How to Treat CACFP Reimbursements for Your Own Child
Just because an IRS auditor says something is true, doesn't automatically make it so.
That's what I wrote "How to Defend Your Exclusive Use Room" about an IRS audit of a family child care provider in Iowa. The issue was whether or not the child care provider could claim two exclusive use rooms in her home. The answer is yes!
The second issue in the audit was whether the child care provider must report as income reimbursements she received from the CACFP for her own son. The auditor said she must report it as income, but she is wrong again. You can only receive reimbursements from the Food Program for your own children if your family is income eligible. To be income eligible your family's adjusted gross income must be less than $27,991 for a household of two and $35,317 for a household of three. The limits for Alaska and Hawaii are higher. These income limits are for July 1, 2012 through June 30, 2013.
The IRS Publication 587 Business Use of Your Home (page 12) says, "Do not include payments or expenses for your own children if they are eligible for the [CACFP] program." The IRS Child Care Provider Audit Guide says, “The provider should not include the amount of the payments for his/her own children because it is not taxable.” Later the Guide says, “Under IRC Section 262, no portion of the cost of food provided to the provider's family, including food consumed by the provider or the provider's own children, is allowed as a deduction.” The Iowa child care provider did not report her Food Program reimbursements as income and did not claim any food her child ate as a business expense. This is the proper way to handle this issue.
I wrote a letter to the Iowa auditor to clarify the issues of exclusive use rooms and Food Program reimbursements.
I will update readers about the IRS auditor's response to my letter. If you are being audited about your exclusive use room or Food Program reimbursements you may want to use the arguments in my letter to defend yourself.
Tom Copeland - www.tomcopelandblog.com
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