T A X A T I O N
federal taxation
Clarifying Head of Household Issues
By James M. Hopkins
T
axpayers who are not married or who
are considered unmarried may be
able to file a tax return as head of
household (HOH) if certain conditions exist.
HOH filing status gives the taxpayer a higher standard deduction and lower tax rates that
fall between the rates for filing jointly and
the higher rates for filing singly. In the
2004 tax year, 19.6 million HOH returns
were filed, representing 14.9% of all
returns filed in that year. For 2008 (the most
recent year for which data are available), 21.1
million HOH returns were filed, which was
14.8% of all returns filed that year (IRS,
“Individual Income Tax Returns,”
Publication 1304, Table 1.2).
The following is a brief review of the
HOH filing status, focusing on the definition of qualifying person, which
allows a person who might otherwise have
to file as a single taxpayer to file using
HOH status. Other HOH issues—including multiple heads of household in the
same residence, itemized or standard
deductions when a HOH claimant is
deemed “unmarried,” and the results of a
disallowed HOH filing status—are also
discussed.
Definition of Head of Household
An individual will be considered a “head
of household” if that individual—
■ is not married or is considered “unmarried” at the close of the taxable year;
■ is not considered a surviving spouse,
as defined in IRC section 2(a);
■ maintains a household as her home that
constitutes, for more than one-half of
the taxable year, the principal place of
abode of a qualifying person (temporary
absences, such as for school or vacation,
are not considered in determining the halfyear requirement if the person absent is
expected to return);
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■ furnishes more than one-half the cost
of maintaining the household during the
taxable year; and
■ is not a nonresident alien.
There are three categories of qualifying
persons for HOH purposes: a qualifying
child, a qualifying relative who is the taxpayer’s parent, and a qualifying relative other
than the taxpayer’s parent. Each of these categories is discussed separately below.
Qualifying Child
A qualifying child (QC) for exemption
purposes must satisfy the qualifying child
tests defined in IRC section 152(c). In brief,
to meet these tests one must 1) be a child
of the taxpayer or a descendant of such
child (or the brother, sister, stepbrother,
or stepsister of the taxpayer, or a descendant of any such relative); 2) be under 19
at the end of the year and younger than the
claimant taxpayer, or under 24 at the end
of the year, a full-time student, and younger
than the taxpayer (this test does not apply
if the child is permanently and totally disabled); 3) live with the taxpayer for more
than one-half of the year; 4) not provide
more than one-half of his own support; and
5) not file a joint return with another taxpayer for the year, except to claim a refund
(as described in examples 6 and 7, below).
A QC who is single and satisfies all of
the above tests is considered a qualifying
person, regardless of whether the taxpayOCTOBER 2011 / THE CPA JOURNAL
er can claim her as an exemption. The
examples below illustrate how the tests
work in practice.
Example 1. A taxpayer’s unmarried son
is under 19 at the end of the year, lived with
the taxpayer for the entire year, did not provide more than half of his own support, and
is not a QC of any other taxpayer. This
son satisfies all of the QC tests and, accordingly, is a QC for his parent’s HOH filing
status. In addition, this son can also be
claimed as the taxpayer’s exemption.
Example 2. If the son were over 18 at
the end of the year, not a full-time student,
and had gross income in excess of the personal exemption amount ($3,650 in 2010),
then he would be too old to meet the QC
definition and have too much income to
meet one of the qualifying relative (QR)
tests (discussed below). He would not be
a qualifying person for HOH purposes.
Example 3. If the son were under 19,
graduated from high school, and moved
out of the parent’s residence—thus failing
the more than half-year residence test—
he would not be a QC. He would have to
satisfy the QR tests and be claimed as an
exemption to qualify the parent for HOH
purposes.
Example 4. Assume that the son is
under 19, unmarried, and lives with his
mother (also over age 18) and grandmother
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in the grandmother’s home, provided
entirely by the grandmother. The son is not
the QC of the father. The son can be a
QC of the mother and grandmother if he
meets all five tests for both individuals.
When a child is the QC of more than one
person, special tiebreaker rules apply.
The tiebreaker rules apply in this scenario because the son is a QC of two or
more people. Such rules generally assign
the son as a QC of the parent. But another tiebreaker rule states that if a parent
can claim a child as a QC but does not do
so, the child can be claimed by another person—the grandmother, in this case—but
only if her adjusted gross income (AGI)
is higher than the parent’s AGI. (Although
not applicable in this example, if the
son’s parents filed jointly, the parents’ AGI
is split equally between the two parents,
then compared to the AGI of the nonparent to determine if the nonparent can claim
the QC as an exemption.)
If the parent’s AGI is higher than the
grandmother’s AGI, the grandmother
cannot claim the grandson as a QC (see
IRS Publication 17, “Your Federal Income
Tax 2010,” p. 29, examples 1 and 2). If
the parent’s AGI were higher, neither individual could utilize HOH filing status, as
the parent did not contribute to the cost of
the household.
Observation. Having one QC allows for
an exemption, child tax credit, possible
HOH filing status, credit for dependent
child care and related income exclusion for
dependent care benefits, and earned income
credit, if otherwise available. Tax preparers should carefully analyze this situation
if the grandmother’s AGI is greater than
the parent’s AGI, allowing the parent to
forgo the QC and related benefits and
giving them to the grandmother. These
benefits cannot be divided between a parent and grandparent. The taxpayer taking
the QC as an exemption gets all of the benefits if she qualifies for them. It is also
important that all tax returns be prepared
by one professional in order to maximize
all potential tax benefits.
Example 5. Special rules apply to taxpayers with dependents who are divorced,
separated, or live apart. A dependent is usually considered the QC of the custodial
parent because of the residency test. HOH
status is available to a custodial parent
who releases the dependency exemption to
the noncustodial parent (the requirements in
Form 8332), provided all other HOH
requirements are satisfied. The noncustodial parent is not allowed to use HOH status
when the dependency is released to him or
her. A single dependent allows HOH status to only one taxpayer and cannot be
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EXHIBIT
Head of Household (HOH) Flowchart
Are you unmarried or considered
unmarried1 at the end of the tax year?
No
Yes
Did you pay more than half the cost
of keeping a home for the year for a
qualifying child (QC)2 or a qualifying
relative (QR)3?
You do not qualify for
HOH filing status.
No
Yes
Is the QR a parent?
Yes
No
You can claim HOH filing status
if you can claim parent as a
dependent, even if parent does
not reside with you.
Did the unmarried qualifying child or
nonparent relative live (as defined
below) with you for more than half the
year? See below if child is married.4
Yes
If person is a QC,
taxpayer, qualifies
for HOH regardless of
ability to claim person
as exemption.5
QR person must be
related to taxpayer and
live with taxpayer more
than half the year to
qualify taxpayer for
HOH filing status.
Unrelated QR who lived
with taxpayer for entire
year is not a qualifying
person for HOH filing
status.6
1. A person is considered unmarried on the last day of the tax year if all of the following tests are satisfied: 1) one files a separate return; 2) one
pays over half the costs for keeping up a home for the tax year; 3) a spouse did not live with you during the last six months of the tax year (temporary absences are considered living together); 4) the home was the main home for a child, stepchild, or foster child for more than half of the year; 5)
one can claim an exemption for the child, except when the dependency exemption is released to a noncustodial parent (in cases of children of
divorced, separated, or parents who live apart).
2. A qualifying child is defined in IRC section 152(c), which includes a taxpayer’s child or child’s descendant, stepchildren, siblings, stepsiblings, or
their descendants, adopted children and their descendants, and foster children. The QC must meet all the QC tests for exemption purposes.
3. A qualifying relative is defined in IRC section 152(d), which includes all those defined as a qualifying child and the following additional individuals:
parents and their direct ancestors, brothers/sisters of the father or mother (aunts and uncles), stepparents, brothers/sisters, stepbrothers/sisters, and
certain in-laws (son, daughter, father, mother, brother, and sister). The QR must meet all the QR tests for exemption purposes.
4. The taxpayer must be able to claim the married child as a dependent in order to qualify for HOH.
5. This alternative applies when the custodial parent releases a dependent to the noncustodial parent, allowing the custodial parent—not the noncustodial parent—to qualify for HOH filing status.
6. A member of a taxpayer’s household for the entire year, but someone not related to the taxpayer, is considered a QR for possible exemption purposes; however, such a person does not allow the taxpayer to file as HOH.
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OCTOBER 2011 / THE CPA JOURNAL
counted a second time to allow someone
else to qualify for HOH filing status. This
is one of the few situations when a taxpayer—the custodial parent, in this case—can
claim HOH filing status without showing a
dependent on the tax return.
Observation. IRS Publication 17 (p. 22,
table 2-1) states that a qualifying child is
a qualifying person for HOH filing status even if she is not claimed as an
exemption. This can imply that in the facts
of Example 4, above, the grandmother
could claim HOH filing status, while the
daughter could claim the other benefits
for a QC. This is not the case, however,
as all the benefits of a QC exemption
must be claimed by the person claiming
the exemption. Publication 17 (p. 22, point
5) allows HOH filing status only when an
exemption can be claimed for the child,
unless the exemption is released to the
noncustodial parent for parents that are
divorced, separated, or live apart. A QC
who is married and can be claimed by the
taxpayer as an exemption is considered a
qualifying person.
Example 6. This situation arises when
a child is married during a taxable year,
and thus the marriage affects the HOH status that the parent may have used in the
past. If the married child files a tax return
with his spouse only as a refund claim and
no income tax is shown on the return, the
married child meets this test and must
satisfy the other four QC tests in order for
the parent to claim the married child as
an exemption. If the married child is
claimed as an exemption on the parent’s
return, then the child will be a qualifying
person for HOH purposes as a result. A
QC who is married and cannot be claimed
as an exemption by the taxpayer is not considered a qualifying person in order for the
taxpayer to qualify for HOH status.
Example 7. If a married child’s joint tax
return shows any income tax, it is not a
claim for a refund. As a result, the married
child fails this QC test and is not a qualifying person for HOH purposes.
Qualifying Relative: Parent
A qualifying person who is the taxpayer’s parent does not have to live with the
taxpayer, but the taxpayer must be able to
claim the parent as an exemption and must
pay more than one-half of the cost to maintain the parent’s main home for the entire
OCTOBER 2011 / THE CPA JOURNAL
taxable year. The parent’s home can be a
rest home or home for the elderly.
In order for the taxpayer to claim an
exemption for a parent, the parent must meet
the tests for a QR exemption in IRC section 152(d). In brief, to meet the QR tests,
a parent must 1) not be a QC of any taxpayer, 2) meet a relationship test (satisfied
by a parent), 3) must have gross income less
than the amount of the personal exemption
($3,650 for 2010), and 4) have more than
one-half of her total support for the taxable
year provided by the taxpayer. While a
QR does not have to live with the taxpayer to meet the relationship test, she must live
with the taxpayer for more than half of the
year—unless the person is the taxpayer’s
parent—in order to be considered for
HOH filing status. Social Security benefits
and other agency-provided funds that are
used for a parent’s support are considered
provided by the parent and not by the
claimant taxpayer.
If the taxpayer cannot claim the parent
as an exemption, the parent is not a
qualifying person for HOH purposes. The
ability to claim a parent as an exemption
and claim HOH status does apply to a
grandparent.
Qualifying Relative: Nonparent
The broader QR definition in the IRC
section 152(d) relationship test includes the
following: children, step- and foster children, descendants of any such children,
grandparents, stepparents, siblings,
half/step-siblings, nieces and nephews,
aunts and uncles, and certain in-laws
(son, daughter, father, mother, brother, and
sister). In addition, the relationship test
includes unrelated household members
who resided with the taxpayer for the entire
year who may qualify for exemption purposes but do not qualify a taxpayer for
HOH filing status. The following examples illustrate how these tests work in practice.
A nonparent QR must satisfy the four
QR tests mentioned above with regard to
parent QRs.
Example 8. If a child was over 18 at the
end of the year and not a full-time student,
he is too old to meet the QC definitions.
If the child satisfies all four QR tests,
then he can be claimed as an exemption.
In addition, a child must live with the taxpayer for more than half of the year in
order to qualify the taxpayer for HOH filing status.
An unrelated individual or a distant relative, such as a cousin, who lives with a
taxpayer for the entire year, may qualify
for an exemption if all QR tests are satisfied; however, she would not be a qualifying person for HOH purposes.
Example 9. If a taxpayer’s girlfriend satisfies all four QR tests, the taxpayer may
claim an exemption for her; however, she
is not a qualifying person for HOH purposes. If the girlfriend has a child who is not
biologically related to the taxpayer, the child
is a QC of the mother but is not a QC of
the taxpayer and not a qualifying person
for HOH purposes. If the girlfriend does
not have to file a return, or if she files for a
refund and no tax is shown on the return,
the child could qualify as a QR of the taxpayer if all of the QR tests are satisfied
(IRS Publication 17, p. 30, examples 1 and
2; see also IRS Notice 2008-5, 2008-2 IRB
1, effective for tax years beginning after
December 31, 2004).
Other Issues
Multiple HOH status. How is HOH filing status applied when two unmarried
individuals, each having dependent children,
live in one household? Must one file as single and the other as HOH, or can both file
as a HOH? With proper planning, each of
the individuals can qualify for HOH status.
There are two supporting authorities for separate HOH status in this situation.
The first authority appears in In Estate
of Fleming v. Comm’r, (33 T. C. Memo
619, 1974, acq.). The Fleming case
involved two parties or families. The
Flemings consisted of a mother who was
deceased prior to the filing of the Tax
Court case and her unmarried daughter.
The second party, the Merckes, consisted
of the deceased woman’s married daughter, her husband, and their three children.
The costs of maintaining a household
consist of rent, mortgage interest, real estate
taxes, house insurance, repairs, utilities, and
food eaten in the home. The two parties
contributed equally to maintenance of the
residence, interest on the property, property taxes, repairs and upkeep, insurance,
replacement costs, and yard care. The costs
for food, utilities, and servant pay were
one-third paid by the Flemings and twothirds paid by the Merckes.
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The Tax Court held for the taxpayer,
allowing her to use HOH filing status. The
court concluded that “the extent of a
‘household’ is not determined solely by
physical or tangible boundaries; instead we
must look at all facts in any particular situation.” The court found that the entire residence was built by the parties involved,
had separate areas for each of the parties,
and also common areas for use by both
parties. The court also interpreted the
statute mentioning “household” in a favorable, reasonable manner because it lacked
a precise meaning.
The case did not mention the Merckes’
filing status, which presumably was married filing jointly. The IRS wanted to
treat the household as one and not allow
two separate households.
A second authority appears in SCA
(Service Center Advice) 1998-041. This
guidance was issued about 14 years after
Fleming. In SCA 1998-041, two single parents, X and Y, each with their own
dependent children, shared a dwelling.
Neither parent was a surviving spouse or
a nonresident alien. The kitchen and other
living areas were common areas, but the
adults had separate bedrooms. X and Y
maintained joint accounts from which they
paid household bills. X itemized deductions, while Y took the standard deduction.
Each parent claimed HOH status, relying
on Fleming. The IRS concluded that each
parent could use HOH filing status if
each provided more than one-half of the
cost of maintaining their respective
households, regardless of the shared
physical space.
In planning to use HOH filing status
for separate families residing in one residence, the following issues are important:
■ There must be common areas for all
household members and separate adult
areas.
■ The residence must be a home for each
family and be a principal place of abode
for one or more of each family’s children.
■ Each family must act independently
in non–household-related matters, such as
separate phone lines, Christmas cards, magazine subscriptions, and the like.
■ Each party must show that he contributed over one-half of the household
expenses jointly contributed by each party
and related children, but the parties do
not need to show that they contributed over
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one-half of the total expenses of maintaining a shared dwelling.
The key to having two heads of household within a single residence is the existence of two taxpayers with separate families. Two unmarried persons—especially
if boyfriend and girlfriend—living together with common children or children
from prior relationships in the same household would probably not satisfy these
requirements.
Itemized and standard deductions for
married HOH filers. Consider the following scenario: Two taxpayers are married at the end of the tax year. They do not
file a joint return; however, one taxpayer
qualifies to file as HOH, while the other
files as married filing separately. The taxpayer who qualifies for HOH filing status
elects to itemize deductions. The spouse
who files as married filing separately is not
eligible for a full standard deduction but,
instead, is limited to itemized deductions.
If the other spouse files as married filing separately and elects to itemize
deductions, the spouse who can file as a
HOH can use the full standard deduction
available for HOH status. (See IRS Letter
Ruling 200030023 and IRS Publication
501, Exemptions, Standard Deduction, and
Filing Information, p. 6, 2010.)
Failed HOH filing. In Afi Abdi v.
Comm’r (T.C. Summary Op. 2010-175),
the taxpayer claimed HOH filing status.
The IRS determined that the taxpayer’s filing status was “married filing separately”
and that he was not entitled to the earned
income credit for two dependent children.
The court determined that the petitioner
was actually married before 2008, and was
married for the entire 2008 year. Moreover,
he resided with his wife the entire year.
The court denied both HOH filing status
and the earned income credit, not discussing the married filing separately determination. Could Abdi have filed a joint
return for 2008?
IRC section 6013 allows a married
couple who file separate returns to switch
to a joint return after the normal due date
of the return if the joint return is filed within three years of the original due date (without extension) and neither spouse filed a
suit for refund, petitioned the Tax Court
regarding a notice of tax deficiency, or
entered into a closing agreement with
respect to the previous separate returns.
HOH filing status is not discussed in
IRC section 6013; however, HOH filing
status and section 6013 are mentioned by
the IRS in Chief Council Notice (CC-2006010), which discusses situations where taxpayers file a separate return or as head of
household and want to amend such return
to married filing jointly. The notice cited
Blumenthal v. Comm’r (86 T.C. Memo,
1986-737), in which the Tax Court held
that the taxpayer could not file an amended return changing an original HOH filing status to married filing jointly.
Blumenthal filed an amended return, trying to change his filing status more than
three years after the last date prescribed for
filing such return; moreover, he also filed
a timely Tax Court petition related to a
notice of deficiency. Both of these limitations in IRC section 6013 prevent such an
amended return.
As Abdi filed a Tax Court petition and
lost his case, he was not able to amend
his return to claim married filing jointly.
He is locked into married filing separately for 2008, based on the limitations of section 6013.
The notice mentions that the limitations
of IRC section 6013(b)(2) do not apply, as
a result of Glaze v. United States (641
F.2nd 339, 5th Cir. 1981), which the IRS
announced it would not follow (see
Revenue Ruling 83-183, 1983-2 C.B. 220).
Glaze concluded that such limitations apply
only to individuals who erroneously file as
married filing separately and not to either
erroneously filed “single” or “head of
household” returns. Accordingly, any cases
that would be appealable to the 5th Circuit
or the 11th Circuit, which also adopted the
Glaze precedent, may have a different outcome than other circuits.
A Complex Determination
The HOH filing status is used in about
15% of all tax returns processed by the
IRS. At times, it can be confusing on
who is a qualifying person necessary to
elect HOH status. The discussion above
is meant to shed light on the qualifying person concept and other issues related to
❑
HOH filing status.
James M. Hopkins, CPA, is a professor
of accounting at Morningside College,
Sioux City, Iowa.
OCTOBER 2011 / THE CPA JOURNAL