Clients Unique Situation (Guardianship + Kiddie Tax)

[Serenity]

Hello,

A young adult is filing taxes for 2024 a bit late. However, they have an issue when it comes to the kiddie tax. 

The young adult is in college (20 years old) and was under legal guardianship for most of their life. Parents are out of the picture since birth (abandonment), so child was taken in by older aunt and uncle. 

Aunt and Uncle are 65 and did not file for 2024 or 2023 as their income was low enough to not be required to file. They did not claim student as dependent, and have not for two years. Student is trying to file independently as is required with their high unearned income 20,000 from scholarships (they is the amount taxable as the rest went to tuition.) 

Unfortunately when it comes to the Kiddie Tax, parents income/tax information is prompted. The young adult has no access to either parents information (and never will), and legal guardians did not file taxes/weren't required as seniors (over 65, low income below requirement for file). 

How would the young adult calculate their kiddie tax? 

[BobKamman]

If you really want to comply with the letter of the law (and its unintended consequences in cases like this), the procedure is right there in the Form 8615 instructions.  Don't say the student will never have access to the parents' tax information, because the law allows disclosure by IRS.  

The tax information of the guardians has nothing to do with their ward's return.  It's unfortunate that they didn't adopt, but there were probably good reasons that was not practical.  (Are they in a state that allows adult adoption?  IRS might accept that.)

This close to the extended deadline, I would use a high estimate and then file a claim for refund using zero taxable income for the parent(s).  Allow IRS a year or so to sort it out, and get an early start for the 2025 return.  

If following the instructions doesn't yield satisfactory results, it's a good case to turn into a Congressional inquiry.  Ask the people who voted for it.  

Parent's return information unavailable. If a child can’t get the required information about their parent's tax return, the child (or the child's legal representative) can request the necessary information from the IRS.

How to request. After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS can’t process a request received before the end of the tax year.)

The request must contain all of the following.
• A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent.
• Proof of the child's age (for example, a copy of the child's birth certificate).
• Evidence the child has more than $2,600 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year).
• The name, address, social security number (SSN) (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615.

[BobKamman]

And when I see a taxable undergraduate scholarship, my first thought is football player.  It's fiction to call that unearned income, but at least there are no FICA taxes involved.  These days, some college athletes are cleaning up with NIL payments -- money they earn individually or the team earns collectively for "Name, Image and Likeness" use.  In a few years I expect to see stories about players who spent all of it before figuring out how much to set aside for taxes.