opinion at 1, 6. Although the 2020 OLC Opinion uses 
the term ``refundable portion'' instead of ``refunded portion,'' it 
is clear from the discussion on page 7 of the 2020 OLC Opinion that 
the term ``refundable portion'' was used to refer to the amount of 
the refundable portion of certain tax credits that exceeds an 
individual taxpayer's income tax liability and therefore generates 
an overpayment. Accordingly, this notice of proposed rulemaking uses 
the term ``refunded portion'' instead of ``refundable portion'' for 
clarity.
    \4\ Id. at 1-2.
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    On February 19, 2025, President Trump issued Executive Order 14218, 
Ending Taxpayer Subsidization of Open Borders (90 FR 10581). The 
Executive Order directs Federal agencies, among other actions, to 
identify federally funded programs administered by the agency and to 
ensure that such programs are operating in compliance with Title IV of 
PRWORA.\5\
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    \5\ Public Law 104-193, 100 Stat. 2105 (1996). Sections 400-451 
of PRWORA are codified in title 8 of the United States Code (U.S.C.) 
at sections 1601 to 1646.
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    Following the issuance of Executive Order 14218, the Treasury 
Department submitted a second request to OLC asking whether the 
interpretation that was the subject of the 2020 OLC Opinion represents 
the best reading of the law, in light of Loper Bright Enterprises v. 
Raimondo, 603 U.S. 369 (2024). This second request also asked whether 
the refunded portions of the premium tax credit (PTC) under section 36B 
and the Saver's Match under section 6433 of the Code constitute Federal 
public benefits. On November 19, 2025, in response, OLC issued a 
Memorandum Opinion to the General Counsel of the Treasury Department 
concluding that the interpretation addressed in the 2020 OLC Opinion 
reflects the best view of the law and that the refunded portions of the 
credits addressed in the 2020 OLC Opinion, as well as the PTC and the 
Saver's Match, are Federal public benefits under PRWORA.\6\
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    \6\ Memorandum Opinion for the General Counsel, Department of 
the Treasury, from Lanora C. Pettit, Deputy Assistant Attorney 
General, Office of Legal Counsel, re: Status of the Refundable 
Portion of Certain Tax Credits as Federal Public Benefits, 49 Op. 
O.L.C. __, at 2 (Nov. 19, 2025) (2025 OLC Opinion), available at 
www.justice.gov/olc/media/1419131/dl.
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III. Refunded Portion of Certain Individual Refundable Income Tax 
Credits as ``Federal Public Benefits''

A. Individual Refundable Income Tax Credits
    In general, a tax credit is an amount allowable as a reduction of 
tax liability for the purpose of computing the tax or refund due. A tax 
credit reduces a taxpayer's liability dollar for dollar. Tax credits 
are available to all taxpayers who meet the eligibility requirements of 
the particular credit. If an amount allowable as a refundable credit 
exceeds the tax imposed by subtitle A of the Code (subtitle A) (reduced 
by any applicable nonrefundable credits), the amount of that excess is 
considered to be an overpayment of tax, which the IRS may credit 
against any existing Federal tax liabilities of the taxpayer and must, 
subject to certain mandatory offsets, refund any balance to the 
taxpayer. Sections 6401(b)(1) and 6402(a).
    In general, to determine the overpayment amount attributable to a 
refundable tax credit, an individual taxpayer first determines the 
taxpayer's taxable income for the tax year pursuant to section 63 of 
the Code and calculates the amount of tax on the taxable income 
pursuant to section 1 of the Code. The taxpayer then adds any additions 
to tax under chapter 1 of the Code (chapter 1), such as excess advance 
payments of the PTC and repayment of certain other credits, and other 
taxes imposed by subtitle A, such as the tax on self-employment income. 
Once the total subtitle A income tax liability is calculated, the 
taxpayer reduces that amount by the amount of the credits allowable 
under subparts A, B, D and G of part IV of subchapter A of chapter 1. 
If this reduced tax liability amount is exceeded by the amount of any 
refundable tax credits under subpart C of part IV of subchapter A of 
chapter 1, the excess is an overpayment available for refund, credit, 
or offset. See sections 6401(b)(1) and 6402(a) of the Code.
B. Adoption Tax Credit
    Section 23 of the Code allows an individual to claim a tax credit 
for qualified adoption expenses paid or incurred in connection with an 
eligible child. Beginning in 2025, under section 23(a)(4), up to $5,000 
(adjusted for inflation for future years) of the credit is 
refundable.\7\ Section 23(b)(2)(A) imposes income limitations and 
section 23(h) provides several adjustments for inflation, such as on 
the income limitations, the cap on qualified adoption expenses, and the 
cap on the refundable portion of the credit. For example, for taxable 
year 2025, the adoption tax credit phases out for individuals with 
adjusted gross income (AGI) over $259,190 and is fully eliminated for 
individuals with AGI of $299,190 or more.
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    \7\ Section 70402 of One Big Beautiful Bill Act (OBBBA), Public 
Law 119-21, 139 Stat. 72 (2025), added paragraph (4) to section 
23(a) of the Code, effective for taxable years beginning after 
December 31, 2024.
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    The adoption tax credit is claimed by an individual on a Federal 
income tax return, and Form 8839, Qualified Adoption Expenses. Section 
23(f)(1) of the Code requires married individuals to file a joint 
return to claim the credit unless they meet certain requirements. 
Section 23(f)(2) of the Code requires the individual to provide the 
name, age, and tax identification number (TIN) of the adopted child.
C. Child Tax Credit
    Section 24(h)(2) of the Code allows eligible taxpayers with a 
qualifying child or children to claim a CTC of up to $2,200 for 2025 
(adjusted for inflation

[[Page 53814]]

for future years) per qualifying child.\8\ The CTC is made up of a 
nonrefundable and refundable component. If the taxpayer has 
insufficient Federal income tax liability, the taxpayer may be eligible 
for the refundable portion of the CTC, generally called the Additional 
Child Tax Credit (ACTC). The ACTC, under section 24(d) of the Code, is 
generally calculated using the earned income formula. This formula 
allows for a refundable credit equal to 15% of the taxpayer's earned 
income in excess of $2,500, up to a maximum of $1,700 per child for 
2025 (adjusted for inflation for future years). Under section 24(h)(3) 
of the Code, the CTC (including the ACTC portion) phases out for 
taxpayers with modified AGI over $200,000 and married individuals who 
file joint returns with modified AGI over $400,000.\9\ The actual 
modified AGI level at which the credit equals zero is dependent on the 
number of qualifying children of the taxpayer.
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    \8\ Section 24(h)(2) of the Code was made permanent by section 
70104 of the OBBBA, effective for taxable years beginning after 
December 31, 2024.
    \9\ The income thresholds under section 24(h)(3) were made 
permanent by section 70104 of the OBBBA, effective for taxable years 
beginning after December 31, 2024.
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    The CTC is claimed by a taxpayer on a Federal income tax return and 
Schedule 8812, Credits for Qualifying Children and Other Dependents. 
For taxable years beginning after December 31, 2024, section 24(h)(7) 
of the Code requires the taxpayer to include the social security number 
(SSN) of the qualifying child and of the taxpayer (or, in the case of a 
joint return, the SSN of at least one spouse).\10\ For purposes of the 
CTC, an SSN qualifies only if it is issued--(i) to a citizen of the 
United States or pursuant to subclause (l) (or that portion of 
subclause (III) that relates to subclause (I)) of section 
205(c)(2)(B)(i) of the Social Security Act (a work eligible SSN), and 
(ii) before the due date for such return. For taxpayers filing a joint 
return, only one spouse is required to have a work eligible SSN. The 
other spouse must have an SSN issued by the Social Security 
Administration or an individual taxpayer identification number (ITIN) 
issued by the IRS on or before the due date of the return.
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    \10\ Section 24(h)(7) of the Code was amended by section 70104 
of the OBBBA, effective for taxable years beginning after December 
31, 2024.
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D. American Opportunity Tax Credit
    Section 25A(a)(1) of the Code allows an individual to claim a tax 
credit for qualified education expenses paid for an eligible student 
for the first four years of postsecondary education. Section 25A(b)(1) 
of the Code limits the maximum annual credit to $2,500 per eligible 
student. Under section 25A(i) of the Code, 40% of the credit amount is 
refundable. Under section 25A(d) of the Code, the available credit 
begins to phase out when the individual's modified AGI reaches $80,000 
($160,000 for joint filers) and is completely phased out at $90,000 
($180,000 for joint filers). Under section 25A(g)(7), an individual who 
is a nonresident alien for any portion of the taxable year cannot claim 
the AOTC unless the individual elects to be treated as a U.S. resident 
alien under section 6013(g) or (h) of the Code.
    The AOTC is claimed by an individual on a Federal income tax return 
and Form 8863, Education Credits (American Opportunity Credit and 
Lifetime Learning Credits). Section 25A(g)(6) of the Code requires 
married individuals to file a joint return to claim the AOTC, unless 
they meet certain requirements. For taxable years beginning after 
December 31, 2025, section 25A(g)(1) of the Code requires the 
individual to include the SSN of the individual filing the return and 
of the individual for whom the qualified education expenses were paid 
if such individual is other than the taxpayer or the taxpayer's 
spouse.\11\ For purposes of the AOTC, an SSN must be a work eligible 
SSN issued to an individual by the Social Security Administration 
before the due date for such return.
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    \11\ Section 25A(g)(1) of the Code was amended by section 70605 
of the OBBBA, effective for taxable years beginning after December 
31, 2024.
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E. Earned Income Credit
    Section 32(a) of the Code allows taxpayers with earned income to 
claim a refundable tax credit in an amount calculated using the 
taxpayer's earned income and the credit percentage and income amount 
specified in section 32(b) of the Code. Eligibility for the credit and 
the amount allowed as a credit are based upon a number of factors, 
including the taxpayer's earned income, AGI, investment income, number 
of qualifying children of the taxpayer as of the end of the taxpayer's 
tax year, U.S. residency, and identification requirements. Section 
32(c) of the Code requires the individual's qualifying children to meet 
the relationship, residency, and age requirements for purposes of 
claiming the credit. Section 32(c) of the Code also allows individuals 
who meet certain age and U.S. residency requirements to claim the EITC 
if they do not have qualifying children.
    Individuals with income above certain thresholds, which vary based 
on marital status and number of qualifying children, are ineligible for 
the EITC. Section 32(c)(1)(D) of the Code does not allow an individual 
who is a nonresident alien for any portion of the taxable year to claim 
the credit unless the individual elects to be treated as a U.S. 
resident under section 6013(g) or (h) of the Code.
    The EITC is claimed by an individual on a Federal income tax 
return. Section 32(d) of the Code requires married individuals to file 
a joint return to claim the credit, unless they meet certain 
requirements. If the individual is claiming the EITC for a qualifying 
child, the individual must also file Schedule EIC, Earned Income 
Credit. Section 32(m) of the Code requires the individual to provide 
the SSN for themselves, their spouse if married, and any qualifying 
children. For purposes of the EITC, the SSN must be (i) issued to an 
individual by the Social Security Administration (other than an SSN 
issued pursuant to clause (II) (or the portion of clause (III) that 
relates to clause (II)) of section 205(c)(2)(B)(i)) of the Social 
Security Act), and (ii) issued on or before the due date for filing the 
return for the taxable year.
F. Premium Tax Credit
    Section 36B provides a PTC to applicable taxpayers who meet certain 
eligibility requirements, and who enroll themselves, or enroll a member 
of the taxpayer's family, in a qualified health plan (QHP) through an 
Exchange. An individual is not eligible to enroll in a QHP if the 
individual is not, or is not reasonably expected to be for the entire 
period for which enrollment is sought, a citizen or national of the 
U.S., or an alien lawfully present in the U.S. See section 1312 of the 
Affordable Care Act (ACA) (42 U.S.C. 18032).\12\ Section 36B(e)(1)(A) 
provides that if one or more individuals in a taxpayer's family 
(including the taxpayer) are aliens not lawfully present in the U.S., 
the enrollment premiums and adjusted monthly premiums for the 
applicable benchmark plan otherwise taken into account in determining 
the taxpayer's PTC must be reduced by the portion of such premiums 
attributable to the individuals who are aliens not lawfully present in 
the U.S. The OBBBA amended section 36B(e)(1) to provide

[[Page 53815]]

that for tax years beginning after December 31, 2026, such premiums 
must also be reduced for aliens who are lawfully present in the U.S. 
but who are not eligible aliens, a narrower category of non-citizens.
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    \12\ The Affordable Care Act refers to the Patient Protection 
and Affordable Care Act (Pub. L. 111-148, enacted on March 23, 
2010), as amended by the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) and OBBBA. 
While the ACA does not define ``lawfully present,'' it is defined in 
regulations and includes valid nonimmigrant status holders. See 45 
CFR 155.20.
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G. Saver's Match
    Section 6433 allows certain low- and moderate-income individuals 
who make qualified retirement savings contributions to receive matching 
contributions of up to $1,000 (Saver's Match contributions) paid by the 
Secretary of the Treasury or the Secretary's delegate (Secretary) to 
applicable retirement savings vehicles for tax years beginning after 
December 31, 2026. Eligible individuals may elect to have matching 
contributions of less than $100 ``treated as a credit allowed by 
subpart C of part IV of subchapter A of chapter 1.'' Section 
6433(a)(2)(B).
H. Application of Federal Public Benefit Definition
    PRWORA defines ``Federal public benefit'', in relevant part, to 
encompass certain types of benefits for which payments or assistance 
are provided to an individual, household, or family eligibility unit by 
an agency of the United States or by appropriated funds of the United 
States.\13\ In analyzing this definition's application to individual 
refundable income tax credits, OLC first examined whether the refunded 
portion of such credits constitutes a ``benefit.'' \14\ OLC opined that 
the refunded portion of such credits is a benefit based on the ordinary 
meaning of the word since it results in a payment from the Federal 
government to the taxpayer that goes beyond a return of money paid by 
the taxpayer to the Federal government.\15\
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    \13\ 8 U.S.C. 1611(c) defines ``Federal public benefit as 
follows:
    (1) Except as provided in paragraph (2), for purposes of this 
chapter the term ``Federal public benefit'' means--
    (A) any grant, contract, loan, professional license, or 
commercial license provided by an agency of the United States or by 
appropriated funds of the United States; and
    (B) any retirement, welfare, health, disability, public or 
assisted housing, postsecondary education, food assistance, 
unemployment benefit, or any other similar benefit for which 
payments or assistance are provided to an individual, household, or 
family eligibility unit by an agency of the United States or by 
appropriated funds of the United States.
    \14\ 2020 OLC Opinion at 6-7.
    \15\ When describing how a refundable credit may provide a 
payment to a taxpayer who owes less tax than the amount of the 
credit, the 2020 OLC Opinion relies on sections 6401(b) and 6402 of 
the Code. See 2020 OLC Opinion at 1.
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    OLC also opined that the refunded portion of individual refundable 
income tax credits provides a ``payment'' because it gives the taxpayer 
money that the taxpayer did not earn and would not have received but 
for the existence of the government program.\16\ OLC distinguished the 
refunded portion of individual refundable income tax credits from an 
``ordinary tax refund,'' which it described as a return to the taxpayer 
of his own money that Treasury had held until the taxpayer's net 
obligations for the tax period could be settled. Finally, OLC opined 
that the refunded portion of an individual refundable income tax credit 
is provided to an individual, household, or family eligibility unit 
(that is, the taxpayer, who is either an individual or the joint-filing 
members of a household) by an agency (the Treasury Department, through 
the IRS) or by appropriated funds of the United States (namely the 
permanent indefinite appropriation of amounts necessary for refunding 
internal revenue collections in 31 U.S.C. 1324).\17\
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    \16\ Id. at 7.
    \17\ Id. at 8.
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    After concluding this general analysis, OLC next considered whether 
each of the EITC, ACTC, and AOTC falls within the kinds of benefits 
identified in 8 U.S.C. 1611(c)(1)(B), which are ``any retirement, 
welfare, health, disability, public or assisted housing, postsecondary 
education, food assistance, unemployment benefit or any other similar 
benefit . . . .'' \18\ OLC opined that both the EITC and the ACTC are 
welfare or other similar benefits and that the AOTC is a postsecondary 
education benefit. In 2025, OLC opined that the PTC is a health or 
similar benefit and the Saver's Match is a retirement or similar 
benefit.\19\ In sum, OLC concluded that the refunded portion of the 
EITC, ACTC, AOTC, PTC, and Saver's Match are ``Federal public 
benefits'' as defined in PRWORA. The Treasury Department and the IRS 
incorporate the reasoning and conclusions of the 2020 and 2025 OLC 
Opinions for purposes of these proposed regulations unless otherwise 
described in this preamble.
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    \18\ 2020 OLC Opinion at 11-14; 2025 OLC Opinion at 16-19.
    \19\ 2025 OLC Opinion at 2 and 18-19.
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    The proposed regulations would apply PRWORA to the following 
individual refundable income tax credits: the (1) adoption tax credit, 
(2) CTC, (3) AOTC, and (4) EITC, collectively referred to as the 
``affected refundable tax credits'' in this notice of proposed 
rulemaking. While the adoption tax credit, which was made partially 
refundable by the OBBBA,\20\ has not been addressed by OLC, it is 
included in the proposed regulations as a ``similar benefit.'' Though 
the list of enumerated benefits in section 401(c)(1)(B) of PRWORA does 
not include any items that relate to adoption, the Department of Health 
and Human Services (HHS) has determined that Federal adoption 
assistance benefits are Federal public benefits.\21\ The adoption tax 
credit, although not identical, is sufficiently similar to Federal 
adoption assistance benefits in that it provides a Federal incentive to 
promote adoptions, and thus, it would make sense to treat it the same 
way for purposes of PRWORA. Accordingly, the proposed regulations would 
treat the refunded portion of the adoption tax credit as a Federal 
public benefit within the meaning of PRWORA.
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    \20\ However, the adoption credit previously was made fully 
refundable by the ACA for tax years 2010 and 2011. See section 10909 
of the ACA.
    \21\ See HHS Notice 63 FR 41658 (August 4, 1998) (stating that 
HHS adoption assistance programs are generally Federal public 
benefits). This Notice was revised to include additional programs as 
Federal public benefits in 2025 (90 FR 31232) (July 14, 2025).
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    The proposed regulations would not apply PRWORA to the refunded 
portion of the PTC. Although OLC determined that the refunded portion 
of the PTC is a Federal public benefit for purposes of PRWORA, it 
stated that its conclusion does not automatically mean that all aliens 
who are not qualified aliens under PRWORA are ineligible to receive it, 
noting that ``Congress can always supersede existing statutes, 
including PRWORA, with later-[en]acted laws.'' \22\ OLC further noted 
that Congress addressed restrictions on the PTC by including specific 
statutory language on immigration status in two later-enacted statutes, 
the ACA and OBBBA. See section 36B(e) (limiting the PTC for the 
coverage of an alien to aliens lawfully present for tax years beginning 
before January 1, 2027, and to eligible aliens for tax years beginning 
after December 31, 2026). The proposed regulations would not apply 
PRWORA to the refunded portion of the PTC based on the view that these 
restrictions supersede and override PRWORA. Under both the ACA and 
OBBBA, Congress specifically addressed immigration status as it relates 
to the computation of and eligibility for the PTC. As an example, under 
the ACA, Congress allowed only U.S. citizens, U.S. nationals, or 
``lawfully present'' aliens to enroll in a QHP through an Exchange, and 
a taxpayer could only receive the PTC for the coverage of these 
enrollees. Congress also provided a special rule that allowed aliens 
lawfully present in the U.S. who were ineligible for Medicaid because 
of their

[[Page 53816]]

immigration status to receive the PTC despite having household income 
that generally would make them ineligible for the PTC. See section 
36B(c)(1)(B) as in effect for taxable years beginning on or before 
December 31, 2025. Thus, for PTC purposes, Congress not only restricted 
the allowance of the PTC on the basis of specific immigration status, 
but it specifically allowed those who were ineligible for Medicaid, due 
to the PRWORA limitations, to receive the PTC. Under the OBBBA, 
Congress further restricted aliens' eligibility for the PTC by 
disallowing a PTC for the coverage of aliens who are not ``eligible 
aliens,'' a narrower category than qualified aliens under PRWORA. See 
section 36B(e)(2).
---------------------------------------------------------------------------

    \22\ 2025 OLC Opinion at 18.
---------------------------------------------------------------------------

    In addition, the OBBBA enacted a new program to be administered 
under the Code, the Trump Accounts Contribution Pilot Program. Although 
not a tax credit, section 6434 of the Code provides for a one-time, 
$1,000 pilot program contribution paid by the Secretary into an 
eligible child's Trump account.\23\ Contributions under the Pilot 
Program are restricted to children who are U.S. citizens. See section 
6434(c)(3). Accordingly, there is no need to determine whether the 
Trump Accounts Contribution Pilot Program is a Federal public benefit 
under PRWORA because, even if it is, the OBBBA provision limiting 
account contributions to U.S. citizens would supersede and override 
PRWORA.
---------------------------------------------------------------------------

    \23\ The Treasury Department and the IRS recently issued 
proposed regulations concerning section 6434. Trump Accounts 
Contribution Pilot Program, 91 FR 11203 (Mar. 9, 2026).
---------------------------------------------------------------------------

    Finally, regarding the Saver's Match, which is effective for tax 
years beginning in 2027, the Treasury Department and IRS intend to 
promulgate proposed regulations regarding the Saver's Match separately.

Explanation of Provisions

I. Refunded Portion of Certain Individual Refundable Income Tax Credits 
Are Federal Public Benefits Under PRWORA

    These proposed regulations would provide that PRWORA is applicable 
to the refunded portion of the affected refundable tax credits. 
Specifically, proposed Sec. Sec.  1.23-2(a), 1.24-3(a), 1.25A-7(a), and 
1.32-4(a) each would provide that, pursuant to PRWORA, aliens who are 
not qualified aliens are not eligible to receive the Federal public 
benefit of the refunded portion of the affected refundable tax credits 
under sections 23, 24, 25A and 32, respectively.
    Proposed Sec.  1.32-4(b) would set forth definitions of the 
operative PRWORA terms that apply for purposes of applying proposed 
Sec.  1.32-4(a). For example, proposed Sec.  1.32-4(b)(1) would provide 
that for purposes of applying PRWORA to the refunded portion of the 
EITC, the term ``alien'' has the same definition as in section 101(a) 
of the Immigration and Nationality Act, Public Law 82-414, 66 Stat. 
163, 8 U.S.C. 1101(a)(3). Proposed Sec.  1.32-4(b)(4) would provide 
that the term ``qualified alien'' has the same definition as in section 
431(b) of PRWORA (8 U.S.C. 1641(b)). Finally, consistent with the OLC 
conclusion that the refunded portions of the affected refundable tax 
credits (that is, the portion that exceeds the individual's tax 
liability and generates an overpayment under 26 U.S.C. 6401(b)(1)) are 
Federal public benefits within the meaning of 8 U.S.C. 1611(c), 
proposed Sec.  1.32-4(b)(2) would adopt this same definition of a 
Federal public benefit for purposes of applying proposed Sec.  1.32-
4(a). Sections 1.23-2(b), 1.24-3(b), and 1.25A-7(b), would adopt all of 
the PRWORA operative definitions applicable to the affected refundable 
tax credits by cross reference to Sec.  1.32-4(b).

II. Definition of Refunded Portion of Refundable Tax Credit

    The proposed regulations would provide that only the refunded 
portion of an affected refundable tax credit is a Federal public 
benefit. Accordingly, if the taxpayer is eligible for the affected 
refundable tax credit under the Code, the proposed regulations would 
bar receipt only of the portion of the sum of those affected refundable 
tax credits that exceeds the income tax liability imposed by subtitle A 
(reduced by credits allowable under subparts A, B, D, and G of part IV 
of subchapter A of chapter 1).\24\ Although the proposed definition of 
a Federal public benefit is similar to what is considered to be an 
overpayment in section 6401(b)(1), it is not the same because it is 
limited to affected refundable tax credits. If the taxpayer is not a 
U.S. citizen, U.S. national, or qualified alien, the amount considered 
to be the overpayment under section 6401(b) that is available for 
credit, offset, or refund, which may include other refundable tax 
credits that are not affected refundable tax credits, would be reduced 
by the amount of the Federal public benefit.
---------------------------------------------------------------------------

    \24\ If a taxpayer claims more than one of the affected 
refundable tax credits (for example, both ACTC and AOTC), then the 
``refunded portion'' of the affected refundable tax credits refers 
to the total amount of such credits exceeding tax liability. The 
claimed credit amounts are added together before determining the 
amount of the credits exceeding tax liability.
---------------------------------------------------------------------------

    Proposed Sec. Sec.  1.23-2(d), 1.24-3(d), 1.25A-7(d), and 1.32-4(d) 
would clarify who can receive the refunded portion of the affected 
refundable tax credit under PRWORA by providing that unless a taxpayer 
is a U.S. citizen, U.S national, or qualified alien, the taxpayer is 
not eligible to receive a refund, credit, or offset of the refunded 
portion of the affected refundable tax credit.

III. Timing of Alien Status Determination

    As explained in the Background section of this preamble, to be a 
qualified alien, an individual must fall within one of the defined 
categories in 8 U.S.C. 1641(b) ``at the time the alien applies for, 
receives, or attempts to receive a Federal public benefit.'' The 
proposed regulations would provide that an alien must be a qualified 
alien, for purposes of receiving the refunded portion of the affected 
refundable tax credits, on the date the alien files a Federal income 
tax return first claiming the affected refundable tax credit. This rule 
would apply to the Federal income tax return first claiming the 
affected refundable tax credit, which may be, for example, an early 
return, amended return, or late return. Using the filing date the 
taxpayer first claimed the credit would best align Code and tax 
administration concepts with PRWORA's requirement that an alien be a 
qualified alien at the time the alien applies for, attempts to receive, 
or receives the Federal public benefit. In addition, under the Code, a 
taxpayer either claims or does not claim a credit, and portions of a 
single credit cannot be claimed at different times. Consequently, the 
date on which the taxpayer first claims the credit is the most 
appropriate date for determining whether the taxpayer satisfies 
PRWORA's qualified alien requirement for the Federal public benefit. 
Accordingly, sections 1.23-2(e), 1.24-3(e), 1.25A-7(e), and 1.32-4(e) 
of the proposed regulations would provide that each taxpayer claiming 
one or more of the affected refundable tax credits must be a U.S. 
citizen, U.S. national, or qualified alien on the date of filing an 
initial or amended Federal income tax return first claiming the credit 
for the taxable year in order to be eligible to receive the refunded 
portion of the tax credit. Proposed Sec. Sec.  1.23-2(f), 1.24-3(f), 
1.25A-7(f), and 1.32-4(f) would provide examples illustrating the 
applicability of the timing rule to the claim of the refunded portion 
of an affected refundable tax credit.

[[Page 53817]]

IV. Joint Returns With Only One Spouse Meeting the Requirements Under 
PRWORA

    The EITC, AOTC, and the adoption tax credit generally require 
married individuals to file a joint return to claim the credit. The CTC 
does not require spouses to file a joint return, but spouses may elect 
to file a joint return. If married individuals filing a joint return 
meet the Code's eligibility requirements of the specific refundable tax 
credit being claimed, and the amount of the affected refundable tax 
credit(s) exceeds the joint filers' tax liability, then the proposed 
regulations would require that one of the joint filers be a U.S. 
citizen, U.S. national, or qualified alien to receive the joint refund, 
credit, or offset of the refunded portion of any of the affected 
refundable tax credits. See proposed Sec. Sec.  1.23-2(b), 1.24-3(b), 
1.25A-7(b), and 1.32-4(b)(4).

V. Self-Certification

    Under the proposed regulations, each individual (or one spouse in 
the case of a joint return) claiming an affected refundable tax credit 
that results in a Federal public benefit would be required to provide a 
declaration under penalty of perjury stating that the individual is a 
U.S. citizen, U.S. national, or qualified alien who is eligible to 
receive the claimed refund under PRWORA. This declaration or 
attestation would need to be made on the appropriate Federal income tax 
return, amended tax return, or schedule as required by the IRS. The IRS 
intends to update forms and instructions to reflect this requirement. 
Under section 6061(a) of the Code, all returns and refund claims must 
``be signed in accordance with forms or regulations prescribed by the 
Secretary.'' See also Sec.  1.6061-1(a). These documents must also be 
``verified by a written declaration that [they are] made under the 
penalties of perjury.'' Section 6065 of the Code; see also Sec. Sec.  
1.6065-1(a), 301.6065-1, Sec.  301.6402-2(b)(1). An individual who 
fails to provide the required declaration in the manner and on the form 
or schedule required by the IRS would not be eligible to receive the 
refunded portion of any of the affected refundable tax credits claimed 
on the return for the taxable year.
    Section 7206 of the Code provides that willfully providing 
incorrect or untrue information on a tax return constitutes a felony. 
Penalties for violations of section 7206 include liability for a fine 
up to $100,000 and being sentenced to up to 3 years in prison. See also 
section 7207 of the Code. Additionally, 18 U.S.C. 1015(e) punishes as a 
felony any knowing false statement that one is a citizen or a national 
of the United States with the intent to obtain any Federal or State 
benefit or service. Finally, with respect to Federal public benefits, 
18 U.S.C. 1001 provides that it is a felony to knowingly and willfully 
make any materially false, fictitious, or fraudulent statement or 
representation in any matter within the jurisdiction of any branch of 
the Federal Government.

Proposed Applicability Date

    These proposed regulations are proposed to apply for taxable years 
ending on or after the date these regulations are published as final 
regulations in the Federal Register.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Executive Orders 12866 and 13563 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility.
    The proposed regulations have been designated by the Office of 
Management and Budget's (OMB's) Office of Information and Regulatory 
Affairs (OIRA) as subject to review under Executive Order 12866 
pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the 
Treasury Department and the Office of Management and Budget regarding 
review of tax regulations. OIRA has determined that the proposed 
rulemaking is a significant regulatory action and subject to review 
under Executive Order 12866 and section 1(b) of the Memorandum of 
Agreement. Accordingly, the proposed regulations have been reviewed by 
OMB. The proposed rulemaking is not expected to be considered a 
regulatory action under Executive Order 14192 because it does not 
impose any more than de minimis regulatory costs.
A. Need for Regulation
    Tax credits provide a dollar-for-dollar reduction in tax liability. 
When a tax credit is refundable, any portion of the credit that exceeds 
the taxpayer's liability may be refunded to the taxpayer. Because tax 
credits are typically designed to advance specific policy objectives, 
refundability ensures that low- and moderate-income taxpayers with 
little or no income tax liability can still benefit, thereby supporting 
the intended purpose of the credit. Some individual refundable income 
tax credits have similar eligibility requirements, but the specific 
rules generally differ across credits. For example, the EITC is 
intended to encourage work and requires taxpayers to have earned 
income; the CTC, designed to support families, conditions eligibility 
on the presence of qualifying children; and the AOTC is aimed at 
reducing the cost of higher education and requires enrollment of an 
eligible student in an eligible institution and payments of qualified 
expenses.
    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 (PRWORA) defines the term ``Federal public benefit'' as ``any 
retirement, welfare, health, disability, public or assisted housing, 
postsecondary education, food assistance, unemployment benefit, or any 
other similar benefit for which payments or assistance are provided to 
an individual, household, or family eligibility unit by an agency of 
the United States or by appropriated funds of the United States.'' 
Under PRWORA, other than in limited exceptions, aliens who are not 
qualified aliens are not eligible for any Federal public benefits. The 
Treasury Department and the IRS have not previously considered 
individual refundable income tax credits to constitute Federal public 
benefits under PRWORA.
    In 2020, in response to the Treasury's request for an opinion, the 
Office of Legal Counsel (OLC) at the Department of Justice opined (2020 
Opinion) that the refunded portions of the EITC, CTC, and AOTC 
satisfies PRWORA's definition of a Federal public benefit. Subsequently 
in November 2025, in response to the Treasury's second request for an 
opinion, the OLC concluded in an opinion (2025 Opinion) that its 2020 
Opinion reflects the best reading of the law and that the refunded 
portions of certain individual refundable income tax credits are within 
the meaning of Federal public benefits under PRWORA.
    The proposed regulations would clarify how the term ``Federal 
public benefit'' as used in PRWORA applies to certain individual 
refundable income tax credits administered under the Code.

[[Page 53818]]

B. The Statute and the Proposed Regulations
    The proposed regulations would apply PRWORA to the following four 
individual refundable income tax credits--the adoption tax credit, the 
CTC, the AOTC, and the EITC.
    Section 23 of the Code allows eligible taxpayers to claim the 
adoption tax credit to offset the costs of adopting a child. Beginning 
in tax year 2025, up to $5,000 of the credit is refundable. To claim 
the credit, taxpayers must include on the return the Taxpayer 
Identification Number (TIN) of the adopted child. Married individuals 
must file a joint return to claim the credit unless exceptions apply.
    Section 24 allows eligible taxpayers to claim the CTC of up to 
$2,200 for tax year 2025 (adjusted for inflation thereafter) for each 
qualifying child. The refundable portion of the CTC is referred to as 
the additional child tax credit (ACTC), which is calculated as 15 
percent of the taxpayer's earned income in excess of $2,500, up to 
$1,700 per qualifying child for tax year 2025 (adjusted for inflation 
thereafter). To be eligible, the qualifying child and the taxpayer (or 
the taxpayer's spouse if filing jointly) must have work eligible SSNs 
issued before the due date of the tax return. For married individuals 
filing a joint return, if only one spouse meets the work eligible SSN 
requirements, the other spouse must have an SSN or Individual Taxpayer 
Identification number (ITIN) issued on or before the due date of the 
return. Married individuals who file separate returns are eligible to 
claim the CTC, but the credit begins to phase out at a lower income 
level than for those filing jointly.
    Section 25A(a)(1) allows taxpayers to claim the AOTC for qualified 
education expenses paid for an eligible student for the first four 
years of postsecondary education. The maximum annual credit is $2,500 
per student, and 40 percent of the credit amount is refundable. To be 
eligible, the taxpayer (or the taxpayer's spouse if filing jointly) and 
the student (if not the taxpayer or spouse) must have work eligible 
SSNs issued before the due date of the tax return. Married individuals 
must file a joint return to claim the credit unless exceptions apply.
    Section 32 allows taxpayers with earned income to claim the EITC, 
which is fully refundable. The maximum EITC amount varies with the 
number of qualifying children the taxpayer has. For tax year 2025, the 
maximum credit amount is $649 for taxpayers with no qualifying child, 
$4,328 for taxpayers with one qualifying child, $7,152 for taxpayers 
with two qualifying children, and $8,046 for taxpayers with three or 
more qualifying children. To be eligible, the taxpayer (both spouses if 
filing jointly) as well as the qualifying child must have valid SSNs 
issued on or before the filing due date of the tax return. For the 
EITC, an SSN is not valid if it is issued solely to allow an individual 
to receive or apply for a Federal funded benefit. Married individuals 
must file a joint return to receive the credit unless exceptions apply.
    Under sections 6401 and 6402 of the Code, when the amount of a 
refundable tax credit (under subpart C of part IV of subchapter A of 
chapter 1) exceeds the tax imposed by subtitle A (reduced by 
nonrefundable tax credits), the amount of that excess is treated as an 
overpayment of tax and may be refunded to the taxpayer. Specifically, 
under section 6402, the IRS may credit the overpayment against any 
Federal tax liabilities of the taxpayer and shall, subject to certain 
mandatory offsets, refund any balance to the taxpayer.
    Under section 401(a) of PRWORA (8 U.S.C. 1611(a)), aliens who are 
not qualified aliens as defined in 8 U.S.C. 1641 are not eligible for 
any Federal public benefit as defined in PRWORA, with certain narrow 
exceptions. Section 431(b) of PRWORA (8 U.S.C. 1641(b)) defines a 
qualified alien as an alien who, at the time the alien applies for, 
receives, or attempts to receive a Federal public benefit, meets 
certain alien status requirements, including ``(1) an alien who is 
lawfully admitted for permanent residence under the Immigration and 
Nationality Act, (2) an alien who is granted asylum under section 208 
of such Act, (3) a refugee who is admitted to the United States under 
section 207 of such Act, (4) an alien who is paroled into the United 
States under section 212(d)(5) of such Act for a period of at least 1 
year, (5) an alien whose deportation is being withheld under section 
243(h) of such Act (as in effect immediately before the effective date 
of section 307 of division C of Pub. L. 104-208) or section 241(b)(3) 
of such Act (as amended by section 305(a) of division C of Pub. L. 104-
208), (6) an alien who is granted conditional entry pursuant to section 
203(a)(7) of such Act as in effect prior to April 1, 1980, (7) an alien 
who is a Cuban and Haitian entrant (as defined in section 501(e) of the 
Refugee Education Assistance Act of 1980), or (8) an individual who 
lawfully resides in the United States in accordance with a Compact of 
Free Association referred to in section 1612(b)(2)(G) of [title 8].'' 
Qualified aliens also include aliens who have been battered or subject 
to extreme cruelty in the United States and meet certain requirements.
    These proposed regulations would clarify that the eligibility 
restrictions under PRWORA mentioned above would apply to the refunded 
portion of the following four refundable tax credits--the adoption tax 
credit, the CTC, the AOTC, and the EITC. Furthermore, these proposed 
regulations would provide that only the refunded portion of an affected 
refundable tax credit is a Federal public benefit. Accordingly, if the 
taxpayer is eligible for the affected refundable tax credit under the 
Code, these proposed regulations would bar receipt only of the portion 
of the sum of those affected refundable tax credits that exceeds the 
income tax liability imposed by subtitle A (reduced by credits 
allowable under subparts A, B, D, and G of part IV of subchapter A of 
chapter 1). If the taxpayer is not a U.S. citizen, U.S. national, or 
qualified alien, the amount considered to be the overpayment under 
section 6401(b) that is available for credit, offset, or refund, which 
may include other refundable tax credits would be reduced by the amount 
of the Federal public benefit. The proposed regulations would also 
establish the timing, in accordance with PRWORA, for determining the 
taxpayer's eligibility for Federal public benefits administered under 
the Code. Finally, the proposed regulations would clarify the 
application to joint returns with only one spouse meeting the status 
requirements under PRWORA.
C. Baseline
    The Treasury Department and the IRS have assessed the benefits and 
costs of the proposed regulations relative to a no-action baseline 
reflecting anticipated Federal income tax-related behavior in the 
absence of these proposed regulations.
D. Affected Taxpayers
    The Department of the Treasury and the IRS estimate that, for tax 
year 2026, 49 million Federal individual income tax returns (i.e., 
taxpayers) will claim at least one of the four affected refundable tax 
credits--the adoption tax credit, the CTC, the AOTC, and the EITC. Of 
these taxpayers, an estimated 24 million will claim an affected 
refundable tax credit that results in a Federal public benefit. The 
Department of the Treasury and the IRS do not have data on a taxpayer's 
qualified alien status with respect to PRWORA to precisely estimate the 
number of affected taxpayers. There is no direct data to estimate the 
number of non-qualified aliens whose claims for

[[Page 53819]]

the affected refundable tax credits would be disallowed under the 
proposed regulation. A rough estimate based on data from the Social 
Security Administration shared with the IRS for tax administration, 
United States Citizenship and Immigration Services statistics,\25\ and 
historical Department of Homeland Security estimates of non-immigrants 
residing in the U.S.\26\ suggests that, of the 24 million taxpayers 
claiming the Federal public benefit, a range of 200,000 to 700,000 
taxpayers (0.8 to 2.8 percent) would likely be ineligible to receive it 
for tax year 2026 because they do not meet the qualified alien status 
requirements under PRWORA. These estimated numbers of affected 
taxpayers assume static behavior and do not account for potential 
behavioral responses to the proposed rulemaking, once finalized, that 
would affect whether a taxpayer claims an affected refundable tax 
credit or whether the claim contains a refunded portion.
---------------------------------------------------------------------------

    \25\ U.S. Citizenship and Immigration Services, Immigration and 
Citizenship Data. Available at www.uscis.gov/tools/reports-and-studies/immigration-and-citizenship-data.
    \26\ Department of Homeland Security, Office of Immigration 
Statistics, Population Estimates of Nonimmigrants Residing in the 
United States: Fiscal Years 2017-2019. Available at https://ohss.dhs.gov/sites/default/files/2023-2/ni_population_estimates_fiscal_years_2017_-_2019v2.pdf. Accessed 
August 3, 2026.
---------------------------------------------------------------------------

E. Economic Effects of the Proposed Regulations
    These proposed regulations would implement PRWORA's requirements 
for Federal public benefits administered under the Code while 
minimizing taxpayer burden and other economic effects. In general, the 
proposed regulations, which would clarify the process for implementing 
PRWORA to the refunded portions of the affected refundable tax credits, 
are expected to have limited economic effects. Under the Code, 
taxpayers are generally required to have a valid SSN to be eligible for 
these credits. For tax year 2026, approximately only 200 thousand to 
700 thousand taxpayers are estimated to be ineligible to receive the 
refund of the overpayment, have it credited against Federal tax 
liabilities, or use it to offset non-tax liabilities, due to the 
proposed regulations. The Department of the Treasury and the IRS do not 
have data on a taxpayer's qualified alien status with respect to PRWORA 
to precisely estimate the dollar amount that would be disallowed under 
the proposed regulations. The estimated average amount of Federal 
public benefits for all taxpayers whose claims include the refunded 
portion of at least one affected refundable tax credit is $3,656 in 
2026. Applying this average Federal public benefit for all taxpayers to 
the estimated range of affected taxpayers translates into an estimate 
of $0.7 billion to $2.6 billion of disallowed credits. In addition, 
these taxpayers would still be eligible to receive the nonrefunded 
portion of the credits if they meet eligibility requirements for the 
credits. Given the limited scope, any potential behavioral responses by 
affected taxpayers to the proposed regulations, such as changes to the 
extensive or intensive margin of labor supply decisions, would not be 
expected to have a significant impact on the economy.
1. Identifying Claims of a Federal Public Benefit
    Under the proposed regulations, taxpayers who claim any of the four 
affected refundable tax credits would need to identify whether their 
claim for the credits includes a Federal public benefit, which these 
proposed regulations would limit to the refunded portion of the 
credits. Tax software, if used by the taxpayer, is expected to 
automatically generate this amount based on information provided by 
taxpayers during the return preparation process. This would reduce the 
compliance burden for taxpayers using software to complete their tax 
returns. The Department of the Treasury and the IRS estimate that more 
than 96 percent of the Federal individual income tax returns use 
assistance from consumer or professional tax software.
2. Self-Certification of Eligibility for a Federal Public Benefit
    As previously explained in the preamble, taxpayers claiming an 
affected refundable tax credit that results in a Federal public benefit 
would be required to provide a declaration or attestation, under the 
penalty of perjury, stating if they are U.S. citizens, U.S. nationals, 
or qualified aliens under PRWORA who are eligible for the Federal 
public benefit claimed. Taxpayers would provide a written declaration 
on the Federal income tax return or on a schedule attached to the 
return, as prescribed by the IRS, stating their status eligibility for 
the Federal public benefit claimed. To minimize compliance burden, 
taxpayers would not be required to provide a separate document 
attesting eligibility under PRWORA.
3. Alternatives Considered
a. Individuals Required To Self-Certify Eligibility Status Before 
Identifying the Receipt of a Federal Public Benefit
    An alternative to the aforementioned self-certification process is 
first to require every individual who claims any of the four affected 
refundable tax credits to self-certify eligibility status and then 
require aliens who are not qualified aliens for Federal public benefits 
under PRWORA to calculate the amount of the overpayment they would not 
be eligible for.
    Relative to the self-certification process, this alternative would 
subject fewer taxpayers to the identification of overpayments but would 
require more individuals, including those whose claim for the affected 
refundable tax credits does not have a refunded portion, to self-
certify whether they are U.S. citizens, U.S. nationals, or qualified 
aliens under PRWORA. To restrict the attestation of eligibility status 
only to those who are required to self-certify under PRWORA, i.e., 
those who claim a Federal public benefit, the self-certification 
process would require that taxpayers claiming any of the affected 
refundable tax credits first identify the refunded portion of their 
claim and then only those whose claim has a refunded portion would 
self-certify eligibility status. Given the wide prevalence of the use 
of consumer or professional tax software in return preparation, the 
cost for this calculation of the refunded portion is expected to be 
insignificant for most taxpayers.
b. Joint Returns With One Spouse Meeting the PRWORA Requirements
    For married individuals filing a joint return, under these proposed 
regulations, one spouse would be required to be a U.S. citizen, U.S. 
national, or qualified alien under PRWORA for the married individuals 
to receive the full refunded portion of the affected refundable tax 
credits, have it credited against the couple's Federal tax liabilities, 
or use it to offset the couple's non-tax liabilities. An alternative 
approach would require married individuals with one spouse who is not a 
qualified alien to prorate the applicable credit or credits based on 
IRS-prescribed allocation rules that would account for each spouse's 
eligibility status and a range of considerations specific to each 
credit. For example, allocations for the EITC could be based on which 
spouse had earned income whereas allocations for the other credits 
could be based on the share of qualified expenses contributed by, or 
other factors attributable to, each

[[Page 53820]]

spouse. This alternative is complex because it would subject joint 
filers claiming the affected refundable tax credits to new credit 
allocation rules and additional tax computations that would not have 
been required otherwise. In addition, depending on the credit and the 
allocation rules, the IRS may lack the necessary third-party 
information reports to verify the spouse's contributed expenses, 
income, or other factors used to determine the credit amount for which 
the qualified alien spouse is eligible. To reduce taxpayer burden and 
potential return errors, the proposed regulations provide that, for 
married individuals filing a joint return, if one spouse is a U.S. 
citizen, a U.S. national, or a qualified alien, then the other spouse 
would be treated as a qualified alien.
F. Summary
    Based on the available data and analysis, the Treasury Department 
and the IRS estimate that the economic costs and benefits of the 
proposed regulations will be small. The Treasury Department and the IRS 
invite public comments on potential alternatives and additional data 
related to the economic effects that will result from these proposed 
regulations.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether that collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by the OMB.
    The collections of information in these proposed regulations 
contain reporting and recordkeeping requirements that are necessary to 
ensure that individual refundable income tax credits are not received 
by aliens who are not qualified aliens pursuant to PRWORA. The 
collections will be used by the individual taxpayers claiming one or 
more of the affected refundable income tax credits to certify their 
legal status. The IRS will use the information for tax compliance 
purposes.
    The proposed regulations include reporting requirements for 
taxpayers to self-certify under penalty of perjury that they are a U.S. 
citizen, U.S. national, or qualified alien who is eligible to receive 
the claimed refund as described in proposed Sec. Sec.  1.23-1, 1.23-2, 
1.24-2, 1.24-3, 1.25A-6, 1.25A-7, 1.32-1 and 1.32-4. Taxpayers will be 
able to complete this certification by completing Schedule 3-A, or 
other form as determined by the Treasury Secretary. Schedule 3-A, or 
its successor form, will be filed along with their 1040 tax return.
    The likely respondents are individuals who file a Form 1040. For 
purposes of the PRA, the reporting requirements and associated burden 
will be included in the Paperwork Reduction Act Submissions associated 
with Form 1040 (OMB control number 1545-0074) and approved by the OMB 
in accordance with the PRA procedures under 5 CFR 1320.10.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103. 
These recordkeeping requirements are considered general tax records 
under Sec.  1.6001-1(e) and are already approved by the OMB under 1545-
0074. This proposed regulation is not creating or changing the general 
recordkeeping requirements under Sec.  1.6001-1(e).

III. Regulatory Flexibility Act

    The Secretary of the Treasury hereby certifies that these proposed 
regulations would not have a significant economic impact on a 
substantial number of small entities pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6). The proposed rules would not 
impose any requirement or obligation upon small entities. Accordingly, 
a regulatory flexibility analysis under the Regulatory Flexibility Act 
is not required.

IV. Section 7805(f)

    Pursuant to section 7805(f) of the Code, the proposed regulations 
will be submitted to the Chief Counsel for the Office of Advocacy of 
the Small Business Administration for comment on their impact on small 
business.

V. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. These proposed regulations do not include any Federal 
mandate that may result in expenditures by State, local, or Tribal 
governments, or by the private sector in excess of that threshold.

VI. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations would not 
have federalism implications and would not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Public Hearing

    Pursuant to the Administrative Procedure Act at 5 U.S.C. 553(b)(4), 
a plain language summary of these proposed regulations is available on 
the rulemaking docket at https://www.regulations.gov.
    Before the proposed regulations are adopted as final regulations, 
consideration will be given to comments that are submitted timely to 
the IRS as prescribed in the preamble under the ADDRESSES heading. The 
Treasury Department and the IRS request comments on all aspects of the 
proposed regulations. Specifically, the Treasury Department and the IRS 
request comments on the proposed rule of eligibility determination. All 
comments submitted will be available at https://www.regulations.gov or 
upon request.
    A public hearing is being held on October 14, 2026, beginning at 10 
a.m. ET at the Internal Revenue Service Building, 1111 Constitution 
Avenue NW, Washington, DC. Due to building security procedures, 
visitors must enter at the Constitution Avenue entrance. In addition, 
all visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 30 minutes before the hearing 
starts. Participants may alternatively attend the public hearing by 
telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit an outline of 
the topics to be discussed as well as the time to be devoted to each 
topic by October 5, 2026. A period of ten minutes will be allocated to 
each person for making comments. After the deadline for receiving 
outlines has passed, the IRS

[[Page 53821]]

will prepare an agenda containing the schedule of speakers. Copies of 
the agenda will be made available free of charge at the hearing. If no 
outlines of the topics to be discussed at the hearing are received by 
October 5, 2026, the public hearing will be cancelled. If the public 
hearing is cancelled, a notice of cancellation of the public hearing 
will be published in the Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have their name added 
to the building access list. The subject line of the email must contain 
the regulation number REG-119882-25 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-119882-25.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-119882-25 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-119882-25.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
their name added to the building access list. The subject line of the 
email must contain the regulation number REG-119882-25 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing in Person for REG-119882-25. Requests to attend the 
public hearing must be received by 5:00 p.m. ET on October 9, 2026.
    Individuals who want to attend the public hearing telephonically 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number REG-
119882-25 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-119882-25. Requests to attend the public hearing must be received 
by 5:00 p.m. ET on October 9, 2026.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during the hearing, contact the Publications 
and Regulations Section of the Office of Associate Chief Counsel 
(Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) by at least October 8, 2026.

Statement of Availability of Documents

    Opinions from the Office of Legal Counsel, Department of Justice, 
(OLC) that are cited in this preamble are available by visiting the OLC 
website at https://www.justice.gov/olc/opinions-main (if selected for 
official publication). If not selected for official publication, an 
opinion may be available at https://www.justice.gov/olc/olc-foia-electronic-reading-room if it has been posted publicly by the OLC as a 
matter of discretion, generally because it is the subject of repeated 
requests or of public or historical interest. The 2020 OLC Opinion 
cited in this preamble is currently available at the OLC's electronic 
reading room. The 2025 OLC Opinion cited in this preamble is available 
at the OLC's main opinions page.

Drafting Information

    The principal authors of these proposed regulations are personnel 
from the Office of the Associate Chief Counsel (Income Tax & 
Accounting), IRS. However, other personnel from the Treasury Department 
and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries for Sec. Sec.  1.23-2, 1.24-3, 1.25A-7, and 1.32-4 in numerical 
order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.23-2 also issued under 8 U.S.C. 1614.
* * * * *
    Section 1.24-3 also issued under 8 U.S.C. 1614.
* * * * *
    Section 1.25A-7 also issued under 8 U.S.C. 1614.
* * * * *
    Section 1.32-4 also issued under 8 U.S.C. 1614.
* * * * *

0
Par. 2. Sections 1.23-1 and1.23-2 are added to read as follows:


Sec.  1.23-1  [Reserved]


Sec.  1.23-2  Application of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

    (a) In general. Section 23 of the Internal Revenue Code (Code) 
allows eligible individuals a credit of an amount determined under 
section 23 (section 23 credit) against the tax imposed by subtitle A of 
the Code for the taxable year. This section applies Title IV of PRWORA 
with respect to the refunded portion of the section 23 credit. See 8 
U.S.C. 1611(a), (c)(1).
    (b) Definitions. For the definition of terms used for purposes of 
this section, see Sec.  1.32-4(b).
    (c) Refunded portion of the section 23 credit--(1) In general. The 
refunded portion of the section 23 credit is the portion of the section 
23 credit determined under section 23(a)(4) that exceeds the tax 
imposed on the taxpayer by subtitle A of the Code (reduced by credits 
allowable under subparts A, B, D, and G of part IV of subchapter A of 
chapter 1 of the Code).
    (2) Multiple individual refundable income tax credits claimed. In 
the event the taxpayer has also claimed a refundable credit under 
sections 24, 25A, or 32 of the Code, or another individual refundable 
income tax credit for which the refunded portion is specified by the 
Secretary in regulations as subject to PRWORA, the taxpayer must first 
sum all such refundable credits claimed, and then calculate the portion 
of the sum of these credits that exceeds the tax imposed on the 
taxpayer by subtitle A of the Code (reduced by credits allowable under 
subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the 
Code). The refunded portion of the section 23 credit is included within 
this portion.
    (d) Federal public benefit as applied to section 23. The refunded 
portion of the taxpayer's section 23 credit is a Federal public 
benefit. A taxpayer who satisfies the requirements of section 23 is 
eligible to receive the refunded portion of the section 23 credit, have 
it credited against the taxpayer's unpaid tax liabilities, or have it 
offset against specified non-tax liabilities, only if the taxpayer is a 
U.S. citizen, U.S. national, or qualified alien and so declares under 
penalty of perjury (on the appropriate Federal income tax return, 
amended tax return, or schedule as required by the IRS).
    (e) Determination for eligibility of refunded portion of section 23 
credit. For purposes of receiving the refunded portion of the section 
23 credit, having it credited against the taxpayer's unpaid tax 
liabilities, or having it offset against

[[Page 53822]]

specified non-tax liabilities, a taxpayer's status as a U.S. citizen, 
U.S. national, or qualified alien is determined on the date the 
taxpayer files the taxpayer's return for the taxable year that first 
claims the section 23 credit (without regard to whether the return is 
deemed by the Code to be filed on another date).
    (f) Examples. The following examples illustrate the rules of this 
section. In each example below, the taxpayer meets the requirements 
under title 26 to claim the section 23 credit for the taxable year:
    (1) Example 1: Timely-filed return claiming the tax credit. The due 
date of taxpayer A's return is April 15. A files A's return for the 
taxable year on April 15, claiming the section 23 credit. On April 15, 
A is a U.S. citizen, U.S. national, or qualified alien. Because A is a 
U.S. citizen, U.S. national, or qualified alien on the date A files A's 
return claiming the section 23 credit for the taxable year, A is 
eligible to receive the refunded portion of the section 23 credit, have 
it credited against A's unpaid tax liabilities, or have it offset 
against A's specified non-tax liabilities.
    (2) Example 2: Claiming the tax credit on an early return. The due 
date of taxpayer B's return is April 15. B files B's return on February 
1, claiming the section 23 credit. On February 1, B is a U.S. citizen, 
U.S. national, or qualified alien. Accordingly, B is eligible to 
receive the refunded portion of the section 23 credit, have it credited 
against B's unpaid tax liabilities, or have it offset against B's 
specified non-tax liabilities.
    (3) Example 3: Claiming the tax credit on a late return. The due 
date of taxpayer C's return is April 15. C does not file Form 4868, 
Application for Automatic Extension of Time to File U.S. Individual 
Income Tax Return, for the taxable year. On November 1, within the 
period of limitations prescribed in section 6511 of the Code on filing 
a claim for refund, C files C's return claiming the section 23 credit. 
On November 1, C is a U.S. citizen, U.S. national, or qualified alien. 
Accordingly, C is eligible to receive the refunded portion of the 
section 23 credit, have it credited against C's unpaid tax liabilities, 
or have it offset against C's specified non-tax liabilities.
    (4) Example 4: Claiming the tax credit on an amended return after a 
status change. The due date of taxpayer D's return is April 15. D files 
D's return for the taxable year on April 15, claiming the section 23 
credit. However, on April 15, D is not a U.S. citizen, U.S. national, 
or qualified alien. Accordingly, D is not eligible to receive the 
refunded portion of the section 23 credit, or to have it credited 
against D's unpaid tax liabilities or have it offset against D's 
specified non-tax liabilities. On December 1, D becomes a U.S. citizen, 
U.S. national, or qualified alien. On December 15, within the period of 
limitation prescribed in section 6511 on filing a claim for refund, D 
files an amended return for the taxable year, updating D's status under 
PRWORA. Although D is a U.S. citizen, U.S. national, or qualified alien 
on December 15, D was not a U.S. citizen, U.S. national, or qualified 
alien when D first claimed the section 23 credit, so D is not eligible 
to receive the refunded portion of the section 23 credit.
    (5) Example 5: Claiming the tax credit for the first time on an 
amended return after a status change. Same facts as paragraph (f)(4) of 
this section (Example 4), except that D did not initially claim the 
section 23 credit when D filed on April 15 and rather claimed this 
credit for the first time on an amended return filed on December 15. 
Since D is a U.S. citizen, U.S. national, or qualified alien on 
December 15 when D first claimed the section 23 credit, D is eligible 
to receive the refunded portion of the section 23 credit.
    (6) Example 6: Determining the Federal Public Benefit when the 
taxpayer claims the section 23 tax credit and no other refundable tax 
credits. Taxpayer E meets the section 23 requirements for a $6,120 
adoption credit. The refundable amount of this credit, determined under 
section 23(a)(4), is $5,120. E claims no other individual refundable 
tax credits. E's subtitle A tax liability, reduced by the credits 
allowed under subparts A, B, D, and G of part IV of subchapter A of 
chapter 1 of the Code, is $648. Therefore, the refunded portion of the 
section 23 credit is $4,472. This amount, which is the Federal public 
benefit, is calculated by subtracting $648 from $5,120. If E is an 
alien who is not a qualified alien, E is not eligible to receive the 
Federal public benefit of $4,472 as a refund, have it credited against 
the taxpayer's unpaid tax liabilities, or have it offset against 
specified non-tax liabilities.
    (7) Example 7: Determining the Federal public benefit when the 
taxpayer claims multiple individual refundable income tax credits. 
Taxpayer F meets the section 23 requirements for a $6,120 adoption 
credit and the section 32 requirements for a $1,054 earned income 
credit. The refundable amount of the section 23 credit, determined 
under section 23(a)(4), is $5,120. F claims no other individual 
refundable income tax credits. F's subtitle A tax liability, reduced by 
the credits allowed under subparts A, B, D, and G of part IV of 
subchapter A of chapter 1 of the Code, is $648. The sum of F's 
refundable tax credits claimed under subpart C of part IV of subchapter 
A of chapter 1 of the Code and subject to PRWORA is $6,174. The excess 
of $6,174 over $648, which is $5,526, includes the refunded portion of 
both the section 23 credit and the section 32 credit and is the Federal 
public benefit. If F is an alien who is not a qualified alien, F is not 
eligible to receive the Federal public benefit of $5,526 as a refund, 
have it credited against the taxpayer's unpaid tax liabilities, or have 
it offset against specified non-tax liabilities.
    (8) Example 8: Determining the Federal Public Benefit when the 
taxpayer claims an individual refundable income tax credit subject to 
PRWORA and a refundable income tax credit not subject to PRWORA. 
Taxpayer G meets the section 23 requirements for a $6,120 adoption 
credit. The refundable amount of this credit, determined under section 
23(a)(4), is $5,120. G also has $250 of tax withheld from wages during 
the taxable year and is allowed, under section 31, a credit against 
subtitle A tax equal to that amount. The section 31 credit is an 
allowable refundable tax credit under subpart C of part IV of 
subchapter A of chapter 1 of the Code and is not subject to PRWORA. G 
claims no other individual refundable tax credits. G's subtitle A tax 
liability, reduced by the credits allowed under subparts A, B, D, and G 
of part IV of subchapter A of chapter 1 of the Code, is $648. 
Therefore, the refunded portion of the section 23 credit is $4,472. 
This amount, which is the Federal public benefit, is calculated by 
subtracting $648 from $5,120. The $250 withholding credit is not 
included in the calculation of a Federal public benefit and can be 
received as a refund, credited against the taxpayer's unpaid tax 
liabilities, or offset against specified non-tax liabilities. If G is 
an alien who is not a qualified alien, G is not eligible to receive the 
Federal public benefit of $4,472 as a refund, have it credited against 
the taxpayer's unpaid tax liabilities, or have it offset against 
specified non-tax liabilities.
    (g) Applicability date. This section applies to taxable years 
ending on or after [date of publication of final regulations in the 
Federal Register].
0
Par. 3. Sections 1.24-2 and 1.24-3 are added to read as follows:

[[Page 53823]]

Sec.  1.24-2  [Reserved]


Sec.  1.24-3  Application of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

    (a) In general. Section 24 of the Internal Revenue Code (Code) 
allows eligible individuals a credit of an amount determined under 
section 24 (section 24 credit) against the tax imposed by subtitle A of 
the Code for the taxable year. This section applies Title IV of PRWORA 
with respect to the refunded portion of the section 24 credit. See 8 
U.S.C. 1611(a), (c)(1).
    (b) Definitions. For the definition of terms used for purposes of 
this section, see Sec.  1.32-4(b).
    (c) Refunded portion of the section 24 credit--(1) In general. The 
refunded portion of the section 24 credit is the portion of the section 
24 credit determined under section 24(d) that exceeds the tax imposed 
on the taxpayer by subtitle A of the Code (reduced by credits allowable 
under subparts A, B, D, and G of part IV of subchapter A of chapter 1 
of the Code).
    (2) Multiple individual refundable income tax credits claimed. In 
the event the taxpayer has also claimed a refundable credit under 
sections 23, 25A, or 32 of the Code, or another individual refundable 
income tax credit for which the refunded portion is specified by the 
Secretary in regulations as subject to PRWORA, the taxpayer must first 
sum all such refundable credits claimed and then calculate the portion 
of the sum of these credits that exceeds the tax imposed on the 
taxpayer by subtitle A of the Code (reduced by credits allowable under 
subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the 
Code). The refunded portion of the section 24 credit is included within 
this portion.
    (d) Federal public benefit as applied to section 24. The refunded 
portion of the section 24 credit is a Federal public benefit. A 
taxpayer who satisfies the requirements of section 24 is eligible to 
receive the refunded portion of the section 24 credit, have it credited 
against the taxpayer's unpaid tax liabilities, or have it offset 
against specified non-tax liabilities, only if the taxpayer is a U.S. 
citizen, U.S. national, or qualified alien and so declares under 
penalty of perjury (on the appropriate Federal income tax return, 
amended tax return, or schedule as required by the IRS).
    (e) Determination for eligibility of refunded portion of section 24 
credit. For purposes of receiving the refunded portion of the section 
24 credit, having it credited against the taxpayer's unpaid tax 
liabilities, or having it offset against specified non-tax liabilities, 
a taxpayer's status as a U.S. citizen, U.S. national, or qualified 
alien is determined on the date the taxpayer files the taxpayer's 
return for the taxable year that first claims the section 24 credit 
(without regard to whether the return is deemed by the Code to be filed 
on another date).
    (f) Examples. The following examples illustrate the rules of this 
section. In each example, the taxpayer meets the requirements under 
title 26 to claim the section 24 credit for the taxable year:
    (1) Example 1: Timely-filed return claiming the tax credit. The due 
date of taxpayer A's return is April 15. A files A's return for the 
taxable year on April 15, claiming the section 24 credit (for one or 
more qualifying children). On April 15, A is a U.S. citizen, U.S. 
national, or qualified alien. Because A is a U.S. citizen, U.S. 
national, or qualified alien on the date A files A's return claiming 
the section 24 credit for the taxable year, A is eligible to receive 
the refunded portion of the section 24 credit, have it credited against 
A's unpaid tax liabilities, or have it offset against A's specified 
non-tax liabilities.
    (2) Example 2: Claiming the tax credit on an early return. The due 
date of taxpayer B's return is April 15. B files B's return on February 
1, claiming the section 24 credit (for one or more qualifying 
children). On February 1, B was a U.S. citizen, U.S. national, or 
qualified alien. Accordingly, B is eligible to receive the refunded 
portion of the section 24 credit, have it credited against B's unpaid 
tax liabilities, or have it offset against B's specified non-tax 
liabilities.
    (3) Example 3: Claiming the tax credit on a late return. The due 
date of taxpayer C's return is April 15. C does not file Form 4868, 
Application for Automatic Extension of Time to File U.S. Individual 
Income Tax Return, for the taxable year. On November 1, within the 
period of limitations prescribed in section 6511 of the Code on filing 
a claim for refund, C files C's return claiming the section 24 credit 
(for one or more qualifying children). On November 1, C is a U.S. 
citizen, U.S. national, or qualified alien. Accordingly, C is eligible 
to receive the refunded portion of the section 24 credit, have it 
credited against C's unpaid tax liabilities, or have it offset against 
C's specified non-tax liabilities.
    (4) Example 4: Claiming the tax credit on an amended return after a 
status change. The due date of taxpayer D's return is April 15. D files 
D's return for the taxable year on April 15, claiming the section 24 
credit. However, on April 15, D is not a U.S. citizen, U.S. national, 
or qualified alien. Accordingly, D is not eligible to receive the 
refunded portion of the section 24 credit, or to have it credited 
against D's unpaid tax liabilities or have it offset against D's 
specified non-tax liabilities. On December 1, D becomes a U.S. citizen, 
U.S. national, or qualified alien. On December 15, within the period of 
limitation prescribed in section 6511 on filing a claim for refund, D 
files an amended return for the taxable year, updating D's status under 
PRWORA. Although D is a U.S. citizen, U.S. national, or qualified alien 
on December 15, D was not a U.S. citizen, U.S. national, or qualified 
alien when D first claimed the section 24 credit, so D is not eligible 
to receive the refunded portion of the section 24 credit.
    (5) Example 5: Claiming the tax credit for the first time on an 
amended return after a status change. Same facts as paragraph (f)(4) of 
this section (Example 4), except that D did not initially claim the 
section 24 credit when D filed on April 15 and rather claimed this 
credit for the first time on an amended return filed on December 15. 
Since D is a U.S. citizen, U.S. national, or qualified alien on 
December 15 when D first claimed the section 24 credit, D is eligible 
to receive the refunded portion of the section 24 credit.
    (6) Example 6: Determining the Federal Public Benefit when the 
taxpayer claims the section 24 credit and no other refundable tax 
credits. Taxpayer E meets the section 24 requirements for a $2,200 
child tax credit. The refundable amount of this credit, determined 
under section 24(d), is $955. E claims no other individual refundable 
tax credits. E's subtitle A tax liability, reduced by the credits 
allowed under subparts A, B, D, and G of part IV of subchapter A of 
chapter 1 of the Code, is $706. Therefore, the refunded portion of the 
section 24(d) credit is $249. This amount, which is the Federal public 
benefit, is calculated by subtracting $706 from $955. If E is an alien 
who is not a qualified alien, E is not eligible to receive the Federal 
public benefit of $249 as a refund, have it credited against the 
taxpayer's unpaid tax liabilities, or have it offset against specified 
non-tax liabilities.
    (7) Example 7: Determining the Federal public benefit when the 
taxpayer claims multiple individual refundable income tax credits. 
Taxpayer F meets the section 24 requirements for a $2,200 child tax 
credit and the section 32 requirements for a $2,272 earned income 
credit. The refundable amount of the section 24 credit, determined 
under section 24(d), is $955. F claims no other individual refundable 
tax credits. F's subtitle A tax liability, reduced by

[[Page 53824]]

the credits allowed under subparts A, B, D, and G of part IV of 
subchapter A of chapter 1 of the Code, is $706. The sum of F's 
refundable tax credits claimed under subpart C of part IV of subchapter 
A of chapter 1 of the Code and subject to PRWORA is $3,227. The excess 
of $3,227 over $706, which is $2,521, includes the refunded portion of 
both the section 24(d) credit and the section 32 credit and is the 
Federal public benefit. If F is an alien who is not a qualified alien, 
F is not eligible to receive the Federal public benefit of $2,521 as a 
refund, have it credited against the taxpayer's unpaid tax liabilities, 
or have it offset against specified non-tax liabilities.
    (8) Example 8: Determining the Federal Public Benefit when the 
taxpayer claims an individual refundable income tax credit subject to 
PRWORA and a refundable income tax credit not subject to PRWORA. 
Taxpayer G meets the section 24 requirements for a $2,200 child tax 
credit. The refundable amount of this credit, determined under section 
24(d), is $955. G also has $250 of tax withheld from wages during the 
taxable year and is allowed, under section 31, a credit against 
subtitle A tax equal to that amount. The section 31 credit is an 
allowable refundable tax credit under subpart C of part IV of 
subchapter A of chapter 1 of the Code and is not subject to PRWORA. G 
claims no other individual refundable tax credits. G's subtitle A tax 
liability, reduced by the credits allowed under subparts A, B, D, and G 
of part IV of subchapter A of chapter 1 of the Code, is $706. 
Therefore, the refunded portion of the section 24 credit is $249. This 
amount, which is the Federal public benefit, is calculated by 
subtracting $706 from $955. The $250 withholding credit is not included 
in the calculation of a Federal public benefit and can be received as a 
refund, credited against the taxpayer's unpaid tax liabilities, or 
offset against specified non-tax liabilities. If G is an alien who is 
not a qualified alien, G is not eligible to receive the Federal public 
benefit of $249 as a refund, have it credited against the taxpayer's 
unpaid tax liabilities, or have it offset against specified non-tax 
liabilities.
    (g) Applicability date. This section applies to taxable years 
ending on or after [date of publication of final regulations in the 
Federal Register].
0
Par. 4. Sections 1.25A-6 and 1.25A-7 are added to read as follows:


Sec.  1.25A-6  [Reserved]


Sec.  1.25A-7   Application of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

    (a) In general. Section 25A(a)(1) of the Internal Revenue Code 
(Code) allows eligible individuals a credit of an amount determined 
under section 25A(b) and (i) (section 25A(a)(1) credit) against the tax 
imposed by subtitle A of the Code for the taxable year. This section 
applies Title IV of PRWORA with respect to the refunded portion of the 
section 25A(a)(1) credit. See 8 U.S.C. 1611(a), (c)(1).
    (b) Definitions. For the definition of terms used for purposes of 
this section, see Sec.  1.32-4(b).
    (c) Refunded portion of the section 25A(a)(1) credit--(1) In 
general. The refunded portion of the section 25A(a)(1) credit is the 
portion of the section 25A(a)(1) credit determined under section 25A(i) 
that exceeds the tax imposed on the taxpayer by subtitle A of the Code 
(reduced by credits allowable under subparts A, B, D, and G of part IV 
of subchapter A of chapter 1 of the Code).
    (2) Multiple individual refundable income tax credits claimed. In 
the event the taxpayer has also claimed a refundable credit under 
sections 23, 24, or 32 of the Code, or another individual refundable 
income tax credit for which the refunded portion is specified by the 
Secretary in regulations as subject to PRWORA, the taxpayer must first 
sum all such refundable credits claimed, and then calculate the portion 
of the sum of these credits that exceeds the tax imposed on the 
taxpayer by subtitle A of the Code (reduced by credits allowable under 
subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the 
Code). The refunded portion of the section 25A(a)(1) credit is included 
within this portion.
    (d) Federal public benefit as applied to section 25A(a)(1). The 
refunded portion of the taxpayer's section 25A(a)(1) credit is a 
Federal public benefit. A taxpayer who satisfies the requirements of 
section 25A(a)(1) is eligible to receive the refunded portion of the 
section 25A(a)(1) credit, have it credited against the taxpayer's 
unpaid tax liabilities, or have it offset against specified non-tax 
liabilities, only if the taxpayer is a U.S. citizen, U.S. national, or 
qualified alien and so declares under penalty of perjury (on the 
appropriate Federal income tax return, amended tax return, or schedule 
as required by the IRS).
    (e) Determination for eligibility of refunded portion of section 
25A(a)(1) credit. For purposes of receiving the refunded portion of the 
section 25A(a)(1) credit, having it credited against the taxpayer's 
unpaid tax liabilities, or having it offset against specified non-tax 
liabilities, a taxpayer's status as a U.S. citizen, U.S. national, or 
qualified alien is determined on the date the taxpayer files the 
taxpayer's return for the taxable year that first claims the section 
25A(a)(1) credit (without regard to whether the return is deemed by the 
Code to be filed on another date).
    (f) Examples. The following examples illustrate the rules of this 
section. In each example below, the taxpayer meets the requirements 
under title 26 to claim the section 25A(a)(1) credit for the taxable 
year:
    (1) Example 1: Timely-filed return claiming the tax credit. The due 
date of taxpayer A's return is April 15. A files A's return for the 
taxable year on April 15, claiming the section 25A(a)(1) credit. On 
April 15, A is a qualified alien within the meaning of 8 U.S.C. 
1611(a). Because A was a U.S. citizen, U.S. national, or qualified 
alien on the date A files A's return claiming the section 25A(a)(1) 
credit for the taxable year, A is eligible to receive the refunded 
portion of the section 25A(a)(1) credit, have it credited against A's 
unpaid tax liabilities, or have it offset against A's specified non-tax 
liabilities.
    (2) Example 2: Claiming the tax credit on an early return. The due 
date of taxpayer B's return is April 15. B files B's return on February 
1, claiming the section 25A(a)(1) credit. On February 1, B is a U.S. 
citizen, U.S. national, or qualified alien. Accordingly, B is eligible 
to receive the refunded portion of the section 25A(a)(1) credit, have 
it credited against B's unpaid tax liabilities, or have it offset 
against B's specified non-tax liabilities.
    (3) Example 3: Claiming the tax credit on a late return. The due 
date of taxpayer C's return is April 15. C does not file Form 4868, 
Application for Automatic Extension of Time to File U.S. Individual 
Income Tax Return, for the taxable year. On November 1, within the 
period of limitations prescribed in section 6511 of the Code on filing 
a claim for refund, C files C's return claiming the section 25A(a)(1) 
credit. On November 1, C is a U.S. citizen, U.S. national, or qualified 
alien. Accordingly, C is eligible to receive the refunded portion of 
the section 25A(a)(1) credit, to have it credited against C's unpaid 
tax liabilities, or have it offset against C's specified non-tax 
liabilities.
    (4) Example 4: Claiming the tax credit on an amended return after a 
status change. The due date of taxpayer D's

[[Page 53825]]

return is April 15. D files D's return for the taxable year on April 15 
claiming the section 25A(a)(1) credit. However, on April 15, D is not a 
U.S. citizen, U.S. national, or qualified alien. Accordingly, D is not 
eligible to receive the refunded portion of the section 25A(a)(1) 
credit, or to have it credited against D's unpaid tax liabilities or 
have it offset against D's specified non-tax liabilities. On December 
1, D becomes a U.S. citizen, U.S. national, or qualified alien. On 
December 15, within the period of limitation prescribed in section 6511 
on filing a claim for refund, D files an amended return for the taxable 
year, updating D's status under PRWORA. Although D is a U.S. citizen, 
U.S. national, or qualified alien on December 15, D was not a U.S. 
citizen, U.S. national, or qualified alien when D first claimed the 
section 25A(a)(1) credit, so D is not eligible to receive the refunded 
portion of the section 25A(a)(1) credit.
    (5) Example 5: Claiming the tax credit for the first time on an 
amended return after a status change. Same facts as paragraph (f)(4) of 
this section (Example 4), except that D did not initially claim the 
section 25A(a)(1) credit when D filed on April 15 and rather claimed 
this credit for the first time on an amended return filed on December 
15. Since D is a U.S. citizen, U.S. national, or qualified alien on 
December 15 when D first claimed the section 25A(a)(1) credit, D is 
eligible to receive the refunded portion of the section 25A(a)(1) 
credit.
    (6) Example 6: Determining the Federal Public Benefit when the 
taxpayer claims the section 25A(a)(1) credit and no other refundable 
tax credits. Taxpayer E meets the section 25A(a)(1) requirements for a 
$2,500 American Opportunity Tax Credit. The refundable amount of this 
credit, determined under section 25A(i), is $1,000. E claims no other 
individual refundable tax credits. E's subtitle A tax liability, 
reduced by the credits allowed under subparts A, B, D, and G of part IV 
of subchapter A of chapter 1 of the Code, is $148. Therefore, the 
refunded portion of the section 25A(a)(1) credit is $852. This amount, 
which is the Federal public benefit, is calculated by subtracting $148 
from $1,000. If E is an alien who is not a qualified alien, E is not 
eligible to receive the Federal public benefit of $852 as a refund, 
have it credited against the taxpayer's unpaid tax liabilities, or have 
it offset against specified non-tax liabilities.
    (7) Example 7: Determining the Federal public benefit when the 
taxpayer claims multiple individual refundable income tax credits. 
Taxpayer F meets the section 25A(a)(1) requirements for a $2,500 
American Opportunity Tax Credit and the section 32 requirements for a 
$1,110 earned income credit. The refundable amount of the section 
25A(a)(1) credit, determined under section 25A(i), is $1,000. F claims 
no other individual refundable tax credits. F's subtitle A tax 
liability, reduced by the credits allowed under subparts A, B, D, and G 
of part IV of subchapter A of chapter 1 of the Code, is $812. The sum 
of F's refundable tax credits claimed under subpart C of part IV of 
subchapter A of chapter 1 of the Code and subject to PRWORA is $2,110. 
The excess of $2,110 over $812, which is $1,298, includes the refunded 
portion of both the section 25A(a)(1) credit and the section 32 credit 
and is the Federal public benefit. If F is an alien who is not a 
qualified alien, F is not eligible to receive the Federal public 
benefit of $1,298 as a refund, have it credited against the taxpayer's 
unpaid tax liabilities, or have it offset against specified non-tax 
liabilities.
    (8) Example 8: Determining the Federal Public Benefit when the 
taxpayer claims an individual refundable income tax credit subject to 
PRWORA and a refundable income tax credit not subject to PRWORA. 
Taxpayer G meets the section 25A(a)(1) requirements for a $2,500 
American Opportunity Tax Credit. The refundable amount of this credit, 
determined under section 25A(i), is $1,000. G also has $250 of tax 
withheld from wages during the taxable year and is allowed, under 
section 31, a credit against subtitle A tax equal to that amount. The 
section 31 credit is an allowable refundable tax credit under subpart C 
of part IV of subchapter A of chapter 1 of the Code and is not subject 
to PRWORA. G claims no other individual refundable tax credits. G's 
subtitle A tax liability, reduced by the credits allowed under subparts 
A, B, D, and G of part IV of subchapter A of chapter 1 of the Code, is 
$148. Therefore, the refunded portion of the section 25A(a)(1) credit 
is $852. This amount, which is the Federal public benefit, is 
calculated by subtracting $148 from $1,000. The $250 withholding credit 
is not included in the calculation of a Federal public benefit and can 
be received as a refund, credited against the taxpayer's unpaid tax 
liabilities, or offset against specified non-tax liabilities. If G is 
an alien who is not a qualified alien, G is not eligible to receive the 
Federal public benefit of $852 as a refund, have it credited against 
the taxpayer's unpaid tax liabilities, or have it offset against 
specified non-tax liabilities.
    (g) Applicability date. This section applies to taxable years 
ending on or after [date of publication of final regulations in the 
Federal Register].
0
Par. 5. Sections 1.32-1 and 1.32-4 are added to read as follows:


Sec. Sec.  1.32-1   [Reserved]


Sec.  1.32-4   Application of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

    (a) In general. Section 32 of the Internal Revenue Code (Code) 
allows eligible individuals a credit of an amount determined under 
section 32 (section 32 credit) against the tax imposed by subtitle A of 
the Code for the taxable year. This section applies Title IV of PRWORA 
with respect to the refunded portion of the section 32 credit. See 8 
U.S.C. 1611(a), (c)(1).
    (b) Definitions. The following definitions apply for purposes of 
this section:
    (1) Alien. The term alien has the same meaning as provided in 
section 101(a) of the Immigration and Nationality Act, Public Law 82-
414, 66 Stat. 163, 8 U.S.C. 1101(a)(3).
    (2) Federal public benefit. The term Federal public benefit has the 
same meaning as provided in section 401 of PRWORA, 8 U.S.C. 1611(c).
    (3) PRWORA. The term PRWORA means the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996, Public Law 104-193, 110 
Stat. 2105, 2260-77, as amended.
    (4) Qualified alien. The term qualified alien has the same meaning 
as provided in section 431 of PRWORA, 8 U.S.C. 1641(b). In case of 
married individuals filing a joint return, if one spouse is a U.S. 
citizen, U.S. national, or qualified alien, then the other spouse will 
be treated as a qualified alien for this purpose.
    (5) U.S. National. The term U.S. national has the same meaning as 
provided the term national of the United States in section 101(a) of 
the Immigration and Nationality Act, Public Law 82-414, 66 Stat. 163, 8 
U.S.C. 1101(a)(22).
    (c) Refunded portion of the section 32 credit--(1) In general. The 
refunded portion of the section 32 credit is the portion of the section 
32 credit that exceeds the tax imposed on the taxpayer by subtitle A of 
the Code (reduced by credits allowable under subparts A, B, D, and G of 
part IV of subchapter A of chapter 1 of the Code).
    (2) Multiple individual refundable income tax credits claimed. In 
the event the taxpayer has also claimed a refundable credit under 
sections 23, 24, or 25A of the Code, or another

[[Page 53826]]

refundable income tax credit for which the refunded portion is 
specified by the Secretary in regulations as subject to PRWORA, the 
taxpayer must first sum all such refundable credits claimed, and then 
calculate the portion of the sum of these credits that exceeds the tax 
imposed on the taxpayer by subtitle A of the Code (reduced by credits 
allowable under subparts A, B, D, and G of part IV of subchapter A of 
chapter 1 of the Code). The refunded portion of the section 32 credit 
is included within this portion.
    (d) Federal public benefit as applied to section 32. The refunded 
portion of the taxpayer's section 32 credit is a Federal public 
benefit. A taxpayer who satisfies the requirements of section 32 is 
eligible to receive the refunded portion of the section 32 credit, have 
it credited against the taxpayer's unpaid tax liabilities, or have it 
offset against specified non-tax liabilities, only if the taxpayer is a 
U.S. citizen, U.S. national, or qualified alien and so declares under 
penalty of perjury (on the appropriate Federal income tax return, 
amended tax return, or schedule as required by the IRS).
    (e) Determination for eligibility of the refunded portion of 
section 32 credit. For purposes of receiving the refunded portion of 
the section 32 credit, having it credited against the taxpayer's unpaid 
tax liabilities, or having it offset against specified non-tax 
liabilities, a taxpayer's status as a U.S. citizen, U.S. national, or 
qualified alien is determined on the date the taxpayer files the 
taxpayer's return for the taxable year that first claims the section 32 
credit (without regard to whether the return is deemed by the Code to 
be filed on another date).
    (f) Examples. The following examples illustrate the rules of this 
section. In each example below, the taxpayer meets the requirements 
under the Code to claim the section 32 credit for the taxable year:
    (1) Example 1: Timely-filed return claiming the tax credit. The due 
date of taxpayer A's return is April 15. A files A's return for the 
taxable year on April 15, claiming the section 32 credit. On April 15, 
A is a U.S. citizen, U.S. national, or qualified alien. Because A was a 
U.S. citizen, U.S. national, or qualified alien on the date of A files 
A's return claiming the section 32 credit for the taxable year, A is 
eligible to receive the refunded portion of the section 32 credit, have 
it credited against A's unpaid tax liabilities, or have it offset 
against A's specified non-tax liabilities.
    (2) Example 2: Claiming the tax credit on an early return. The due 
date of taxpayer B's return is April 15. B files B's return on February 
1, claiming the section 32 credit. On February 1, B is a U.S. citizen, 
U.S. national, or qualified alien. Accordingly, B is eligible to 
receive the refunded portion of the section 32 credit, have it credited 
against B's unpaid tax liabilities, or have it offset against B's 
specified non-tax liabilities.
    (3) Example 3: Claiming the tax credit on a late return. The due 
date of taxpayer C's return is April 15. C does not file Form 4868, 
Application for Automatic Extension of Time to File U.S. Individual 
Income Tax Return, for the taxable year. On November 1, within the 
period of limitations prescribed in section 6511 of the Code on filing 
a claim for refund, C files C's return claiming the section 32 credit. 
On November 1, C is a U.S. citizen, U.S. national, or qualified alien. 
Accordingly, C is eligible to receive the refunded portion of the 
section 32 credit, to have it credited against C's unpaid tax 
liabilities, or have it offset against C's specified non-tax 
liabilities.
    (4) Example 4: Claiming the tax credit on an amended return after a 
status change. The due date of taxpayer D's return is April 15. D files 
D's return for the taxable year on April 15, claiming the section 32 
credit. However, on April 15, D is not U.S. citizen, U.S. national, or 
a qualified alien. Accordingly, D is not eligible to receive the 
refunded portion of the section 32 credit, or to have it credited 
against D's unpaid tax liabilities or have it offset against D's 
specified non-tax liabilities. On December 1, D becomes a U.S. citizen, 
U.S. national, or qualified alien. On December 15, within the period of 
limitation prescribed in section 6511 on filing a claim for refund, D 
files an amended return for the taxable year, updating D's status under 
PRWORA. Although D is a U.S. citizen, U.S. national, or qualified alien 
on December 15, D was not a U.S. citizen, U.S. national, or qualified 
alien when D first claimed the section 32 credit, so D is not eligible 
to receive the refunded portion of the section 32 credit.
    (5) Example 5: Claiming the tax credit for the first time on an 
amended return after a status change. Same facts as paragraph (f)(4) of 
this section (Example 4), except that D did not initially claim the 
section 32 credit when D filed on April 15 and rather claimed this 
credit for the first time on an amended return filed on December 15. 
Since D is a U.S. citizen, U.S. national, or qualified alien on 
December 15 when D first claimed the section 32 credit, D is eligible 
to receive the refunded portion of the section 32 credit.
    (6) Example 6: Determining the Federal Public Benefit when the 
taxpayer claims the section 32 credit and no other refundable tax 
credits. Taxpayer E meets the section 32 requirements for a $2,272 
earned income credit. E claims no other individual refundable tax 
credits. E's subtitle A tax liability, reduced by the credits allowed 
under subparts A, B, D, and G of part IV of subchapter A of chapter 1 
of the Code, is $1,451. Therefore, the refunded portion of the section 
32 credit is $821. This amount, which is the Federal public benefit, is 
calculated by subtracting $1,451 from $2,272. If E is an alien who is 
not a qualified alien, E is not eligible to receive the Federal public 
benefit of $821 as a refund, have it credited against the taxpayer's 
unpaid tax liabilities, or have it offset against specified non-tax 
liabilities.
    (7) Example 7: Determining the Federal public benefit when the 
taxpayer claims multiple individual refundable income tax credits. 
Taxpayer F meets the section 32 requirements for a $2,272 earned income 
credit and the section 24 requirements for a $2,200 child tax credit. 
The refundable amount of the section 24 credit, determined under 
section 24(d), is $1,455. F claims no other individual refundable tax 
credits. F's subtitle A tax liability, reduced by the credits allowed 
under subparts A, B, D, and G of part IV of subchapter A of chapter 1 
of the Code, is $706. The sum of F's refundable tax credits claimed 
under subpart C of part IV of subchapter A of chapter 1 of the Code and 
subject to PRWORA is $3,727. The excess of $3,727 over $706, which is 
$3,021, includes the refunded portion of both the section 32 credit and 
the section 24 credit and is the Federal public benefit. If F is an 
alien who is not a qualified alien, F is not eligible to receive the 
Federal public benefit of $3,021 as a refund, have it credited against 
the taxpayer's unpaid tax liabilities, or have it offset against 
specified non-tax liabilities.
    (8) Example 8: Determining the Federal Public Benefit when the 
taxpayer claims an individual refundable income tax credit subject to 
PRWORA and a refundable income tax credit not subject to PRWORA. 
Taxpayer G meets the section 32 requirements for a $2,272 earned income 
credit. G also has $250 of tax withheld from wages during the taxable 
year and is allowed, under section 31, a credit against subtitle A tax 
equal to that amount. The section 31 credit is an allowable refundable 
tax credit under subpart C of part IV of subchapter A of chapter 1 of 
the Code and is not subject to PRWORA. G claims no other individual 
refundable tax credits. G's subtitle A tax liability,

[[Page 53827]]

reduced by the credits allowed under subparts A, B, D, and G of part IV 
of subchapter A of chapter 1 of the Code, is $1,451. Therefore, the 
refunded portion of the section 32 credit is $821. This amount, which 
is the Federal public benefit, is calculated by subtracting $1,451 from 
$2,272. The $250 withholding credit is not included in the calculation 
of a Federal public benefit and can be received as a refund, credited 
against the taxpayer's unpaid tax liabilities, or offset against 
specified non-tax liabilities. If G is an alien who is not a qualified 
alien, G is not eligible to receive the Federal public benefit of $821 
as a refund, have it credited against the taxpayer's unpaid tax 
liabilities, or have it offset against specified non-tax liabilities.
    (g) Applicability date. This section applies to taxable years 
ending on or after [date of publication of final regulations in the 
Federal Register].

Frank J. Bisignano,
Chief Executive Officer.
[FR Doc. 2026-16985 Filed 8-19-26; 8:45 am]
BILLING CODE 4831-GV-P