Originally Published on forbes.com on July 13th, 2011
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One of the items typically addressed in divorce agreements, is allocation of the dependency deduction. I think it generally gets more attention than it deserves based on the money involved. My advice to a non-custodial parent would be that if you can get any sort of concession in exchange for it, you should take the concession. There is something emotional going on there, though. Like somehow the IRS is validating you as a parent. Regardless, given the detailed attention the deduction gets in agreements, it is amazing how often people get the most basic compliance requirement wrong. In order for a non-custodial parent to be entitled to a dependency deduction, the custodial parent must sign Form 8332 to be attached to the non-custodial parent’s return. The requirement is practically absolute. The alternative is a “substantially similar statemnt” . Given how easy it is to get the actual form, it seems unwise to go freestyle. Two recent cases illustrate this point.
First we have Mickel Briscoe, formerly married to Nedra Ceaser
In 2006 Ms. Ceaser initiated an expedited child support proceeding against Mr. Briscoe, seeking an increase in child support. On November 6, 2006, the State court issued an order increasing Mr. Briscoe’s child support obligation (support order). The support order also states that “Mickel Briscoe is hereby granted the right to claim the tax dependency exemption for the minor child(ren).” The support order contains Ms. Ceaser’s signature but not herSocial Security number.
Petitioners claimed J.B. as a dependent and claimed a child tax credit of $1,000 on their Form 1040, U.S. Individual Income Tax Return, for 2007, dated March 19, 2008. Petitioners did not attach Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, to their return. Instead, they attached a copy of the support order. Petitioners did not ask Ms. Ceaser to sign a Form 8332 or any other document declaring she would not claim J.B. as a dependent. Mr. Briscoe thought attaching the support order was sufficient and was not familiar with the requirement to attach Form 8332. Ms. Ceaser claimed J.B. as a dependent on her 2007 return.
Now it seems what he did is pretty thorough. It wasn’t good enough, though :
Petitioners did not attach Form 8332 to their Form 1040; instead, they attached a copy of the support order. The support order does not contain the years to which the order applies or Ms. Ceaser’s Social Security number. The support order, therefore, does not conform to the substance of Form 8332 or satisfy the requirements of section 152(e)(2).
The Tax Court expressed its sympathy for Mr. Briscoe even though they could not help him:
We are not unsympathetic to petitioners’ position. We also realize that the statutory requirements may seem to work harsh results to taxpayers, such as Mr. Briscoe, who are current in their child support obligations and who are entitled to claim the dependency exemption deductions or child tax creditsunder the terms of a child support order.
Oliver Defernez had a very similar story. His divorce agreement was very thorough on the matter of the dependency deduction:
Husband and Wife agree that Husband will be entitled to claim the minor child as dependent on his income tax return. Both Husband and Wife agree they will file their individual income tax returns consistent with the terms of the present provision. It is the intention of the parties that the income tax consequences of any dependent exemption and/or deduction regarding their minor child be interpreted consistently with the present agreement. Pursuant to the requirements of the Domestic Relations Tax Reform Act of 1984 and any amendments, and the Internal Revenue Code Section 152(e)(2), as amended, Husband and Wife agree to transfer their dependency exemptions in accordance with the present agreement and upon remand by the other, to provide a written declaration in such form as provided by the Internal Revenue Service declaring their intentions regarding claims for such dependency exemptions related to their minor child.
His ex-wife didn’t follow it :
Despite the agreement of the spouses as set forth in paragraph 13 of the divorce decree, Ms. Defernez claimed a dependency exemption deduction for TDD on her 2007 Federal income tax return. In the notice of deficiency to petitioner, respondent disallowed the claimed dependency exempt.
Since his wife did not give him the 8332 and in fact claimed the exemption herself. He was out of luck.
It would seem that divorce attorneys would have come up with a means for assuring follow through on the 8332 requirement by custodial spouses, but I have yet to see this work smoothly.