My Facebook friend and fellow contributor on AssociatedContent, Don Pennington, asked a question (to prove a point) that I am going to address in a sort-of serious way. Jim: You’re a tax man. You might know this: If more than 50% of all income tax paying Americans banded together in a corporation…could we claim the IRS as a dependant since at least half of their income comes from that corporation? I’m just curious.
First I have to explain that Don and I see government and society in very different ways. Don views the political scene as one with each administration, Democrat or Republican, as being increasingly self-serving, corrupt, and venal, each new group in charge building upon the unfairness of the replaced team. Thus, he disapproves of President Obama’s administration as being basically hostile to American liberties and rights, totally uninterested in fiscal responsibility, accepting of lobbyist pressure and outright bribes and talking with mouths full and running with scissors. He had similar disdain for President Bush’s policies but, as I understand it, the present folks are worse because they have expanded the unfair and unjust behavior. Don is relatively certain that the next president, of whatever party, will be even worse.
I, on the other hand, being a liberal by nature, see this country, and its leaders, improving in attitude and justice over the years. There have been lapses, certainly, where ineptness and outright greed took over, there were presidents and administrations which took actions that were wrong, sometimes with less than noble reasons. Going back over my lifetime, for example, FDR was a good president, one of the best, but also one who attempted to restructure the Supreme Court to manipulate its decisions and one who ordered the internment of American citizens of Japanese descent following the attack on Pearl Harbor. Richard Nixon certainly was wrong in the Watergate matter but was instrumental in opening the diplomatic door to China.
On the whole, however, I see an America struggling and usually succeeding to overcome its worst instincts and to improve. I have continued faith in a country and its leaders that, over the years, has addressed and (more or less) resolved issues of civil rights and, to a lesser degree, women’s rights and those of gays and lesbians. We have far to go, however, but we are at least starting to face up to the need for universal health care and an examination of governmental regulatory power and limits.
That is one hell of a long preface!
I am going to make some assumptions about Don’s question. For example, the taxpayer who can have “dependents” or “exemptions” has to be an individual and not a corporation. So let us assume a collective person – all of us! There are four criteria for being a qualifying child: (1) Relationship; (2) Age; (3) Residency; and (4) Support. Taking each in turn, the relationship must be a child of the taxpayer or a sibling or a descendant of a sibling. Since, as the song goes, we are nephews of Uncle Sam, we cannot claim our Uncle as a “qualifying child. The support criterion holds that dependent cannot provide more than one-half of his/her own support and here I have a question. Since the Federal government runs at a deficit, it means that it creates more than half its support by printing money. We could argue about that, but the uncle-bit controls!
There is a “qualifying relative” kind of dependent that may just work. There are four criteria to this one, too. First, the relative cannot be a “qualifying child” and we have already established that. Second, there is the Household or Relationship Test which would allow an uncle to qualify. Third is the Gross Income test where income has to be under the exemption amount ($3,500 last year). The Internal Revenue Code defines gross income as “earned” (which I assume Don feels would not include tax income) and “unearned”. On the other hand, the Code doesn’t include taxes received as “unearned income” specifically; and, on the other hand (I think that makes three of them), earnings from extortion are taxable.
We’ll have to work on the $3,500 issue. The final criterion is that the taxpayer has to provide more than one half of the dependent’s income, which may be problematic; the issue isn’t if the taxpayer pays out more than half of his or her income.
That was fun and now I have to get back to studying the courses that Jackson Hewitt requires of me.