Non-custodial Parent Should Not Claim Dependency Exemption Without Proper Form

Apr 13 2014, 11:56am CDT | by

If you are a non-custodial parent claiming one of your kids as a dependent, do you have Form 8332 (Release of Claim to Exemption) signed by the custodial parent and attached to your return?  If you don’t, as far as the IRS is concerned, you don’t have a right to the exemption.  You might find this extremely frustrating because you have an order from a probate court signed by a judge that says you are entitled to the exemption.  Unless that order also has the custodial parent’s signature and social security number on it, it will not be any help.

The issue of non-custodial parents being denied exemptions that probate courts say they are entitled to has been litigated numerous times.  The money at stake does not seem to merit litigation.  I think this is one of those things where people really are fighting as a matter of principle.  My inclination would be to just let it go.  It’s not as if the IRS is charged with validating you as a parent.  They’ve got enough problem’s with exempt organizations without getting into that.  At any rate, it is not a fight you will be winning in Tax Court, as was recently confirmed by the Eighth Circuit which consolidate the appeals of Bill and Phoebe Armstrong and David and Melinda Hanson.

Here is the lawyerly version of the Court’s conclusion.

Billy and Phoebe Armstrong and David and Melinda Hanson appeal Tax Court decisions disallowing their claims of dependency exemption deductions and child tax credits for a child of each husband’s prior marriage. For each couple, only one tax year is at issue, a year in which the ex-wife, the custodial parent, failed to sign a document stating that she “will not claim such child as a dependent” that year, even though she had agreed to provide that document if her ex-husband paid all required child support. We consolidated the appeals. Reviewing the Tax Court’s interpretation of the governing statutede novo , we conclude that its decisions are consistent with the plain language of 26 U.S.C. § 152(e)(2) and therefore affirm.

But, but, but …. It’s Just Not Fair

Here are a couple of the arguments that, according to the Tax Court and with the blessing of the Eighth Circuit, do not work.

She Promised To Sign If I Kept Current With Child Support Which I Did

By enacting the 1984 amendment “to simplify the process,” the Armstrongs assert, “Congress never wavered from its intent that the parent entitled to the deduction be the one who received it.” Here, both couples submitted documents in which ex-wives agreed that Mr. Armstrong and Mr. Hanson were entitled to the exemptions in any year they were current with their child support obligations, and it is undisputed they were current in the tax years in question. Therefore, the documents submitted in lieu of a Form 8332 signed by the custodial parents “conform[ed] to the substance” of Form 8332, and the taxpayers are entitled to the dependency exemption and child tax credit for C.E. and for Z.H.

A conditional declaration simply does not meet this requirement. As the Tax Court noted, when Mr. Armstrong’s ex-wife declared that she will not claim the exemption if he keeps current with support payments, she “thereby declared that if he does not keep current, then she will claim the child as a dependent.” Armstrong, 139 T.C. at 474. The documents submitted by the taxpayers merely told the IRS that the custodial parentsmight not claim the exemptions for C.E. and Z.H. in any particular tax year, not that they will not claim the exemptions.

The Probate Judge Said I Should Get The Deduction

The taxpayers further argue that state courts often allocate the federal dependency exemption during divorce proceedings, and principles of federalism require the IRS and the federal courts to respect those allocations. This contention is without merit. “The state law creates legal interests but the federal statute determines when and how they shall be taxed.” United States v. Mitchell, 403 U.S. 190, 197 (1971) (quotation omitted). Determining who is entitled to federal income tax exemptions, deductions, and credits is entirely a matter of federal law, for these are questions of “when and how they shall be taxed.”

It’s Not Fair

Finally, the Armstrongs argue that, even if they did not comply with the requirements of 152(e)(2), they did all that reasonably could be expected and therefore deserve equitable relief for their substantial compliance. We sympathize with noncustodial parents who are entitled to receive documents necessary to support their claims for federal dependency exemptions and child tax credits and their former spouses violate contractual or court-ordered obligations to provide those documents.

What Should You Do?

If the custodial parent is withholding a signed Form 8332 that you are entitled to, there are a couple of approaches.  Filing your return without the required form is not one that I would recommend. My own view which may be of limited applicability is to just forget about it and don’t claim the exemption.  This is clearly the best course, if both you and your ex are going to end up leaving money to the same kids.  If you are wrapped up in “the principle of the thing”, you should extend your tax return.  Call your lawyer and have them initiate whatever process is necessary to get the form signed and in your hands or have you made whole in some other way.  That exact process will, of course, vary from state to state and possibly from county to county within each state.  You might want to use a different lawyer than the one who originally handled the divorce, since that lawyer may not have adequately covered this base for you.

You can follow me on twitter @peterreillycpa.

Afternote

I have been stumbling a bit on the language in this piece.  The problem is that I keep thinking of divorced couples.  As far as I can recall all the case law in this area involves divorced couples.  The principles, however, apply regardless of whether the custodial and non-custodial parents were ever married.  I don’t know how common it is for there to be orders concerning allocation of tax exemptions going along with child support orders in non-divorce cases.

 
 

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