Form 8332 to Dad, can his wife claim them on her MFS return.

[MRPLOW]

Ex-wife sign's 3 dependents via Form 8332 over to dad, per divorce decree.

Dad is remarried, but due to child tax credit phaseouts, they do not receive child tax credit. They could save over $3000 my filing MFS, but this requires his wife to put the kids on her MFS return. Opinions on this?

There's about $10,000 in refunds here if they were to go back and amend the 3 previous years returns.

[Snaggletooth]

Let me understand this

This couple wants to use three years' worth of 8332s. But in order to get the benefit of the Child Tax Credit, they will
have to file MFS for three years because CTC will phase out because of his income.

So that means by filing separately, the stepmother (not the natural father) would have to claim the children as deductions?

Am I correct in assuming the 8332 lists the father (and not the stepmother) as entitled to the deduction?

Doesn't sound like something I would do as a preparer. But I don't have a cite...

[MRPLOW]

This couple wants to use three years' worth of 8332s. But in order to get the benefit of the Child Tax Credit, they will
have to file MFS for three years because CTC will phase out because of his income.

So that means by filing separately, the stepmother (not the natural father) would have to claim the children as deductions?

Am I correct in assuming the 8332 lists the father (and not the stepmother) as entitled to the deduction?

Doesn't sound like something I would do as a preparer. But I don't have a cite...

Exactly, except that was my idea and just a what if it was legal scenario.
Surely the IRS has had this scenario presented to them before, I wondered what the outcome was...

[taxea]

Exactly, except that was my idea and just a what if it was legal scenario.
Surely the IRS has had this scenario presented to them before, I wondered what the outcome was...

I would venture to say the TP who attempted this was denied. I wouldn't do it without a letter from Special Counsel.

[Koss]

Prior Years

You can't go back and amend a previous year to change the filing status from MFJ to MFS.

If they already filed MFS, then in principle, you could amend both returns to shift the dependents to the other spouse.

That doesn't answer the basic question you have raised.

There is a coherent argument that can be made to allow the stepmother to claim the dependents.

At this late hour, I'm not going to try to cite the Internal Revenue Code, or even an IRS publication.

But the basic concept is this: Because they are a married couple, any dependent is a dependent of both spouses--regardless of how the dependent came to be a dependent (e.g., qualifying relative, qualifying child, or Form 8332).

Even when a couple files separately, certain items remain attributable to both spouses. And they have a choice as to how to allocate those items.

If a married couple has a dependent that actually lives with them, then there is absolutely no question in my mind that the dependent can be allocated to either spouse if they file separately, even if one spouse is a step-parent. So I don't see why this principle would change if the child does not live with them.

Put another way: When the custodial parent signs Form 8332, the child in question becomes the qualifying child of the noncustodial parent (at least for purposes of the dependent exemption and the child tax credit). Because the noncustodial parent is married, the child arguably becomes the qualifying child of the noncustodial parent and his spouse. Therefore, if they file separately, they may choose who claims the dependent.

MRPLOW wrote:

Surely the IRS has had this scenario presented to them before, I wondered what the outcome was...

Yes, I'm sure the IRS has seen this question before. But that doesn't mean that the IRS has a consistent, reliable, and logical answer. The "outcome" in one particular audit is not necessarily going to be the "outcome" in some other context.

I'm not sure this issue has ever been presented to the Tax Court.

If the custodial parent signs Form 8332, and then does not claim the child, or claims the child only for HOH, EIC and Child Care, and the spouse of the noncustodial parent claims the child for the dependent exemption and the child tax credit, properly identifying the child as a stepchild on the return...

I'm not sure the IRS would ever question it.

BMK

[MRPLOW]

You can't go back and amend a previous year to change the filing status from MFJ to MFS.
If they already filed MFS, then in principle, you could amend both returns to shift the dependents to the other spouse. BMK

They did in fact file MFS for the years in question, hence my question/theory about switching dependents.

[MRPLOW]

If a married couple has a dependent that actually lives with them, then there is absolutely no question in my mind that the dependent can be allocated to either spouse if they file separately, even if one spouse is a step-parent. So I don't see why this principle would change if the child does not live with them. BMK

I am aware of this, do it all the time, but these dependents do NOT live with them.

[MRPLOW]

If the custodial parent signs Form 8332, and then does not claim the child, or claims the child only for HOH, EIC and Child Care, and the spouse of the noncustodial parent claims the child for the dependent exemption and the child tax credit, properly identifying the child as a stepchild on the return...

I'm not sure the IRS would ever question it.BMK

I'm well aware that the IRS would probably not ever question it, but that doesn't make it a legal deduction.


Koss, I appreciate your thoughts on this...

[Gary2]

There is a coherent argument that can be made to allow the stepmother to claim the dependents.

My intuition is to agree with your argument. I'll just add that the code (not necessarily the regs) only requires the custodial parent statement to state that the custodial parent will not claim the child. It says nothing about having to name the person to whom the exemption is assigned.

[DonPriebe]

... I'll just add that the code (not necessarily the regs) only requires the custodial parent statement to state that the custodial parent will not claim the child. It says nothing about having to name the person to whom the exemption is assigned.

But can the exemption be assigned to anyone other than the non-custodial parent? The instructions on the form itself [which is clearly not authoritative] do not seem to allow that.

[Koss]

Form 8332

I don't think the custodial parent can release the exemption to anyone other than the custodial parent. But if the child's biological father is the noncustodial parent, then his spouse may also be considered the noncustodial parent.

It does raise the question, in this particular case, as to whether Form 8332 would need to have the stepmother's name and SSN at the top.

As Gary2 pointed out, the code does not really address this issue.

As a practical matter, I can see a potentially serious interpersonal conflict developing if the child's father asks the child's mother to sign Form 8332 with the stepmother's name and SSN at the top. The child's mother might refuse to sign it, taking the position that the divorce decree only requires her to allow the father to claim the child's exemption.

One possible approach would be to fill in the top line of Form 8332 with the names of both the father and the stepmother.

The SSN field could be left blank until after the mother signs the form. And then you fill in the stepmother's SSN...

BMK