Kiddie Tax - Minor Guardianship

[ellen1]

Facts: I am reviewing a minor's tax return for years 2018 and 2019 to determine if the return should be amended for law changes related to the Kiddie Tax.  I was not able to recreate the original tax return as prepared by another accountant, unless I selected both parents are deceased.  Child/taxpayer is 12.  One parent is deceased.  One parent is incarcerated/in the wind.  Child has no earned income and dividends of $20,000.  In reviewing the 2018 and 2019 return prepared by another, it was noted that for Kiddie Tax purposes, the selection was made that both parents were deceased. 

Question 1 - was reporting of both parents as deceased correct?  I cannot find any guidance that incarceration/abandonment allows for parent to be considered deceased for purposes of the kiddie tax. 

Question 2 - child receives social security benefits from deceased father.  These were not included on the return.  My stance is SS death benefits should be included on returns of minors.  Is this correct? 

[TaxGuyBill]

I agree, I've never seen that is an allowable treatment.  Publication 929 even shows what to do if the parent's information is not available, which seems to imply the Kiddie Tax still applies even if the parent is 'in the wind'.

https://www.irs.gov/publications/p929#en_US_2020_publink100036257

I agree, if the Social Security payments are in the name and Social Security Number of the child, they go on the child's return.  But check the Social Security Number on the SSA-1099 to see whose number it is.

[BobKamman]

If the mother is incarcerated, you know exactly where she is.  If she is "in the wind," she could be dead for all you know.  In the unlikely event she is filing tax returns, IRS will eventually tell you her taxable income. "If a child can’t get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the IRS." (From Pub 529.)  Is the tax result different, if you use zero taxable income for the mother instead of indicating she is dead?  That doesn't make much sense, but then we are talking about taxes.  

Are there any siblings?

[ellen1]

Tax is different - both parent's deceased or considered deceased - no kiddie tax.  several half siblings in the wind - no access to records, etc.  

[TaxGuyBill]

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@ellen1 wrote:

Tax is different - both parent's deceased or considered deceased - no kiddie tax. 

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You may want to look through the calculations.  Offhand, I can't think of why that would be the case.  If parents are alive but have $0 of income, it should still be the same amount of tax for the kid, shouldn't it (the parent's tax bracket is lower, so it only uses the kid's tax rate).

[BobKamman]

@TaxGuyBill You're just another old dog like me.  The new trick in the 2017 corporate giveaway legislation, I just realized, made the parents' tax bracket irrelevant.  Now it's based on the punitive tax brackets for trusts.  But hey, the tax savings for Bezos are out of this world!

[TaxGuyBill]

No, that was un-done a year or two later.

[TaxGuyBill]

Oh wait, this is 2018.  There is an option somewhere to trigger it back to the 'usual' rules.  Try that.