IRS reverses kidnapped-child ruling following outcry
By Kay Bell • Bankrate.com

Just months after the Internal Revenue Service proudly proclaimed its new partnership with an organization dedicated to locating missing children, the agency refused a tax break for the parent of a kidnapped child.

The ruling, based on an earlier court case, might have made legal sense -- but it was a public relations disaster for what is supposed to be the new and kinder tax agency. Facing hostile legislation, the IRS has backed away from its earlier opinion.

In August, in response to a question by the parent of a kidnapped child, the IRS ruled that the dependent tax exemption for the child was permissible only in the year the child was abducted.

The IRS pointed to tax law that generally requires a parent to provide more than half a child's support in order to claim the exemption, which is $2,800 in 2000. IRS lawyers noted that "the issue is not free from doubt," but cited a 1980 tax court case dealing with a child abducted from his father's custody by his mother. The father wanted to deduct the costs of searching for the child as a theft loss. The court said no.

The response was fast and harsh.

Calling the IRS decision cruel and heartless, Minnesota Congressman Jim Ramstad introduced a bill to allow families of missing children a continued dependency exemption for a youngster believed kidnapped by a stranger. H.R. 5117 also would let the families claim the earned income and child tax credits. The continued tax benefits would end with a final resolution in the case or in the year after the missing child's 18th birthday.

Although the IRS said it was not prompted by Ramstad's legislation (as well as a similar bill in the Senate), the agency reversed its earlier ruling on Sept. 25 -- the day before the Missing Children Tax Fairness Act of 2000 was approved by the House. In the follow-up decision, the IRS said any parent whose child is abducted by a person outside the family is entitled to take the deduction.

The IRS public relations stumble comes on the heels of the agency's partnership this tax year with the National Center for Missing and Exploited Children. To help expand the distribution of photos of lost, abducted or runaway children, the IRS placed photographs of missing children in various tax and instruction publications, along with the Center's 1-800-843-5678 number for taxpayers to call if they had information about a missing child.

-- Posted Sept. 27, 2000