Divorced Parents And A Dependent Child

 It is one of my least favorite issues in tax practice.

Who is entitled to a dependent?

Granted, there is no longer a dependency exemption available, but there are other tax items, such as the child tax credit, that require a dependent.

The issue can go off-the-rails if the parents are (a) divorced and (b) combative.

It occurs when both parents claim the same child for the same year.

One of the parents is going to lose the dependency, of course, but how the Code determines which one may surprise you.

The Code wants to know which is the custodial parent – that is, which parent did the child live with for the majority of the year. Granted, in some cases the answer may be razor close, but most of the time there is a clear answer.

The Code anticipates that the custodial parent will claim the child.

What if the noncustodial parent provides most of the child’s support?

The Code (for the most part) does not care.

How does the noncustodial parent get to claim the child?

If the parents get along, then there is no issue. Everyone follows the rules and there is no tax controversy.

If the parents do not get along and both claim the same child, the IRS is going to get involved. It will want to know: who is the custodial parent?

But the divorce decree says ….

You might be surprised how little the IRS cares about that divorce decree.

What it is interested in is whether a certain form was filed with the noncustodial parent’s return: Form 8332.

This form has to be signed by the custodial parent. If the parents do not get along, you can see the problem.

What happens if the noncustodial parent does not attach this form and both parents claim the child?

Let’s take a look at the DeMar case.

The divorce decree said that Mr Demar (Dad) was to claim the son in odd-numbered years. Dad claimed the son for 2015.

Mrs DeMar (Mom) also claimed the son.

The IRS came in. There (of course) was no Form 8332. The IRS could care less what that divorce decree had to say, so off to Tax Court they went.

Dad is going to lose this all day every day, except ….

Would you believe that – before the Tax Court hearing – Mom signed Form 8332?  

That doesn’t happen much.

There is a proposed Regulation on this point:

A noncustodial parent may submit a copy of the written declaration to the IRS during an examination to substantiate a claim to a dependency exemption for the child.

Did that save Dad?

Let’s keep reading:

A copy of a written declaration attached to an amended return, or provided during an examination, will not meet the requirement of this paragraph … if the custodial parent … has not filed an amended return to remove that claim to a dependency exemption for the child.

So one can file the 8832 late but one also has to prove that the other parent amended his/her return to remove the dependency for the child.

Guess what?

Mom did not amend her return.

Dad lost.

The IRS did not care about that divorce decree and the odd-numbered year.

I get it. The IRS has no intention of playing family court, so it established mechanical rules for the dependency. The average person focuses on the divorce decree – understandably – but the IRS does not.  Procedure is everything in this area.

Our case this time was DeMar v Commissioner T.C. Memo 2019-91.