Tax Tips
The Dependency Exemption in Divorce Situations - July 2005
Richard Scrivanich - Partner
The Dependency Exemption in Divorce Situations
Under Internal Revenue Code (IRC) section 152(e), the custodial parent, as a result of a divorce, is generally entitled to take the dependency exemptions for any children. This applies as long as the parent provides more than half the children’s support and the children live with either or both parents for more than six months each year.
However, the noncustodial parent may claim a child if the custodial parent agrees not to claim that same child as a dependent for a particular year, and signs Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents. The noncustodial parent then attaches the signed form to his or her tax return. But this form, if not used properly, can cause problems.
No signature, no exemption rule
One common problem is that the custodial parent does not sign the form. Although a signature at times can be difficult to obtain, it must be done; the IRS will not accept an unsigned form. (Exception: If your divorce decree or separation agreement was executed after 1984, Form 8332 is not required if certain conditions are met.) This rule has been tested and upheld in the Tax Court.
Example: In a divorce proceeding, a mother was awarded sole custody of her two children, while the father was given a permanent right to claim them as dependents on his federal income tax return. The father attached the divorce order (which stated he could claim the children as his dependents) to his return and claimed both children. The IRS disallowed the exemption because the father did not attach Form 8332, signed by the mother, to his return. The Tax Court sided with the IRS and held that the divorce order was insufficient; the taxpayer had to strictly comply with IRC section 152(c)(2), which requires the custodial parent’s signature in order to claim the exemption.
Voiding the form
Another problem that often occurs is that once the form is signed, it cannot be voided. On Form 8332, the custodial parent can choose to release a claim for the deduction for the current year, specified future years, or all future years. The custodial parent need only sign the form once, but the noncustodial parent must attach it to his or her return every year. However, problems can occur because there is no cancellation date, and there is no way to nullify the form.
For example, a custodial parent may waive the exemption for specified future years because the noncustodial parent is providing child support. But if the noncustodial parent stops making child support payments, yet continues to claim the exemption, it can be very difficult for the custodial parent to void the release.
According to IRS Legal Memorandum 200007031, the only way a custodial parent can void Form 8332 and claim the child on his or her own return is to get the noncustodial parent to forgo claiming that child as a dependent. If the two former spouses cannot agree and both claim the same child, the IRS will step in and conduct an audit.
To avoid such situations, custodial parents should, in most situations, agree to the release of the deduction on an annual basis and not for the long term.
If you have any questions regarding the tax rules for dependency exemption in divorce situations or any other tax matter, please call me at (562) 698-9891.
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