The Working Families Tax Relief Act of 2004 (the “2004 Act”) replaced multiple definitions of “child” utilized for child-related tax benefits within the Code with a uniform definition of “qualifying child” (“UDOC”). Additional changes to the UDOC have been made since 2004, as part of the Gulf Opportunity Zone Act of 2005, and through the Fostering Connections to Success and Increasing Adoptions Act of 2008.

The Section of Taxation previously provided extensive comments on the UDOC, expressing concerns with the UDOC and proposing both legislative and regulatory changes (“UDOC Report”). Some of these concerns were addressed by the Internal Revenue Service (the “Service”) in Notice 2006-86 and Notice 2008-5. For the most part, the Service relied on pre-UDOC guidance, and clarification of the UDOC was left to the courts. 

On January 19, 2017, the U.S. Department of the Treasury (“Treasury”) and the Service issued a notice of proposed rulemaking containing Proposed Regulations under sections 2, 3, 21, 32, 63, 151, 152, 6013, and 6109 (the “Proposed Regulations”). The Proposed Regulations also withdrew existing proposed regulations relating to the definition of an authorized placement agency for adoption. When finalized, the Proposed Regulations would obsolete several revenue rulings and other guidance. The Proposed Regulations would apply to taxable years beginning after the date they are finalized. The preamble to the Proposed Regulations (the “Preamble”) states that taxpayers may choose to apply the Proposed Regulations in any open taxable years. These Comments are submitted in response to the request for comments in the Preamble.

Most of the members of the Section of Taxation contributing to these Comments have extensive experience in representing low-income taxpayers, through nonprofit or academic Low Income Taxpayer Clinics funded by the Service under section 7526. We collectively have seen thousands of examples of taxpayers who have struggled with the UDOC. Consequently, we have reviewed the proposed rules with a primary view toward ease of comprehension for taxpayers, and ease of administration for the Service. We commend the Service for proposing regulations that simplify the application of the UDOC, and we appreciate the opportunity to provide these Comments. We anticipate that the final Regulations will increase taxpayer compliance and improve the Service’s ability to administer the dependent rules. Many of the examples in the Proposed Regulations illustrate the income tax consequences of non-traditional living arrangements and are a welcome recognition of 21st century realities. We believe that additional examples would further assist taxpayers and the Service, and we suggest situations in which additional examples would be helpful.