On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

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I wish all of our readers, especially the moms, a happy Mother’s Day. I dedicate this post to my mom, who this year is battling some serious health issues. Les

The working poor have a tough time making ends meet. When you consider costs of housing, child-care and transportation, the lot of the working poor is far from a picnic. To offset the costs of living, regressive employment taxes and the stagnation of low wages, the government uses the tax system in the form of credits like the EITC and additional allowances for deductions from gross income in the form of head of housing filing status and dependency exemptions.

When one reads about EITC and overclaim rate, you often see the term fraud. For example, a recent Tampa Bay Times PolitiFact.com piece discussed Rand Paul tarring EITC as having “about a 25% fraud rate.” PolitiFact called that a half-truth given the multiple causes for errors, only one of which is fraud. Yet reading quotes or headlines about fraud in EITC can make the blood boil, especially if you do not believe the government generally should play a role in redistributing wealth or if you think that Congress should not task the IRS with administering transfer programs.

Last week’s case of Cowan v Commissioner may also make your blood boil. It illustrates that the issues relating to erroneous claims of the EITC and other family status benefit provisions are often more nuanced than generally discussed.


In the case Jean Cowan cared for, supported and lived with Marquis Ward from the age of six weeks. At birth Marquis’ mother was addicted to drugs. Jean was appointed guardian of Marquis when he was 6 weeks old. Even after Marquis turned 18 Jean cared for, lived with and supported Marquis.  Marquis fathered a daughter, who also lived with and was supported by Jean for 11 months in 2011. (Jean had about $14,000 in AGI in 2011).

The case turned on the relationship between Jean and Marquis’ child; normally a grandparent’s living with and caring for a grandchild for greater than half of the year will generate eligibility for benefits like the EITC, CTC, dependency exemption and filing status.

Not in the Cowan case. That Jean was not biologically related to Marquis’ son meant that the child was not Jean’s child or descendant of such child for tax purposes.

The issue gets technical. For these purposes, as per Section 152(f)(1)(A) the term “child”– means an individual who is– (i) a son, daughter, stepson, or stepdaughter of the taxpayer, or (ii) an eligible foster child of the taxpayer.

For this purpose, an “eligible foster child” is defined as “an individual who is placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.” Section 152(f)(1)(C).

Prior to Marquis turning 18, Jean would have been able to treat Marquis’ as an eligible foster child and by extension his daughter as a qualifying child. That is because until Marquis turned 18, he was considered “placed with” Jean pursuant to the state guardianship proceedings. Descendants of qualifying children are also qualifying children, so prior to the guardianship terminating, Marquis’ daughter could also be Jean’s qualifying child. When Marquis turned 18, under Ohio law, the guardianship terminated; there also was a court order explicitly terminating the guardianship.

Despite Marquis turning 18, Jean did what many parents do. She continued to support Marquis. She lived with him. When he fathered a child, Jean worked, lived with and cared for Marquis’ baby daughter. Yet, that was not enough under the rules:

Notwithstanding the phrase “is placed”, Ms. Cowan asserts that “the statute does not specify that the foster child ceases to be a child when they reach the age of majority.” It is true that section 152 does not specifically provide that a foster child ceases to be an “eligible foster child” upon reaching the age of majority; rather, it is Ohio State law that so provides and that terminated Marquis’s placement with Ms. Cowan. It is the interaction of State law (which defines the relationship) with section 152(f)(1)(A)(ii) (which allows the deduction) that removes Marquis from the ambit of its definition.

The legal conclusion followed:

It could not be said in 2011 that Marquis “is placed” with Ms. Cowan; rather, his legal placement with her had ended years earlier. Consequently, in that year he was not her “eligible foster child” and was not her “child” for purposes of section 152(c)(2)(A). As a result, his daughter, H.A.W., was not a “qualifying child” of Ms. Cowan by being a “descendant of * * * [her] child” under that section.

When the dust cleared, Jean had about a $4,000 deficiency based on a disallowed EITC, dependency exemption and HOH filing status. Those benefits effectively turned on Jean being allowed to treat Marquis’ daughter as if she were a grandchild.

Parting Thoughts

The confusing and at times complex family status definitions put IRS counsel (and Tax Court judges) in a tough spot. Counsel and the court are bound by the laws. Perhaps one can say IRS should have exercised discretion and not pursued the case, but as Bryan Camp’s post on tax myths last month discusses (see Myth 8, IRS is Run by Humans), there likely was no human being involved in exercising discretion until the case went to court. Prior to then, Jean was just one of the unlucky 500,000 or so EITC taxpayers a year whose return was selected for examination.

Reading the case makes me both sad and mad; sad for Jean who based on the facts in the opinion tried to do the right thing and mad that the tax system we have does not serve someone like her. To be sure, legal adoption might have fixed the problem, but that can be time consuming and expensive. In any event, the complexity of the rules makes it highly unlikely that working poor taxpayers understand the nooks and crannies of the qualifying child definition.

Admittedly, there is no easy fix for cases like this. Under old law, living with and caring for a child as if the child were your own generated eligibility for the EITC. Congress changed the law about 15 years ago, thinking that its open-endedness encouraged people to “share” children and commit fraud in claiming EITC.

Maybe so. But sometimes taxpayers try to do the right thing and the tax system fails them. It failed Jean here.


For more background on the history of the definition of child in the tax code (and other problems), see Heal the Suffering Children: Fifty Years after the Declaration of War on Poverty by Professors Francine Lipman and Dawn Davis, in the Boston College Journal of Law & Social Policy

There are a number of issues that limit the EITC’s effectiveness beyond that presented in the Cowan case. For example, see Professor Mary Pareja’s recent article in the West Virginia Law Review Earned Income Tax Credit Portability: Respecting the Autonomy of American Families, which  proposes portability to allow noncustodial parents the ability to claim EITC. 


IRS conceded the dependency exemption for Marquis; the deficiency as a result of the concession is likely about $500 less than the $4,390 in the notice of deficiency. The post as originally written did not reflect the IRS’ concession of that issue.





Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. Anonymous says

    I have zero sympathy for Jean Cowan. Despite what Les may think, the largesse of the American taxpayer does have some limits. And, as taxpayers know, if you subsidize certain conduct, you tend to get more of it.

    The Cowan case did, though, make my blood boil. That’s because I read that one Marquis Ward, at 25 years old, did not support himself, let alone support his 5 year old daughter. If Mr. Ward declines to support himself and his daughter, then why should the taxpayers subsidize his conduct?

    Also, Les’s hard tug on our Mother’s Day heartstrings is somewhat disingenuous. The Tax Court did not find Ms. Cowan liable “for a $4,390 deficiency.” That amount was the IRS’s deficiency determination. In the Tax Court, however, the Commissioner conceded Ms. Cowan’s claim of a dependency exemption for the non-supporting Mr. Ward. Cowan at *2, *5-6, *14, *15. Whether that omitted fact causes Les to feel less “sad” about Ms. Cowan, only he knows.

    Unlike Les, I feel mad toward this nation’s Ms. Cowans. Rather than support their Mr. Wards and that irresponsible group’s children, the Ms. Cowans should be riding herd on them. Use of a few phrases such as, “no, I will not support you at age 25,” “no, I will not subsidize your sexual irresponsibility”, and “no, you will not take advantage of our relationship,” would greatly benefit speaker, listener, taxpayer, and society.

    Thanks to its Ms. Cowans and Mr. Wards, this nation has become less the land of the free and more the land of the EITC. The “working poor” can, and they should, do better.

    • Anonymous, the impact of the allowed dependency exemption for Marquis (which IRS conceded before trial and was not at issue in the opinion) is approximately a $500 reduction in the deficiency for Ms. Cowan, given her AGI of about $14,000 (assuming standard deduction and there were no other dependents claimed). It is impossible though to know based on the opinion given we do not know all the possibly relevant facts.
      So, thanks for pointing out the omission. No, I do not feel less sad for Ms. Cowan.

  2. Jason T. says

    To clarify, I was your purported Anonymous contributor. I typed my comment on a different computer and therefore didn’t realize the “Speak Your Mind” part of your site did not automatically contain my name.

    I’m disappointed that you don’t feel even a mite bit better for Ms. Cowan because the IRS partly conceded her case. As I see it, our society is ill-served when we tax professionals game the tax system and attempt to shift the Ms. Cowans’ and the Mr. Wards’ support burdens onto other taxpayers.

    Through their life choices, the Ms. Cowans and Mr. Wards have made their economic beds. No matter the discomfort they may experience, they must lie in them as so made. Neither the Ms. Cowans nor the Mr. Wards should expect other taxpayers to supply them with the sheets, pillows, and comforters.

  3. Bob Kamman says

    I didn’t have research materials readily available when I read this comment earlier in the week, but I recalled what I thought the IRS position was on stepchildren, and wondered how it was different from foster children. I was taught, but now can’t find the source, that the “step” relationship survives death or divorce. For example, John marries Nancy; helps raise Nancy’s son Ron; Nancy dies, but John continues to support Ron, who was not adopted, and who may have turned 18 but is a student. Ron is still John’s stepchild and can be claimed as his dependent. Does anyone disagree? Is this in any statute or regulation? Or is it a product of IRS kindness? If so, when did they decide to be unkind to foster children?

    • Jason T. says

      Your recollection is correct, Bob. Your scenario still works. You were likely thinking of 26 C.F.R. § 1.152-2(d). That regulation, cited in the Cowan case we had discussed, says what you had recalled.

      As the Cowan court pointed out, though, the cited regulation addresses only past relationships with “affinity,” i.e. those established by a marriage. Because marriage does not create a guardian-ward relationship, one could claim a former step-child (and a descendant thereof), but not a former ward (or a descendant thereof), as a dependent under that regulatory provision.

      Ms. Cowan attempted to claim her former ward’s daughter as her qualifying child. She argued that her former ward was still her “child” and, therefore, so was his daughter. Not so.

      All, though, was not lost. Ms. Cowan was able to claim the former ward as a dependent. But she could do so not because he was her qualifying child, but because he was her qualifying relative (i.e., someone who lived in her home all year as a household member).

      The IRS is therefore not “unkind to foster children.” In a parental context, the word “foster” means to bring up. Ms. Cowan brought up her former ward to his majority. Once she had done so, the job her State entrusted her to do was complete. Their foster relationship then ended for all legal purposes–including for the purpose of shaking down other taxpayers to subsidize her, and her former ward’s, poor life choices.

    • For more on the regulation discussing 1.152-2(d), the affinity regulation, my colleague Jim Maule discusses it in a post on May 13, 2015 in his blog Mauled Again, When Do Relationships End for Federal Income Tax Purposes, available at http://mauledagain.blogspot.com

  4. Bob Kamman says

    So, more than 40 years ago someone at Treasury/IRS picked up a term that originated with canon law and decided with no statutory anchor that for purposes of tax law, “affinity” survives death or divorce. The last revision of that Regulation was in 1973, which happens to be the year of Roe v. Wade. So it’s unlikely that it occurred to anyone back then that discouraging tax breaks for care of foster children, or their issue, would perhaps favor abortion over reliance on foster family.

    Not much has happened, as family law goes, since 1973. Well, yes, that was also the year that the Supreme Court decided Bowers v. Hardwick, upholding state criminal laws against consensual same-sex relationships. But other than that, I’m sure that what has worked well for the last 40 years, is good precedent for the next 40.

    • Bob Kamman says

      Correction: Bowers v. Hardwick was 1986 – a better reference would have been Baker v. Nelson, appeal dismissed in 1972.

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