Orders signed by probate court judges don’t cut a lot of ice with tax court judges. That is what Dylan Moody learned in a memorandum decision last week. He was representing himself, which is understandable given the relatively small stakes in the case, a deficiency of $3,737 for 2008. The issue was dependency exemptions for two kids. Mr. Moody presented a copy of his divorce decision from 1997:
shall be entitled to claim the children as tax exemptions on * * * state and federal income tax returns for the present year and for all subsequent years so long as * * * is current in child support payments at the end of that year. If * * * is current in child support for the year claimed, * * * shall execute IRS Form 8332 by January 10th of the following year to effectuate this agreement.
Guess what. Ms. Moody apparently did not execute IRS Form 8332 by January 10, 2009 in order to effectuate the agreement. Mr. Moody sent unsigned forms in with his return, which of course cut no ice with the IRS. He did establish though that he had paid his child support for 2008 and he had that order signed by the probate judge. Seems like it should be enough.
It really does seem like it should be enough unless you have read as many Tax Court decisions as I have. The nuances of these cases can get a bit lawyerly, so if I just had those facts, I would have wavered a bit in my prediction of the outcome. I’m not at all surprised that it turned out to be not enough.
The Forms 8332 attached to petitioner’s 2008 tax return were not signed by Ms. Moody. Clearly, therefore, petitioner did not satisfy the conditions articulated in section 152(e)(2). As an alternative position, petitioner during the pendency of this case introduced into evidence the divorce decree in an effort to demonstrate that he was entitled to the exemption deductions at issue. Petitioner has not argued that the divorce decree was “attached” to his return as mandated by section 152(e)(2)(B); however, even if the decree is relevant to our inquiry, it was signed only by the presiding judge in that case. Such a signature does not permit a taxpayer to circumvent the explicit “custodial parent” signature requirement.
So maybe if the agreement had been signed by Ms. Moody rather than just a probate judge, he might have gotten somewhere.
The Tax Court tends to be a little sympathetic to fellow like Mr. Moody:
We are sympathetic to petitioner’s plight; however, we are bound by the statute as written and the accompanying regulations when consistent therewith.
That and a nickel will get him – Can you get anything with a nickel anymore ?
Often these cases have a long story explaining why the Form 8332 was not signed. That is missing here. Assuming, for the sake of argument, that Ms. Moody was at fault for not signing the Form 8332, Mr. Moody might have recourse in probate court.
My own conclusion in this area is that if a non-custodial parent can get any concession at all for passing on dependency exemptions, he or she should take it. An extension of that is that if both parties are reasonably situated and will most likely end up leaving their estates to the same kids, the noncustodial parent should be magnanimous and just pass on the exemptions.
If, however, they really want to make a big deal about it then the noncustodial parent’s attorney should demand an executed Form 8332 as part of the “closing package”. The custodial parent can always revoke the Form 8332 if the noncustodial parent fails to meet child support obligations. I can hear a legion of divorce attorneys yelling “Easier said than done.” The dependency exemption seems to carry emotional significance far beyond its financial impact.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on September 25th, 2012