Joint Custody

[Koss]

I'm gonna start a new thread on this...

The earlier thread was titled "swapping dependents." The thread was getting long and twisted, and had some dangling questions.

The determination of which parent is the custodial parent is critical, for two reasons:

(i) the custodial parent automatically gets all tax benefits, unless they sign Form 8332 to release the exemption and the Child Tax Credit to the noncustodial parent, and

(ii) EIC, Head of Household, and the Child and Dependent Care Credit can only claimed by the custodial parent, and cannot be released to the noncustodial parent.

In principle, the parents cannot simply come to an agreement as to who is the custodial parent. It is not determined by agreement, and it is not determined by the divorce decree or any other court order. The state and county domestic relations courts cannot override or change the federal tax law.

The current position of the IRS is that the custodial parent is that parent with whom the child was physically living for more than half the year. "Joint custody," or an even 50/50 split, simply doesn't cut it. It is not mathematically possible for both parents to have the child for more than half the year, and it is extremely unlikely that each parent had the child exactly half the year. One parent probably had the kid more than 183 days. That parent is the custodial parent. Period.

Somehow, they have to determine who is the custodial parent. If the IRS reviews the issue, they may look at whose address was used to register the kid for school, but this particular fact is not dispositive. In tax court cases, the courts have reviewed many other types of evidence, including testimony and summer camp records, to determine which parent had the child more than half the year. In some cases, where there is insufficient evidence, the courts have indeed ruled that neither parent may be considered the custodial parent.

There are a few exceptions to these rules. The exceptions that exist do not apply to most taxpayers, and they are widely misunderstood. Yes, there are special rules for pre-1984 divorce decrees. But those kids are all over 21 years old; those court orders are no longer in effect with respect to custody.

Yes, there is some guidance that suggests that the divorce decree itself may be used in lieu of Form 8332. However, this rule does not change how you determine which parent is the custodial parent. The custodial parent is determined by real-world facts: whoever had the kid more than 183 days. The custodial parent is not determined by the text of a fantasy novel written by divorce lawyers and signed by a county judge.

Also: the rule about using the divorce decree instead of Form 8332 is only applicable if:

(i) the parent identified in the divorce decree as the "noncustodial parent" really is the noncustodial parent for the year in question, (i.e., that parent had the kid less than 183 days), and

(ii) the divorce decree explicitly grants the noncustodial parent the unconditional right to claim the dependent exemption for the year in question (or for all years, or for all even years, or whatever)

In other words, if the decree says he can claim the exemption only if he is current in his child support obligation, then the decree cannot be attached in lieu of Form 8332.

If he is current, and the court order grants him the exemption, and the custodial parent won't provide a signed Form 8332, he's out of luck as far as federal tax law is concerned.

The remedy available to him is to drag the custodial parent back into domestic relations court, and seek a finding in contempt, because by not providing the Form 8332, she is failing to follow the court order, in that she is not allowing him to take the exemption. He could also sue her for breach of contract.

[Insert the "not legal advice" disclaimer here.]

Burton M. Koss
koss@usakoss.net

[dtlee]

I agree

Burton,

I agree with all of the points you address in your post, but I would like to raise another issue.

Form 8332 is only available to be used if the two parents together provided more than half of the support of the subject child §152(e)(1) and this should be viewed as important.

For example, if an unmarried woman and her child live with the woman's mother, and the woman's mother provides more than half of the support of the woman's child, it does not matter if the divorce decree allows the child's father to claim the dependent. Based on the code, the woman cannot use Form 8332 to allow the noncustodial parent to claim the dependent and the father cannot use the divorce decree to show that he is entitled to the dependent. Conceivably, this might be extended as well to a scenario where a woman remarries and the stepfather provides more than half the support for the children.

I have never found such a court case where the 8332 was invalidated due to these support rules, but that does not mean that it could not happen.

[Koss]

Source of support

Burton,

I agree with all of the points you address in your post, but I would like to raise another issue.

Form 8332 is only available to be used if the two parents together provided more than half of the support of the subject child §152(e)(1) and this should be viewed as important.

For example, if an unmarried woman and her child live with the woman's mother, and the woman's mother provides more than half of the support of the woman's child, it does not matter if the divorce decree allows the child's father to claim the dependent. Based on the code, the woman cannot use Form 8332 to allow the noncustodial parent to claim the dependent and the father cannot use the divorce decree to show that he is entitled to the dependent. Conceivably, this might be extended as well to a scenario where a woman remarries and the stepfather provides more than half the support for the children.

I have never found such a court case where the 8332 was invalidated due to these support rules, but that does not mean that it could not happen.

I think there's something in the code, and certainly in the Pub. 17, which is probably applicable here, which says that when determining whether "you" provided more than half the support for a particular person, support provided by your spouse is included in the calculations. In fact, this may be the case even if the spouses file separate returns. I'll have to hunt for the citation.

This is particularly relevant not for Form 8332, but for a different scenario that is very common:

One spouse works, but the other spouse doesn't, and has little or no income. As a married couple, they jointly support the elderly parent, or the 30-year old disabled sister, of the nonworking spouse. There is no question that as a married couple, they can claim a dependent exemption for the parent or the sister, assuming the other criteria are met. The couple is seen as a single entity in terms of providing support.

Point well taken about the three-generation household, though.

BMK

[dtlee]

I think there's something in the code, and certainly in the Pub. 17, which is probably applicable here, which says that when determining whether "you" provided more than half the support for a particular person, support provided by your spouse is included in the calculations. In fact, this may be the case even if the spouses file separate returns. I'll have to hunt for the citation.

This is particularly relevant not for Form 8332, but for a different scenario that is very common:

One spouse works, but the other spouse doesn't, and has little or no income. As a married couple, they jointly support the elderly parent, or the 30-year old disabled sister, of the nonworking spouse. There is no question that as a married couple, they can claim a dependent exemption for the parent or the sister, assuming the other criteria are met. The couple is seen as a unit when it comes to support.

Point well taken about the three-generation household, though.

BMK

I think you are correct about the new spouse. That does ring a bell. I will also check on that.

[dtlee]

I think there's something in the code, and certainly in the Pub. 17, which is probably applicable here, which says that when determining whether "you" provided more than half the support for a particular person, support provided by your spouse is included in the calculations. In fact, this may be the case even if the spouses file separate returns. I'll have to hunt for the citation.
BMK

Not that I ever doubted you, but this is from the RIA....

In determining whether you furnished over half the dependent's support, you must compare your contribution with the support the dependent received from all sources. Include money the person used for his own support, even if nontaxable, such as gifts, savings, social security, welfare benefits, and other public assistance programs. If you file a joint return, the support can be from either you or your spouse. If you remarried, support provided by your new spouse is treated as coming from you.

Which seems to indicate that if you did not remarry, and you and your children are totally supported by an unrelated person, you still cannot give up the dependency to your spouse (except for common law states, I suppose).

[skhyatt]

I'm gonna start a new thread on this...

The earlier thread was titled "swapping dependents." The thread was getting long and twisted, and had some dangling questions.

The determination of which parent is the custodial parent is critical, for two reasons:

(i) the custodial parent automatically gets all tax benefits, unless they sign Form 8332 to release the exemption and the Child Tax Credit to the noncustodial parent, and

(ii) EIC, Head of Household, and the Child and Dependent Care Credit can only claimed by the custodial parent, and cannot be released to the noncustodial parent.

In principle, the parents cannot simply come to an agreement as to who is the custodial parent. It is not determined by agreement, and it is not determined by the divorce decree or any other court order. The state and county domestic relations courts cannot override or change the federal tax law.

The current position of the IRS is that the custodial parent is that parent with whom the child was physically living for more than half the year. "Joint custody," or an even 50/50 split, simply doesn't cut it. It is not mathematically possible for both parents to have the child for more than half the year, and it is extremely unlikely that each parent had the child exactly half the year. One parent probably had the kid more than 183 days. That parent is the custodial parent. Period.

Somehow, they have to determine who is the custodial parent. If the IRS reviews the issue, they may look at whose address was used to register the kid for school, but this particular fact is not dispositive. In tax court cases, the courts have reviewed many other types of evidence, including testimony and summer camp records, to determine which parent had the child more than half the year. In some cases, where there is insufficient evidence, the courts have indeed ruled that neither parent may be considered the custodial parent.

There are a few exceptions to these rules. The exceptions that exist do not apply to most taxpayers, and they are widely misunderstood. Yes, there are special rules for pre-1984 divorce decrees. But those kids are all over 21 years old; those court orders are no longer in effect with respect to custody.

Yes, there is some guidance that suggests that the divorce decree itself may be used in lieu of Form 8332. However, this rule does not change how you determine which parent is the custodial parent. The custodial parent is determined by real-world facts: whoever had the kid more than 183 days. The custodial parent is not determined by the text of a fantasy novel written by divorce lawyers and signed by a county judge.

Also: the rule about using the divorce decree instead of Form 8332 is only applicable if:

(i) the parent identified in the divorce decree as the "noncustodial parent" really is the noncustodial parent for the year in question, (i.e., that parent had the kid less than 183 days), and

(ii) the divorce decree explicitly grants the noncustodial parent the unconditional right to claim the dependent exemption for the year in question (or for all years, or for all even years, or whatever)

In other words, if the decree says he can claim the exemption only if he is current in his child support obligation, then the decree cannot be attached in lieu of Form 8332.

If he is current, and the court order grants him the exemption, and the custodial parent won't provide a signed Form 8332, he's out of luck as far as federal tax law is concerned.

The remedy available to him is to drag the custodial parent back into domestic relations court, and seek a finding in contempt, because by not providing the Form 8332, she is failing to follow the court order, in that she is not allowing him to take the exemption. He could also sue her for breach of contract.

[Insert the "not legal advice" disclaimer here.]

Burton M. Koss
koss@usakoss.net

So in my case, again, parents are divorced with two kids. Divorce decree says each can claim one of the kids, BUT, for IRS purposes, it comes down to custodial parent.

So, if each parent, or in my case, my client claims that she provides a home for over half the year, and can document it, then she would be the custodial parent. No form 8332 would be required? And, as for the ex-husband, since he has already filed his return, claiming the other child, he will or should be documenting the time the child was in his home?? He would be the custodial parent in that case?

[Koss]

"Check the Box"

So in my case, again, parents are divorced with two kids. Divorce decree says each can claim one of the kids, BUT, for IRS purposes, it comes down to custodial parent.

So, if each parent, or in my case, my client claims that she provides a home for over half the year, and can document it, then she would be the custodial parent. No form 8332 would be required? And, as for the ex-husband, since he has already filed his return, claiming the other child, he will or should be documenting the time the child was in his home?? He would be the custodial parent in that case?

For each parent, and for each child, you first need to know whether the parent is taking the position that they are the custodial parent as this term is defined by the IRS.

If they are asserting that they are the custodial parent, then Form 8332 is not required unless the intent is to release the exemption to the other parent.

The custodial parent claims the dependent exemption by listing the child on the front page of Form 1040 as a child "who lived with you." This attribute licenses HoH filing status, EIC and the Child Care Credit, to the extent they are applicable.

The noncustodial parent with a properly executed Form 8332 claims the dependent exemption by listing the child on the front page of Form 1040 as a child "who did not live with you due to divorce." This attribute will bar the taxpayer from using HoH, EIC, or the Child Care Credit, with respect to that child.

It sounds like perhaps your clients want to assert that the father is the custodial parent of one child, and the mother is the custodial parent of the other. While that's certainly possible, it's not likely, unless there is a big gap in age between the kids, or some other unusual circumstances. Obviously I have no personal knowledge of these people. But your knowledge of the real facts is also pretty limited. The point I'm making is this:

Statistically, if one parent had one of the children for more than half the year, they probably had the other kid for more than half the year, too. One parent is probably the custodial parent of both children. The couple you are dealing with is asserting that each parent had "custody" of one of the kids for more than half the year because they don't get it. They are still reading you the terms of the divorce decree, instead of telling you, or at least trying to figure out, what really happened during 2007.

If it was really, really close, almost exactly half and half with each parent for each kid...

and he makes $60K and she makes $21K...

then why don't they "figure out what really happened" and come to the conclusion that both kids were with her for about 190 days of the year, so she can give him the Form 8332 for both kids?

On this fact pattern, she gets HoH, EIC, and Child Care Credit (if applicable), and he gets two exemptions and two Child Tax Credits (if they are under 17).

That's how this thing was originally meant to work.

Then the world changed. Social workers and judges invented "joint custody," and it's no longer axiomatic that he makes three times as much as she does.

The law is stuck in the 20th century.

BMK

[Koss]

Moral of the Story

Never confuse a divorce decree with reality.

Shamelessly plagiarized from the title of one of the earliest Dilbert collections, by Scott Adams. The title of that book was Never confuse a memo with reality.

BMK

[skhyatt]

So your a Dilbert fan? I am too, but often times, no one else gets it.

Anyway, thanks for the detailed explanation. Very helpful.

I agree with you that it is unlikely that one stayed with one parent over half and the other stayed with the other over half, especially considering they are fairly close in age.

I am going to explain this again to my client very carefully and see what we can do. You are correct in that both parents are coming from the court decree and assuming things based on that.

Thanks for your replies.

[Koss]

Staggering into the 21st century

If neither of the two parents has remarried, and their incomes are close, it may benefit them to take the position that each one is the custodial parent of one child.

I admitted that was possible; I said it was unlikely.

If each parent made $40K, then they are phased out of EIC anyway. Setting aside Child Care Credit, and assuming both children are under 17, if each parent had one child for more than half the year, then both parents get the benefit of Head of Household, which is a pretty big break on the tax rate itself, and each one gets a $1000 Child Tax Credit.

BMK

[joanmcq]

I call that tax planning. If the parents are agreeable (I have one new client whose kids are teenagers) I tell her to make sure she had the one daughter more than 183 days of the year. Ex makes sure he has the other daughter at least one day longer. So BOTH get HOH, a CTC, an exemption.