Dependent Care Expenses

[mblatour]

Hi, I will be working on a return for my aunt who asked me a question I wasn't sure the answer of. I did contact the IRS helpline, but I wanted to see what your expertise might know about it.

My aunt is divorced and has one child, who turned 11 as of Dec. 9th, 2005. In the divorce decree, it states that they will alternate years for claiming my cousin as a dependent. My aunt claimed her last year and this year it will be my ex-uncles turn. They split custody 50/50. My aunt however does pay the child care expenses (it's offered through my cousin's middle school, as an after hours thing). The expenses are not reimbursed by my aunt's employer and amount to approximately $1900 per year. Also, my aunt's AGI was approximately $50,000 for 2005.

Question: Can my aunt still claim the dependent care expenses for her daughter although she cannot claim her as a dependent this year? Any exceptions to the rule?

Thanks!

[jainen]

ignore the divorce decree

In preparing the tax return you may totally ignore the divorce decree because it is not based on tax law. Follow the code (which has changed this year) to determine who can claim the child.

[BP.]

QC of More Than One Person

You don't mention whether the Support Test is met, but assuming it is, the child is the Qualifying Child of More Than One Person, a status addressed on p. 27, pub. 17. The parents cannot divide the benefits between them. Since there's no custodial/non-custodial parent (residency split 50/50), the "Children of divorced or separated parents" section is not a factor here. Can you reexamine the residency situation to determine if there's truly a 50/50 split? The custodial parent could claim the credit, if the non-custodial parent is entitled to the dependency exemption.

[Bees Knees]

You don't mention whether the Support Test is met, but assuming it is, the child is the Qualifying Child of More Than One Person, a status addressed on p. 27, pub. 17. The parents cannot divide the benefits between them. Since there's no custodial/non-custodial parent (residency split 50/50), the "Children of divorced or separated parents" section is not a factor here. Can you reexamine the residency situation to determine if there's truly a 50/50 split? The custodial parent could claim the credit, if the non-custodial parent is entitled to the dependency exemption.

I don't think you would really ever have a situation where it is exactly 50/50.

TTB, page 3-16, footnote 5, references a court case where even though Mom was supposed to be the custodial parent per the divorce decree, Dad provided a log showing he had custody more than 50% during the year. Therefore, he was treated as the custodial parent.

Under the rules for the dependent care expense credit, you have to have custody over 50% of the time to get the credit, regardless of whether you are entitled to the dependency exemption or not.

[Bees Knees]

Can my aunt still claim the dependent care expenses for her daughter although she cannot claim her as a dependent this year? Any exceptions to the rule?

Your aunt has to have physical custody for more than 50% of the year to get the credit. If she can prove that, then yes, she can claim the credit even if she signs over the dependency exemption to her ex, provided all the other dependent care expense credit rules are followed.

[Jesse]

Custodial vs Noncustodial

I also don't think you would ever have a situation where it is exactly 50/50, whether it's by a minute, hour or day one of the parents has custody more than 50%. If your Aunt has custody more than 50% she would need to sign form 8332 in order for your Uncle to take the dependency deduction.

Also, the IRS disregards the divorce decree, but that does not mean you should. There are other problems that could arise such as contempt of court and/or other legal issues to consider.

[BP.]

50/50 usually isn't

I agree it's about impossible to have a 50/50 custody split, which is why people have to take a hard look at examing those weeks, days & minutes to get to a custodial/non-custodial determination. Clients are used to thinking in terms of who spent what funds and aren't paying attention to counting the days instead.

[mblatour]

thanks for your replies, here's more info. and another question

Hi, thanks for your replies. I realize it's not really possible to have a 50/50 split, but in this particular situation, they are calling it 50/50 mutally. I know if my aunt wanted to, she could more than likely prove that she pays more than 50% of my cousins expenses (she spoils her to no end and does care for her more than 50% of the time), but they aren't arguing that. My aunt and ex-uncle willing wanted to alternate the years that they claim their daughter.

Thanks for the advice of the Form 8332 (I came across that this afternoon in doing more research).

I think as it sits, my aunt won't be claiming my cousin this year, therefore she will not get the exemption, dependent credit, or child care expenses credit.

My next question on the same subject would be filing status. Last year when my aunt DID claim my cousin, could she have filed HOH, or should it have been single? I ran it through my software for last year and she would have received approx. $1000 greater refund for filing HOH.

Thanks!

[RLymanC]

Hoh

In answer to your last paraghraph, if the parents insist on a 50/50 custody split she must file single. The qualifying person must live in the home for over half the year in order to file HOH.

[Bees Knees]

I think as it sits, my aunt won't be claiming my cousin this year, therefore she will not get the exemption, dependent credit, or child care expenses credit.

If the aunt has more than 50% custody, she could claim the dependent credit even if she signs over the dependent exemption to the ex.

[Bees Knees]

In answer to your last paraghraph, if the parents insist on a 50/50 custody split she must file single. The qualifying person must live in the home for over half the year in order to file HOH.

In other words, neither parent gets HOH. And neither parent could claim a dependent care expense credit. And neither parent could get EIC.

The only thing either parent can get under an exact 50/50 split deal is the dependent exemption and the child tax credit.

[RLymanC]

Bees Knees

In other words, neither parent gets HOH. And neither parent could claim a dependent care expense credit. And neither parent could get EIC.

The only thing either parent can get under an exact 50/50 split deal is the dependent exemption and the child tax credit.

In a 50/50 split there is no qualifying child,,,,are you sure anyone gets a dependent and the child tax credit????

If both claim the same child then the IRS will invoke the tie breaker, but the taxpayers can't use the tie breaker rule.

[pog]

Sec. 152(e) special rule

If the aunt has more than 50% custody, she could claim the dependent credit even if she signs over the dependent exemption to the ex.

Bees, I believe you have forgotten the special rule for divorced parents [sec. 152(e)]. Waiving the dependency exemption via the 8332 conveys the qualifying child under 152(c) to the noncustodial parent.

[Bees Knees]

Bees, I believe you have forgotten the special rule for divorced parents [sec. 152(e)]. Waiving the dependency exemption via the 8332 conveys the qualifying child under 152(c) to the noncustodial parent.

And you have forgotten the special rule for divorced parents under Section 21(e)(5). Waiving the dependency exemption does not transfer the dependent care expense credit to the noncustodial spouse. The custodial spouse is always the only one who qualifies for that credit.

[pog]

Misreading Again

And you have forgotten the special rule for divorced parents under Section 21(e)(5). Waiving the dependency exemption does not transfer the dependent care expense credit to the noncustodial spouse. The custodial spouse is always the only one who qualifies for that credit.

Sorry. You're correct, of course. The post preceding yours mentioned the child tax credit and I read that credit into your post when you actually had written "dependent credit."