Separated Parents .. Custodial parent?

[smithtax]

Tax Court Opinion

On a side note, in case anyone has encountered a similiar situation.

I've always counseled my clients regarding the last sentence of §1.152-4(e)(1)(ii), "A court order or decree or a separation agreement may not serve as a written declaration." Oftentimes the client will have a legal written document, primarily a divorce decree stipulating that he/she has been granted the dependency exemption for certain years; however, the Reg states that it is (may not be) not sufficient.

On May 2, 2012, the tax court issued an opinion, Scalone v Commissioner, T.C. Summary Opinion 2012-40 (http://www.ustaxcourt.gov/InOpHistor...ry.sum.WPD.pdf) that allieviates certain issues relating to the Reg sentence referenced above.

As an example, just last week I allowed a dependency exemption for a non-custodial parent who had a signed, written divorce decree, but whose ex refused to sign Form 8332, even though the ex was not going to violate the court order and claim the child. So, I attached Form 8275-R referencing the tax court opinion.

[Burke]

What if the aforementioned taxpayers were on a fiscal year?
I refer back to my earlier post, "taxable year".

How can an individual be on a fiscal year?

[veritas]

An individual can elect

How can an individual be on a fiscal year?

a fiscal year on their first tax return.

[Roberts]

a fiscal year on their first tax return.

I know this is possible (remember it from my EA training), have you ever seen anyone do this?
The more I think about it, the more nightmarish it sounds.

[veritas]

I have

I know this is possible (remember it from my EA training), have you ever seen anyone do this?
The more I think about it, the more nightmarish it sounds.

never seen it. Hopefully I never will.

[Roberts]

never seen it. Hopefully I never will.

I'd wonder, what do they do when they get married and their spouse isn't operating via a fiscal calendar?

[New York Enrolled Agent]

What if the aforementioned taxpayers were on a fiscal year?

I refer back to my earlier post, "taxable year".

I think it's covered all the way.

§152(e) references both calendar year & taxable year. I think the way the section is written that all bases are covered (though as Roberts suggested virtually all individuals are calendar year taxpayers) .

In any case, the definitions of taxable year, fiscal year and calendar year are all found in §441.

[Golden Rocket]

Apply the Test Separately

In case of two parents with two different reporting fiscal years, it is mathematically possible for EACH parent to pass the qualifying test for their reporting year, as the way it is written, it would be applied to each taxpayer.

Momma's fiscal reporting year ends September 30, and Daddy is on a calendar year. It is entirely possible for the child to stay with Momma 185 days from 10/1/11 to 09/30/12 and also stay with Daddy 185 days from 01/01/12 to 12/31/12. Not likely, but possible nonetheless.

[Gary2]

On a side note, in case anyone has encountered a similiar situation.

I've always counseled my clients regarding the last sentence of §1.152-4(e)(1)(ii), "A court order or decree or a separation agreement may not serve as a written declaration." Oftentimes the client will have a legal written document, primarily a divorce decree stipulating that he/she has been granted the dependency exemption for certain years; however, the Reg states that it is (may not be) not sufficient.

On May 2, 2012, the tax court issued an opinion, Scalone v Commissioner, T.C. Summary Opinion 2012-40 (http://www.ustaxcourt.gov/InOpHistor...ry.sum.WPD.pdf) that allieviates certain issues relating to the Reg sentence referenced above.

As an example, just last week I allowed a dependency exemption for a non-custodial parent who had a signed, written divorce decree, but whose ex refused to sign Form 8332, even though the ex was not going to violate the court order and claim the child. So, I attached Form 8275-R referencing the tax court opinion.

This was for a 2006 tax return. The IRS changed the rules effective with divorce decrees issued in 2009 or later, so you need to be careful applying this case.

[smithtax]

This was for a 2006 tax return. The IRS changed the rules effective with divorce decrees issued in 2009 or later, so you need to be careful applying this case.

Interesting. Can you provide a cite?

[New York Enrolled Agent]

Interesting. Can you provide a cite?

I think Gary is referring to T.D. 9408 which contained the new regulations.

[smithtax]

I think Gary is referring to T.D. 9408 which contained the new regulations.

Yes. Of course. §1.152-4(e)(5).

Thank you Gary, and NYEA, for the clarification.

[dtlee]

Going back to the original question

What happens when and if you have 2 parents each of whom agree that the child spent an equal number of nites with each parent. Leap year 366 days so 183 nites each. I see where the parent with the higher AGI is considered the custodial parent. However, what happens to the EIC, HH filing status, and the child tax credit all of which seem to indicate that the child must have lived with you for more than half of the year.

Is 183 days considered more than half of the year, in a year with 366 days?

I am not sure if this was answered or not, but I figured I woud add my 2¢. The divorced or separated parents rules requires that the child live with one or both parents more than half the year and then allocates the benefit to the custodial and noncustodial parent by the other rules.

As indicated, when both parents have custody an equal number of days, the custodial parent is treated as the parent with the higher AGI.

Assuming that all the other requirements of the divorced or separated parents rules apply, then this custodial parent may treat this child as a Qualifying Child for any of the five tax benefits for which this parent would otherwise qualify.

If this parent were to choose not to claim dependency (and child tax credit if the child is young enough), this parent may use Form 8332 (or its equivalent) to transfer the Qualifying Child to the other parent for these benefits. The remaining benefits (Earned Income Credit, Child Care, and Head of Household) remain with the custodial parent assuming that the custodial parent and child meet the requirements for those benefits.

[taxea]

It appears that neither qualifies for HOH because of the "stayed with aspeck" but, I will throw this in to the mix...Dad has the higher AGI so he gets the dependent along with the applicable credits. Because his AGI is higher his household expenses could also be higher. Would that have any effect on HOH? I suspect, as you all do that the nights are not equal. Are you doing both returns? I would explain the ramifications to each of them separately regarding losing HOH and see whether anything changes.
All either one needs is to flip the one night to the other. Mom may need the money more than Dad and she is losing out on all the credits without the 1 extra day. Once it is determined that she actually has one more night than he the ball flips totally into her court, including, HOH.

[farm girl]

OK< I'll explain this....

I'd wonder, what do they do when they get married and their spouse isn't operating via a fiscal calendar?

Well, at least this is how it worked 30 years ago for me. I haven't needed to check since then to see if it changed -

You apply for a change in your tax year to the Commissioner of the IRS. When the permission is granted, file a short-year return for the month(s) before the fiscal year, from that point on you file MFJ on a fiscal year.

In determining if the kids provided over half of their support - use the calendar year.

The other option would to file MFS and each use their own tax year.