Tax info

Are cadets at USAFA considered active duty for federal income tax?

  • Yes

    Votes: 21 91.3%

  • No

    Votes: 2 8.7%
  • Total voters
    23
parentalunit2 said:
Interpret tax code however you'd like and hope it could stand up to an audit. When you get right down to it, the entire tax system is one giant honor system anyway!
Just ensure that you and your cadet/mid are on the same page and know what the other is doing. If both sets claim them as a deduction (both parent and child), you will both receive letters from the IRS, as only one may be claiming. Someone would have to do an amended return at that point.
Click to expand...
The tax code is a set of rules and laws. There is no one who is suggesting that anyone try to get away with something. Clearly if a parent is able to claim the child, and does, the child can't claim. But if the tax code for 2016 allows parents to claim their cadet as a dependent, and assuming it is far more beneficial for the parents to claim than it would be the child, why wouldn't the parents do just that?

You all make your own election. If some wish to dismiss what I have cited, or chuckle at my stupidity, that's OK too, and it wouldn't be the first time. Ask my wife. Lol. Taxes aren't due for a month and a half, so there is time to be certain, one way or another. But an argument based on what others have cited for years on this forum, or one made by someone who hasn't actually read the applicable rules for the current tax year, might not be the best. The rules change frequently, and it sure appears that the relevant rules for this debate have changed, and quite possibly in a very meaningful way.

I make this argument with lawyers in my courtroom now and then when they are relying on an old set of court rules, or an old statute which was modified. Guess what? At times a seemingly slight modification of a law can change the result 180 degrees. .....Just saying
 
Last edited:
brovol said:
Clearly if a parent is able to claim the child, and does, the child can't claim.
Click to expand...

But does the child know that they have already been claimed while they're literally running to the military sponsored tax center late in the day on April 14? That is my point here. Not that anyone is trying to get away with anything, just a clear line of communication between parent and child on who is claiming them for the tax year. It only matters their first year anyway.
 
parentalunit2 said:
Interpret tax code however you'd like and hope it could stand up to an audit. When you get right down to it, the entire tax system is one giant honor system anyway!
Just ensure that you and your cadet/mid are on the same page and know what the other is doing. If both sets claim them as a deduction (both parent and child), you will both receive letters from the IRS, as only one may be claiming. Someone would have to do an amended return at that point.
Click to expand...
Also, if you claim him as a dependent then he can't take the personal deduction, increasing his tax liability.
 
parentalunit2 said:
But does the child know that they have already been claimed while they're literally running to the military sponsored tax center late in the day on April 14? That is my point here. Not that anyone is trying to get away with anything, just a clear line of communication between parent and child on who is claiming them for the tax year. It only matters their first year anyway.
Click to expand...
My son has been made aware that we will claim him if I conclude that we can do so appropriately. He is holding off doing his taxes. If he loses out on a few hundred bucks, I would likely show him an equal amount of love to make up the difference.
 
I believe most of us are going by what the Academies are telling us via letters, information packages, etc. Not by what others state on the forum.

I have read through several IRS pubs in the last couple of days, none of which are real clear on the subject - imagine that.

A good tax attorney or CPA would know the rules. My suspicion is that it is not spelled out in black and white for us layman, but is probably cited in a court case where the IRS interpreted the law as they wanted and won the case. Now it's precedent.
 
Capri120 said:
I believe most of us are going by what the Academies are telling us via letters, information packages, etc. Not by what others state on the forum.

I have read through several IRS pubs in the last couple of days, none of which are real clear on the subject - imagine that.

A good tax attorney or CPA would know the rules. My suspicion is that it is not spelled out in black and white for us layman, but is probably cited in a court case where the IRS interpreted the law as they wanted and won the case. Now it's precedent.
Click to expand...
That is certainly true with most laws. However, the problem with tax issues is that the tax code changes so frequently that we don't end up getting good precedential case law on some issues which don't implicate a significant number of people. How the language of a rule impacts military academy parents and cadets is not the type of issue which would likely result in litigation, and if the rule changed for the 2016 tax year we won't have much guidance. We thus need to rely on "experts" like CPA's or tax lawyers, who are expensive. And frankly, we could ask the question to ten CPA's or tax lawyers, and get five saying one thing and five saying another. Hey, I have been a lawyer for 25 years, and a judge for eight, and can say this is an imprecise science. But for the fact that I wasn't smart enough to do anything else I would have done something less frustrating. On the other hand, as you might be able to tell, the subjectivity of it all can be interesting, and even enjoyable at times.

I appologize for using up so much space on this topic.
 
Nah, it's a good topic. Actually comes up every year and always deserves a good thrashing around. Glad to know a judge is on the case!
 
It is a good topic, and a strange little one, as it only concerns about 5,000 households in the U.S. each year. I went over Pub 501 again (2016 version) and the five point test for a qualifying child to be considered a dependent. The cadet/mid will fail the 'support' test in 99.5% of cases. I have no idea why the Turbo Tax quote provided ignores IRS Pub 501 and states that the rule has changed. It has not. Same five points that have always been there. And tuition that the government pays for a cadet/mid has never been considered a scholarship; that has been long established.

Believe me, only people who paid full fare, out of pocket, with no financial aid, to Exeter, St. Albans, Deerfield, etc. for the spring semester prior to their progeny entering an academy need to perform the support test. Everyone else has definitely lost their qualifying child as a dependent.

But yeah, tax advice on the internet. Take it or leave it! :p
 
The turbo tax answer does not ignore pub 501. It cites the child dependent language, and correctly states that to qualify as a child dependent the child must not have provided for more than half of his/her support. If the institution is providing the support, the child isn't, and thus the conclusion is that the support prong of the test is indeed met. At one time the rule was different, and the support portion of the test must have required as a prerequisite to claim the child as a dependent that the parents provided for more than half the support. The distinction between the two tests is more than just significant in the case of academy parents. I have no idea when the language changed. I assume it was relatively recently, if not this year. But I am not sure why you conclude that the child has provided more than half of the support. Even the old memos sent by the academies does a break down on the costs, and separates what the cadet is paying and what the academy, or the service is paying. The cadets portion is essentially what he/she has taken out of the pay for books, computer and uniforms. I know I can beat that by a long shot in terms of what I have contributed to my sons support during 2016. The rest is contributed by the army, not by my son.

Parentalunit2, what about the above analysis do you disagree with? I saw the same Q&A that TurboTax did in a kiplingers article, so I don't think it was offered in error.

The difference between being a dependent or not is like $4000+, so it's worth getting it right.
 
The tax question is a perennial favorite - see link below to a discussion about Sen John McCain claiming his son while at USNA. Many of the same points, with the murkiness centered on the support element.

I think the key is to ensure to communicate who is taking the personal exemption, whether mid/cadet as a personal, or parent as a dependent child, and have your "back story" straight.

After all these years, amazing there is not a truly clearcut answer agreed upon by all.

http://fairmark.com/forum/read.php?4,30301
 
Capt MJ said:
The tax question is a perennial favorite - see link below to a discussion about Sen John McCain claiming his son while at USNA. Many of the same points, with the murkiness centered on the support element.

I think the key is to ensure to communicate who is taking the personal exemption, whether mid/cadet as a personal, or parent as a dependent child, and have your "back story" straight.

After all these years, amazing there is not a truly clearcut answer agreed upon by all.

http://fairmark.com/forum/read.php?4,30301
Click to expand...
Great link Capt, and I agree with your comments. This is a close call I think, and a very cool debate. It does really come down to whether it is the academy/service who provides the support, or the child himself/herself, while at the academy.

The common argument is that it is the child, because the child recurves it as compensation for the five year commitment after graduation, but that argument, when made here and on other issues, loses sight of the fact that the child will still be receiving wages and other benefits while serving, so it is not like indentured servants who work for free for years to pay back the cost of the education and board.

I still think anyone is hard pressed to argue successfully that the academy/service isn't the one who is providing the support, and that it is the child providing his own support. But for sure the IRS could make the language a lot more clear as it applies to our situation.
 
From the link posted by @Capt MJ:

Employers don't provide support. Employers provide compensation. In my opinion, if the employee's efforts result in the employee having a place to sleep and food to eat, then the employee is the one providing that support to him or herself.

I am basing my scenario on USNA, the only SA I am dealing with.

USNA does not require $2000 or any amount for "deposit" if you accept your appointment, and to my knowledge, USNA does not provide a statement saying they provide over $40K "support" either. I have never seen one.

Page 3 of the 50 pages tax brief slides provided to all midshipmen at USNA on 10 Feb 2016 by their JAG (not/not yet provided to midshipmen this year):

OSome MIDN 4/C may be claimed as dependents on their parents’ return.

OMust have lived with parents for 6 months prior to Plebe Summer

OIf your parents plan to claim you, you cannot claim yourself.

OOther class years should not be claimed by parents.

New for USNA Class of 2020: Induction Day was on 30 Jun 2016, compared with Induction Days in July in recent years (i.e. the classes that received this brief I got the info from).

My interpretation:

1. USNA's view maybe different from USMA's and USAFA's - USNA seems to agree with what I read in CAPT's link. Take a look at their W2's. They receive a little over $1K per month.

2. USNA Induction Day was on 1 July 2014. I claimed DD (class of 2018) on my 2014 tax return. She claimed herself since 2015. I never tried to compare monetary support.

3. I am still trying to decide on DS (class of 2020) as his I Day was on 30 Jun 2016. I am leaning towards the same treatment as DD, especially when his winter break started on 17 Dec 2016 and he was home.

My taxes are quite simple, and I enjoy doing my own returns since I got my first paycheck. It is even easier now with the assistance of turbotax.

Chance me and tell me if you agree or not?
 
I would add the following for the judge. The real test is do YOU pay over 50% of the kid's support as opposed to some third party. If the military weren't involved and the kid had no actual income, the third party would be entitled to the claim and not you. Don't see where this is different than the academy. Since DS is employed at the academy, he should get the deduction. But then my wife says I don't know anything.
 
brovol said:
we could ask the question to ten CPA's or tax lawyers, and get five saying one thing and five saying another
Click to expand...

Exactly. And half of us on this board will say claim and the other half will say do not claim. Even the academies themselves cannot answer the question, but in their memos refer you to your own tax professional or the IRS.

Shall we now discuss how many angels fit on the head of a pin?
 
kinnem said:
I would add the following for the judge. The real test is do YOU pay over 50% of the kid's support as opposed to some third party. If the military weren't involved and the kid had no actual income, the third party would be entitled to the claim and not you. Don't see where this is different than the academy. Since DS is employed at the academy, he should get the deduction. But then my wife says I don't know anything.
Click to expand...
All due respect, the code says that is NOT the test, but says rather, does the CHILD pay more than half of his/her own support.
 
Kinnem, I agree. There is no magical third party that can claim. It is either the parent or the child. And for illustrative purposes, let's take this one step further, into their second year at the academy. Would you still argue that the child is not at all supporting themselves for the full calendar year? Is it OK to continue to claim them the second year? (Aside from the fact that they would not qualify under the residency test, let's ignore that in this scenario, as brovol is solely arguing support.) So based on your logic, you should be able to claim them all four years because the child is not supporting themselves? By virtue of the fact that they are a cadet/mid at an SA, no one else is supporting them, except themselves.
 
You must log in or register to reply here.
Back
Top