Dep exemptions

[John3cpa]

Legally separated parents with joint custody could not agree on how to claim the three kids. Judge yesterday ordered that they were to split them with Dad (my client) taking 2 and Mom 1 in even years starting with 08 and then visa versa in odd years. You guessed it...Mom has already e filed claiming all 3 for 08. Would you paper file Dad's return attaching the Court's order to the return? What will I expect to see as IRS response?

[New York Enrolled Agent]

Legally separated parents with joint custody could not agree on how to claim the three kids. Judge yesterday ordered that they were to split them with Dad (my client) taking 2 and Mom 1 in even years starting with 08 and then visa versa in odd years. You guessed it...Mom has already e filed claiming all 3 for 08. Would you paper file Dad's return attaching the Court's order to the return? What will I expect to see as IRS response?

I'm pasting a piece of the preamble to Reg §1.152-4

[start]A state court may not allocate an exemption because sections 151 and 152, not state law, determine who may claim an exemption for a child for Federal income tax purposes.[end]

I suggest you print out the above cited regulation. Without a release only the custodial parent can claim the exemption. The Reg says the custodial parent is the parent with whom the child spent the most number of nights.

I don't know if Dad had the custody under these rules. If not, the IRS will not give him the exemption. Further, I'm assuming from your screen name you are a CPA. You could be given a penalty for preparing the return if Dad does not have custody as defined in the Reg.

Dad can go back to state court and ask the judge to take sanctions against the wife if she violated the judge's orders..

[Snaggletooth]

This is what I mean

NYEA, I am not at odds with anything you have said.

However, when the rubber hits the road, IRS has conventionally not made a practice of interfering with local courts. Even today, I believe there is a cite which allows a taxpayer to send in a copy of a divorce decree stating the award of a tax exemption.

There have been, in my career, two great sweeping IRS reforms with respect to the exemption of divorced/separated taxpayers, once in the mid-80s, and again the mid-00s. As far as I know, IRS has stopped short of overruling local courts, regardless of what is in the code/regs. Probably for political reasons, but nonetheless I'm not award of a single reversal of a local judge's award of dependency exemption.

With regard to penalizing the preparer, the preparer could really by out-of-luck either way. I don't intend to award differently than a judge's decree unless I see some real action by the IRS reversing their award of exemption.

As usual, I don't know everything. If someone can show me where this has happened, and the taxpayer properly sent a copy of the decree and there are no other germane circumstances, I'll certainly change my approach.

[taxmom34]

tax year 2005, same thing happened to one of my clients, enclosed copy of divorce decree, highlighted section about dependents. have not heard from IRS yet and dont expect to

[John3cpa]

Thanks

Thanks NY & Snag. In this case the "Dad" is my son, so I am not signing the return...so I'm OK. I was hung up on the number of nights, as they are in Mom's favor. I guess we will go ahead and take the 2 kids for 08 and attach the "order" to the return and see what happens next.
I appreciate your input!!

[Snaggletooth]

Cite

JohnC3PO, much of the code was re-written in 2006 and 2007 exactly along the lines that NYEA correctly explained and cited.

But see Pub 504, beginning at the bottom of page 8 and continuing through much of page 9. It's like the IRS would love us to start using the code to beat up on local judges, then pulls the rug out from under us in the final analysis.

It takes quite a bit of legal action for Federal laws to prevail in court over State Laws, even if they are entitled to do so. For the issue being discussed, it would be a train wreck.

[New York Enrolled Agent]

John3

I pasted the snip from the preamble to the Reg for emphasis on what has been well decided by the Courts. To be fair, I will note the new Regs are for tax years after 7/2/08. But, having noted this, the fact remains - ONLY the custodial parent can claim the child unless the non-custodial parent secures a release from the custodial parent. The new reg simply gives a "better" way of determining who has custody in split situations.

Any posts which suggest that attaching the decree of separation or divorce is sufficient to get the dependency is IMO incorrect. I would urge you to read Miller 114 TC 184 and various other cases citing Miller. You'll see a decree will work only if it contains ALL the information required on IRS Form 8332. The truth is - most decrees do not.

One small piece from Miller:

[start] Section 152(e)(2) clearly requires that the custodial parent release the dependency exemption for a child by signing a written declaration to that effect in order for the noncustodial parent to claim the child's dependency exemption. The control over a child's dependency exemption conferred on the custodial parent by section 152(e)(2) was intended by Congress to simplify the process of determining who is entitled to claim dependency exemptions for children of a marriage. See H. Rept. 98-432 (Part 2), at 1498 (1984). To make section 152(e)(2) work as intended, that control must be preserved by insisting on adherence to the requirements of section 152(e)(2). ... Although the Permanent Orders granted Mr. Lovejoy the right to claim the dependency exemptions for his children, a State court cannot determine issues of Federal tax law. [end]

In the past the IRS has not been a beacon of clarity as to what a decree signifies. Thus, they issued the new Regulation which does make it much clearer.

[John3cpa]

Get the 8332!

NYEA,
Sounds like the key would be to use the judge's order to "require" Mom to sign the 8332. Yes?

[New York Enrolled Agent]

NYEA,
Sounds like the key would be to use the judge's order to "require" Mom to sign the 8332. Yes?

Absolutely! But, you now have the problem of mom having to amend her return. Good luck!

[veritas]

If I was doing Mom's return

I would have advised her she was entitled for tax purposes to claim the three kids. If she said yes I would do it.

The caveat being she could be hauled back to court for disobeying the judges order. Not likely I would think.


This is a good example of why we shouldn't be doing returns for both parents.

[Snaggletooth]

NYEA post

As I expected, NYEA responded with more backup, and that is to his (her) credit. In fact, when I looked at "Miller" I found another case where IRS disallowed a court decree simply because it failed to specify the years dependency could be claimed, and other ridiculously trivial flaws [White, TC memo 1996-448. Read this one if you would like a good example about how picky the IRS can be.]

The one huge point effectively made by NYEA is that even if a decree is attached, it must conform to all the elements of the 8332.

Nonetheless, I do not predict a wholesale overruling of state court decrees without a lot of conflict that the IRS does not want and can ill afford. Can the thousands of various court judges allow themselves to be educated to simply be noncommittal to the exemptions? I doubt it. I also seriously doubt they can be educated to observe the compliance of the 8332 in their decrees.

Thank you NYEA for your cites and relevant conversation.

[John3cpa]

Again Thanks

Thanks again to all. I spoke with Dad's (my son) atty who assured me that the order that he is drafting for the judge to sign (I did not know it was done that way) will have the requirement that Mom provide a signed 8332 each year in conformity with the switching of exemptions.

This has been a great learning experience. The underlying reason for which i certainly wish had not occured.

Bye for now.