My Ex Claimed the Child Deduction – Now What?
By Steven A Leahy
It’s August, and the IRS is starting to go after taxpayers who listed a child as a dependent, when another party listed that same child as a dependent. Who gets the deduction? This is the most common question I get around this time of year.
Here is the typical scenario. Parent A and Parent B live apart. The child lives with Parent A, but Parent B has joint custody. Parent A claims a dependency exemption on their tax return. Later, Parent A discovers Parent B has already claimed a dependency exemption on their tax return. Because a child’s social security number is necessary to claim a dependency exemption, the IRS’ computer system flags both returns and sends a notice of deficiency to each parent. The question rises, “Which Parent is entitled to claim a dependency exemption for tax purposes?”
First, let’s talk about what is at stake. The IRS provides as a deduction an exemption from taxable income ($4,000 for 2015) for each “dependent.” A dependent is defined as either a “qualifying child” or a “qualifying relative” of the taxpayer. To be considered a “qualifying child” of the taxpayer, the child must (among other things) have the same principal place of abode as the taxpayer for more than one-half of the taxable year. In addition, a qualifying child may enable a taxpayer to claim other benefits. Benefits like Head of Household, the child tax credit, the child and dependent care credit, and an earned income tax credit. In total, these benefits amount to thousands of dollars.
Generally, when parents are legally separated or divorced, the dependency exemption is awarded to the custodial parent. The custodial parent is the parent with whom the child lived for the greater number of nights during the year. But there are exceptions. If the custodial parent “signs a written declaration” releasing his or her claim to the exemption and the noncustodial parent “attaches such written declaration to the noncustodial parent’s return for the taxable year” the non-custodial parent can claim the exemption. The declaration by the custodial parent must be made on Form 8332 or in a signed document substantially similar to Form 8332.
Often, the non-custodial parent has a divorce decree, separation agreement, or some other agreement that spells out the rights of the non-custodial parent to claim the deduction. If the decree or agreement went into effect before 2009, the non-custodial parent can attach certain pages to the tax return instead of Form 8332. However, if the decree or agreement went into effect after 2008, the decree or agreement can’t be attached and the non-custodial parent must use Form 8332.
You can see how this can become a problem – parents at odds with who gets the tax benefits. The IRS has sided with the custodial parent; even if the divorce decree or agreement says the custodial parent has agreed to waive the right to claim an exemption for the child. If the custodial parent released a claim to exemption and signed Form 8332 granting the right to the non-custodial parent, the custodial parent can complete Part III of Form 8332 and revoke that waiver, as long as they provide a copy of the form (or make a reasonable effort to provide actual notice) to the non-custodial parent and attach the revocation to their own tax return for each year.
Yes, I know it is complicated. Dealing with the IRS is ALWAYS complicated. If you need help with the IRS, you should work with a local law firm. Better, you should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.