Child of Divorced Parents

[tpert]

I have never come across this before. Perhaps someone knows the answer from having dealt with this.

Divorced parents had joint custody of their child (who would generally be a qualifying child dependent). Mother was custodial parent and signed over dependency to father on alternate years (2011 would have been one of these years). Lived with mother approximately 5 days a week and with father 2 days for several years. Child was involved in an accident in May and died.

Initially, my reaction was that the child is not in the parents custody for more than one-half of the calendar year and thus the rules for divorced / separated parents would not apply and Form 8332 could not be used (similar to the rules for emancipation). Looking further, I found this in Regulation, §1.152-1:

The fact that the dependent dies during the year shall not deprive the taxpayer of the deduction if the dependent lived in the household for the entire part of the year preceding his death.

This makes me question whether even the mother can claim the child since the child did not live there the entire year preceding death. However, it also says that "a custody agreement under which the dependent is absent for less than six months in the taxable year of the taxpayer, shall be considered temporary absence due to special circumstances."

My interpretation of the above is that it seems to say that

1. The child is considered to have lived with the mother for the entire time since the custody agreement only caused temporary absences.
2. The parents did not have custody for more than one-half of the year and thus the mother cannot use Form 8332 to allow the father to claim the dependency.

I would appreciate any insight anyone has on this. While I doubt that the IRS would question this either way, if they did, I would not want to have misinterpreted the proper handling in this kind of situation.

I know that there was a custody battle and that there may have been a decision to award full custody to the father beginning in April, but I have not delved too much into questioning them. Would that have changed the way this should be handled? I have been reading this stuff for days and am quite confused. I don't want to go back to them multiple times with questions.

Thanks.

[Jesse]

I think it would be based on the time the child was alive in 2011. So the same rules would apply but instead of a full calendar year it would be based on the short year.

Whoever had the child for the greater period of time the child was alive is considered the custodial parent. In turn the custodial parent could allow the noncustodial parent to claim the dependency deduction.

This is only my opinion and I'm sure someone will jump in to correct me if I'm wrong.

[okie1tax]

child of divorce

If a "live birth" can be claimed, even though lived only minutes, why would not a child who lived for months be claimed?

[dtlee]

I tend to agree that custody ends with death.

Regulation §1.152-4(c) says, "A child is in the custody of one or both parents for more than one-half of the calendar year if one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year." and the rules for divorced or separated parents require that the "the child is in the custody of one or both parents for more than one-half of the calendar year." I could not find an exception for the birth or death of a child for these rules. I would have liked to, but I could not. Perhaps someone with better eyes or knowledge will find it.

Hence, if that is correct, the rules for divorced or separated parents cannot apply and the "custodial" parent cannot give up the child to the noncustodial parent if the child was not alive for more than half the year. I think the rules would then fall back to the normal Qualifying Child rules and whoever had lived with for more than half of the year would apply. That is where the second part has me a bit baffled.

For the second part of the question, as okie1tax points out there are rules for birth or death during the year, but as the OP points out, the wording of §1.152-1(b) is not perfectly clear on this matter:

Section 152(a)(9) applies to any individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 153, of the taxpayer) who lives with the taxpayer and is a member of the taxpayer's household during the entire taxable year of the taxpayer. An individual is not a member of the taxpayer's household if at any time during the taxable year of the taxpayer the relationship between such individual and the taxpayer is in violation of local law. It is not necessary under section 152(a)(9) that the dependent be related to the taxpayer. For example, foster children may qualify as dependents. It is necessary, however, that the taxpayer both maintain and occupy the household. The taxpayer and dependent will be considered as occupying the household for such entire taxable year notwithstanding temporary absences from the household due to special circumstances. A nonpermanent failure to occupy the common abode by reason of illness, education, business, vacation, military service, or a custody agreement under which the dependent is absent for less than six months in the taxable year of the taxpayer, shall be considered temporary absence due to special circumstances. The fact that the dependent dies during the year shall not deprive the taxpayer of the deduction if the dependent lived in the household for the entire part of the year preceding his death. Likewise, the period during the taxable year preceding the birth of an individual shall not prevent such individual from qualifying as a dependent under section 152(a)(9). Moreover, a child who actually becomes a member of the taxpayer's household during the taxable year shall not be prevented from being considered a member of such household for the entire taxable year, if the child is required to remain in a hospital for a period following its birth, and if such child would otherwise have been a member of the taxpayer's household during such period.

As I am reading this, if indeed the custody remained the same (5 days with the mother and 2 with the father) during the entire period, I would say that this supports treating the child as having "lived in the household..." of the mother "...for the entire part of the year preceding his death" since the absences are treated as temporary.

However, if full custody was granted in April to the other parent, I am not sure. If the court ordered the child into the full custody of the father, I tend to not think of it as temporary even though the period is under six months.

So my take on this is as follows:

If the child dies before the middle of the year, the rules for divorced/separated spouses will not apply in terms of allowing the noncustodial parent to claim the child using Form 8332 and the general rules for Qualifying Children would apply.

If the custody remained split with the mother having five and the father having 2 days a week, then I lean to having the mother claiming the child since the 2 days would seem to fall under the rule, "a custody agreement under which the dependent is absent for less than six months in the taxable year of the taxpayer, shall be considered temporary absence due to special circumstances." Thus, the child is the Qualifying Child of the mother.

If the custody agreement changed and the child moved permanently to the father in April ,I tend to waffle between staying with that 6 month rule (the period with the father was less than 6 months) and saying that this change was not a temporary change since it was ordered by a court.

If the change fits under that 6 month rule, I would consider the child to be the Qualifying Child of the mother as I would have had the custody not changed.

If the change is not considered temporary, I would say that neither parent had the child living with them "for the entire part of the year preceding his death" and neither parent may claim the child as a Qualifying Child. In that case, I would apply the Qualifying Relative rules to determine dependency.

[okie1tax]

Child of divorced parents

Court awarded custody doesn't have any bearing on the issue, where the child spent it's nights decides. Would not the child's "calendar year" be from 1-1-XX to 5-xx-xx? Isn't that the year in question?

[dtlee]

Court awarded custody doesn't have any bearing on the issue, where the child spent it's nights decides. Would not the child's "calendar year" be from 1-1-XX to 5-xx-xx? Isn't that the year in question?

There are two separate issues here. The counting of nights determines the custodial parent for the rule for divorced or separated parents. Since the parents did not have custody of the child for more than half the calendar year, I do not believe the rules for divorced or separated parents apply. I do not find a reference to a "child's calendar year" in what I researched. Could you post a cite, please.

[okie1tax]

From above your quote -
"The fact that the dependent dies during the year shall not deprive the taxpayer of the deduction if the dependent lived in the household for the entire part of the year preceding his death."

Doesn't this mean that you would consider this as the "entire year" giving the custodial parent the right to claim the exemption or to use Form 8332?

And, NO, I can't give a cite, just applying er ahem uh "common sense.

[newbie]

I think it would be based on the time the child was alive in 2011. So the same rules would apply but instead of a full calendar year it would be based on the short year.

Whoever had the child for the greater period of time the child was alive is considered the custodial parent. In turn the custodial parent could allow the noncustodial parent to claim the dependency deduction.

This is only my opinion and I'm sure someone will jump in to correct me if I'm wrong.

Court awarded custody doesn't have any bearing on the issue, where the child spent it's nights decides. Would not the child's "calendar year" be from 1-1-XX to 5-xx-xx? Isn't that the year in question?

Seems the child would have a final "short" tax year - same would apply to a "short" tax year in the initial birth year. If parents separate before birth in say August the child would still have a custodial and noncustodial parent without having lived with either for more than 6 months.

[dtlee]

From above your quote -
"The fact that the dependent dies during the year shall not deprive the taxpayer of the deduction if the dependent lived in the household for the entire part of the year preceding his death."

Doesn't this mean that you would consider this as the "entire year" giving the custodial parent the right to claim the exemption or to use Form 8332?

And, NO, I can't give a cite, just applying er ahem uh "common sense.

The cite I was hoping you had was related to your refernce to "the child's 'calendar year'." As I indicated, there are two separate rules involved. One relates to divorced or separated spouses and that (as I read it) requires one or both parents to have custody for more than half the calendar year. Since the child did not live more than half the calendar year, I am suggesting that the rule for divorced or separated spouses cannot be applied. As Newbie suggests, we could likely identify a custodial and noncustodial parent for that period, but since the rules for divorced or separated spouses do not apply, they cannot use Form 8332 to transfer the dependency. I do not see how we can interpret "calendar year" as you describe it, or I would be glad to agree that the divorced/separated parent rules would apply.

The other issue is the general rule of qualifying children. The general rule requires a qualifying child to have "the same principal place of abode as the taxpayer for more than one-half of such taxable year." This child did not live more than one-half of the taxable year, so this rule is not met. The rule which you quoted from my post provides an exception if the child is born or dies during the year (which is this situation). If that is the case, a child who is born or dies during the tax year is considered as living with the taxpayer for the entire year if the taxpayer’s home was the child’s home for the entire time he or she was alive. The question I am asking is, whether we treat the child's home as being with the mother the entire time the child lived or not? If we can, than the child is a Qualifying Child of the mother. If not, the Qualifying Relative rules would apply.

[dtlee]

Seems the child would have a final "short" tax year - same would apply to a "short" tax year in the initial birth year. If parents separate before birth in say August the child would still have a custodial and noncustodial parent without having lived with either for more than 6 months.

I agree that the child would have a short tax year, but the parents still have a normal year.

Assuming you are correct and there is a custodial and noncustodial parent, are you saying that you believe the child's death means we can disregard the rules that require parents to have custody for more than half the calendar year to apply the divorced/separated spouse rules?

[Gary2]

For the second part of the question, as okie1tax points out there are rules for birth or death during the year, but as the OP points out, the wording of §1.152-1(b) is not perfectly clear on this matter:

Section 152(a)(9)...

There doesn't seem to be a 152(a)(9), making me wonder if the regulations haven't been updated since the UDC was enacted. In any event, the wording of the regulation makes me wonder where the code either explicitly states the special rules for a child who is born or died during the year or gives the IRS the authority to make regulations to that effect.

Also, 152(c)(1)(B) uses the term "taxable year" for the simple qualified child half-year residency requirement, while 152(e)(1)(B) uses the term "calendar year" for the custody requirement. This difference suggests being cautious before jumping to any conclusions about the rules being identical.

[dtlee]

There doesn't seem to be a 152(a)(9), making me wonder if the regulations haven't been updated since the UDC was enacted. In any event, the wording of the regulation makes me wonder where the code either explicitly states the special rules for a child who is born or died during the year or gives the IRS the authority to make regulations to that effect.

Also, 152(c)(1)(B) uses the term "taxable year" for the simple qualified child half-year residency requirement, while 152(e)(1)(B) uses the term "calendar year" for the custody requirement. This difference suggests being cautious before jumping to any conclusions about the rules being identical.

Thank you, Gary.

You are correct that the UDC rules have not been incorporated into that regulation. I am at least partially relying on the TTB, CCH, and the Master Tax Guide's interpretation that this rule still applies to children who are born or who died during the year even though the verbiage actually more closely matches the "member of household" test under the old (pre-UDC) rules and the Qualifying Relative rules.

I am not assuming that "taxable year" is equivalent to "calendar year." However, I believe that the use of "calendar year" eliminates the rule for divorced or separated spouses from being applicable to this situation.

I am questioning whether or not this child can be treated as the Qualifying Child of the mother or if the Qualifying Relative rules need to apply since the child did not live with her half the "taxable year" of the mother. The term "taxable year" as I understand it in terms of §152, means the taxable year of the taxpayer (as opposed to the taxable year of a dependent who may not be a taxpayer). Hence, I believe the code is allowing for the potential that there may be a non-calendar year taxpayer.

I believe that the child in fact qualifies as a Qualifying Child of the mother.

Two interpretations could allow this.

1. If we assumed that the time with the father was a "temporary absence" then the regulations say that the child lived the entire year with the mother since the child lived there for the entire time alive and she is the only tapayer who can claim this child as a Qualifying Child.
2. If we accept that since a child's time alive is treated as equivalent to a full year of living with a taxpayer, then we might assume that half of that time would be equivalent to a half year with that same taxpayer. From that, if the mother has had custody for more than half of the child's time alive, she is the only taxpayer who can claim this child as a Qualifying Child.

My preference would be to consider the time living with the father as temporary absenses in accordance with the under six month test and to consider the child to be the Qualifying Child of the mother. I am having trouble finding anything to support that second interpretation, so I am trying to build a case for the first.

[Gary2]

I don't see how the time with the father could be anything but a temporary absence, with one caution.

The wording for this uses "principal place of abode." This is not the same concept as being in the custody of a parent, or even residing. It's highly likely that the principal place of abode was with the mother, but it's conceivable that the father's home was treated by the child as the principal place of abode, with the school nights at mother being the temporary absence (just like a student who goes to boarding school, while returning on weekends, is temporarily absent for 5/7 of the time).

At which point the lawyers dig through the Congressional record to discern Congress's intent over their unfortunate choice of multiple terms to make similar points (abode, reside, and custody). The UDC isn't quite as uniform as we would like.

[tpert]

Thanks for all the replies.

It sounds like the rules for divorced parents do not apply.

Does anyone think that if full custody were awarded to the father back in April, that the permanent place of abode would be considered changed since the child was not intended to go back with the mother?

I plan to call them back this week.

Is this something where I need to disclose the position?

[Lion]

If

If divorced parent rules don't apply -- and I'm not convinced they don't and would continue researching if it were my client -- then for this transitional year you'll still be counting the nights spent with each parent during the child's short year. The IRS doesn't care about custody; they're looking at where the child resided, a situation that changed during the year.