Help: California Dependent exemption credit denied

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maskdoll
Posts: 21
Joined: Sat Aug 17, 2019 12:40 am

Help: California Dependent exemption credit denied

Post by maskdoll »

Background: For taxable years 2018 through 2025, California allows Dependent Exemption Credits to personal income taxpayers with dependents, including dependents residing in Mexico or Canada. For foreign dependents who do not qualify for a SSN or an ITIN, form FTB 3568 must be filled and provide supporting documentation such as a copy of each dependent's passport or national identification card.

Example provided by California Tax Board: It is January 1, 2021. Taxpayer "Z" has been a full-year resident in California during the 2020 year and has two foreign dependents who have been residing in Mexico. Z wants to claim Dependent Exemption Credits for the two dependents on a California income tax return for the 2020 taxable year, but the dependents are ineligible to receive ITINs from the IRS and are also ineligible to receive SSNs. Applying Procedures to Example One : Z will complete a form FTB 3568 and include supporting documentation, such as a copy of the passport issued by Mexico, for each foreign dependent. Z will write "no id" on the SSN field for each dependent on Z's Form 540, California Resident Income Tax Return, for the 2020 taxable year. Z will attach a completed form FTB 3568 for each dependent and supporting documentations to the tax return. Z will file the Form 540 with the attachments.

My case is exactly the same as the example, and I followed instructions very carefully. The supporting doc I submitted was kids' Canadian passports, and I mailed my package to California FTB, because TurboTax didn't have doc uploading options. But I received a notice from FTB, and surprised to know that it was denied. CODE FK: We disallowed your Dependent Exemption Credit(s) because you did not provide a valid identification number for your dependent(s).

Was it a California FTB error? Should I contact them? Any advice would be much appreciated.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: Help: California Dependent exemption credit denied

Post by ND »

Can you pls explain why your dependents are ineligible to receive ITINs from the IRS?

If in fact your dependents are eligible to receive ITINs from the IRS that would explain the CA notice.
maskdoll
Posts: 21
Joined: Sat Aug 17, 2019 12:40 am

Re: Help: California Dependent exemption credit denied

Post by maskdoll »

I am in California with H1B visa, and my wife and the kids are Canadians and in Canada. Every year, I fill tax as married filling separately. My kids are not eligible for ITINs as they didn't visit the US, and we are not filling tax together. Trump changed the rules in 2018, so oversea dependents won't qualify for ITINs.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: Help: California Dependent exemption credit denied

Post by ND »

In fact your dependents ARE eligible to receive ITINs from the IRS and that explains the CA notice.

What you've explained is why those ITINs won't result in dependent claims on your 1040 (they don't live with you) NOR in tax credits.

Child Tax Credit (CTC) or the Additional Child Tax Credit (ACTC) claims require your child to live in your home for over half the year, be a U.S. citizen or resident and to have an SSN by the due date of their return (the latter rule is effective for tax years 2018 through 2025).

A child with an ITIN that lives in the U.S. can qualify for the Other Dependent Credit (ODC), and children with ITINs that live outside of the U.S. generally will not qualify.

Solution: obtain ITINs but practical use is limited to complying with California. Apply for ITINs selecting as that applicants will be on an IRS return and amend your 1040 to include them even though it changes nothing. File the amended 1040x with the W-7.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: Help: California Dependent exemption credit denied

Post by ND »

Of course my reply presumes np error at govt end but you should first call since an error explanation seems most plausible.
maskdoll
Posts: 21
Joined: Sat Aug 17, 2019 12:40 am

Re: Help: California Dependent exemption credit denied

Post by maskdoll »

Hi ND, thanks so much for your reply. In the W-7 instruction, it stated that after 2018, oversea dependents wouldn't receive ITIN numbers unless they would receive any benefits. I didn't know it until I phoned a few IRS authorized ITIN acceptance agents. These agents told me my kids are not qualify for ITINs. I guess the only way I can get ITINs for my kids is to fill married jointly, which treats my kids and my wife as US resident. But the issue is to report worldwide income, which would mean form 8621 and possibly form 3560/3560A for my wife as she's living with the kids and she has TFSA , RESP account. Is there a way to fill a tax return with myself and two kids?



ND wrote:
> In fact your dependents ARE eligible to receive ITINs from the IRS and that
> explains the CA notice.
>
> What you've explained is why those ITINs won't result in dependent claims
> on your 1040 (they don't live with you) NOR in tax credits.
>
> Child Tax Credit (CTC) or the Additional Child Tax Credit (ACTC) claims
> require your child to live in your home for over half the year, be a U.S.
> citizen or resident and to have an SSN by the due date of their return (the
> latter rule is effective for tax years 2018 through 2025).
>
> A child with an ITIN that lives in the U.S. can qualify for the Other
> Dependent Credit (ODC), and children with ITINs that live outside of the
> U.S. generally will not qualify.
>
> Solution: obtain ITINs but practical use is limited to complying with
> California. Apply for ITINs selecting as that applicants will be on an IRS
> return and amend your 1040 to include them even though it changes nothing.
> File the amended 1040x with the W-7.
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