§235-7.5  Certain unearned income of minorchildren taxed as if parent's income.  (a)  In the case of any child towhom this section applies, the tax imposed by this chapter shall be equal tothe greater of:

(1)  The tax imposed by section 235-51 without regardto this section, or

(2)  The sum of:

(A)  The tax which would be imposed by section235-51 if the taxable income of such child for the taxable year were reduced bythe net unearned income of such child, plus

(B)  Such child's share of allocable parentaltax.

(b)  This section shall apply to any child forany taxable year if:

(1)  Such child has not attained age fourteen beforethe close of the taxable year, and

(2)  Either parent of such child is alive at the closeof the taxable year.

(c)  For the purpose of this section:

(1)  The term "allocable parental tax" meansthe excess of:

(A)  The tax which would be imposed by section235-51 on the parent's taxable income if such income included the net unearnedincome of all children of the parent to whom this section applies, over,

(B)  The tax imposed by section 235-51 on theparent without regard to this section.

For purposes of subparagraph (A), net unearnedincome of all children of the parent shall not be taken into account incomputing any exclusion, deduction, or credit of the parent.

(2)  A child's share of any allocable parental tax ofa parent shall be equal to an amount which bears the same ratio to the totalallocable parental tax as the child's net unearned income bears to theaggregate net unearned income of all children of such parent to whom thissection applies.

(3)  Except as provided in rules, if the parent doesnot have the same taxable year as the child, the allocable parental tax shallbe determined on the basis of the taxable year of the parent ending in thechild's taxable year.

(d)  For purposes of this section:

(1)  The term "net unearned income" meansthe excess of:

(A)  The portion of the adjusted gross incomefor the taxable year which is not attributable to earned income as defined inthe Internal Revenue Code, over,

(B)  The sum of:

(i)  The amount in effect for the taxable yearunder section 63(c)(5)(A) (relating to the limitation on standard deduction inthe case of certain dependents) of the Internal Revenue Code as operative undersection 235-2.4(a), plus

(ii)  The greater of the amount described inclause (i) or, if the child itemizes the child's deductions for the taxableyear, the amount of the itemized deductions allowed by this chapter for thetaxable year which are directly connected with the production of the portion ofadjusted gross income referred to in subparagraph (A).

(2)  The amount of the net unearned income for anytaxable year shall not exceed the individual's taxable income for such taxableyear.

(e)  For purposes of this section, the parentwhose taxable income shall be taken into account shall be:

(1)  In the case of parents who are not married(within the meaning of section 235-93), the custodial parent (within themeaning of section 152(e) (with respect to the support test in case of child ofdivorced parents, etc.) of the Internal Revenue Code) of the child, and

(2)  In the case of married individuals filingseparately, the individual with the greater taxable income.

(f)  The parent of any child to whom thissection applies for any taxable year shall provide the social security numberof such parent to such child and such child shall include such parent's socialsecurity number on the child's return of tax imposed by this section for such taxableyear.

(g)  Election to claim certain unearned incomeof child on parent's return.

(1)  If:

(A)  Any child to whom this section applies hasgross income for the taxable year only from interest and dividends (includingAlaska Permanent Fund dividends),

(B)  Such gross income is more than $500 andless than $5,000,

(C)  No estimated tax payments for such yearare made in the name and social security number of such child, and no amounthas been deducted and withheld under section 3406 (with respect to backupwithholding) of the Internal Revenue Code, and

(D)  The parent of such child (as determinedunder subsection (e)) elects the application of paragraph (2),

such child shall be treated (other than forpurposes of this paragraph) as having no gross income for such year and shallnot be required to file a return under this chapter.

(2)  In the case of a parent making the election underthis subsection:

(A)  The gross income of each child to whomsuch election applies (to the extent the gross income of such child exceeds$1,000) shall be included in such parent's gross income for the taxable year,

(B)  The tax imposed by this section for suchyear with respect to such parent shall be the amount equal to the sum of:

(i)  The amount determined under section 235-51after the application of subparagraph (A), plus

(ii)  For each such child, the lesser of $10 ortwo per cent of the excess of the gross income of such child over $500.

(3)  The director shall prescribe such rules as may benecessary or appropriate to carry out the purposes of this subsection. [L 1987,c 239, §1(3); am L 1989, c 13, §4; am L 1990, c 15, §2; am L 1991, c 54, §2; amL 2001, c 199, §3]