CONSIDER the common divorce scenario where the divorce judgment provides primary custody of the children to one spouse while the other spouse only gets visitation. The parties begin to file separate tax returns. What are the tax consequences of the non custodial parents with regards to claiming the children in his or her return?
A non custodial parents can no longer file as head of household, even if the non custodial parent is allowed to claim the children as dependents under the divorce judgment because this requires that the parent have custody of the children at least 6 months of the year. Non custodial parents also can no longer claim the earned income tax credit. However, the non custodial parent can claim the child tax credit
In the absence of a provision in the judgment which states otherwise, the parent with primary custody of the children is ordinarily entitled to claim the children as dependents for tax purposes. If a qualifying child is claimed as a dependent by both parents and the parents do not file a joint return, the child is normally treated as the qualifying child of the custodial parent IRC § 152(c)(4)(B)(i)
However, the Code allows the dependency exemption and child tax credit to be shifted to the noncustodial parent when a child receives over one-half of the child’s support during the calendar year from the child’s parents who are either (i) divorced, (ii) legally separated, (iii) separated under a written separation agreement, or (iv) living apart at all times during the last six months of the calendar year. The child must be in the custody of one or both of the child’s parents for more than one-half of the calendar year. IRC § 152(e) (1)(A) & (B)
To shift the exemption and child tax credit to the noncustodial parent, the custodial parent must release or waive his or her claim to the exemption for the year by executing IRS Form 8332. IRC § 152(e) (2). The custodial parent can waive this right to claim the children as dependents and let the non custodial parent claim them by executing IRS Form 8332 and filing it with his or her return.
Certain Tax Court cases held that the waiver is effective even if the Form 8332 was not filled out in detail. In Bramante (T.C. Memo 2003-228), the custodial parent and agreed to waive her right to exemptions on Form 8332. The custodial parent realized that as her income increased, the value of the exemptions increased. The custodial parent discovered that her Social Security number was missing on the form and that the noncustodial parent, had dated the form in his handwriting. The tax court still upheld the waiver as effective despite the missing details from Form 8332.
In Boltinghouse, the IRS argued that missing details in the separation agreement defeated the waiver (T.C. Memo 2003-134). In this case, the parties executed a separation agreement allowing the non custodial parent to claim one of his children, but the non custodial parent did not file a Form 8332. As a result, the court had to decide whether the agreement conformed in substance to Form 8332. The IRS contended that the agreement was not in substance a Form 8332 because it did not reflect the years the exemptions were to be waived and it did not provide Social Security numbers for the parents. Although the IRS pointed to some cases in which the Tax Court had rejected waivers that were ambiguous as to the applicable years, the Tax Court said that it was clear that this agreement applied to the years the parents began filing separate returns. As in Bramante, lack of Social Security numbers was not considered a serious defect by the Tax Court.
The custodial parent can waive the dependent exemption each year or for a number of years. The non custodial parent should file form 8332 with his or her tax return in order to be entitled to the exemption. To avoid any confusion and tax issues with the IRS, the parties should attempt to agree or resolve in court the issue of who will claim the dependency exemption of the children as part of the divorce judgment. Parties should seek the assistance of an experienced attorney to weed through complex family law issues.
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Attorney Kenneth Ursua Reyes is a Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail [email protected] or visit our website at Kenreyeslaw.com.
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Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does create any attorney client relationship between you and the Law Offices of Kenneth U. Reyes, P.C. This article is not a solicitation.
