Demar v. Comm’r, T.C. Memo. 201991, 2019 WL 3244301 (2019)
(a) Facts: Husband and wife were divorced. The divorce decree, which was a consent judgment, provided that the child would reside primarily with the wife. The husband was permitted to claim the child as a dependent for tax purposes in odd-numbered years but only if he was current on child support and the wife’s income was less than $15,000. “If these conditions were met, Ms. DeMar agreed to execute Form 8332 or a similar written declaration.” 2019 WL 3244301, at *1.
Both parties claimed the exemption on their 2015 returns. The IRS disallowed the husband’s exemption and assessed a deficiency. After the husband received the notice of deficiency, the wife executed Form 8332 after the fact, but the form was obviously not attached to the husband’s return. The husband challenged the deficiency in the Tax Court.
(b) Issue: Was the husband entitled to claim the exemption?
(c) Answer to Issue: No.
(d) Summary of Rationale: The husband did not contest that the child was not a qualifying child. Thus, the husband could claim the exemption only if he attached Form 8332 to his return. But he did not do that. Therefore, he could not claim the exemption.
The husband’s belated filing of Form 8332 was not sufficient:
The current regulations do not explicitly allow (or prohibit) Form 8332 or a similar written declaration to be submitted during examination or with an amended return. Sec. 1.1524, Income Tax Regs. A proposed regulation explicitly permits a noncustodial parent to submit Form 8332 or a similar written declaration during examination or with an amended return. Sec. 1.1525(e)(2)(i), Proposed Income Tax Regs., 82 Fed. Reg. 6387 (Jan. 19, 2017). But that regulation requires that the custodial parent either did not claim the dependency exemption or filed an amended return removing the claim to the dependency exemption. Id. We have no such facts in the record.
Id. at *2.
1. Many, many parties fail to file Form 8332. Current federal tax law on transfer of the exemption is in many ways a trap for the unwary: The requirements are so counterintuitive that taxpayers regularly fail to meet them.
2. At a minimum, the reform proposed in the Regulations should be adopted –the law should permit a noncustodial parent to file Form 8332 after the fact.
3. The reform proposed in the Regulations is not sufficient, because the custodial parent is unlikely to file an amended return. There should be a way to file Form 8332 after the fact even if the noncustodial parent has not filed an amended return. To allow a late filing only after the filing of an amended return is functionally to reject the late filing in most cases.
4. There is also, as noted above, a strong argument for amending federal law on Form 8332 generally. The law is imposing too many obstacles on parents who wish to transfer the exemption. An unacceptably high number of transfer attempts fail for technical reasons. If the law is going to permit the transfer of the exemption, it should not impose procedural requirements that are so difficult to meet.
5. That having been said, present law is clear, and there is no excuse for not complying with it.
6. Note that the state court imposed conditions on the transfer of the exemption. The IRS consistently takes the position that the exemption can only be transferred without conditions. In particular, yet another perennial problem with transferring the exemption is the requirement that the noncustodial parent be current on child support. The IRS is not a child support collection agency; it has no way to know whether the noncustodial parent is current on child support.
The state court in Demar appears to have handled this issue exactly correctly; it ordered the wife to sign Form 8332 if the requirements were met. That is entirely proper; the wife would know whether the father is current in support. But the courts should not expect the IRS to know whether the noncustodial parent is current on support. The IRS does not have that information.