Certified Specialist In Taxation Law
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Certified Specialist In Taxation Law |
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As the FTB finalizes Form FTB 3504, Long-Term Care Credit, we realize that many taxpayers will be entitled to the credit for individuals who are not their dependents. Because lawmakers made up a new set of dependent rules for exclusive use with the long-term care credit, the credit will benefit many families with special needs children, as well as families of elderly individuals. The credit equals $500 for each applicable individual (AI) with respect to whom the taxpayer is an eligible caregiver for the taxable year (R&TC Sec. 17053.80). Who qualifies?An AI is a person who has been physician-certified as requiring long-term care. An AI can be the taxpayer, the taxpayer’s spouse or the taxpayer’s dependent. A person who is not a dependent of the taxpayer may qualify as an AI if he or she meets all the other requirements to be the taxpayer’s dependent, except the gross income limitation. Instead of the normal gross income limitation found in the IRC, the person’s gross income (excluding Social Security benefits) for the taxable year must be less than the sum of:
For the 2000 taxable year, the following gross income tests apply for purposes of the long-term care credit:
An AI who meets this gross income test, as well as all the rest of the dependency tests, must only live with the taxpayer if required under the relationship/member of the household rules of the dependency tests. Failing the support testAn individual may be an AI if he or she meets all the dependency tests (replacing the gross income test with the above criteria) except the support test. If the AI is a dependent except for the support test, he or she must live with the taxpayer for the entire year, with one exception. If the AI is an ascendant (parent, grandparent, etc.) or a descendant (child, grandchild, etc.), he or she is only required to live with the eligible caregiver for more than one half of the taxable year. So, if the AI did not live with the taxpayer the entire year, the taxpayer must have provided more than half the person’s total support during the year. Note: Meeting these expanded dependency tests allows the eligible caregiver to claim the long-term care credit, but it does not allow the taxpayer to claim the AI as a dependent on the federal or California return if the AI does not meet the federal dependency rules. Physician’s certificationTo claim the credit the taxpayer must have and retain a written statement from a physician indicating that the AI has long-term care needs that will last for at least 180 consecutive days, a portion of which must occur in the year the credit is claimed. A physician must have signed the statement within 39½ months prior to the due date of the return. This means the certification must have been signed by the physician sometime after December 31, 1997, and before April 16, 2001 for credits claimed on the 2000 return (that is 39½ months prior to the return due date). The taxpayer must include the name and ID number of the physician who certified the long-term care on Form FTB 3504. Initially, we thought that this meant the tax ID number. However, the final form requests the physician’s license or some other identifying number. Since physicians have many ID numbers, such as license numbers, Medicare numbers, etc., the FTB has stated that any of these numbers are acceptable. Do not attach a copy of the physician’s certificate to the tax return. Taxpayers should keep the certificates in their records to provide in case the FTB requests them. What year?The code states that a portion of the 180 days must have occurred within the tax year. Thus, it appears that an AI who is certified by the physician as requiring long-term care from August 1, 2000 through June 1, 2001 could qualify for the credit in both the 2000 and 2001 taxable years because a portion of the 180 days is each of those years. If the AI dies before the 180 days has passed, the credit is still available as long as the physician had certified (prior to the taxpayer’s death) that the AI required long-term care for at least 180 days. This is consistent with most tax law that generally does not penalize a taxpayer for dying! ConsecutiveThere has been discussion at the FTB regarding the exact meaning of the word “consecutive.” Some of the FTB staff has suggested that consecutive can refer to an individual who requires long-term care sporadically for some extended period of time. One such example might be a cancer patient who is on chemotherapy and meets the long-term care requirements for a month or two while receiving treatment, but does not require long-term care during the month or six weeks between treatments. While we applaud those who want to extend this credit to as many taxpayers as possible, we suggest that you be cautious when taking this position, particularly if the FTB does not include this position in its form. Our concern is that those analyzing the law for purposes of the credit form’s design are not the same as those who head up the audit staff. More than one caregiverWhen more than one taxpayer qualifies as an eligible caregiver for the same AI, the individual claiming the credit must have a statement signed by all other eligible caregivers stating that they are not claiming the credit. The FTB does not require taxpayers to attach the statement to the return. We suggest that your clients obtain the signed statement prior to filing the return and keep it on file in case the FTB requests it. It is prudent to get the declaration signed so there is no question later about who claims the credit. If there is more than one taxpayer claiming the credit for a particular individual, the FTB will give the credit to the taxpayer with the highest AGI. In the case of married individuals filing separately, the credit must be claimed on the return of the spouse with the highest AGI. With these restrictions, the credit could go unclaimed if that person’s California AGI is equal to or more than $100,000.
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