Claiming Kids #2

[Snaggletooth]

OK, here we go again, and the latest is what I suspected would happen. Again.

You may wish to refresh on the discussion of a couple weeks ago, about whether the IRS would dishonor the dependency deduction of a local judge. Most of the smart folks held that the IRS regulations would take priority and that (among other reasons) the decree of a state court has no effect on Federal law such as the IRS code and regulations.

Well, brace yourselves for this. I returned from a North Carolina "intermediate" tax seminar in Asheville where this subject was covered in the printed material, and also discussed by the directors. The printed material is from the Land Grant University Education Foundation, published at Texas A&M. This course is known to us old-timers as the old "Illinois Farm Tax Seminar" and is STILL taught at several land grant schools as part of their extension service.

Under "Uniform Definition of a Child" the verbage confirms the regulations we have embraced for the last 11 months or so, favoring the spouse where the child spent over 50% of his time. However, in closing this caption, the following excerpt appears:

IF A DIVORCE DECREE OR SEPARATION AGREEMENT THAT WENT INTO EFFECT AFTER 1984 CONTAINS ALL OF THE REQUIRED INFORMATION, IT CAN BE USED INSTEAD OF FORM 8332:

"The following pages from the decree or agreement must be attached to the noncustodial parent's return:
*** The page stating that the noncustodial parent can claim the child as a dependent without regard to any condition (such as payment of support).
*** The page stating that the other parent will not claim the child as a dependent.
*** The page showing the years for which the claim is released.
*** The cover page that includes the other parent's taxpayer identification number.
*** The signature page with the other parent's signature and date of agreement.

If the decree or other agreement does not include all of these items, it cannot be used as a substitute for Form 8332. As a practical matter, it is usually easier to attach Form 8332 than to attach pages from the divorce decree."

In other words, no real change in this over the last 20 years.

[Bees Knees]

The 1040 instructions for 2006, page 21 under post-1984 decree or agreement has the same verbiage. The law that was going to allow the divorced parent to claim the kid simply because the divorce decree said so was repealed by the Gulf Opportunity Zone Act of 2005, signed into law on 12/26/2005.

[jainen]

that's exactly right

Yes, that's exactly right! The Working Family Tax Relief Act of 2004 changed it to allow a divorce decree even if it didn't say the same thing as Form 8332, but the GO Zone Act of 2005 changed it back before it could take effect (but not before all the publications were printed).

If the non-custodial parent's attorney did her job well, the divorce decree is all that is needed and you don't need to ask for the ex's cooperation. The two problem areas of most divorce decrees are the imposition of conditions, such as payment of child support, and the custodial spouse's specific unconditional promise to not claim the child.

[Snaggletooth]

Enforcement

For Jainen and Bees Knees - I respect the knowledge of both of you and trust without question that you are correct. In particular, I remember much of the discussion last year centered around the relevant IRS publication going to print on 12/21/2005, and the law being changed only a few days later.

However, now we have a major contemporary publication upholding the local divorce decree, and even the IRS instructions for the 1040 saying the same thing.

We will be shortly confronted by these questions from our customers -- and I can't think of many preparers who do as many as 50 returns that won't run into this. The IRS again has waffled in practice what it had achieved through legislation. With this kind of verbiage still in print almost a full year after the fact, I will take the position that best serves my clientele.

The "villain" in this case? Not those of us who don't understand. Nor those of you who know the law. Nor the clients. Time for the IRS to stand up and own up to this. The same thing happened in the years after 1984.

[jainen]

Your quote

>>However, now we have a major contemporary publication upholding the local divorce decree, and even the IRS instructions for the 1040 saying the same thing.<<

Snaggletooth, I don't understand what you are referring to here. Your quote shows that the rule is the same as it always has been. The decree is acceptable if and ONLY if it contains all the same information that Form 8332 does.

[Snaggletooth]

Jainen

...now I'm wondering if I am the one who is missing some great eternal truth...

The quotes from the Land Grant book and from the IRS 1040 Instructions actually support the notion that nothing has really changed.

I was thinking that the whole idea was that things HAD changed...that IRS would override local decrees and make them stick...that practitioners would be expected to enforce new dependency rules in favor of custodial parents...and that FINALLY some vehicle had been found to stop both parents from claiming the same child.

That was the whole point. I had subscribed to the idea that this same verbiage appeared in IRS publications last year simply because they had gone to press before the law had changed, and THIS YEAR the matter would be sufficiently defined in their publications. It appears it HAS been sufficiently defined, and IRS is not willing to create a furor with the local courts.

From numerous conversations on this board and elsewhere, this isn't exactly what I expected...maybe I am the one too dense to believe these are two separate schools of thought...

[Bees Knees]

IRS Publications and the law always supported the idea that the only way for the non-custodial parent to claim the kid was for the custodial parent to sign From 8332, or a similar statement that contains all the information from Form 8332.

What changed was the 2004 working families tax act which said a divorce decree naming which parent gets the deduction is all that is needed. That is why IRS had those instructions in them. Then Congress repealed their change at the end of last year, so we are back to where we were at before. Namely, either a signed Form 8332, or a signed divorce decree with the exact same information in it.

[jainen]

substitute for Form 8332

>>the whole idea was that things HAD changed...that IRS would override local decrees and make them stick...that practitioners would be expected to enforce new dependency rules in favor of custodial parents...and that FINALLY some vehicle had been found to stop both parents from claiming the same child<<

Nope, things have NOT changed. Ever since the mid-80's the IRS has overridden local decrees. There are NO new dependency rules in favor of custodial parents. And of course the biggest thing that hasn't changed is that there is still no way to stop both parents from claiming the same child!

The exemption goes to the "custodial parent," who is the one the child lives with for more than half the year. Same as before--the rules about Qualified Child didn't change that a whit. And the rules about transferring the exemption to the non-custodial parent didn't change either (except in the erroneous instructions published before the retroactive law). You can use Form 8332 or anything else that says the same thing, including a divorce decree if it does say the same thing but not including a decree if it does not say the same thing.

That's why your own qoute says, "If a divorce decree or separation agreement that went into effect after 1984 contains all of the required information, it can be used instead of Form 8332.... If the decree or other agreement does not include all of these items, it cannot be used as a substitute for Form 8332."

[Black Bart]

Dear Boys,

Would y'all mind repeating that?

[Black Bart]

Layman's question

Say guys: As the rules now stand, is it possible to make a general statement about the five tax benefits, assuming everything's normal and requirements are met (residency, income, support, blood relations, no grandparents or live-in boyfriend, etc.)?

If the 8332 (or divorce papers) are given, would it go like this?

Single, working, custodial ex-wife gets: EIC, HOH, baby-sitting.

Non-custodial ex-husband gets: dependency, CTC.

Living arrangements vary widely, but this one is very frequent. Would this division of credits be right for it?

[jainen]

amounts actually paid

>>Would this division of credits be right for it?<<

It works for me. And to stretch just a bit further, let's throw medical bills in--each parent can deduct amounts actually paid.

[Safire]

The Va Tech school used the same material and said the same thing in the seminar. I remember thinking, that was the first time that I had heard that.

I agree with it and think IRS should honor what a divorce decree states.

[Bees Knees]

The Va Tech school used the same material and said the same thing in the seminar. I remember thinking, that was the first time that I had heard that.

I agree with it and think IRS should honor what a divorce decree states.

No, the IRS should not honor what a divorce decree states, because Congress specifically says not to honor the divorce decree.

The 2004 Working Families Act when introducing the new uniform definition of a child added Section 152(e)(2)(A) which says in regards to how a non-custodial spouse can claim the child as a dependent:

“a decree of divorce or separate maintenance or written separation agreement between the parents applicable to the taxable year beginning in such calendar year provides that (i) the noncustodial parent shall be entitled to any deduction allowable under section 151 for such child, or (ii) the custodial parent will sign a written declaration (in such manner and form as the Secretary may prescribe) that such parent will not claim such child as a dependent for such taxable year,…”

That code section was ADDED to the code in 2004 as the previous code book contained no such statement. Apparently, Congress thought it would be a good thing for people to claim a dependent based upon what the divorce decree stated.

Then in December of 2005, the Gulf Opportunity Zone tax act was signed into law. Section 404, Amendments Related To the Working Families Tax Relief Act of 2004 deleted the above cited code section and replaced it with the following:

`(2) EXCEPTION WHERE CUSTODIAL PARENT RELEASES CLAIM TO EXEMPTION FOR THE YEAR- For purposes of paragraph (1), the requirements described in this paragraph are met with respect to any calendar year if--
`(A) the custodial parent signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year, and
`(B) the noncustodial parent attaches such written declaration to the noncustodial parent's return for the taxable year beginning during such calendar year.


That’s it. That is the only way allowed under the code (other than a pre-1985 divorce decree) that the noncustodial spouse can claim the exemption.

Congress deliberately repealed the divorce decree option for whatever reason. Who knows why. But it isn’t the IRS that made this decision. It was a deliberate act of Congress that took that provision away.

[jainen]

Help me out

>>I agree with it and think IRS should honor what a divorce decree states<<

Help me out, folks. I'm in the twilight zone about posts like this. Doesn't that seminar say the IRS will NOT accept the divorce decree--because the decree never has all the same information as Form 8332?

Whatever the battling parties can agree to between themselves is fine with the IRS. Between the battling parties, that is. They can divide up their marriage however they want between themselves, but it isn't going to change the rights and responsibilities of the rest of the world. Do you think the mortgage company gives a fig who ends up with the house?

The divorce decree might talk about alimony--but that doesn't change what Congress has already said on that topic. It might talk about not paying taxes--but that doesn't let someone off the hook just because his lawyer wrote it up that way.

Someone near & dear to me violated one of our basic rules of the road. DMV suspended his drivers license, but the nice judge modified it. Does that mean this miscreant can deduct his commute, now that a local court order has characterized it as necessary for work?