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Signed, Sealed, Delivered: Having a Signed Form 8832 is Crucial for Claiming a Dependency Exemption

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By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Porter v. Comm’r, T.C. Memo. 2015-141, 2015 WL 4638622 (2015)

(a) Facts: A husband and wife were divorced in Florida. The decree awarded the wife custody of the parties’ three children. It allowed the wife to claim the exemptions for the oldest and youngest children, but allowed the husband to claim the exemption for the middle child. The decree was signed only by the court.

In a following tax year, the wife claimed the exemption for all three children, while the husband claimed the exemption for the youngest child. The husband did not attach to his return Form 8832 or its substantial equivalent.

The IRS disallowed the husband’s exemption and assessed a deficiency. The husband filed an amended return claiming an exemption for the middle child, but the IRS did not change its position.

(b) Issue: Was the husband entitled to the dependency exemption?

(c) Answer to Issue: No.

(d) Summary of Rationale: The divorce decree was not a valid transfer of any exemption, because it was not signed by the wife. “Petitioner argues that the decree should nevertheless satisfy the “written declaration” requirement because it was signed by a State court judge. Unfortunately for petitioner, this Court, relying on the plain language of section 152(e), has consistently rejected that argument. ” 2015 WL 4638622, at *2.

“We are not unsympathetic to petitioner’s position. By requiring an unambiguous signed declaration by the custodial spouse, Congress sought to avoid complex factual inquiries into the subjective intentions of divorced parents. This statutory requirement may sometimes impose harsh results on taxpayers such as petitioner, when an ex-spouse claims dependency exemption deductions in violation of their divorce decree. But we are bound by the statute as written by Congress.” Id. at *3.

Observation: Hundreds if not thousands of taxpayers have made the same argument the husband made, and lost. He should have asked the wife to sign Form 8832 before filing her return. If she refused, he should have refrained from claiming the exemption and filed a contempt petition in state court.

Minor Lesson: Where the dependency exemption is properly transferred for some but not all children, make certain the exemptions claimed on the return are for the same children whose exemptions were transferred in the decree. An amended return can probably fix this problem, but the expense of responding to questions from the IRS and filing the amended return are not insignificant.

Wagner v. Comm’r, T.C. Memo. 2015-120, 2015 WL 3958147 (2015)

(a) Facts: A husband and wife were divorced in California. The divorce decree awarded them joint custody of their child, with the wife having physical custody for a majority of the year. The decree was silent on the dependency exemption.

For tax year 2007, both parties claimed the dependency exemption for the child. The IRS disallowed the husband’s exemption and assessed a deficiency.

(b) Issue: Was the husband entitled to the dependency exemption?

(c) Answer to Issue: No.

(d) Summary of Rationale: The husband produced a draft divorce decree, not signed by the court, assigning him the right to claim the dependency exemption in odd-numbered years. But he was unable to produce a decree that contained this provision that was actually signed by the court. The Tax Court gave him two months after trial to produce a signed order, but he did not do so.

Absent a proper transfer of the exemption, the dependency exemption belonged to the wife, as the child resided with her for a majority of the tax year in question.

Observation: Even if the draft decree had been signed by the court, it would not have transferred the exemption unless it was signed by the wife. Porter; Henricks.