Two-year EIC ban can follow a partial child disallowance

Plain-English summary

Counsel considered whether the two-year earned income credit ban can apply when only one of several claimed children is disallowed. The advice says yes if a final determination finds that the taxpayer claimed the nonqualifying child with reckless or intentional disregard of the rules. The ban prevents the taxpayer from claiming any earned income credit during the two-year disallowance period, even if the taxpayer otherwise could have claimed the credit based on other qualifying children. Section 32(k)(1)(B)(ii) does not limit the ban to cases in which the entire credit is disallowed.

Ruling snapshot

• Question: Can the two-year EIC ban apply after one claimed child is disallowed while other children still qualify?
• Outcome: advice given, the ban may apply if the partial claim involved reckless or intentional disregard
• Key authorities: IRC § 32(k)(1)(B)(ii)

Full text (IRS public release)

ID:          CCA_2019070310051433
UILC:        32.00-00

Number: 201931008
Release Date: 8/2/2019
From:
Sent: Wednesday, July 03, 2019 10:05:14 AM
To:
Cc:
Bcc:
Subject: Assertion of Ban with Partial Disallowance


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You asked Counsel the following, associated with the Earned Income Credit (EIC) under § 32 of
the Internal Revenue Code:

         For Example: TP claims 3 children, 1 child disallowed. TP continues to claim the
         1 child for consecutive years when they know that they are not entitle[d] to claim
         the child. Can the TP be subject to the 2-year ban, even though they are entitled
         to the EIC for the other 2 kids?

Our response is “yes.”

A taxpayer may be subject to the 2-year ban for claiming a child that did not qualify for the EIC,
when the taxpayer knows that she is not entitled to claim that child, if a final determination is
made that the taxpayer’s claim for that child was due to reckless or intentional disregard for the
rules and regulations. The 2-year ban applies even though the taxpayer otherwise would have
been entitled to the EIC for her other two children, to use your example, assuming a final
determination is made that the taxpayer’s claim for the other child was due to reckless or
intentional disregard for the rules and regulations.

Section 32(k)(1) states that no credit shall be allowed under § 32 for any taxable year during the
disallowance periods, which are 2 years for reckless and intentional disregard and 10 years for
fraud. Section 32(k)(1)(B)(ii), regarding the 2-year ban for reckless or intentional disregard of
rules and regulations, does not prohibit imposition of the ban for partial disallowances.
Accordingly, if any taxpayer’s claim for the EIC is partially disallowed because of reckless or
intentional disregard of rules and regulations, the IRS may asset the 2-year ban under §
32(k)(1)(B)(ii) on the taxpayer claiming any EIC during the 2 years.

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