Dependent Defined; Notice of Proposed Rulemaking and Partial Withdrawal of Notice of Proposed Rulemaking, 35233-35236 [2020-10224]
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Federal Register / Vol. 85, No. 111 / Tuesday, June 9, 2020 / Proposed Rules
within a 4.1-mile radius of the Bethel
Airport, AK, excluding that portion below
1,100 feet MSL within .7-mile radius of
Hangar Lake SPB. This Class D airspace area
is effective during the specific dates and
times established in advance by a Notice to
Airmen. The effective date and time will
thereafter be continuously published in the
Chart Supplement.
DEPARTMENT OF THE TREASURY
Paragraph 6002 Class E Airspace
Designated as Surface Areas.
Dependent Defined; Notice of
Proposed Rulemaking and Partial
Withdrawal of Notice of Proposed
Rulemaking
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AAL AK E2
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Bethel, AK [Amended]
Bethel Airport, AK
(Lat. 60°46′43″ N, long. 161°50′14″ W)
Hangar Lake
(Lat. 60°48′17″ N, long. 161°43′15″ W)
That airspace extending upward from the
surface within a 4.1-mile radius of the Bethel
Airport, AK, excluding that portion below
1,100 feet MSL within .7-mile radius of
Hangar Lake SPB. This Class E airspace area
is effective during the specific dates and
times established in advance by a Notice to
Airmen. The effective date and time will
thereafter be continuously published in the
Chart Supplement.
Paragraph 6004 Class E Airspace Areas
Designated as an Extension to a Class D or
Class E Surface Area.
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AAL AK E4
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Bethel, AK [Removed]
Paragraph 6005 Class E Airspace Areas
Extending Upward From 700 Feet or More
Above the Surface of the Earth.
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AAL AK E5
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Bethel, AK [Amended]
Bethel Airport, AK
(Lat. 60°46′43′ N, long. 161°50′14″ W)
That airspace extending upward from 700
feet above the surface within a 6.6-mile
radius of the Bethel Airport, AK, and that
airspace 8 miles east and 4 miles west of the
211° radial from the airport extending from
the 6.6-mile radius to 22 miles south of the
Airport.
Issued in Seattle, Washington, on June 1,
2020.
Shawn M. Kozica,
Manager, Operations Support Group, Western
Service Center.
[FR Doc. 2020–12319 Filed 6–8–20; 8:45 am]
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26 CFR Part 1
[REG–118997–19]
RIN 1545–BP52
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking;
partial withdrawal of a notice of
proposed rulemaking.
AGENCY:
This document contains
proposed regulations that clarify the
definition of a ‘‘qualifying relative’’ for
purposes of various provisions of the
Internal Revenue Code (Code) for
taxable years 2018 through 2025. These
proposed regulations generally affect
taxpayers who claim Federal income tax
benefits that require a taxpayer to have
a qualifying relative. This document
also withdraws a portion of the
proposed regulations published on
January 19, 2017, addressing the
support test for a qualifying relative,
and proposes replacement language.
DATES: Written or electronic comments
and requests for a public hearing must
be received by July 24, 2020. Requests
for a public hearing must be submitted
as prescribed in the ‘‘Comments and
Requests for a Public Hearing’’ section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic
submissions via the Federal
eRulemaking Portal at
www.regulations.gov (indicate IRS and
REG–118997–19) by following the
online instructions for submitting
comments. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The IRS
expects to have limited personnel
available to process public comments
that are submitted on paper through
mail. Until further notice, any
comments submitted on paper will be
considered to the extent practicable.
The Department of the Treasury
(Treasury Department) and the IRS will
publish for public availability any
comment submitted electronically, and
to the extent practicable on paper, to its
public docket. Send paper submissions
to: CC:PA:LPD:PR (REG–118997–19),
room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044.
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FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Victoria J. Driscoll (202) 317–4718;
concerning submissions of comments
and/or requests for a public hearing,
Regina Johnson, (202) 317–5177 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Internal Revenue Service
SUMMARY:
35233
Background
On January 19, 2017, the Treasury
Department and the IRS published a
notice of proposed rulemaking
providing rules regarding the definition
of a dependent under section 152,
which includes a qualifying relative, in
the Federal Register (82 FR 6370)
(January 2017 Proposed Regulations).
This document revises the January 2017
Proposed Regulations by adding a
paragraph to clarify the definition of a
‘‘qualifying relative’’ for taxable years
2018 through 2025, and withdrawing
and reproposing a rule in the January
2017 Proposed Regulations regarding
the support of a dependent under
section 152.
I. Zero Exemption Amount
Generally, section 151 allows a
taxpayer to claim deductions for
exemptions for the taxpayer and his or
her spouse, and for any dependents.
Section 152(a) of the Code generally
defines a ‘‘dependent’’ as a ‘‘qualifying
child’’ or a ‘‘qualifying relative.’’ The
definition of a qualifying relative in
section 152(d)(1) includes the
requirement that the individual have
gross income for the calendar year that
is less than the exemption amount as
defined in section 151(d). Such an
individual must also satisfy the
requirement of section 152(d)(1)(C) that
the individual receive more than onehalf of his or her support from the
taxpayer claiming the individual as a
qualifying relative.
Before amendment by section
11041(a)(2) of Public Law 115–97, 131
Stat. 2054 (2017), commonly referred to
as the Tax Cuts and Jobs Act (TCJA),
section 151(d) provided for an
exemption amount of $2,000 that was
adjusted annually for inflation
beginning with calendar year 1990.
Before the enactment of the TCJA, the
IRS had determined that the exemption
amount for calendar year 2018 was
$4,150. Rev. Proc. 2017–58, 2017–45
I.R.B. 489, modified and superseded by
Rev. Proc. 2018–18, 2018–10 I.R.B. 392.
Section 11041(a)(2) of the TCJA added
section 151(d)(5) to provide special
rules for taxable years 2018 through
2025 regarding the exemption amount
in section 151(d). Section 151(d)(5)(A)
provides that, for a taxable year
beginning after December 31, 2017, and
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before January 1, 2026, the exemption
amount is zero, thereby suspending the
deductions for personal exemptions and
the dependency exemption. H.R. Rep.
No. 115–466, at 202–204 (2017)
(Conference Report). However, section
151(d)(5)(B) provides that the reduction
of the exemption amount to zero is not
taken into account in determining
whether a deduction under section 151
is allowed or allowable to a taxpayer, or
whether a taxpayer is entitled to a
deduction under section 151, for
purposes of any other provision of the
Code. The Conference Report states that
this provision clarifies that the
reduction of the personal exemption to
zero ‘‘should not alter the operation of
those provisions of the Code which refer
to a taxpayer allowed a deduction . . .
under section 151,’’ including the child
tax credit in section 24(a). Id. at 203
n.16.
Section 11022(a) of the TCJA
amended section 24 of the Code to
create a $500 credit for certain
dependents of a taxpayer other than a
qualifying child described in section
24(c) for whom the child tax credit is
allowed. The $500 credit applies to two
categories of dependents: (1) Qualifying
children for whom a child tax credit is
not allowed, and (2) qualifying relatives
as defined in section 152(d). Section
24(h)(4)(A) and (C). Like the amendment
to section 151(d) reducing the
exemption amount to zero, this new
credit applies for taxable years 2018
through 2025. The Conference Report
explains that ‘‘[t]he credit is further
modified to temporarily provide for a
$500 nonrefundable credit for qualifying
dependents other than qualifying
children. The provision generally
retains the present-law definition of
dependent.’’ H.R. Rep. No. 115–466, at
227.
The definition of head of household
in section 2(b)(1)(A) includes the
requirement that the taxpayer maintain
as his or her home a household for a
qualifying individual for a specified
period of time. A qualifying individual
under section 2(b)(1)(A)(ii) includes a
qualifying relative if the taxpayer is
entitled to a deduction under section
151 for the person for the taxable year.
As noted above, taxpayers are allowed
a deduction under section 151 for
individuals who are dependents as
defined in section 152, including
qualifying relatives described in section
152(d).
On August 28, 2018, the Treasury
Department and the IRS issued Notice
2018–70, 2018–38 I.R.B. 441. This
notice announced the intent to issue
proposed regulations providing that the
reduction of the exemption amount to
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zero under section 151(d)(5)(A) for
taxable years 2018 through 2025 will
not be taken into account in
determining whether an individual
meets the requirement of section
152(d)(1)(B) to be a qualifying relative.
Notice 2018–70 also stated that, before
the issuance of the proposed regulations
described in the notice, a taxpayer may
rely on the rules described in the notice.
Consistent with Notice 2018–70, these
proposed regulations provide that in
determining whether an individual is a
qualifying relative for purposes of
various provisions of the Code that refer
to section 152 in years in which the
exemption amount is zero, the section
151(d) exemption amount will be the
inflation-adjusted section 152(d)(1)(B)
exemption amount in the annual
revenue procedure setting forth
inflation-adjusted items that is
published in the Internal Revenue
Bulletin. Thus, the exemption amount is
$4,150 for 2018 (section 3.24 of Rev.
Proc. 2017–58, 2017–45 I.R.B. 489,
modified and superseded by Rev. Proc.
2018–18, 2018–10 I.R.B. 392); $4,200 for
2019 (section 3.25 of Rev. Proc. 2018–
57, 2018–49 I.R.B. 827); and $4,300 for
2020 (section 3.25 of Rev. Proc. 2019–
44, 2019–47 I.R.B. 1093).
II. Alimony and Separate Maintenance
Payments
Prior to the TCJA, alimony and
separate maintenance payments were
deductible by the payor spouse and
includible in income by the recipient
spouse under sections 61(a)(8), 71(a),
and 215(a) of the Code. Under section
71(c), child support payments were not
treated as alimony. Section 11051 of the
TCJA repealed sections 61(a)(8), 71 and
215, and, in a conforming change, also
repealed section 682 of the Code for any
divorce or separation instrument
executed after 2018, and for any
instrument executed before 2019 and
later modified to apply the provisions of
the TCJA.
To conform with the repeal of section
71, section 11051(b)(3)(B) of the TCJA
amended section 152(d)(5) of the Code
regarding the source of a qualifying
relative’s support. As mentioned in part
I of this Background, section
152(d)(1)(C) requires that an individual
receive more than one-half of his or her
support from the taxpayer to be claimed
as a qualifying relative of that taxpayer.
Consistent with prior law, the TCJA
provides that payments of alimony or
separate maintenance paid to a spouse
or former spouse are not treated as
support of a dependent provided by the
payor spouse. However, the TCJA
revised the language of section 152(d)(5)
to eliminate references to sections 71
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and 682, which were repealed by the
TCJA. Section 1.152–3(d)(2) of the
January 2017 Proposed Regulations
originally included references to
sections 71 and 682. Accordingly, these
proposed regulations withdraw § 1.152–
3(d)(2) of the January 2017 Proposed
Regulations and replace it with
proposed § 1.152–3(d)(2) to reflect these
amendments to section 152(d)(5).
Explanation of Provisions
Section 151(d) provides for two
different exemption amounts for taxable
years 2018 through 2025. For purposes
of the deduction allowed for a personal
exemption or a dependency exemption,
section 151(d)(5)(A) provides that the
exemption amount is zero, thereby
effectively suspending the deduction.
However, for purposes of applying other
provisions of the Code that reference
that deduction, Congress provided in
section 151(d)(5)(B) that the reduction
of the exemption amount to zero is not
to be taken into account. For purposes
of those other Code provisions,
proposed § 1.152–3(c)(3) provides that
the exemption amount instead should
be $4,150 for 2018, and should be
adjusted for inflation for 2019 through
2025, as set forth in guidance published
in the Internal Revenue Bulletin. This
interpretation accords with section
151(d)(5), which suspends the
deduction for a personal exemption or
a dependency exemption without
substantively changing other Code
provisions that directly or indirectly
reference the section 151(d) exemption
amount.
This interpretation also is confirmed
by the structure of several Code
provisions that necessitate a non-zero
exemption amount in section
152(d)(1)(B). For example, to be a
qualifying relative under section
152(d)(1)(B), an individual must have
gross income that is ‘‘less than the
exemption amount.’’ If the exemption
amount were zero, an individual’s gross
income would have to be less than zero,
a near impossibility. Under such a
reading, virtually no individual would
meet the definition of a qualifying
relative. Thus, a zero-exemption amount
for this purpose would effectively
render section 152(d)(1)(B) inoperable
and eliminate an entire category of
dependents. The Treasury Department
and the IRS find no indication that
Congress intended to make such a
significant change in such an indirect
manner.
In addition, the new $500 credit
under section 24(h)(4), also enacted in
the TCJA, likewise depends on a nonzero exemption amount under section
152(d)(1)(B). Section 24(h)(4)(A) creates
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a $500 credit available for each
dependent of the taxpayer other than a
qualifying child for whom the child tax
credit is allowed. This provision
references the definition of dependent
in section 152, which includes both
qualifying relatives and qualifying
children, and it was understood at the
time of enactment that this provision
‘‘generally retain[ed] the present-law
definition of dependent.’’ H.R. Rep. No.
115–466, at 227. However, if the
exemption amount referenced in section
152(d)(1)(B) were treated as zero for this
purpose, the entire category of
qualifying relatives would be effectively
excised from the definition of
dependent. As a consequence, the $500
credit generally would not be available
for qualifying relatives, and the class of
individuals who could qualify a
taxpayer for this credit would shrink to
only a limited category of qualifying
children for whom the child tax credit
is not allowed. The Treasury
Department and the IRS find no
indication that Congress intended for
the suspension of the deduction for a
personal exemption or a dependency
exemption to have such a broad effect,
or intended for the eligibility for the
new $500 credit to be so narrow.
Further, head of household filing
status also depends on a non-zero
exemption amount under section
152(d)(1)(B). Under section 2(b)(1)(A),
an individual is considered a head of
household if, among other requirements,
he or she maintains as his or her home
a household for either (i) a qualifying
child, or (ii) any other person who is a
dependent of the taxpayer. Because the
only dependents other than qualifying
children are qualifying relatives, a zeroexemption amount under section
152(d)(1)(B), and the resulting near
elimination of qualifying relatives,
would render the express provision for
other dependents in section
2(b)(1)(A)(ii) surplusage. It also would
deny head of household filing status to
many individuals who previously
qualified for that filing status and
otherwise would continue to qualify.
Again, the Treasury Department and the
IRS find no indication that Congress
intended for the suspension of the
deduction for a personal exemption or
a dependency exemption to have such
a broad effect.
Accordingly, consistent with the
guidance provided in Notice 2018–70,
proposed § 1.152–3(c)(3) provides that
the reduction of the exemption amount
to zero in section 151(d)(5)(A) for
taxable years 2018 through 2025 does
not apply for purposes of the gross
income limitation in the definition of a
qualifying relative in section
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152(d)(1)(B). These proposed
regulations also withdraw and
repropose § 1.152–3(d)(2) of the January
2017 Proposed Regulations. Reproposed
§ 1.152–3(d)(2) is substantively the same
as the proposed provision it replaces,
but the reproposed regulation describes
the payment to the spouse without
references to repealed sections 71 and
682.
Finally, the proposed regulations
clarify an issue raised regarding a cross
reference in section 24(h)(4) to ‘‘a
qualifying child described in subsection
(c).’’ The proposed regulations clarify
that the cross reference is a reference to
section 24(c), rather than to section
152(c).
Applicability Date
Section 1.152–3(c)(3) of these
regulations is proposed to apply to
taxable years ending after August 28,
2018, the date the Treasury Department
and the IRS issued Notice 2018–70. See
section 7805(b)(1)(C). Sections 1.24–1
and 1.152–3(d)(2) of these regulations
are proposed to apply to taxable years
beginning on or after the date the
regulations are published as final
regulations in the Federal Register.
Pending the issuance of the final
regulations, taxpayers may rely on these
proposed regulations in any open
taxable year.
Special Analyses
These regulations are not subject to
review under section 6(b) of Executive
Order 12866, pursuant to the
Memorandum of Agreement (April 11,
2018) between the Department of the
Treasury and the Office of Management
and Budget, regarding the review of tax
regulations.
Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is certified
that these regulations will not have a
significant economic impact on a
substantial number of small entities.
These regulations primarily affect
individuals and will not have a
significant economic impact on a
substantial number of small entities.
Pursuant to section 7805(f) of the Code,
these proposed regulations will be
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed amendments to
the regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
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to the IRS as prescribed in the preamble
under the ‘‘ADDRESSES’’ section. The
Treasury Department and the IRS
request comments on all aspects of the
proposed regulations. Any electronic
comments submitted, and to the extent
practicable any paper comments
submitted, will be made available at
www.regulations.gov or upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written
comments. Requests for a public hearing
are also encouraged to be made
electronically. If a public hearing is
scheduled, notice of the date and time
for the public hearing will be published
in the Federal Register. Announcement
2020–4, 2020–17 IRB 1, provides that
until further notice, public hearings
conducted by the IRS will be held
telephonically. Any telephonic hearing
will be made accessible to people with
disabilities.
Drafting Information
The principal author of these
proposed regulations is Victoria Driscoll
of the Office of Associate Chief Counsel
(Income Tax and Accounting). However,
other personnel from the Treasury
Department and the IRS participated in
their development
Statement of Availability of IRS
Documents
IRS notices and other guidance cited
in this preamble are published in the
Internal Revenue Bulletin (or
Cumulative Bulletin) and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Partial Withdrawal of Proposed
Regulations
Under the authority of 26 U.S.C. 7805,
§ 1.152–3(d)(2) of the notice of proposed
rulemaking (REG–137604–07) published
in the Federal Register on January 19,
2017 (82 FR 6370) is withdrawn.
Proposed Amendments to the
Regulations
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:
■
Authority: 26 U.S.C. 7805 * * *
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A. Background
Federal Management Regulation
(FMR); Personal Property; Multiple
Repeal or Replace Regulatory Actions;
Multiple FMR Parts
Executive Order (E.O.) 13777,
‘Enforcing the Regulatory Reform
Agenda,’ was signed February 24, 2017.
This E.O. tasked Executive Agencies to
‘‘evaluate existing regulations (as
defined in section 4 of Executive Order
13771) and make recommendations to
the agency head regarding their repeal,
replacement, or modification, consistent
with applicable law.’’
Under the guidance of E.O. 13777,
GSA sought public comments on
improving FMR regulations through a
Federal Register Notice (MA–2017–03)
published on May 30, 2017, at 82 FR
24651. Concurrently, GSA sought
comments and recommendations from
Federal agencies, GSA subject matter
experts, and other stakeholders and
customers.
The comments and recommendations
elicited from the Federal Register notice
were reviewed and categorized by GSA
as ‘‘repeal’’, ‘‘replace’’, or ‘‘modify’’
actions. In accordance with the
guidance in E.O. 13777, GSA prioritized
repeal and replace actions as more
important than the modify actions. The
comments and recommendations
categorized as repeal and replace are
addressed in this proposed rule. Two
other repeal or replace
recommendations addressing (1) agency
asset management systems and (2) use
of voluntary consensus standards were
not included in this proposed rule as
GSA determined that it does not have
the legal authority to promulgate
regulations addressing property in use
by an agency before it is reported to
GSA as excess.
Provisions in this proposed rule make
the FMR policies addressing personal
property management more
understandable and easier to read. This
proposed rule addresses the following:
1. Consolidation of duplicate
occurrences of definitions across
multiple FMR parts into FMR 102–35
for consistency in terminology and to
avoid duplicative definitions in other
parts of FMR Subchapter B. The FMR
parts affected address personal property
disposal activities including transfers
among Federal agencies, donation of
surplus property to eligible state and
local donees, the sale of surplus
property, and disposition of property
requiring special handling;
Par. 2. Section 1.24–1 is added to
read:
GENERAL SERVICES
ADMINISTRATION
§ 1.24–1 Partial credit allowed for certain
other dependents.
41 CFR Parts 102–35, 102–36, 102–37,
102–38, 102–39, and 102–40
(a) In general. For purposes of section
24(h)(4)(A), a taxpayer may be eligible
to increase the credit determined under
section 24(a) by $500 for a dependent of
the taxpayer, as defined in section 152,
other than a qualifying child described
in section 24(c).
(b) Applicability date. This section
applies to taxable years beginning on or
after [date the Treasury Decision
adopting these rules is published in the
Federal Register].
■ Par. 3. Section 1.152–3, as proposed
to be revised by 82 FR 6370, January 19,
2017, is amended by:
■ a. Adding paragraph (c)(3); and
■ b. Revising paragraph (d)(2).
The addition and revision read as
follows:
§ 1.152–3
Qualifying relative.
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[FMR Case 2018–102–6; Docket No. GSA–
FMR–2019–0007; Sequence No.1]
202–368–8163. Contact the Regulatory
Secretariat Division (MVCB), 1800 F
Street NW, Washington, DC 20405, 202–
501–4755, for information pertaining to
status or publication schedules. Please
cite FMR Case 2018–102–6.
SUPPLEMENTARY INFORMATION:
■
*
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*
(c) * * *
(3)(i) For tax year 2018, the exemption
amount under section 152(d)(1)(B) is
$4,150.
For tax years 2019 through 2025, the
exemption amount, as adjusted for
inflation, is set forth in annual guidance
published in the Internal Revenue
Bulletin. See § 601.601(d)(2) of this
chapter.
(ii) Paragraph (c)(3)(i) of this section
applies to taxable years ending after
August 28, 2018.
*
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(d) * * *
(2) Certain income of a taxpayer’s
spouse. A payment to a spouse (payee
spouse) of alimony or separate
maintenance is not treated as a payment
by the payor spouse for the support of
any dependent. Similarly, the
distribution of income of an estate or
trust to a divorced or legally separated
payee spouse is not treated as a payment
by the payor spouse for the support of
any dependent. The preceding sentence
shall not apply, however, to the extent
that such a distribution is in satisfaction
of the amount or portion of income that,
by the terms of a divorce decree, a
written separation agreement, or the
trust instrument is fixed as payable for
the support of the minor children of the
payor spouse.
*
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*
Sunita Lough,
Deputy Commissioner for Services and
Enforcement.
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Office of Government-wide
Policy (OGP), General Services
Administration (GSA).
ACTION: Proposed rule.
AGENCY:
The U.S. General Services
Administration (GSA) is replacing,
modifying, and consolidating provisions
in multiple parts of the Federal
Management Regulation (FMR),
pursuant to an Executive Order, which
requires agencies to make
recommendations to the agency head
regarding regulatory repeal,
replacement, or modification, consistent
with applicable law.
DATES: Interested parties should submit
written comments to the Regulatory
Secretariat Division at the address
shown below on or before August 10,
2020 to be considered in the formation
of the final rule.
ADDRESSES: Submit comments in
response to FMR Case 2018–102–6 by
the following method:
• Regulations.gov: https://
www.regulations.gov. Submit comments
via the Federal Rulemaking Portal by
entering ‘‘FMR Case 2018–102–6’’ under
the heading ‘‘Enter Keyword or ID’’ and
select ‘‘Search.’’ Select the link ‘‘Submit
a Comment’’ that corresponds with
‘‘FMR Case 2018–102–6’’ and follow the
instructions provided at the ‘‘Comment
Now’’ screen. Please include your name,
company name (if any), and ‘‘FMR Case
2018–102–6’’ on your attached
document.
Instructions: Please submit comments
only and cite FMR Case 2018–102–6 in
all correspondence related to this case.
All comments received will be posted
without change to https://
www.regulations.gov, including any
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SUMMARY:
PO 00000
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[Federal Register Volume 85, Number 111 (Tuesday, June 9, 2020)]
[Proposed Rules]
[Pages 35233-35236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10224]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-118997-19]
RIN 1545-BP52
Dependent Defined; Notice of Proposed Rulemaking and Partial
Withdrawal of Notice of Proposed Rulemaking
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; partial withdrawal of a notice
of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that clarify the
definition of a ``qualifying relative'' for purposes of various
provisions of the Internal Revenue Code (Code) for taxable years 2018
through 2025. These proposed regulations generally affect taxpayers who
claim Federal income tax benefits that require a taxpayer to have a
qualifying relative. This document also withdraws a portion of the
proposed regulations published on January 19, 2017, addressing the
support test for a qualifying relative, and proposes replacement
language.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 24, 2020. Requests for a public hearing must
be submitted as prescribed in the ``Comments and Requests for a Public
Hearing'' section.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-118997-
19) by following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The IRS expects to have limited personnel available to
process public comments that are submitted on paper through mail. Until
further notice, any comments submitted on paper will be considered to
the extent practicable. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comment submitted electronically, and to the extent practicable on
paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR
(REG-118997-19), room 5203, Internal Revenue Service, PO Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Victoria J. Driscoll (202) 317-4718; concerning submissions of comments
and/or requests for a public hearing, Regina Johnson, (202) 317-5177
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
On January 19, 2017, the Treasury Department and the IRS published
a notice of proposed rulemaking providing rules regarding the
definition of a dependent under section 152, which includes a
qualifying relative, in the Federal Register (82 FR 6370) (January 2017
Proposed Regulations). This document revises the January 2017 Proposed
Regulations by adding a paragraph to clarify the definition of a
``qualifying relative'' for taxable years 2018 through 2025, and
withdrawing and reproposing a rule in the January 2017 Proposed
Regulations regarding the support of a dependent under section 152.
I. Zero Exemption Amount
Generally, section 151 allows a taxpayer to claim deductions for
exemptions for the taxpayer and his or her spouse, and for any
dependents. Section 152(a) of the Code generally defines a
``dependent'' as a ``qualifying child'' or a ``qualifying relative.''
The definition of a qualifying relative in section 152(d)(1) includes
the requirement that the individual have gross income for the calendar
year that is less than the exemption amount as defined in section
151(d). Such an individual must also satisfy the requirement of section
152(d)(1)(C) that the individual receive more than one-half of his or
her support from the taxpayer claiming the individual as a qualifying
relative.
Before amendment by section 11041(a)(2) of Public Law 115-97, 131
Stat. 2054 (2017), commonly referred to as the Tax Cuts and Jobs Act
(TCJA), section 151(d) provided for an exemption amount of $2,000 that
was adjusted annually for inflation beginning with calendar year 1990.
Before the enactment of the TCJA, the IRS had determined that the
exemption amount for calendar year 2018 was $4,150. Rev. Proc. 2017-58,
2017-45 I.R.B. 489, modified and superseded by Rev. Proc. 2018-18,
2018-10 I.R.B. 392.
Section 11041(a)(2) of the TCJA added section 151(d)(5) to provide
special rules for taxable years 2018 through 2025 regarding the
exemption amount in section 151(d). Section 151(d)(5)(A) provides that,
for a taxable year beginning after December 31, 2017, and
[[Page 35234]]
before January 1, 2026, the exemption amount is zero, thereby
suspending the deductions for personal exemptions and the dependency
exemption. H.R. Rep. No. 115-466, at 202-204 (2017) (Conference
Report). However, section 151(d)(5)(B) provides that the reduction of
the exemption amount to zero is not taken into account in determining
whether a deduction under section 151 is allowed or allowable to a
taxpayer, or whether a taxpayer is entitled to a deduction under
section 151, for purposes of any other provision of the Code. The
Conference Report states that this provision clarifies that the
reduction of the personal exemption to zero ``should not alter the
operation of those provisions of the Code which refer to a taxpayer
allowed a deduction . . . under section 151,'' including the child tax
credit in section 24(a). Id. at 203 n.16.
Section 11022(a) of the TCJA amended section 24 of the Code to
create a $500 credit for certain dependents of a taxpayer other than a
qualifying child described in section 24(c) for whom the child tax
credit is allowed. The $500 credit applies to two categories of
dependents: (1) Qualifying children for whom a child tax credit is not
allowed, and (2) qualifying relatives as defined in section 152(d).
Section 24(h)(4)(A) and (C). Like the amendment to section 151(d)
reducing the exemption amount to zero, this new credit applies for
taxable years 2018 through 2025. The Conference Report explains that
``[t]he credit is further modified to temporarily provide for a $500
nonrefundable credit for qualifying dependents other than qualifying
children. The provision generally retains the present-law definition of
dependent.'' H.R. Rep. No. 115-466, at 227.
The definition of head of household in section 2(b)(1)(A) includes
the requirement that the taxpayer maintain as his or her home a
household for a qualifying individual for a specified period of time. A
qualifying individual under section 2(b)(1)(A)(ii) includes a
qualifying relative if the taxpayer is entitled to a deduction under
section 151 for the person for the taxable year. As noted above,
taxpayers are allowed a deduction under section 151 for individuals who
are dependents as defined in section 152, including qualifying
relatives described in section 152(d).
On August 28, 2018, the Treasury Department and the IRS issued
Notice 2018-70, 2018-38 I.R.B. 441. This notice announced the intent to
issue proposed regulations providing that the reduction of the
exemption amount to zero under section 151(d)(5)(A) for taxable years
2018 through 2025 will not be taken into account in determining whether
an individual meets the requirement of section 152(d)(1)(B) to be a
qualifying relative. Notice 2018-70 also stated that, before the
issuance of the proposed regulations described in the notice, a
taxpayer may rely on the rules described in the notice.
Consistent with Notice 2018-70, these proposed regulations provide
that in determining whether an individual is a qualifying relative for
purposes of various provisions of the Code that refer to section 152 in
years in which the exemption amount is zero, the section 151(d)
exemption amount will be the inflation-adjusted section 152(d)(1)(B)
exemption amount in the annual revenue procedure setting forth
inflation-adjusted items that is published in the Internal Revenue
Bulletin. Thus, the exemption amount is $4,150 for 2018 (section 3.24
of Rev. Proc. 2017-58, 2017-45 I.R.B. 489, modified and superseded by
Rev. Proc. 2018-18, 2018-10 I.R.B. 392); $4,200 for 2019 (section 3.25
of Rev. Proc. 2018-57, 2018-49 I.R.B. 827); and $4,300 for 2020
(section 3.25 of Rev. Proc. 2019-44, 2019-47 I.R.B. 1093).
II. Alimony and Separate Maintenance Payments
Prior to the TCJA, alimony and separate maintenance payments were
deductible by the payor spouse and includible in income by the
recipient spouse under sections 61(a)(8), 71(a), and 215(a) of the
Code. Under section 71(c), child support payments were not treated as
alimony. Section 11051 of the TCJA repealed sections 61(a)(8), 71 and
215, and, in a conforming change, also repealed section 682 of the Code
for any divorce or separation instrument executed after 2018, and for
any instrument executed before 2019 and later modified to apply the
provisions of the TCJA.
To conform with the repeal of section 71, section 11051(b)(3)(B) of
the TCJA amended section 152(d)(5) of the Code regarding the source of
a qualifying relative's support. As mentioned in part I of this
Background, section 152(d)(1)(C) requires that an individual receive
more than one-half of his or her support from the taxpayer to be
claimed as a qualifying relative of that taxpayer. Consistent with
prior law, the TCJA provides that payments of alimony or separate
maintenance paid to a spouse or former spouse are not treated as
support of a dependent provided by the payor spouse. However, the TCJA
revised the language of section 152(d)(5) to eliminate references to
sections 71 and 682, which were repealed by the TCJA. Section 1.152-
3(d)(2) of the January 2017 Proposed Regulations originally included
references to sections 71 and 682. Accordingly, these proposed
regulations withdraw Sec. 1.152-3(d)(2) of the January 2017 Proposed
Regulations and replace it with proposed Sec. 1.152-3(d)(2) to reflect
these amendments to section 152(d)(5).
Explanation of Provisions
Section 151(d) provides for two different exemption amounts for
taxable years 2018 through 2025. For purposes of the deduction allowed
for a personal exemption or a dependency exemption, section
151(d)(5)(A) provides that the exemption amount is zero, thereby
effectively suspending the deduction. However, for purposes of applying
other provisions of the Code that reference that deduction, Congress
provided in section 151(d)(5)(B) that the reduction of the exemption
amount to zero is not to be taken into account. For purposes of those
other Code provisions, proposed Sec. 1.152-3(c)(3) provides that the
exemption amount instead should be $4,150 for 2018, and should be
adjusted for inflation for 2019 through 2025, as set forth in guidance
published in the Internal Revenue Bulletin. This interpretation accords
with section 151(d)(5), which suspends the deduction for a personal
exemption or a dependency exemption without substantively changing
other Code provisions that directly or indirectly reference the section
151(d) exemption amount.
This interpretation also is confirmed by the structure of several
Code provisions that necessitate a non-zero exemption amount in section
152(d)(1)(B). For example, to be a qualifying relative under section
152(d)(1)(B), an individual must have gross income that is ``less than
the exemption amount.'' If the exemption amount were zero, an
individual's gross income would have to be less than zero, a near
impossibility. Under such a reading, virtually no individual would meet
the definition of a qualifying relative. Thus, a zero-exemption amount
for this purpose would effectively render section 152(d)(1)(B)
inoperable and eliminate an entire category of dependents. The Treasury
Department and the IRS find no indication that Congress intended to
make such a significant change in such an indirect manner.
In addition, the new $500 credit under section 24(h)(4), also
enacted in the TCJA, likewise depends on a non-zero exemption amount
under section 152(d)(1)(B). Section 24(h)(4)(A) creates
[[Page 35235]]
a $500 credit available for each dependent of the taxpayer other than a
qualifying child for whom the child tax credit is allowed. This
provision references the definition of dependent in section 152, which
includes both qualifying relatives and qualifying children, and it was
understood at the time of enactment that this provision ``generally
retain[ed] the present-law definition of dependent.'' H.R. Rep. No.
115-466, at 227. However, if the exemption amount referenced in section
152(d)(1)(B) were treated as zero for this purpose, the entire category
of qualifying relatives would be effectively excised from the
definition of dependent. As a consequence, the $500 credit generally
would not be available for qualifying relatives, and the class of
individuals who could qualify a taxpayer for this credit would shrink
to only a limited category of qualifying children for whom the child
tax credit is not allowed. The Treasury Department and the IRS find no
indication that Congress intended for the suspension of the deduction
for a personal exemption or a dependency exemption to have such a broad
effect, or intended for the eligibility for the new $500 credit to be
so narrow.
Further, head of household filing status also depends on a non-zero
exemption amount under section 152(d)(1)(B). Under section 2(b)(1)(A),
an individual is considered a head of household if, among other
requirements, he or she maintains as his or her home a household for
either (i) a qualifying child, or (ii) any other person who is a
dependent of the taxpayer. Because the only dependents other than
qualifying children are qualifying relatives, a zero-exemption amount
under section 152(d)(1)(B), and the resulting near elimination of
qualifying relatives, would render the express provision for other
dependents in section 2(b)(1)(A)(ii) surplusage. It also would deny
head of household filing status to many individuals who previously
qualified for that filing status and otherwise would continue to
qualify. Again, the Treasury Department and the IRS find no indication
that Congress intended for the suspension of the deduction for a
personal exemption or a dependency exemption to have such a broad
effect.
Accordingly, consistent with the guidance provided in Notice 2018-
70, proposed Sec. 1.152-3(c)(3) provides that the reduction of the
exemption amount to zero in section 151(d)(5)(A) for taxable years 2018
through 2025 does not apply for purposes of the gross income limitation
in the definition of a qualifying relative in section 152(d)(1)(B).
These proposed regulations also withdraw and repropose Sec. 1.152-
3(d)(2) of the January 2017 Proposed Regulations. Reproposed Sec.
1.152-3(d)(2) is substantively the same as the proposed provision it
replaces, but the reproposed regulation describes the payment to the
spouse without references to repealed sections 71 and 682.
Finally, the proposed regulations clarify an issue raised regarding
a cross reference in section 24(h)(4) to ``a qualifying child described
in subsection (c).'' The proposed regulations clarify that the cross
reference is a reference to section 24(c), rather than to section
152(c).
Applicability Date
Section 1.152-3(c)(3) of these regulations is proposed to apply to
taxable years ending after August 28, 2018, the date the Treasury
Department and the IRS issued Notice 2018-70. See section
7805(b)(1)(C). Sections 1.24-1 and 1.152-3(d)(2) of these regulations
are proposed to apply to taxable years beginning on or after the date
the regulations are published as final regulations in the Federal
Register. Pending the issuance of the final regulations, taxpayers may
rely on these proposed regulations in any open taxable year.
Special Analyses
These regulations are not subject to review under section 6(b) of
Executive Order 12866, pursuant to the Memorandum of Agreement (April
11, 2018) between the Department of the Treasury and the Office of
Management and Budget, regarding the review of tax regulations.
Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is certified that these regulations will not have a significant
economic impact on a substantial number of small entities. These
regulations primarily affect individuals and will not have a
significant economic impact on a substantial number of small entities.
Pursuant to section 7805(f) of the Code, these proposed regulations
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
Comments and Requests for a Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in the preamble under the
``ADDRESSES'' section. The Treasury Department and the IRS request
comments on all aspects of the proposed regulations. Any electronic
comments submitted, and to the extent practicable any paper comments
submitted, will be made available at www.regulations.gov or upon
request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register. Announcement 2020-4,
2020-17 IRB 1, provides that until further notice, public hearings
conducted by the IRS will be held telephonically. Any telephonic
hearing will be made accessible to people with disabilities.
Drafting Information
The principal author of these proposed regulations is Victoria
Driscoll of the Office of Associate Chief Counsel (Income Tax and
Accounting). However, other personnel from the Treasury Department and
the IRS participated in their development
Statement of Availability of IRS Documents
IRS notices and other guidance cited in this preamble are published
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Documents, U.S. Government
Publishing Office, Washington, DC 20402, or by visiting the IRS website
at https://www.irs.gov.
Partial Withdrawal of Proposed Regulations
Under the authority of 26 U.S.C. 7805, Sec. 1.152-3(d)(2) of the
notice of proposed rulemaking (REG-137604-07) published in the Federal
Register on January 19, 2017 (82 FR 6370) is withdrawn.
Proposed Amendments to the Regulations
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
[[Page 35236]]
0
Par. 2. Section 1.24-1 is added to read:
Sec. 1.24-1 Partial credit allowed for certain other dependents.
(a) In general. For purposes of section 24(h)(4)(A), a taxpayer may
be eligible to increase the credit determined under section 24(a) by
$500 for a dependent of the taxpayer, as defined in section 152, other
than a qualifying child described in section 24(c).
(b) Applicability date. This section applies to taxable years
beginning on or after [date the Treasury Decision adopting these rules
is published in the Federal Register].
0
Par. 3. Section 1.152-3, as proposed to be revised by 82 FR 6370,
January 19, 2017, is amended by:
0
a. Adding paragraph (c)(3); and
0
b. Revising paragraph (d)(2).
The addition and revision read as follows:
Sec. 1.152-3 Qualifying relative.
* * * * *
(c) * * *
(3)(i) For tax year 2018, the exemption amount under section
152(d)(1)(B) is $4,150.
For tax years 2019 through 2025, the exemption amount, as adjusted
for inflation, is set forth in annual guidance published in the
Internal Revenue Bulletin. See Sec. 601.601(d)(2) of this chapter.
(ii) Paragraph (c)(3)(i) of this section applies to taxable years
ending after August 28, 2018.
* * * * *
(d) * * *
(2) Certain income of a taxpayer's spouse. A payment to a spouse
(payee spouse) of alimony or separate maintenance is not treated as a
payment by the payor spouse for the support of any dependent.
Similarly, the distribution of income of an estate or trust to a
divorced or legally separated payee spouse is not treated as a payment
by the payor spouse for the support of any dependent. The preceding
sentence shall not apply, however, to the extent that such a
distribution is in satisfaction of the amount or portion of income
that, by the terms of a divorce decree, a written separation agreement,
or the trust instrument is fixed as payable for the support of the
minor children of the payor spouse.
* * * * *
Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-10224 Filed 6-8-20; 8:45 am]
BILLING CODE 4830-01-P
