Discussion:Foster care expenses -- again

1) When can a foster parent claim the child as a dependent? It looks to me as though under the new rules as long as the child spends more than half the year in the parent's house and does not provide more than half of his/her own support they can be claimed as a dependent. In that case s/he is a qualifying child, right?

I assume that agency payments are counted as the child providing his/her own support, so if the agency pays $500/month ($6,000 for the full year) the foster parent needs to have spent more than $12,000 total, right?

Questions:

--Can these unreimbursed expenses count towards establishing dependency if the foster child is clearly placed for a limited time and there are no plans to adopt (see the excerpt from Publication 501 at the end of this post)?

-- What expenses count towards that $12,000+ total? Clearly day care, summer camp, clothes, trips to Disneyland. But how about a portion of rent/mortgage/RETax/utilities?

2) When can expenditures for a foster child be claimed as charitable deductions? This is where I got some conflicting answers before. One person wrote:

"The child's status as "ward of the state" or some such would generally preclude qualifying treatment, but the excess expense is quite deductible as a charitable contribution. You will want to attach a detailed schedule to the tax return."

Another said: "Payments by a foster mother for the support of her foster child are not charitable contributions!"

And Riley2 (who usually has the last word) said: "I believe that the Chief Counsel issued a ruling on this matter back in 2000 (CCA 200007030). The ruling basically said that expenses for caring for a ward or foster child in which the foster parent takes “keen fatherly interest” would not qualify as charitable deduction since charitable donations may not benefit specific individuals. The ruling cited Thomason v. Commissioner, 2 T.C. 441 (1943) in pointing out that benefits provided to a child that would not have been provided by the charitable organization if the donations had been made directly to the charitable organization should be treated as a gift to an individual and not as a gift to a charitable organization."

So what's the answer? Let's say the child does not qualify as a dependent because s/he was in the home for only five months, or because the foster parent spent only $4,000 over the $6,000 paid by the agency. Can the foster parent take the amount spent above the agency payment as a charitable deduction?

I understand the logic of the case Riley2 cites. The IRS pubs say that "excess expenses" for a foster child can be deducted if it is "for the benefit of a charitable organization," but the counter-example they give is where the foster parent wants to adopt the child, the implication being that if there are no adoption plans it is for the benefit of the charity. But that raises another complication, because the pub says that if the expenses are "for the benefit of the charity" they can't count towards establishing dependency status.

And related question: What if a third party -- let's say a relative, or an unmarried companion of the foster parent -- contributes to the upkeep of the child. Can that count as a charitable contribution?

Here are citations: Here's what Publication 526 says:

Foster parents. You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. A qualified organization must designate the individuals you take into your home for foster care.

You can deduct expenses that meet both of the following requirements. They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. They must be mainly to benefit the qualified organization. Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. For details, see Publication 501, Exemptions, Standard Deduction, and Filing Information.

Example.

You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Your unreimbursed expenses are not deductible as charitable contributions.

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Pub 501 says:

If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided.

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Thanks for you thoughts, DavidH