I sometimes wonder if the Tax Court would have to lay off a judge or two, if it were not for dependency cases. Maybe not, as I imagine that they blow through them pretty quickly and almost invariably come up with the same unfair result. I feel really bad for the taxpayers in these cases, because they must end up feeling jerked around.
They had a judge say that if they paid the required child support, they were entitled to a dependency deduction. They paid the required child support. The IRS disallowed the deduction and then the taxpayer hears from another judge that the IRS can do that. There were four cases like that in December and an interesting variation on the same theme. It always comes down to the same thing. Form 8332. If you don’t attach a Form 8332 signed by the custodial parent to the non-custodial return, that parent’s chance of winning vary from extremely slim to none. Here are the highlights:
Jackson M. Browning v. Commissioner
In Mr. Browning’s case the custodial parent was supposed to sign the form and she ultimately did, but it was too late.
Action on petitioner’s request for a remedial contempt order was pending at the time of trial in this case. After the trial in this case, on the day set by the State court for the hearing on remedial contempt, Ms. Gallardo executed a Form 8332 on which she agreed not to claim an exemption with respect to H.B. for 2007. The form, on which Ms. Gallardo’s signature is dated June 27, 2012, was received into evidence pursuant to the parties’ stipulation
Here, petitioner did not obtain a signed Form 8332 from Ms. Gallardo until June 27, 2012, after she had already claimed the dependency exemption for H.B. and the period of limitations for her 2007 taxable year had almost certainly closed. Thus, allowing petitioner the deduction at this juncture would result in the dependency exemption for H.B. having been deducted twice for 2007.
David Matthew Hanson and Melinda D. Hanson v. Commissioner
Sometimes you can attach things to your return other than Form 8332, that show you are entitled to the deduction. It almost never works if you end up in Tax Court, as Mr. Hanson found out.
The only argument that respondent advances in support of respondent’s position that the divorce settlement does not conform to the substance of Form 8332 is that that settlement “does not contain an unconditional release of the custodial parent’s claim, since the release is subject to the payment of child support by the noncustodial parent, petitioner David Matthew Hanson.” In advancing that argument, respondent relies on the following provision in the divorce settlement: “So long as the Respondent is current on child support payments, the Respondent shall be entitled to claim * * * as a dependent on his federal and state income tax returns.”
We agree with respondent that, because of the sentence in the divorce settlement just quoted (sentence in question), the divorce settlement does not contain an unconditional release of the claim of Jodi Hanson (the custodial parent of ZH) for her taxable year 2008 to a dependency exemption for ZH
Gabriel Villagrana v. Commissioner
The Villagranas divorced in 2004, and both Gabriel and Marci signed a marital settlement agreement that was incorporated into the dissolution judgment. That agreement gave Marci custody of the five children, but said that Gabriel had the right to claim the dependency exemptions for the children for all years after 2003—if he stayed current with child support. As long as he did, the agreement required Marci to provide him with “any * * * declarations * * * required by federal * * * law to effect the parties’ intent.” We find that Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, is such a declaration. Form 8332 is important because it tells the IRS that a parent who does not have physical custody of a child is nevertheless entitled to the benefit of an exemption. A taxpayer in Gabriel’s position—entitled by agreement to dependency exemptions but not enjoying physical custody of his children—must attach to his return that form or some other document that conforms to its substance. See sec. 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., 49 Fed. Reg. 34459 (Aug. 31, 1984).
Armstrong v. Commissioner, 139 T.C. __ (Dec. 19, 2012), is a nearly identical case reviewed by the entire Court. We held there that only a release that is unconditional conforms to the substance of Form 8332.
At least in the Armstrong case, the Tax Court expressed its sympathy.
Mr.Armstrong’s case is quite sympathetic: He was up to date on his child support; and under the State court order, Ms. Delaney was obliged to sign Form 8332 and release the exemption deduction to him. We are obligated, however, to follow the statute as written, whether the resulting disadvantage is (as here) suffered by a noncustodial parent who bore the burden of child support but did not receive an executed Form 8332, or whether the disadvantage is suffered by a custodial parent who executed a Form 8332 but then bore an undue and unintended burden of child support.
Rachel George’s case is the interesting variation. She was ordered to sign Form 8332 and did.
By order of January 5, 2007, the Fairfax County circuit court ordered that Ms. George execute Form 8332 releasing any tax exemption claim for S.S. for tax years 1996 to 2010 and amended Mr. John’s child support obligation by releasing his obligation to support I.E. Ms. George alleges, and we assume, that Mr. John was in arrears on his child support obligation at the time the January 2007 court order was entered and that he continued to be in arrears thereafter. Nonetheless, on January 5, 2007, pursuant to the court order and under threat of contempt, Ms. George executed another Form 8332 relinquishing her claim to exemption for S.S.—this time for the tax years 1996 to 2010. The form stated: “I agree not to claim an exemption for” S.S.
Ms. George contends that the Fairfax County circuit court erred by failing to consider whether Mr. John was in arrears when it ordered her to execute the Form 8332; ….
Ms. George appears to contend that her Form 8332 should be disregarded for three related reasons—i.e., because she signed it under compulsion, because the order requiring her to sign it was erroneous, and because her former husband did not provide the child support that the court order required and presumed.We acknowledge that Ms. George’s argument (if this is indeed her argument) both is rational and has some visceral appeal. However, this argument could not change the outcome of these cases. Her contention that Mr. John is in arrears on his child support obligations, even if factually supported, does not affect the validity of her Form 8332 under section 152(e) once the form was executed reporting his tax liability, and the IRS could not rely on the form in administering the tax laws.
The Moral
It would seem that the moral would be to make sure that you get the Form 8332 for the non-custodial parent, but, of course then, we have the case of Ms. George which would argue for the custodial parent to be cautious about handing it out. My own view is that non-custodial parents should try to get some other concession in exchange for passing on the dependency deduction. Really, it is not up to the IRS to validate you as a parent. I think this issue tends to take on symbolic importance in excess of its monetary significance. From a policy perspective I’d like to see the law change to get the IRS out of family issues entirely. I even started a petition on We The People. I don’t have much hope for it, but I figured it was worth a try.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com Jan 2nd, 2013