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Don’t Forget the Paperwork! : Dependency Exemptions

Seeliger v. Comm’r, T.C. Memo. 2017‑175, 2017 WL 4012872 (2017)

 

(a) Facts: A husband and wife divorced in 2006.  The decree permitted the husband to take the dependency exemption for the child in odd-numbered years provided that he paid all court-ordered support.

 

In 2013, the wife had custody of the child.  The husband was current on child support.  The father claimed the dependency exemption on his tax return.  He did not file a copy of Form 8332 signed by the wife.

 

The IRS disallowed the exemption and assessed a deficiency.  The husband appealed to the Tax Court.

 

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

 

(c) Answer to Issue: No.

 

(d) Summary of Rationale: The divorce decree was entered in 2006. For exemptions transferred before July 2, 2008, the transfer may be enforceable even without Form 8332 if the transfer meets the requirements in force in 2006.  To claim such a transfer, however, the husband was required to attach a copy of the divorce decree to his 2013 tax return.  He did not do that.

 

Even if the husband had attached a copy of the divorce decree to his return, the exemption would still not have been transferred.  “Under the decree, petitioner’s entitlement to the dependency exemption deduction was conditioned on his payment of child support for the year. The decree, therefore, does not conform to the substance of Form 8332 or satisfy the requirements of sec. 152(e)(2).”  2017 WL 4012872, at *3 n.6.  The exemption is transferred only by an unconditional statement.

 

Finally, the husband could still have claimed a valid transfer if he had obtained a signed copy of Form 8332 and attached it to his 2013 return, but he did not do that, either.

Lessons:

 

  1. There is only one way to transfer the dependency exemption after July 2, 2008: The custodial parent must sign Form 8332. If the custodial parent does not sign Form 8832, the noncustodial parent cannot take the exemption even if a state court order provides that the exemption is transferred.

 

  1. In theory, a written transfer made on or before July 2, 2008, can be enforceable even without Form 8332 if it satisfies the other transfer requirements in force at the time. In practice, the courts are reluctant to find such a transfer to be valid.

 

  1. If the custodial parent refuses to sign Form 8832, the noncustodial parent’s only remedy is to file a contempt action in state court, asking that the custodial parent be found in contempt for failing to sign the Form. A state court order alone cannot transfer the exemption; only Form 8832 can do that.

 

  1. A conditional transfer of the exemption is no transfer at all. State courts need to stop transferring the exemption on the condition that all future child support is paid. This language does not actually transfer the exemption.  The IRS is not a child support collection agency; it lacks the means to determine whether a taxpayer is current on child support.

 

  1. The state court is perfectly within its right to reserve jurisdiction over the exemption and to revoke the transfer if the transferee falls behind on child support. But the IRS will not enforce language providing that the transfer automatically disappears if the transferee is not current on child support, because the IRS is unable to easily determine whether the condition is met. The IRS consistently takes the position that an order transferring the exemption subject to ANY conditions does not transfer the exemption at all.