CRS Report Provides Facts About Missing Children Bill

                       CRS REPORT FOR CONGRESS

[2] In response to this finding, legislation (H.R. 5117) was introduced September 6, 2000, by Representative Ramstad (for himself, Representative Crane, Representative Hayworth, Representative Foley, Representative Schaffer, Representative Brady of Texas, and Representative Herger). ⁵ The legislation passed unanimously in the House of Representatives on September 26, 2000. Companion legislation (S. 3105) has been introduced by Senator John Breaux in the Senate. These bills provide that in the case of a kidnapped child, the parents continue to qualify for the child's dependency deduction and the $500 child tax credit. In the case of a single parent, he or she retains head-of-household tax status. In addition, the parents may continue to claim the child for qualification of the earned income tax credit. The tax treatment terminates if the child is determined to be dead or, if earlier, the year that the child would have attained age 18. The bills apply to taxable years ending after the date of enactment.

[3] In an apparent reversal of the prior legal memorandum, the Deputy Associate Chief Counsel (Income Tax and Accounting) has revised the findings, noting that a presumption is to be made that the parents provided more than half of their child's support when no one other than the parents can establish legal custody or would be entitled to claim the child's dependency exemption. The memorandum reads that "In these unusual circumstances, when no individual other than the parents has legal custody of the child or would be entitled to claim a dependency exemption, we believe it should ordinarily be presumed that the parents have incurred sufficient expenses for the support of a child to satisfy the support requirement of section 152(a). In particular, we do not believe that section 152(a) can reasonably be construed as requiring parents in such circumstances to establish that the expenses they incurred for the support of a child during a taxable year constituted over one half of the total support that the child received from all sources that year." ⁶

[4] In a recent article, it was speculated that the original Internal Revenue Service position was based on the fact that the Service presumed that the child has died. It was noted that the Service prefers a bright line test over having to make difficult case-by-case decisions on if the child is likely to be found alive. In the article, one suggestion was that the exemption be allowed while the parents continue to incur substantial search expenses. Another suggestion made was for the kidnapping to be treated as a "temporary absence" as are children attending boarding school. ⁷

[5] It is generally believed that there is limited potential for fraud and abuse since there are easy proofs for the child's existence and reports to back up kidnapping claims. Because the number of child kidnappings by someone who is not a member of the family is small, revenue losses associated with the provision are likely to be minimal.

[6] Questions remain even after the IRS has issued the new memorandum. The new memorandum fails to clarify if maintaining the child's room and funds spent searching for the child constitute support. Since neither of the memoranda can be used or cited as precedent, support continues for enactment of legislation to clarify current law tax treatment.

² The memorandum reads "For taxable years after the year of kidnapping, although the issue is not free from doubt, we do not think that the parents meet the support test of section 152(a), even if the parents continue to maintain a room for the child and continue to expend funds searching for the child."

³ George Baker, Memorandum for Richard Poprick, Customer Service Division entitled "Support for Kidnapped Child" CCA 200034029, dated July 25, 2000.

⁴ Ebrahim Otmishi v. Commissioner, T.C. Memo. 1980-472.

⁵ There are 23 cosponsors.

⁶ Lewis J. Fernandez, Memorandum for Richard Poprick, Customer Service Division, entitled "Dependency Exemption for Kidnapped Child" CCA 200038059, dated Sept. 22, 2000.

⁷ Bonnie Menking, "No Dependency Exemption for Kidnapped Child, Says IRS," Tax Notes, vol. 88, no. 10, September 4, 2000, p. 1198-1199.