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Child of U.S. citizen’ doesn’t necessarily mean ‘tax exemption’
Parents who move to the United States and leave their children in their home country – and U.S. citizens living abroad with their families – should be knowledgeable about the U.S. dependency tax exemption rules.
A recent Tax Court case emphasized that a child who does not reside in the United States, Canada or Mexico must be a U.S. citizen at some time during the relevant tax year. The case involved Leah Carlebach, a U.S. citizen living in Israel with her husband, who was not a U.S. citizen, and their children, who were all born in Israel.
The couple filed joint federal income tax returns for three years, claiming some of the children as dependents and also claiming child tax credits and a child care credit. In later years, Leah filed a separate federal income tax return claiming the children as dependents.
Eventually, the Director of the U.S. Citizen and Immigration Services granted certificates of citizenship to the children. The children also applied for, and were issued, Social Security cards.
The IRS denied the dependency exemptions and the child credits claimed during years prior to the years in which the children were granted certificates of citizenship. The parents argued that the children should be considered U.S. citizens by virtue of “derivative citizenship.”
Under the Child Citizenship Act of 2000, a child born outside the United States to a parent who is a U.S. citizen automatically becomes a U.S. citizen if the child permanently resides in the United States. However, if the child permanently resides outside the country – as was the situation in this case, the child is entitled to become a U.S. citizen by filing an application and receiving a certificate of citizenship.
The court concluded that, although the children’s status as U.S. citizens derived from their mother’s U.S. citizenship, they did not actually become U.S. citizens until they applied for and received certificates of U.S. citizenship. Prior to the years in which this process was completed, the children could not be claimed as dependents on their parents’ federal income tax return (Leah M. Carlebach and Uriel Fried v. Commissioner, 139 TC No. 1, July 19, 2012).
The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.
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