Can Murder and Imprisonment Help Someone to Claim the Earned Income Tax Credit?

Introduction

In early 2003, Kristy Howell sat in jail pondering her fate. She was on her own, and nobody was going to really help her. She would soon be on trial for murdering her brother-in-law. She had tried to take care of her children, but now in an ironic twist, the childrens father was taking care of them. Initially after her arrest, Kristy had been able to use the system to provide some support for herself and her children. However, the state cut that support on July 2, 2002 when the Childrens Services Division began providing financial and medical assistance to the children in their own names. So now the children were okay, but what about her? Even in prison a person has needs. A little bit of money could make her time in prison a little better.

Kristy glanced over to the space in her cell where she kept her mail. She could see the 2002 tax return booklet from the Internal Revenue Service (IRS). She decided she might as well start doing her taxes; filling out the tax forms might help the time go by faster. At first, Kristy was convinced she wouldnt get much of a refund; she had hardly worked at all during the year. Therefore, the amount withheld from her paychecks had been minimal. Kristy found it surprising that even though she was in prison, a person couldnt escape from filling out the government tax forms. As she studied the tax instructions, a thought occurred to her. She wasnt sure, and she knew no tax accountant was going to help her, but she might qualify for the earned income tax credit (EITC). The earned income tax credit could give her a sizeable chunk of money! The only problem Kristy could see that would prevent her from qualifying for the EITC stemmed from the fact that she had been in prison for more than half the year. Well, Kristy thought to herself, I have plenty of time, I wonder if I could find a way around that little problem?

Background

By all accounts, Kristy Lee Howell had a difficult life. According to court reports, she began drinking at age 6; her mother started taking her to bars by age 12. Throughout her life she often used methamphetamine, marijuana, LSD, as well as alcohol. She was raped by a 35-year old man when she was 12; and she was gang raped at age 15. She suffered physical abuse from two husbands. Her defense lawyer would argue that she suffered from post-traumatic stress disorder due to the abuse she suffered as a child and from the neglect of her mother. Despite these and other difficulties, Kristy often worked during the brief sober periods of her adult life and tried to raise four children.

Although she was the mother of four children, at the beginning of 2002, only two of the children were living with Kristy on Marcum Lane in Eugene, Oregon. Unfortunately, Kristy was not able to continue living in that home, so she moved with her two children into her mother-in-laws house on Fox Hollow Road, also in Eugene, Oregon. In April, after Kristy and her children moved into the home on Fox Hollow Road, her mother-in-law died in Kristys arms. After the death of her mother-in-law, Kristys brother-in-law, Andy Howell, who lived in a fifth-wheel trailer on the mothers three-acre property, allowed Kristy and her children to continue to live in his mothers house. Throughout the year thus far, Kristy had provided for her children by acquiring wages, unemployment benefits, food stamps, and welfare medical assistance.

On June 4^th, 2002, Kristy spent the day on the property with her boyfriend drinking alcohol. During the day, an argument broke out and Andy ordered the boyfriend off of the property. Kristy was also upset over Andys treatment of her 11-year-old son. She was concerned about her brother-in-laws influence over the boy. In anger over Andys treatment of her boyfriend and son, Kristy called her estranged husband, Jason Howell, and asked him to come to the house. She knew that Andy and Jason did not get along. As she expected, Andy and Jason had a fight, which left Andy lying on the floor in his trailer with some broken ribs and a cut to his head.

After Jason left, Kristy got out a .22 caliber rifle. About a half-hour later, Kristy put her children in her pick-up truck, and then she went over to the trailer and shot Andy twice in the head; with one of the shots proving to be fatal. Kristy immediately wiped off the rifle, and then she drove several miles before she discarded the weapon. When law enforcement officials arrived the next day, they arrested Kristy. She would spend the remainder of the year in prison. Kristy initially denied shooting Andy. Later, she claimed it was an accident. Finally, she stated that the shooting occurred because she was so upset with Andy that she could not control herself. Her defense lawyer argued that she was so drunk, she could not have acted intentionally. The difference between acting intentionally or unintentionally in this case is not small. If the jury finds that Kristy acted intentionally, she will be convicted of murder, and face a minimum, mandatory 25-year sentence. At 40 years of age, that would be almost a life sentence, which the judge could opt to impose. If the jury finds that she did not act intentionally, she could be found guilty of manslaughter, which carries a mandatory 10-year sentence. In either case, it appeared to Kristy that she would not be going home for a long time, because everyone believed that she had pulled the trigger.

After Kristy was arrested, she somehow managed to continue to provide support for her children through wages, unemployment benefits, food stamps and welfare until July 2, 2002. In addition, immediately after her arrest, Jason moved into his mothers house to take care of the children for the rest of the year. In 2003, Kristy filled out her 2002 tax return and filed it in a timely manner. She filed as a head of household, she claimed the children as dependents, and she also claimed that she was entitled to the earned income tax credit. The earned income tax credit (EITC) refund for Kristy was $1,070.

Initially, the IRS paid the $1,070. Later, the IRS disallowed Kristys earned income tax credit (because Kristy was in prison for over one-half of the year and thus, she did not share the same residence as her children during this time) and sent Kristy a deficiency notice for the $1,070 dollars. The IRS also concluded that Kristy could not claim head of household status and that she could not claim her children as dependents. However, the filing of head of household status had no effect on Kristys tax liability since her adjusted gross income did not exceed her standard deductions and exemptions. In other words, she didnt have to pay any taxes for the year, and all of her withholding tax contributions would be refunded to her. Thus, her filing status was not an issue that anyone was going to dispute. The IRS later reversed its position on the dependents, conceding that Kristy was eligible to include her children as two dependent exemptions on her 2002 return. Kristy doesnt want to give the money back, and she thinks because her absence from her home is involuntary, she should be entitled to EITC.

Earned Income Tax Credit Requirements

Since 1975, the earned income tax credit has been a congressional attempt to fight poverty and provide tax equity for the working poor. The earned income tax credit acts like a negative income tax. In other words, the EITC is a refundable credit for taxpayers who do not have any tax liability. Essentially, the earned income credit is determined by multiplying the taxpayers earned income by a designated credit percentage. If the taxpayer earns too much income, their ability to claim the EITC is phased out. For example, a married taxpayer who is filing a joint return with their spouse will have their EITC completely phased-out when their combined earned income exceeds $41,646 in 2008, assuming they have two qualifying children. Factors that affect the designated credit percentage that the taxpayer must use are: the amount of earned income, their filing status (married filing jointly versus any other filing status), and the number of qualifying children. If Kristy is able to claim her two children as qualifying children, the amount of the EITC will be larger than if she was childless or had just one child. To be a qualifying child, according to Section 32 of the Internal Revenue Code (IRC), certain qualifications must be met related to age, relationship, identification, and residency. For this situation, the IRS argued per Section 152 (c)(1)(B) that Kristys children were not qualifying children because they did not meet the residence test since Kristy lived with the children for less than half of the year. Kristy wants to fight the IRS in court, but she wonders can she win?

Read the Can Murder and Imprisonment Help Someone to Claim the Earned Income Tax Credit? , then answer the following questions. All answers should be typed and numbered to correspond with the question numbers. Typically, all answers should be no longer than a few sentences.

1. Under current tax law, list the requirements (tests) that must be met to claim a child for the earned income tax credit?

2. Considering the assigned case, list any of the above requirements that would not be in dispute?

3. In one sentence, what is the issue that will determine who wins (Kristy Howell or the IRS) the legal argument over Kristys claim to the earned income tax credit with two qualifying children?

4. Give the full citations for the two court cases that have set the legal precedent for the situation described in the case.

5. Cite the regulation that might allow someone to successfully claim the head of household filing status while being absent from the home.