Divorce Decree Doesn't Cut it When Noncustodial Parent Seeks Tax Benefits
A recent case from the Tax Court explains the special “qualifying child” rule for children of divorced parents. Although it has been in place for decades, the rule still causes confusion, especially among clients. A divorce decree may grant a noncustodial parent the “right” to claim a child as a dependent. Without a signed release, however, the noncustodial parent has no such right. An attached divorce decree is insufficient. Although the Tax Cuts and Jobs Act set the dependency exemption amount to zero for tax years 2018-2025, the signed release allows the noncustodial parent to claim the child tax credit, additional child tax credit, and credit for other dependents, if applicable, for the child.
The divorce decree at issue in this case provided that the father would claim the child as a dependent for federal and state purposes for even years and that the mother would claim the child as a dependent for odd years. The child lived with the father 6 out of every 14 nights during the school year and every other week during the summer. Under this arrangement, the child lived with the mother for more than one-half of the year and she provided more than one-half of the child’s support. As such, she was the custodial parent, and the father was the noncustodial parent under the tax law.
The father claimed the child as a dependent for the 2008, 2010, and 2012 taxable years without issue. He then claimed a dependency deduction for the child on his 2014 return, filed with head of household status, and took the child tax credit, additional child tax credit, and earned income tax credit. He did not attach a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or any other release signed by the mother. The mother also claimed a dependency exemption deduction with respect to the child on her 2014 return. IRS issued the father a notice of deficiency, disallowing his dependency exemption deduction, head of household filing status, child tax credit, additional child tax credit, and earned income tax credit. The father sought review by the Tax Court.
The Tax Court upheld the disallowance after carefully reviewing the applicable law.
Review of the Law
Prior to the TCJA, IRC § 151(a) and (c) allowed taxpayers an annual exemption deduction for each “dependent” as defined in IRC § 152. A dependent is either a “qualifying child” or a “qualifying relative”. An individual satisfying either the qualifying child requirement or the qualifying relative requirement may be claimed as a dependent.
To be a qualifying child of a taxpayer for a taxable year, an individual must:
- satisfy a relationship test (son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them)
- have the same principal place of abode as the taxpayer for more than one-half of the taxable year (the residence test),
- be younger than the taxpayer and not have attained the age of 19 by the close of the taxable year (or the age of 24 in the case of a student),
- have not provided over one-half of his or her own support for the taxable year, and
- not have filed a joint return with his or her spouse for the taxable year. IRC § 152(c)(1)-(3).
The courts have counted a child’s nights spent with a parent in determining whether the child had the same principal place of abode as that parent for more than one-half of the taxable year for purposes of § 152(c)(1)(B). In this case, the child did not have the same principal place of abode as the father for more than one-half of 2014 and was not the father’s “qualifying child.” The court also noted that the child could not be a “qualifying relative” of the father for that year because the child was a qualifying child of the mother for 2014.
Special Rule for Parents Who Are Divorced, Separated or Living Apart
The court went on to explain that IRC § 152(e) provides a special rule for parents who are divorced, separated, or living apart, under which a child can be treated as the qualifying child or qualifying relative of the parent with whom the child does not share the same principal place of abode for more than one-half the year or from whom the child does not receive more than one-half of his or her support.
The special rule applies so long as one or both of the parents together had custody of the child for more than one-half of the calendar year and the child’s parents provided more than one-half of the child’s support during the year. IRC § 152(e)(1). Assuming the foregoing conditions are satisfied, a child is treated as the qualifying child or qualifying relative of the “noncustodial parent” if the “custodial parent” signs a written declaration that he or she will not claim the child as a dependent for the taxable year at issue and the “noncustodial parent” attaches the declaration to his or her return for that year. Sec. 152(e)(2).
Because the father in this case was a noncustodial parent, he could have treated his child as a “qualifying child” only if:
- the mother signed a written declaration, in the manner and form prescribed by regulations, stating that she will not claim the child as a dependent for the year at issue, and
- the father attached the declaration to his return for that year. Sec. 152(e)(2).
Divorce Decree is Not Sufficient
The court explained that the written declaration had to be be an “unconditional release” of the custodial parent’s claim to the child as a dependent. Treas. Reg. § 1.152-4(e)(1)(i). The written declaration requirement may be satisfied by attaching Form 8332 to the return. A written declaration not on a Form 8332 “must conform to the substance of that form and must be a document executed for the sole purpose of serving as a written declaration.” Id. Court orders, decrees, and separation agreements executed in a taxable year beginning after July 2, 2008, do not qualify. Treas. Reg. § 1.152-4(e)(1)(ii), (5). Such documents executed on or before that date may qualify if they satisfy the written declaration requirements in effect when they were executed.
The court noted that the current regulations do not explicitly allow or prohibit a written declaration to be submitted by a noncustodial parent during an examination or with an amended return. However, a proposed regulation, which a taxpayer may choose to apply with respect to any open taxable year, expressly provides that a noncustodial parent may submit a written declaration during examination or with an amended return. Prop. Reg. §1.152-5(e)(2)(i).
Even so, the father did not submit a written declaration after filing his 2014 return, and the mother did not file an amended return to remove her dependency claim for the child. The court stated that a divorce decree addressing the dependency exemption deduction, standing alone--that is, without the custodial parent’s signature on it and without being attached by the noncustodial parent to his or her return—has had no impact on a divorced parent’s entitlement to the deduction since the statute was amended in 1984.
The court ruled that the father’s reliance on the divorce decree, standing alone, was misplaced, as it relied on provisions of the law that had not been effective for almost 30 years when he filed his return. As such, the father was not entitled to claim the child as his dependent for 2014 pursuant to section 152(e). He was also not allowed the head of household filing status, the earned income tax credit, or the child tax credit. The child was not his qualifying child under the tax law.
Because the need for signed release is sometimes challenged, a tax professional can refer a client or a divorce attorney to this case to illustrate the need for the request. Skitzki v. Commissioner, T.C. Memo 2019-106 (Aug. 21, 2019). For more information on this issue, see Publication 501.
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