Turning a Kid Into a 'Child'

Here's a tax question: When is your child not your child?

And here's a tax answer: When he's the child of his sibling.

To speakers of the English language, this sounds like gibberish. But to speakers of the arcane language of tax, it sounds like opportunity.

So if you're a well-to-do family about to file your 2005 federal income tax, it might be worth your while to wait until you read this. It may take expert help, and not everyone will benefit, but Congress appears to have laid a nice Easter egg for some of you.

A new provision of the tax law, which was meant to make the law simpler and fairer, is turning out to have done neither. The provision involves the definition of "child" in claiming various tax breaks, and it allows some alert taxpayers to claim benefits never intended for them.

It also deprives others of benefits they have gotten in the past.

A few years back, there was a hubbub around the "discovery" that federal tax law contained five different definitions of "child." This quickly became the, um, poster child for the absurd complexity that besets taxpayers as they try to figure out what they have to pay.

So in 2004, Congress, eager to look helpful, wrote into the law a single definition, to be used by taxpayers in claiming all the various tax benefits that go with having a child. That definition became applicable on 2005 returns.

The consequences have been turning up in recent months as taxpayers and accountants apply the new rules. Many of the quirks have been reported here, in the Wall Street Journal and other publications in recent weeks. But now John Buckley, chief tax counsel for the Democrats on the tax-writing House Ways and Means Committee, has put together a list and analysis of the winners and losers generated by the 2004 law, which he says "promises to be a large and embarrassing fiasco."

Buckley's paper is to be published in this week's issue of Tax Notes, an Arlington-based journal for lawyers and others interested in tax matters. The paper is accessible at the publication's Web site, http://www.taxanalysts.com/ .

Among the more startling of Buckley's listings:

Children of well-to-do families may be able to use their siblings to claim the earned-income tax credit, which is meant for low-income working families. They may also be able to claim the $1,000 child credit, meant for middle-income parents. Or, they may more easily than in the past claim one of the tax credits aimed at moderate-income college students and their families.