Steven A. Leahy - 3/3 - Chicago IRS Tax Attorney

Child Exemptions on Taxes for Divorced or Separated Parents

February 4, 2012 by Steven A. Leahy

I am a contributor on the Web Site Avvo.com. I answer legal questions in the Tax, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, and Foreclosure Practice areas (mostly) posted by “Askers.” The most common question, by far, asked in the Tax Practice area concerns child exemptions on taxes for divorced or separated parents.

So I thought it was a good area to post on our blog. Generally, the parent who has custody (the “custodial parent”) is entitled to take the child exemptions on taxes. The custodial parent is defined as the parent having custody for the greater part of the calendar year and the one who provides more than half of the child’s support. The other parent (the “noncustodial parent”) may be entitled to the deduction when:

The custodial parent releases or gives the exemption to the noncustodial parent for the year
The child lives with the noncustodial parent for more than half the year

When both parents have joint physical custody of their child, it may not be clear which parent is entitled to the exemption. This can be avoided by agreeing, in advance, on who will take the exemption and having the other parent sign a release (IRS Form 8332) of the exemption and/or including your agreement concerning the child exemption on taxes in your Divorce Decree or Child Custody Agreement.

What should you do if the other parent claims the exemption when you are entitled to the exemption?

I had a client call today who filed his return electronically, and his return was rejected because the noncustodial parent claimed the child exemption of taxes first. He wanted to know what he could do. I told him, there are four steps to to take in this situation:

First, determine if you want to make an issue of the exemption. If you do,
make SURE you are entitled to the exemption.
Next, print, sign and date your return and MAIL it to the IRS.
Expect to receive paperwork from the IRS – the noncustodial parent will also receive the same paperwork. Once you receive the paperwork from the IRS:

complete the paperwork and send it back promptly.
provide evidence that the child lived with you – school records are VERY persuasive. But you could use Doctor visits, day care receipts, etc. If your child has lived with you, you will find something to prove it. The noncustodial parent will also have to complete the paperwork and send it back to the IRS. The noncustodial parent will not be able to prove that your child lived with them – because your child didn’t.

I hope this post answers your questions about Child Exemptions on Taxes for Divorced or Separated Parents. If you have IRS problems, you need an attorney. You need me Steven Leahy. Call me (312) 664-6649 or Toll Free (866) 664-6647. 150 North Michigan Avenue, Suite 1120 Chicago, 60601

1099 C and Bankruptcy

February 3, 2012 by Steven A. Leahy

It’s tax time! What do you do if you receive a 1099 C (Cancellation of Debt) from a creditor after you file bankruptcy.

When a creditor forgives (charges off) a debt, the IRS recognizes this as a “taxable event” That means you must pay taxes on that amount, as if you received the forgiven debt as income. With the mortgage foreclosure problems many have been facing, this could mean a tremendous increase in the amount of taxes that are due. For example, I received a call today from a client who received a 1099 C in the amount of $40,000.00. This increase in income could translate into thousands of dollars of additional income taxes. Not a good alternative.

Take heart. If you filed for protection under the bankruptcy code and received a discharge, the IRS has a process to exclude this type of income – so you don’t have to pay taxes on that forgiven debt. You need to file Form 982 with your federal income tax return for a year a discharge of indebtedness is excluded from your income. The purpose of Form 982:

“Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income. You must file Form 982 to report the exclusion and the reduction of certain tax attributes either dollar for dollar or 331/3cents per dollar.”

You must complete Form 982 and attach that form, along with the 1099 C , to your tax return. Don’t just ignore this matter. Often people receive these documents and simply discard them because they received a Discharge. But the IRS is funny that way. The IRS expects you to document and file all matters involving your income.

So, if you received a discharge of your debt in bankruptcy and you receive a 1099 C from a creditor, you should file the 1099 C along with IRS Form 982 along with your tax return, and protect yourself from additional taxes.

Avvo Questions – Avvo Answers

January 29, 2012 by Steven A. Leahy

Avvo.com is a web site people can go to “Get free advice from top-rated lawyers, doctors and dentists.” I found Avvo about 30 days ago. I know this, because Avvo has a pretty go0d analytic function that tracks my use of the site. I was visiting a colleague’s web site and noticed an Avvo Rating Badge on the bottom of her page. I clicked through for the first time, and have visited Avvo everyday since. I found the Avvo Answers to legal questions posted on Avvo to be thoughtful and helpful. I wanted to participate to the Avvo Answers.

Now I act as a contributor on Avvo; that means I answer questions presented by “Askers” from around the country. I field questions from the Tax, Chapter 7, Chapter 13 and Foreclosure practice areas (mostly). In the first 30 days I have answered 409 questions, and risen to “Contributor Level 14.” It’s been interesting.

Some years ago, I answered legal questions through email I received from a bankruptcy site. I answered thousands of questions. That turned out to be good preparation for learning how to answer complex legal questions in a clear, understandable way. Avvo has given me the forum to put this ability to good use, and help lots of people too!

From both of these experiences, I noticed that many of the same questions rise again and again. For example, on the Avvo Tax Practice Area the most common questions revolve around which party gets the child tax deduction after divorce. For the Chapter 7 Bankruptcy Practice Area, the most common questions ask about Schedule C Exemptions.

Over the next several months, I will present some of my Avvo Answers to these, and other, Avvo Questions. In addition, I will convert these blog posts to Legal Guides, published on Avvo. My goal is to make answers to common questons available to those who need these answers, when they need the answers.

Client Reviews – Bursting with Pride

January 11, 2012 by Steven A. Leahy

Thanks to several clients who posted a client review on the web site www.avvo.com. My buttons are bursting with pride. Thank you!!

Working with Steven and Staff

Posted by: Lenny, a Real Estate client, 1 day ago.

Overall rating		Excellent
Trustworthy		Excellent
Responsive		Excellent
Knowledgeable		Excellent
Kept me informed		Excellent

I recommend Steven Leahy.
I used Steven 6-12 months ago.
Steven handled my Real Estate matter.
I have previously worked with 6-10 lawyers.

Client Review:

Spent a year working with Steven and Staff on my Short Sale and tax issues. Steven and staff could not have been more efficient and responsive. These included the filing of numerous documents and court appearances. You couldn’t have better representation.

Satisfaction Guaranteed

Posted by: Ralph, a Chapter 7 client, 1 day ago.

Overall rating		Excellent
Trustworthy		Excellent
Responsive		Excellent
Knowledgeable		Excellent
Kept me informed		Excellent

I recommend Steven Leahy.
I used Steven 1-3 years ago.
Steven handled my Bankruptcy / Chapter 7 matter.
I have previously worked with 1-2 lawyers.

Client Review:

Mr. Leahy’s credentials surely speak for themselves concerning his expertise but my experience with the way Mr. Leahy handled my bankruptcy case reflected more than just a knowledgeable attorney. Mr. Leahy seemed to me to be genuinely passionate about his field and how he could assist those in need of his services. His very personal approach, attention to details, friendliness and quality of time he offers are honestly just a few reasons why i would recommend him and trust him again to handle any future legal needs.

Lamar Odom Fights the IRS, and WINS!

January 4, 2012 by Steven A. Leahy

Lamar Odom, of the Dallas Mavericks recently sued the IRS after he received a tax bill for $87,000.00. The IRS denied him a tax deduction of $190,000 in personal fitness fees and NBA-imposed fines from his 2007 tax return. Mr. Odom found himself a good tax attorney to fight the IRS, Robert T. Leonard.

The IRS settled rather than go to court. The settlement called for about 10% of the IRS claim, or $7,827 plus interest. Sometimes it pays to fight the IRS with the aid of a good tax attorney. Read the story here.