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Individual Tax

IRS revises form required for taxpayers whose prior year credits were disallowed

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Form 8862, Information To Claim Certain Credits After Disallowance

Instructions for Form 8862

IRS has issued an updated version of Form 8862, Information To Claim Certain Credits After Disallowance, and updated instructions to that form. The principal differences in the updated form involve the credit for other dependents, which was enacted as part of the Tax Cuts and Jobs Act (TCJA, P.L 115-97, 12/22/2017).

Background—taxpayers making improper prior claims.  The Code provides that, with respect to the earned income credit (EIC), the child tax credit (CTC), additional child tax credit (ACTC), credit for other dependents (ODC), and the American opportunity tax credit (AOTC), if a taxpayer is denied the credit as a result of the deficiency procedures (i.e., other than by reason of a math or clerical error), no credit is allowed for any later tax year unless the taxpayer provides the information that IRS requires to demonstrate eligibility for the credit. (Code Sec. 32(k)(2)Code Sec. 24(g)(2)Code Sec. 25A(b)(4)(B))

Form 8862 is the form used to provide the information that IRS requires to demonstrate eligibility for these credits.

Background—the ODC. From 2018 to 2025, the TCJA provides a $500 nonrefundable credit for each dependent (as defined in Code Sec. 152) of the taxpayer other than a qualifying child, who is a U.S. citizen, national or resident. (Code Sec. 24(h)(4)(A)) This credit can also be claimed for a qualifying child for whom the child tax credit under Code Sec. 24(a) is not allowed because the taxpayer didn’t include a social security number. (Code Sec. 24(h)(4))

New form contains changes. Here is a summary of the main changes to Form 8862:

Revised title.  In prior years, the title to the form included the words “refundable credits.” The current title omits the word “refundable” to reflect the fact that the ODC is not a refundable credit.

Who must file. In prior years, one of the conditions for having to file the form was that one of the above credits was reduced or disallowed for any reason other than a matter of clerical error. The current instructions provide specific dates after which such a reduction or disallowance must have taken place. For the EIC, the date is a year after ’96; for the CTC, ACTC and AOTC, the date is a year after 2015.

The prior instructions also conditioned the need to file the form on the taxpayer having received a letter from IRS saying that the taxpayer had to complete and attach Form 8862 the next time he claimed one of the credits. That instruction has been dropped from the updated form.

CTC/AOTC/ODC changes.  New Line 13 requires taxpayers to indicated the names of persons for whom they are claiming the ODC.

New Line 15 asks, for each person claimed as a qualifying child or other dependent, is that person the taxpayer’s dependent?

The previous version of the form asked several questions (Lines 15-18) with respect to taxpayers who had certain child dependents who used an Individual Taxpayer Identification Number (ITIN). Children identified by an ITIN or an adoption taxpayer identification number (ATIN) are no longer qualifying children for the CTC or ACTC. Starting with tax year 2018, child must’ve been issued a Social Security number before the due date of his parents’ return in order for the parents to claim the CTC for the ACTC for the child. As a result, the questions that had previously been on Lines 15-18 have been dropped from the current form.

And, while the previous instructions stated that taxpayers cannot claim the CTC/ACTC for a child who is not a citizen or national or resident of United States, the new form actually has a question (Line 17) that asks whether a child or other dependent meets those qualifications.

…AOTC question about Form 1098-T. The previous form asked, “Did the student receive a Form 1098-T from the institution for the year entered on line 1 or the year immediately preceding that year?” That question has been dropped from the current version of the form.

Observation. This change doesn’t appear to have resulted from any law, etc. change. Rather, it would appear that, given the various circumstances under which taxpayers can qualify for the AOTC despite not having received Form 1098-T, IRS has decided this question was not helpful.

References: For denial of AOTC where credit was denied in an earlier year as a result of IRS deficiency procedures, see FTC 2d/FIN ¶ A-4525.4United States Tax Reporter ¶ 25A4.04.

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