Splitting the Kids

[erchess]

Have a single client who seems to have two kids living with him full time (their mother is in a mental institution as I understand it) yet he only claims one as a dependent. He thinks "Yes the IRS requires that we split the kids for tax purposes even though their maintenance in lion share is mine."

Correct me if I'm wrong but I don't think the IRS nor any other US Taxing Agency would be the source of such a requirement. I even question whether the IRS would care if a taxpayer flouted a relevant order from Divorce Court. I claim that it boils down to where the children spent the most time which is a contest he wins one hundred percent to zero percent.

Ok who is right, me or my client and if I am right should I decline the job unless he agrees to claim both kids?

[Uncle Sam]

Splitting the Kids

First of all - what does the divorce decree state as far as the children regarding custody, support, and dependency exemption?

Next - what benefit would it be for the ex-wife if she DID claim a child? If she's in an institution, unless she's got substantial investment income, would she be required to MFS?

[David1980]

A divorce decree could meet the requirements to act as a 8332. You would have to look over the requirements and see if they're met. Fortunately it gets more clear in the future as the 8332 would be required (however, it only applies to divorce decrees after 2008, so those in 2008 or before would still be valid.)

Even if he has signed away the exemption, he could still use the child for EIC, head of household (but if he has another kid that doesn't matter), and the child & dependent care credit.

As far as declining the job unless he agrees to claim both kids - I don't see why you would. There's no requirement to claim all the kids that you're eligible to claim. If he wants to pay more taxes that he isn't required to, his choice.

[Jesse]

Agree with other posters

I think the taxpayer has the IRS and divorce court mixed up, and it is the divorce decree that requires that they split the kids for tax purposes.

Custody is determined by physical presence in the house and the IRS rules and the divorce decree often times do not agree. Per the IRS he may have the right to claim the child but if he does not abide by the divorce decree it could be contempt of court and the ex may be able to take action.

Possibly the ex will not have any advantage in claiming the child and there should not be any problem if he claims both children, but if it is in the divorce decree and he wants to abide by this I would explain the contradiction and respect what he decides.

[Roberts]

The IRS doesn't care what the divorce decree stipulates unless they both try to take the deduction. Just make sure she isn't claiming the deduction. If she wants to and the divorce decree gives it to her, he's out of luck unless he can persuade her otherwise. The deduction is often negotiated during the divorce and I have many clients who "buy" the deduction from their ex after the fact.

[BHoffman]

The IRS doesn't care what the divorce decree stipulates unless they both try to take the deduction. Just make sure she isn't claiming the deduction. If she wants to and the divorce decree gives it to her, he's out of luck unless he can persuade her otherwise. The deduction is often negotiated during the divorce and I have many clients who "buy" the deduction from their ex after the fact.

I'm questioning this. If he can prove he provides 100% of support, I believe the IRS will grant the exemptions, credits, and other tax effects to him.

[Roberts]

I'm questioning this. If he can prove he provides 100% of support, I believe the IRS will grant the exemptions, credits, and other tax effects to him.

You are saying the IRS will overturn the legal decree of the family courts if an ex-spouse throws a fit? Sorry, the IRS doesn't care that much and if a court has determined the owner of the credit, they will uphold it. Now if they are just separated, that's different but the OP mentioned divorce court so it implies they are either legally separated (where this would have been ruled upon most likely) or divorced.

And the IRS will not get involved if a parent buys the credit from the other parent. BUT, if the selling parent still takes the credit (meaning they both took it) the seller would be given the credit by the IRS and the buying parent would need to take the ex to court for breach of contract.

[Burke]

I had always been under the impression that divorce agreements and divorce courts are a matter of state law, and they cannot supersede federal tax law, which would prevail under the rules for claiming dependents. As a matter of practice, I agree with the other posters, that as long as the mother is not claiming any child, it would never come up. Client sounds as though he qualifies. And how could she document support or residency requirements under these circumstances? But ultimately, it is the TP's decision, and I would not refuse to do the return if he did not wish to claim. Just get a statement in writing.

[newbie]

You are saying the IRS will overturn the legal decree of the family courts if an ex-spouse throws a fit? Sorry, the IRS doesn't care that much and if a court has determined the owner of the credit, they will uphold it.

Unless I'm misunderstanding what you are saying, the IRS does not care what the court determines. The noncustodial parent needs the 8332 signed by the custodial parent. If they don't cooperate the court could force one or the other to sign a 8332 and amend their tax return. The IRS will look at the facts, where did the child live for >6 months, who provided more than 1/2 support, etc. but not at the court decision. If both claim the child proof of residency and support or a signed 8332 will be requested.

[Roberts]

Unless I'm misunderstanding what you are saying, the IRS does not care what the court determines. The noncustodial parent needs the 8332 signed by the custodial parent. If they don't cooperate the court could force one or the other to sign a 8332 and amend their tax return. The IRS will look at the facts, where did the child live for >6 months, who provided more than 1/2 support, etc. but not at the court decision. If both claim the child proof of residency and support or a signed 8332 will be requested.

This hasn't been the case since 1984.

If the divorce is after 1984 (which is most likely at this point), an 8332 is not needed. The non-custodial parent only needs to include copies of the divorce decree or separation agreement. The instructions say to include these documents each time but the reality is that I've never had an IRS rep expect it when there has been a conflict.

And in regards to custodial parent and support - legally recognized parents do not need to prove support to get the credit. It's the divorce / separation rules included with the 1040 instructions.

[David1980]

And how could she document support or residency requirements under these circumstances?

There's the exception for qualifying child in divorced or separated parent situations, so the residency requirement would be met so long as the kid lived with either parent more than 6 months. And of course for qualifying child you don't need to provide any support at all to claim the child - the child just can't provide over half their own.

[newbie]

This hasn't been the case since 1984.

If the divorce is after 1984 (which is most likely at this point), an 8332 is not needed. The non-custodial parent only needs to include copies of the divorce decree or separation agreement. The instructions say to include these documents each time but the reality is that I've never had an IRS rep expect it when there has been a conflict.

And in regards to custodial parent and support - legally recognized parents do not need to prove support to get the credit. It's the divorce / separation rules included with the 1040 instructions.

But the divorce decree is is only accepted in lieu of the 8332 if it has the same information as the 8332, names, soc sec #'s, signatures and absolutely no contingencies such as ex can take child if current on child support.

Sorry - support still slips my mind, child cannot provide more than 1/2 their own support. It used to be parent had to provide more than 1/2 and child support was considered as provided by both.

[Roberts]

But the divorce decree is is only accepted in lieu of the 8332 if it has the same information as the 8332, names, soc sec #'s, signatures and absolutely no contingencies such as ex can take child if current on child support.

Where exactly is this spelled out? I've never read that there is a contingency that a parent must be current on their child support to qualify for a child credit.

And it's very clearly pointed out that the 8332 isn't required after 1984 divorce cases.

[David1980]

Where exactly is this spelled out? I've never read that there is a contingency that a parent must be current on their child support to qualify for a child credit.

And it's very clearly pointed out that the 8332 isn't required after 1984 divorce cases.

He means the opposite. That if the divorce decree indicates the parent must be current on child support to claim the child, that the divorce decree does not meet the IRS requirements and is thus invalid as far as allowing the noncustodial parent to claim the child.

[newbie]

Maybe I'm just overly cautious.

He means the opposite. That if the divorce decree indicates the parent must be current on child support to claim the child, that the divorce decree does not meet the IRS requirements and is thus invalid as far as allowing the noncustodial parent to claim the child.

Thank you for clarifying, that's what I meant.

http://www.aicpa.org/pubs/taxadv/online/aug2001/clinic6.htm

There are several cases at the above link that have disallowed the dependency exemption for different reasons without form 8332. I'm not trying to start an arguement, I've just been taught the IRS will follow their rules because it's plain and simply easier for them rather than try to weed through the divorce battles and with changing circumstances they are not going to take on the responsibility to see if the divorce decree is or isn't followed.