Articles Tagged with dependency exemptions

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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.

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Dear Carolyn:

My ex and I share the children fifty-fifty.  We have three children.  I make approximately $25,000 more than the other parent.  I pay child support even though I have them half the time.  Our child support order says nothing about who gets the dependency exemptions, and I get in a fight with my ex every year over the dependency exemptions.  Who should get the three dependency exemptions?

Carolyn Answers….

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Dear Carolyn,

It is tax time.  I am divorced and have two children.  I pay $2000 per month in child support, and my ex (the mother) doesn’t even work.  She will not give me the dependency exemptions for the children.  The judge didn’t give them to me either.  They live with her and I visit every other weekend and half the holidays.  I am paying for the children, so why can’t I have the tax benefit?

Perturbed

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Dear Carolyn,

My daughter just graduated from high school, and she is college bound.  Her father and I divorced three years ago.  Her father paid child support, but I understand child support is ending now as she is already 18.  I thought her father would surely pay (or at least help) with college, and he told me last night that he was not helping with college.  What can I do?  Our divorce agreement says NOTHING about college.

~ College Help Needed

 

Dear College Help Needed,

This is a most difficult situation for you and for your daughter.  Unfortunately, in this State, parents have no legal obligation for support after the child is 18 and out of high school.  Other States are different.  For example, in Alabama, the divorce court can order college if the child’s lifestyle and economic status would indicate that the parent would have paid for college in an intact family.  Also, in Massachusetts, as another example, child support continues to age 21.

The only way a parent can be bound to pay for college is in a private agreement.  At the time of your divorce settlement, the father and you could have entered into a private agreement, signed and notarized, that describes how the child’s college costs will be handled.  If you had such an agreement, the agreement would be enforceable by you.  Frequently, college is difficult to negotiate because Father’s feel that the child will “snub her nose” at the father if college is guaranteed by a contract.  You do not say anything about the daughter’s relationship with the father, and whether it is a close, loving relationship.

If the child’s financial aid application requires the father’s income, sometimes it is helpful to have a letter to accompany the financial aid application stating that the father will not participate in college expenses.  I have written several letters like this in the past for clients who have no expectation from a parent of college participation.

Good luck with college for your daughter, and congratulations on her high school graduation. Continue reading →

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Stapleton v. Comm’r, T.C. Memo. 2015-171, 2015 WL 5049758

Facts: A father and mother had two children. The parents were never married. No court was ever asked to decide custody, but the parents agreed that the father would have the children every Monday and Wednesday night and every other weekend. In 2011, the father had custody of the children for 176 days.

The father claimed the dependency exemption for both children on his 2011 tax return. The IRS disallowed the exemption, and the father appealed to the Tax Court.

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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.

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

 

Henricks v. Comm’r, T.C. Memo. 2014-192, 2014 WL 4723148 (2014)

(a) Facts: A Florida divorce decree awarded custody of two children to the wife. It allowed the wife to claim one child as a dependent for tax purposes, and allowed the husband to claim the other child as a dependent for tax purposes. Both parties were ordered to fill out forms necessary to transfer the exemption. But the wife did not actually fill out and sign and forms, and the wife did not sign the court’s judgment.

The husband claimed the dependency exemption for the second child, as the decree clearly permitted. The IRS disallowed the dependency exemption and assessed a deficiency.

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

(c) Answer to Issue: Clearly not.

(d) Summary of Rationale: Federal law has been clear for years that when one parent has custody of a child, and the other parent wishes to claim the dependency exemption, the second parent absolutely must file with his return a copy of IRS Form 8832 or its substantial equivalent, signed by the first parent. Form 8832 must be filed even if a state court order directs transfer of the exemption. Regardless of state court orders to the contrary, the exemption is not actually transferred unless Form 8832 is signed by the custodial parent. This is one of the harshest rules in all of federal tax law, but the rule has been in force for years and it is zealously enforced by the IRS.

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

 

McBride v. Comm’r, T.C. Memo. 2015-6, 2015 WL 393011 (2015)

(a) Facts: The taxpayer, his grown son and daughter, and his daughter’s child all lived in the same household. On her federal tax return, the daughter claimed an exemption for her child. On his federal tax return, the taxpayer claimed dependency exemptions for the son, the daughter, and her child. The IRS disallowed all three of the taxpayer’s exemption, and assessed a deficiency.

(b) Issue: Was the taxpayer entitled to a dependency exemption for his son, daughter, and granddaughter?

(c) Answer to Issue: No for all.

(d) Summary of Rationale: The dependency exemption is available only for children less than 19, or under the age of 24 and a student. In addition, the person claiming the exemption must provide more than half of the dependent’s support. The taxpayer did not prove that the son and daughter were under age 24, and did not prove that he provided more than half their support. The dependency exemption was therefore properly denied.

When multiple persons meet the requirements for treating a child as a dependent, and only one is a parent, the parent gets the exemption. I.R.C. § 152(c)(4). The exemption for the daughter’s child therefore belonged to the daughter, not the taxpayer.

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