More Court Awards

[Snaggletooth]

Again, the IRS has heroically defined what constitutes a "child" for all purposes. I've brought this up before, but the closer we get to filling out 1040s, the more trepidation exists with these new rules and infuriating customers...

For whatever reason, the populace everywhere seems to honor lawyers and county judges as the "Voice of God" if they compare to us tax preparers. The first time we disallow an exemption for Little Jacob, Big Jacob is going to take us to task. "Judge Johnson put Little Jacob in the divorce settlement and HE said I could treat him as a dependent." "Plus, my LAWYER says I can take him, and I'm going to take him!"

Big Jacob is leaving your office - he's going to another tax preparer across town, who
will treat Little Jacob as a deduction.

It gets worse. IRS tried this before in 1985, by regulating that only the custodial spouse could claim children, and grandfathered existing divorce decrees. However, during the ensuing years, the IRS would not tangle with local judges in court, and virtually allowed any ruling to stand unfettered.

So essentially, even if you make a stand on the issue, the IRS won't even back you up.

How do we respond to this challenge? Looking for real-life practical suggestions and answers here, not a discussion of the finer points of the law.

Thanks in advance...good luck on what you decide to do about this problem.

Ron J.

[taxmandan]

Divorce papers and dependents

My response is to tell Big Jake that he has to have a form 8332 signed by the custodial parent and his lawyer screwed up by not including that in the divorce papers. I tell him that the other parent has likely claimed the dependent and if he wants to claim the child under the divorce decree he has to get the 8332 or, expect that his refund will be held up while theIRS demands proof that he is entitled to the exemption.

Whether theIRS will accept the divorce papers as sufficient is unlikely but if his lawyer had done his job right, he wouldn't have this problem. If he still wants the dependent, I put it on the return. I don't think it's an unreasonable position to take considering how theIRS, as you say: "would not tangle with local judges in court, and virtually allowed any ruling to stand unfettered."

I'll put the blame on the lawyer and tell Jake that I'm on his side, it does reduce the antagonism towards me and lays the blame where it belongs. As you can tell, I'm not paranoid nor cynical.

[RLymanC]

Form 8332

Without form 8332 from the custodial parent, how can he claim the dependent?
He has to type 7 in the months at home box for the software to allow a dependent exemption and CTC.

Now the custodial parent is shot down for the EIC because she failes the residency test.

[dmj4]

Agree

I agree with Snag. It is very aggravating when a parent comes in and says the divorce papers allow him/her to claim the child, when he/she hasn't even paid enough child support to pay for daycare expenses. He/She and his/her present family get EIC because he/she is self employed and doesn't claim all of his/her income. He/She also does not have his/her child support based on his/her "real" income.

The judges need to stay out of the tax business.

I usually explain to whichever parent is my client that the divorce papers should not have any effect on the exemption, but it would be difficult to say for sure that the IRS would rule against the divorce decree.

In my area many of the parents do not even consider going against the judge's ruling no matter what.

[Bees Knees]

Just tell the client that Congress stepped in and decided to settle the case. Pure and simple, the divorce decree papers are now irrelevant. The new law says you have to have the 8332 signed, or no go.

From the updates page:

"Children of divorced or separated parents. TheTaxBook™, page 3-14: Under the Working Families Tax Relief Act of 2004, a provision in the code allowed a noncustodial parent to treat his or her child as a qualifying child or qualifying relative if among other requirements, a decree of divorce or separate maintenance or written separation agreement between the parents that applied to 2005 provided that the noncustodial parent could claim the child as a dependent. Section 152(e)(2) has been amended to delete this provision. Under the new law, a noncustodial parent can only claim a dependency exemption deduction if the custodial parent signs Form 8332, or a substantially similar statement, that he or she will not claim the child as a dependent in 2005.
Another new provision that applies to children of divorced parents is that for purposes of determining the support of a child in the case of a remarriage, support provided by a new spouse of a parent is treated as being provided by that parent. This rule is applicable because in order for the member of household test for a qualifying child to apply to a noncustodial spouse, one or both parents combined must provide over half of the child’s support for the year.

Example: Roxi and Danny are divorced with a 10 year old son named Jesse, who lives with his mother Roxi. Danny provides about 25% of Jesse’s support through child support payments. Roxi is remarried to Chuck, who supports both Roxi and 75% of Jesse’s support. Roxi has no income. Without this new law, it was not clear whether Roxi could sign over the dependency exemption to Danny. The special rule for divorced parents requires over one-half of the child’s support during the year to come from the parents, and Chuck is not a parent. Under the new rules, Chuck’s support of Jesse is counted as coming from Roxi."

[Jesse]

Even w/out conditions?

Just tell the client that Congress stepped in and decided to settle the case. Pure and simple, the divorce decree papers are now irrelevant. The new law says you have to have the 8332 signed, or no go."

I try to explain to my clients that since 1986 law changes the IRS does not care what the divorce decree says when it comes to the dependency exemption, the custodial parent is allowed the dependency deduction unless they sign form 8332. If the custodial parent will not sign the form 8332 the 1st page, stating page, and signed page of the divorce decree can be used in lieu ONLY IF there are no conditions attached, such as if current on child support, which is often the case. Is this no longer valid?

What do you do if the custodial parent will not sign? I have a couple of clients that we automatically send in the 3 pages of the divorce decree because the ex will not sign, only because they want to make things difficult. They have never tried to take a dependency deduction, they are just spiteful.

[jainen]

state taxing agencies

I understand that the IRS is not under the jurisdiction of local family court decrees. But the state taxing agencies are, right?

[Bees Knees]

If the custodial parent will not sign the form 8332 the 1st page, stating page, and signed page of the divorce decree can be used in lieu ONLY IF there are no conditions attached, such as if current on child support, which is often the case. Is this no longer valid?

It is my understanding that this is no longer the case. The 8332 or a similar signed statement identical to the 8332 is the ONLY way the noncustodial spouse can claim the exemption.

The actual law is written as follows:

SEC. 404. AMENDMENTS RELATED TO THE WORKING FAMILIES TAX RELIEF ACT OF 2004.
(a) Amendment Related to Section 201 of the Act- Subsection (e) of section 152 is amended to read as follows:
`(e) Special Rule for Divorced Parents, Etc-
`(1) IN GENERAL- Notwithstanding subsection (c)(1)(B), (c)(4), or (d)(1)(C), if--
`(A) a child receives over one-half of the child's support during the calendar year from the child's parents--
`(i) who are divorced or legally separated under a decree of divorce or separate maintenance,
`(ii) who are separated under a written separation agreement, or
`(iii) who live apart at all times during the last 6 months of the calendar year, and--
`(B) such child is in the custody of 1 or both of the child's parents for more than one-half of the calendar year, such child shall be treated as being the qualifying child or qualifying relative of the noncustodial parent for a calendar year if the requirements described in paragraph (2) or (3) are met.
`(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.
`(3) EXCEPTION FOR CERTAIN PRE-1985 INSTRUMENTS-
`(A) IN GENERAL - For purposes of paragraph (1), the requirements described in this paragraph are met with respect to any calendar year if--
`(i) a qualified pre-1985 instrument between the parents applicable to the taxable year beginning in such calendar year provides that the noncustodial parent shall be entitled to any deduction allowable under section 151 for such child, and
`(ii) the noncustodial parent provides at least $600 for the support of such child during such calendar year.
For purposes of this subparagraph, amounts expended for the support of a child or children shall be treated as received from the noncustodial parent to the extent that such parent provided amounts for such support.
`(B) QUALIFIED PRE-1985 INSTRUMENT- For purposes of this paragraph, the term `qualified pre-1985 instrument' means any decree of divorce or separate maintenance or written agreement--
`(i) which is executed before January 1, 1985,
`(ii) which on such date contains the provision described in subparagraph (A)(i), and
`(iii) which is not modified on or after such date in a modification which expressly provides that this paragraph shall not apply to such decree or agreement.
`(4) CUSTODIAL PARENT AND NONCUSTODIAL PARENT- For purposes of this subsection--
`(A) CUSTODIAL PARENT- The term `custodial parent' means the parent having custody for the greater portion of the calendar year.
`(B) NONCUSTODIAL PARENT- The term `noncustodial parent' means the parent who is not the custodial parent.
`(5) EXCEPTION FOR MULTIPLE-SUPPORT AGREEMENT- This subsection shall not apply in any case where over one-half of the support of the child is treated as having been received from a taxpayer under the provision of subsection (d)(3).
`(6) SPECIAL RULE FOR SUPPORT RECEIVED FROM NEW SPOUSE OF PARENT- For purposes of this subsection, in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent.'.
(b) Amendment Related to Section 203 of the Act- Subparagraph (B) of section 21(b)(1) is amended by inserting `(as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B))' after `dependent of the taxpayer'.
(c) Amendment Related to Section 207 of the Act- Subparagraph (A) of section 223(d)(2) is amended by inserting `, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof' after `section 152'.
(d) Effective Date- The amendments made by this section shall take effect as if included in the provisions of the Working Families Tax Relief Act of 2004 to which they relate.

[Snaggletooth]

Just a Reminder

...just a reminder that in 1984 we went through this same thing on dependency, and IRS at the time could have superseded rulings of local courts. So what did Big Daddy IRS do when the heat hit the fan?

They put a blurb in their pub 504 that anyone claiming a dependent based on a court award could do so if they submitted a copy of their divorce decree with their tax return. The IRS irks me when they expect the preparer to take a stand to uphold their regulations, and then cuts the limb out from under us. This has happened on several issues.

Just to show you how bad these customers can be:

1) One of mine has arranged with his attorney to claim dependency in alternating years. His ex-wife gets to claim him in even numbered years, and he gets to claim him odd years. Child lives with mother most of the time, so I have been honoring dependency only. I HAVE NOT FILED COUNTER TO ANY JUDGE'S DECREE SINCE IRS PUT THEIR BLURB INTO PUB 504. However, other child issues, such as EIC and HH have not taken for my client.

2) I told another customer that "Custody gets to claim the child." So the judge in his county has made a practice of awarding "Joint" Custody unless there is abuse or neglect on part of a spouse. (This is according to my client). I then told him if there was "joint" custody, the deduction would go to the spouse with whom the child lived most of the time. His response was "50% of the time he lives with me and 50% of the time he lives with her."
There is an EASY answer to this crock (namely NEITHER spouse has the child over 50% of the time and neither can claim). However, I just included this paragraph to demonstrate the kind of mentality we are having to put up with.

We can refuse these deductions after courts have decreed, but we can lose a lot of customers, too. I don't mind standing up if I'm right, but I'm not going to fight very hard if the tax man across town is more amenable and can point to IRS publications to defend his point of view.

Big issue here, guys and gals. Thanks for your response to this thread, and keep the cards and letters coming. Ron J.

[JON]

"Gear Up"

Just back from it, so remember the source, but they seem to think divorce decree still has some validity. Who files first gets??? Gear Up/ PPC.?. I gave Berger a bad time years ago as why you guys should take this show on the road??? As soon as the library builds up you should start...

JON

[Bees Knees]

They must not have read the new law yet. Even QF posted it just today for the first time on their updates page. The custodial spouse has to sign it over to the non-custodial spouse. Period. End of story.

[Bees Knees]

I gave Berger a bad time years ago as why you guys should take this show on the road??? As soon as the library builds up you should start...

No need. All we got to do is talk Jennings into coming back to Minnesota. Then the Universe would be back in balance.

[Snaggletooth]

Bees Knees: Finit

in so many words: "finished" "overwith" "end of story" "done"

However, with the customers, the situation is anything but. I appreciate the depth of resources leading to the Bees Knees "end of the local judge era" but the truth of the matter is this is far from "overwith."

Borrowing from the dmj4 post above, people in our part of the country (she is from TN as well) will believe local judges and lawyers before they will us.

I certainly hope the IRS reinforces its new decision with electronic matching audits, court decisions, and whups on these folks such that Judges will stay OUT of the tax business. But do we really think it will happen? PREPARERS CAN'T DO THEIR WORK FOR THEM, as much as they would like for us to. Only the IRS can make this thing stick, guys and gals.

I think I've made my point, and there has been excellent response to this post, and some very good suggestions. Thanks, Snag

[Gene V]

Form 8332

I was just listening to the TaxTalkToday dated 12/13/2005 about 9.45mins. into the video. The IRS agent was talking about the new revamp Form 8332 that was to be out by the end of the year. (I haven’t seen it yet). He said the good news is that it no longer has to be attached to the taxpayer return.

Has anyone heard this?

[Bees Knees]

He said the good news is that it no longer has to be attached to the taxpayer return.

Has anyone heard this?

Not true under the new law passed on 12/21/2005. Section 152(e)(2)(B) says: “the noncustodial parent attaches such written declaration to the noncustodial parent's return for the taxable year beginning during such calendar year.”

The requirement is right in the code.