Statements on Introduced Bills and Joint Resolutions S755

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

S. 755. A bill to amend the Internal Revenue Code of 1986 to provide a uniform definition of child, and for other purposes; to the Committee on Finance.

Mr. BAUCUS. Mr. President, today Senator GRASSLEY and I are taking a significant step forward in our efforts to simplify the tax code. Today, we are introducing an important simplification legislation—the Uniform Definition of Child Act.

This legislation is based on the support of many for simplification in this area of the tax law. The President's FY 2004 budget, which was released on April 15, 2002, includes a simplification proposal to provide a uniform definition of a qualifying child. This is the first in a series of Department of Treasury "white papers" on simplification.

The concept of a uniform definition of qualifying child also enjoys support from the American Bar Association, the American Institute of CPAs, the Tax Executives Institute, the Internal Revenue Service's Taxpayer Advocate, and staff of the Joint Committee on Taxation.

Under current law, the complexity in this area is daunting. There are five commonly used provisions that provide benefits to taxpayers with children: the dependency exemption, the child credit, the earned income credit, the dependent care credit, and head of household filing status.

Each of the five provisions uses variations of four principal criteria to determine whether a taxpayer qualifies for applicable tax benefits with respect to a particular child: age of the child, relationship of the child to the taxpayer, residency of the child with the taxpayer, and the amount of financial support provided the child by the taxpayer.
Thus, a taxpayer is required to apply different definitions with respect to the same child when determining eligibility for these provisions. A taxpayer who qualifies with respect to a child for one provision does not necessarily qualify for another. As a result, publications, forms, instructions and schedules that are applicable to child related provisions number about 200 pages for the preparation of an individual income tax return.

A tremendous number of families are impacted by these Code provisions. For example, 44 million taxpayers claimed the dependency exemption in the 2001 tax year. The IRS also indicates that a significant portion of the issued math error notices are attributable to these five provisions of the Internal Revenue Code. In 1999, for example, 44 percent of the 7.6 million math error notices were attributable to these provisions—40 percent of the total math error notices were attributable the dependency exemption, the child tax credit and the earned income tax credit alone.

The legislation reduces complexity through reconciliation of the varying child definitions into a single definition for a "qualifying child." The uniform child definition generally establishes eligibility for all five tax benefits if the child meets the age requirements described below, a relationship requirement, and a residency requirement—i.e., the child has the same principal place of abode as the taxpayer for more than one-half the taxable year.

The residency requirement is an important departure from current law in which the child tax benefits frequently rely upon financial support tests which impose significantly higher administrative burdens in the form of additional record-keeping not otherwise required under the tax law. The legislation also preserves the tax rights of children who provide more than half of their own support by excluding those children from the uniform definition of a qualifying child.

The underlying policy objectives of the present law provisions are retained. For example, the legislation retains underlying policy by not adjusting the ages of qualification—i.e., under age for the dependent care credit, under age 17 for the child tax credit, and under age 19—or age 24 if a full-time student for the dependency exemption, the earned income tax credit, and head of household filing status.

The legislation applies a single relationship test to the varying Code sections. Significantly, the proposal retains current law as an alternative to the extent that a person does not meet the revised uniform child definition—e.g., an elderly parent can still be claimed for purposes of the dependency exemption.

Under the Uniform Definition of Child Act, there will be instances in which multiple taxpayers qualify with respect to a given child. To address this issue, the proposal extends the present law earned income credit tie-breaker rule to the other benefits for multiple eligible claimants. That rule awards the tax benefit (i) to a parent over a non-parent, (ii) to the parent with longer residency or the highest AGI if residency is not determinative between parents, and (iii) to the taxpayer with the highest AGI if all claimants are non-parents. Finally, the legislation continues to allow divorced or separated spouses to assign the dependency exemption and the child tax credit to non-custodial parents provided that certain support and residency tests are met.

[Page S4637]
Simplification of the tax code should be more than just rhetoric. It is time for us to put legislation behind our words. We intend to continue to look at other areas of the tax code in need of simplification.

Senator GRASSLEY and I also want to thank our Finance Committee colleagues, Senators HATCH, THOMAS and LINCOLN, for their support of the Uniform Definition of Child Act of 2003. Simplification of the tax laws for the families of our nation is not partisan, it is not political, it is simply common sense.

Mr. President, I ask unanimous consent that the Uniform Definition of Child Act of 2003 be printed in the RECORD.