IHSS wages excluded per IRS Notice 2014-7 do they still qualify for the ACTC?

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So Ive got a client that gets paid over $40,000 by IHSS as part of a Medicad waiver program to care for her disabled son. This is her only income.

She gets a W2 with the 40k in wages in box 1 and I make the adjustment on Line 21 to exclude the wages per the notice 2014-7. This computes the $1400 as refundable ACTC on the tax return. Is this correct?

All my other clients with IHSS wages that are excludable per notice 2014-7 have submitted a Self Certification to IHSS so that their W2 that gets issued shows 0 in Box 1 so we avoid even having to enter it.

But in this clients situation, if she self certified, she'd lose that ACTC....something doesn't seem right here.

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rbynakerAnswer

Level 13

I read an interesting article on this not too long ago. It was dated 5/29/19 on TheTaxBook website but it's protected so that only TTB customers can access it.

It references a TC case though (unfortunately not exactly "plain language")

Feigh, 152 TC No. 15, May 15, 2019

https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11863

The EITC and the ACTC are acts of legislative grace provided by Congress. We know the familiar rule that deductions and credits "depend upon legislative grace and are allowed only to the extent authorized by statute." Our holding addresses the power of the IRS, through a notice, to deem income otherwise includible as not includible for purposes of calculating a benefit bestowed by Congress. We do not reach the related issue of whether the IRS may properly classify income as not includible through a regulation. However, the IRS is not free to circumscribe the credits that the legislature has chosen to authorize through statute; that is a power only Congress has. Therefore, to the extent [the IRS] seeks to use Notice 2014-7, supra, to deprive petitioners of a benefit bestowed by Congress, we hold [the IRS] may not do so.

Rick

rbynakerAnswer

Level 13

I read an interesting article on this not too long ago. It was dated 5/29/19 on TheTaxBook website but it's protected so that only TTB customers can access it.

It references a TC case though (unfortunately not exactly "plain language")

Feigh, 152 TC No. 15, May 15, 2019

https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11863

The EITC and the ACTC are acts of legislative grace provided by Congress. We know the familiar rule that deductions and credits "depend upon legislative grace and are allowed only to the extent authorized by statute." Our holding addresses the power of the IRS, through a notice, to deem income otherwise includible as not includible for purposes of calculating a benefit bestowed by Congress. We do not reach the related issue of whether the IRS may properly classify income as not includible through a regulation. However, the IRS is not free to circumscribe the credits that the legislature has chosen to authorize through statute; that is a power only Congress has. Therefore, to the extent [the IRS] seeks to use Notice 2014-7, supra, to deprive petitioners of a benefit bestowed by Congress, we hold [the IRS] may not do so.

Rick

T

TaxGuyBill

I love some of the wording in that court case. Although not ruled on, it is obvious that the judge thinks that the IRS are idiots for issuing 2014-7.

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