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Abstract

Cynthia Rowe is currently serving a life sentence in prison for the shooting death of her brother-in-law. While she may have lost her criminal case, at least Rowe came away victorious in the recent Tax Court decision, Rowe v. Commissioner, in which she was awarded the earned income tax credit (EITC) over the objection of the Internal Revenue Service (Service or IRS). Unfortunately, her victory comes at the expense of sound legal analysis and public policy. Despite the efforts of Congress to ensure that the benefit of the EITC is given only to those who need it most by imposing strict statutory requirements for its receipt, Rowe was successful in obtaining that benefit without having to meet those requirements through a misunderstood and ill-guarded loophole in the Treasury Regulations. This Note begins by discussing the statutory requirements for claiming the maximum EITC, which is available if a taxpayer has more than two “qualifying children” in his or her household. One of these requirements, the residency requirement, is notorious for perplexing taxpayers and commentators alike. This Note explores the difficulties that can arise in applying the residency requirement to complicated family dynamics, leading to increased efforts by the Service to target EITC noncompliance. Despite these efforts to ensure strict adherence to the residency requirement, taxpayers may still avoid the requirement through an exception found in the Treasury Regulations, if the failure to meet the requirement was the result of a “temporary absence due to special circumstances.” As this Note will argue, the current interpretation of this exception has been distorted by both the Service and the Tax Court, most recently in the Rowe v. Commissioner decision, to allow a taxpayer to claim the exception without having to offer any evidence to establish that the exception is warranted. The current standard for applying the temporary absence exception—that a taxpayer need only show intent to return to the child’s home—may be satisfied with self-serving testimony, which dilutes the efficacy of the residency requirement in targeting the EITC to its proper and deserving recipients.

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