Strange Tax & Family Question

In My Humble Opinion
1

First, please forgive what is likely to be a bit of a disjointed story.

Second, I fully expect that I won’t like the answers, but I am hoping someone here has some expertise and a creative suggestion.

Here’s the nutshell version of the situation:

A couple of years ago, my SIL (30 now) and her daughter (my niece) came to live with us as a result of an ugly breakup (marriage). We provide room and board, help out with expenses like clothing (although there are lots of family hand me downs), I either fix her car or cover the repair bills, provide assistance with things like gas as needed, etc. The separated husband provides a pittance to my SIL, probably around $100/week. My SIL has no career or education, and has enrolled in a degree program and has about two more years to go, and so I anticipate having them at least that long.

Estranged husband owns his own small business, and claims to make very little money. My SIL does not know anything of the finances, refuses to investigate, and generally believes him. I, however, suspect there is a lot of off-the-books earnings there. They continue to file joint tax returns, which is his preference. Frankly, I don’t think my SIL knows what a tax return is. He has her convinced that if she seeks a formal divorce she will get next to nothing in a settlement (did I mention he fathered two children with other women while they were married; this was the last straw that led to the separation). His claim is that with three child support payments and such a low income, she will get less than she gets now under court guidelines. I don’t know if it is relevant, but I know that he does not have formal child support arrangements with the other two mothers.

My SIL and I have had a number of big arguments about this, as I think she is believing his lies, letting him off the hook as far as child support, and as a result depriving herself of various state programs to help mothers in her situation (ranging from WIC to scholarships). Frankly, she isn’t what you’d call a thinker, and is very much afraid that things will be worse if she heads down that path, which is exactly how he wants it.

SO, rambling on I know, I have covered a pretty significant load of expenses through this period, and while I am happy to help, I have always been a bit bitter that I have two dependents but can not claim either of them. I am essentially covering 90% of the cost of having two children; as though I have a 15 year old daughter who got knocked up. That’s about the maturity level I am working with here. I should probably note that I am married, but we have no children of our own.

Now my niece will need to enter preschool next year, and it looks like that will be my cost to bear. That’s going to get expensive, and frankly I feel like from a moral perspective I ought to be entitled to the same deductions that a parent would.

Is there any legal way I can claim a deduction for this? Have I any recourse? What if I simply claimed the deduction, knowing that I can prove the degree of support I provide? My SIL won’t budge, and I feel a moral obligation to my niece to provide for her, at least until my SIL finishes school. The truth is, I can afford it, and so I will do what I must for her sake. I don’t begrudge my niece anything I can provide- she’s the innocent. But it really steams me that he gets the tax benefit while not providing either the financial support nor the paternal influence- as you can imagine, I am more the dad here than he it.

I guess this is 1/2 rant and 1/2 question.

2

Huh?

Yeah, SIL needs a serious lesson in reality. If he’s not paying much now, what difference does it make if she divorces him and gets nothing? She should come back with… “well, then we go on welfare and whatever support I get from the state will go onto your perpetual tax bill and you’ll never get any peace or tax refunds unless you smarten up.” (Can you rent them your basement as a separate dwelling?)

Seriously, what does she expect? They’ll get back together? A bit late for that. He still owes child support for the other two. She might as well get her claim in. Then, too, if he looks to be doing well, she can go back to court for a re-evaluation of his support obligations.

Plus, he’s probably claiming the child as a dependent and getting even more money off the tax refunds without shelling any money out. While he as parent is doing that with (supposedly) consent of spouse, I doubt you’ll get to claim anything.

3

Look up “uniform definition of a qualifying child.” It’s a big complex, but you can think of it as a flowchart for who can legally, otherwise I don’t know if you can. It has questions like “do you pay for >50% of the support?” The main question is whether the mom has a greater claim (whether she wants to or not).

If you or the mom and the dad claim the niece, the IRS will flag it, and it will be a pain to sort out. IANAL or a practicing accountant, but I doubt he has the right to, but it still could be a quagmire.

The non-tax stuff, I won’t get into, but good luck.

4

Does your SIL/NIL meet the following criteria?

Not a Qualifying Child Test
A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer.

To meet this test, a person must either:
Live with you all year as a member of your household, or
Be related to you in one of the ways listed under Relatives who do not have to live with you .
Sister-in-law is on that list which is moot. Niece-in-law is not.

Gross Income Test
To meet this test, a person’s gross income for the year must be less than $3,900.
Gross income defined. Gross income is all income in the form of money, property, and services that is not exempt from tax.
Child support is exempt, alimony is not.

Total Support
To figure if you provided more than half of a person’s support, you must first determine the total support provided for that person. Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.
So it sounds like if your SIL makes less than $3900 you can claim her as a dependent. I don’t think you can claim your NIL as a dependent unless
Child of person not required to file a return. A child is not the qualifying child of any other taxpayer and so may qualify as your qualifying relative if the child’s parent (or other person for whom the child is defined as a qualifying child) is not required to file an income tax return and either:
Does not file an income tax return, or
Files a return only to get a refund of income tax withheld or estimated tax paid.

It is clear that she is not the qualifying child of her dad.

5

Since the husband in question is certainly not the OP’s brother, presumably the Sister-in-law is the sister of the spouse and NIL is a blood niece of the spouse if that helps any.

6

Moderator Action

Since this involves legal issues, lets move this over to IMHO.

Moving thread from General Questions to In My Humble Opinion.

7

If the sister applies as a relative, then the niece is “the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.”

8

There are some good tax options available to you and her, but all of them are going to boil down to a conflict between the estranged couple. Either you have to resolve the issues between them before filing, or you file something and resolve it while the IRS is mailing letters back and forth. If she’s not willing to step up and handle her own issues like an adult, then there’s no good outcome to this.

My advice is to stop supporting her until she has a divorce settlement in hand. She can go live with her husband or she can move on. She cannot stay in limbo at your expense.

9

So if he cheats on the tax return that she jointly signs, she is in trouble as well.

As others have said, she needs a serious dose of reality.

10

Just eat the tax benefit that you won’t get, and know that you are doing right by this little girl.

11

Thanks for all the thoughts and comments. Looking back at the OP, it wasn’t well written and I apologize

First, I recognize that she is way out in left field, but I have to recognize that I am not going to make her grow up, nor can I make her any smarter. As I mentioned, tough love isn’t an option in my book because the little girl becomes collateral damage. I just can’t do that. If I don’t do right by her she will certainly suffer.

I have often wondered what would happen if I took the deduction. When the IRS came calling, I could easily provide the proof of my support, but I don’t know if they would automatically side with the biological parent, or if in siding with me would go after my SIL on some tax charge since they still file joint. I could not care less if they went after asshole.

There are two big factors that bunch my panties. One is the fact that he takes a deduction on something that i am paying for, but in some ways worse is all the assistance she is leaving on the table.

To clarify, this is my wife’s sister and her daughter.

I tell you what, I am amazed ar how easily he manipulates her. He has her absolutely convinced that this is the best situation for her. This from a serial cheater who used to get roaring drunk and threaten her, at least on the nights he didnt pass out with the key in the lock (honestly, a recurring thing).

12

They would basically side with the parents. There are a lot of rules about who gets to claim who and when, but basically you have three requirements for a qualifying child: blood relationship, residency (which can be satisfied by a “temporary” absence), and support. Support for a QC just requires that the child didn’t provide more than half of their own support - it doesn’t matter whether the biological parents actually provide the support themselves. (Support is different with the qualifying relative definition of a dependent, which ironically doesn’t even require that the person be a relative, but does require that the one claiming them did provide more than half of support.) Residency is met because the child is living with a biological parent. In fact, they couldn’t even LET you take the child as a deduction as long as the still-married couple have a requirement to file a tax return.

Most of that changes if she legally separates, of course.

13

Could you call, visit the IRS website, stop by H&R Block – or inquire in some form with the actual IRS?

14

I strongly suggest you take her to visit with an attorney specializing in tax and family law matters, and see if he/she can make the SIL see reason. Also, pat yourself on the back for doing A Good Thing taking care of them.

15

Sorry, used the wrong term here. “Qualifying Relative” is more apt than “Qualifying Child.” Flowchart. I think the most pertinent part is part 4 on page 2: “Is the child a Qualifying Child of you or any other taxpayer?.” Then refer to page 1 for the SIL, and if the child is a QC of her mom, you cannot claim. This doesn’t mention “or a descendant” though? Hmm. Maybe also see, Pub 4012, especially starting with page C-3 or 39 in the PDF.

I agree with Dogzilla and you should definitely do (at least some of) the above.

16

Child support usually has pretty fixed numbers that can be run by anyone. If you haven’t done so, at least run those numbers to see what she really would be getting in CS, so that there are real numbers.

I would do as suggested above and consult an attorney. It doesn’t have to be super expensive to do so, and they would be able to advise you on all of these issues.

17

Where did you get that idea? Child support awards are dependent on the income of the parents and a number of other factors.

18

I meant fixed numbers dependent on the income and other factors that the OP appears to know. They aren’t arbitrary.

19

Sure they are. Minimum support need is fixed to income, but that’s a baseline, not a representative figure.

ETA: having said that, I just looked up the minimum need figures for my state and it’s almost impossible for the minimum need figure to be less than the $400/month the OP says she’s getting now.

20

California and Ohio both publish the formula the office uses to calculate CS. They have online calculators, as well.

It can be overridden by a judge, but if you go to start a family law case (or if you apply for certain forms of public support), they can tell you the numbers and start collecting.

Do you consider that arbitrary?