Par. 4. Sections 1.25A-6 and 1.25A-7 are added to read as follows:
(a) In general. Section 25A(a)(1) of the Internal Revenue Code (Code) allows eligible individuals a credit of an amount determined under section 25A(b) and (i) (section 25A(a)(1) credit) against the tax imposed by subtitle A of the Code for the taxable year. This section applies Title IV of PRWORA with respect to the refunded portion of the section 25A(a)(1) credit. See 8 U.S.C. 1611(a), (c)(1).
(b) Definitions. For the definition of terms used for purposes of this section, see § 1.32-4(b).
(c) Refunded portion of the section 25A(a)(1) credit —(1) In general. The refunded portion of the section 25A(a)(1) credit is the portion of the section 25A(a)(1) credit determined under section 25A(i) that exceeds the tax imposed on the taxpayer by subtitle A of the Code (reduced by credits allowable under subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the Code).
(2) Multiple individual refundable income tax credits claimed. In the event the taxpayer has also claimed a refundable credit under sections 23, 24, or 32 of the Code, or another individual refundable income tax credit for which the refunded portion is specified by the Secretary in regulations as subject to PRWORA, the taxpayer must first sum all such refundable credits claimed, and then calculate the portion of the sum of these credits that exceeds the tax imposed on the taxpayer by subtitle A of the Code (reduced by credits allowable under subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the Code). The refunded portion of the section 25A(a)(1) credit is included within this portion.
(d) Federal public benefit as applied to section 25A(a)(1 ). The refunded portion of the taxpayer's section 25A(a)(1) credit is a Federal public benefit. A taxpayer who satisfies the requirements of section 25A(a)(1) is eligible to receive the refunded portion of the section 25A(a)(1) credit, have it credited against the taxpayer's unpaid tax liabilities, or have it offset against specified non-tax liabilities, only if the taxpayer is a U.S. citizen, U.S. national, or qualified alien and so declares under penalty of perjury (on the appropriate Federal income tax return, amended tax return, or schedule as required by the IRS).
(e) Determination for eligibility of refunded portion of section 25A(a)(1) credit. For purposes of receiving the refunded portion of the section 25A(a)(1) credit, having it credited against the taxpayer's unpaid tax liabilities, or having it offset against specified non-tax liabilities, a taxpayer's status as a U.S. citizen, U.S. national, or qualified alien is determined on the date the taxpayer files the taxpayer's return for the taxable year that first claims the section 25A(a)(1) credit (without regard to whether the return is deemed by the Code to be filed on another date).
(f) Examples. The following examples illustrate the rules of this section. In each example below, the taxpayer meets the requirements under title 26 to claim the section 25A(a)(1) credit for the taxable year:
(1) Example 1: Timely-filed return claiming the tax credit. The due date of taxpayer A's return is April 15. A files A's return for the taxable year on April 15, claiming the section 25A(a)(1) credit. On April 15, A is a qualified alien within the meaning of 8 U.S.C. 1611(a). Because A was a U.S. citizen, U.S. national, or qualified alien on the date A files A's return claiming the section 25A(a)(1) credit for the taxable year, A is eligible to receive the refunded portion of the section 25A(a)(1) credit, have it credited against A's unpaid tax liabilities, or have it offset against A's specified non-tax liabilities.
(2) Example 2: Claiming the tax credit on an early return. The due date of taxpayer B's return is April 15. B files B's return on February 1, claiming the section 25A(a)(1) credit. On February 1, B is a U.S. citizen, U.S. national, or qualified alien. Accordingly, B is eligible to receive the refunded portion of the section 25A(a)(1) credit, have it credited against B's unpaid tax liabilities, or have it offset against B's specified non-tax liabilities.
(3) Example 3: Claiming the tax credit on a late return. The due date of taxpayer C's return is April 15. C does not file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, for the taxable year. On November 1, within the period of limitations prescribed in section 6511 of the Code on filing a claim for refund, C files C's return claiming the section 25A(a)(1) credit. On November 1, C is a U.S. citizen, U.S. national, or qualified alien. Accordingly, C is eligible to receive the refunded portion of the section 25A(a)(1) credit, to have it credited against C's unpaid tax liabilities, or have it offset against C's specified non-tax liabilities.
(4) Example 4: Claiming the tax credit on an amended return after a status change. The due date of taxpayer D's return is April 15. D files D's return for the taxable year on April 15 claiming the section 25A(a)(1) credit. However, on April 15, D is not a U.S. citizen, U.S. national, or qualified alien. Accordingly, D is not eligible to receive the refunded portion of the section 25A(a)(1) credit, or to have it credited against D's unpaid tax liabilities or have it offset against D's specified non-tax liabilities. On December 1, D becomes a U.S. citizen, U.S. national, or qualified alien. On December 15, within the period of limitation prescribed in section 6511 on filing a claim for refund, D files an amended return for the taxable year, updating D's status under PRWORA. Although D is a U.S. citizen, U.S. national, or qualified alien on December 15, D was not a U.S. citizen, U.S. national, or qualified alien when D first claimed the section 25A(a)(1) credit, so D is not eligible to receive the refunded portion of the section 25A(a)(1) credit.
(5) Example 5: Claiming the tax credit for the first time on an amended return after a status change. Same facts as paragraph (f)(4) of this section ( Example 4 ), except that D did not initially claim the section 25A(a)(1) credit when D filed on April 15 and rather claimed this credit for the first time on an amended return filed on December 15. Since D is a U.S. citizen, U.S. national, or qualified alien on December 15 when D first claimed the section 25A(a)(1) credit, D is eligible to receive the refunded portion of the section 25A(a)(1) credit.
(6) Example 6: Determining the Federal Public Benefit when the taxpayer claims the section 25A(a)(1) credit and no other refundable tax credits. Taxpayer E meets the section 25A(a)(1) requirements for a $2,500 American Opportunity Tax Credit. The refundable amount of this credit, determined under section 25A(i), is $1,000. E claims no other individual refundable tax credits. E's subtitle A tax liability, reduced by the credits allowed under subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the Code, is $148. Therefore, the refunded portion of the section 25A(a)(1) credit is $852. This amount, which is the Federal public benefit, is calculated by subtracting $148 from $1,000. If E is an alien who is not a qualified alien, E is not eligible to receive the Federal public benefit of $852 as a refund, have it credited against the taxpayer's unpaid tax liabilities, or have it offset against specified non-tax liabilities.
(7) Example 7: Determining the Federal public benefit when the taxpayer claims multiple individual refundable income tax credits. Taxpayer F meets the section 25A(a)(1) requirements for a $2,500 American Opportunity Tax Credit and the section 32 requirements for a $1,110 earned income credit. The refundable amount of the section 25A(a)(1) credit, determined under section 25A(i), is $1,000. F claims no other individual refundable tax credits. F's subtitle A tax liability, reduced by the credits allowed under subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the Code, is $812. The sum of F's refundable tax credits claimed under subpart C of part IV of subchapter A of chapter 1 of the Code and subject to PRWORA is $2,110. The excess of $2,110 over $812, which is $1,298, includes the refunded portion of both the section 25A(a)(1) credit and the section 32 credit and is the Federal public benefit. If F is an alien who is not a qualified alien, F is not eligible to receive the Federal public benefit of $1,298 as a refund, have it credited against the taxpayer's unpaid tax liabilities, or have it offset against specified non-tax liabilities.
(8) Example 8: Determining the Federal Public Benefit when the taxpayer claims an individual refundable income tax credit subject to PRWORA and a refundable income tax credit not subject to PRWORA. Taxpayer G meets the section 25A(a)(1) requirements for a $2,500 American Opportunity Tax Credit. The refundable amount of this credit, determined under section 25A(i), is $1,000. G also has $250 of tax withheld from wages during the taxable year and is allowed, under section 31, a credit against subtitle A tax equal to that amount. The section 31 credit is an allowable refundable tax credit under subpart C of part IV of subchapter A of chapter 1 of the Code and is not subject to PRWORA. G claims no other individual refundable tax credits. G's subtitle A tax liability, reduced by the credits allowed under subparts A, B, D, and G of part IV of subchapter A of chapter 1 of the Code, is $148. Therefore, the refunded portion of the section 25A(a)(1) credit is $852. This amount, which is the Federal public benefit, is calculated by subtracting $148 from $1,000. The $250 withholding credit is not included in the calculation of a Federal public benefit and can be received as a refund, credited against the taxpayer's unpaid tax liabilities, or offset against specified non-tax liabilities. If G is an alien who is not a qualified alien, G is not eligible to receive the Federal public benefit of $852 as a refund, have it credited against the taxpayer's unpaid tax liabilities, or have it offset against specified non-tax liabilities.
(g) Applicability date. This section applies to taxable years ending on or after [date of publication of final regulations in the Federal Register ].