SOME THINGS YOU NEED TO KNOW ABOUT CHILD DEPENDENCY EXEMPTIONS
January 8, 2013 § 4 Comments
Many property settlement agreements (PSA) involving children have a provision like this:
Husband shall claim the minor children as dependents for tax purposes in even-numbered years, and Wife shall claim the minor children as dependents for tax purposes in odd-numbered years.
What happens, though, where, despite the language of the agreement, the mom claims the children in an even-numbered year, and the father does, too? Is the language above enough to satisfy the IRS that the dad, and not the mom, was entitled to claim the exemption in that year?
The answer is no.
IRS regs require that if you are trying to base a claim for exemption on a writing that is not an IRS-designated form, the writing must conform to the substance of the IRS form and must be a document executed for the sole purpose of serving as a written declaration within the meaning of the IRS regs. A court order, PSA, handwritten note or any other document not meeting those requirements will not suffice. The claiming party must attach to the tax return a completed IRS form 8332 or a document including every element of it.
In the case of Armstrong v. Commissioner of Internal Revenue, decided December 19, 2012, by the US Tax Court (I do not have a cite for you) involved the scenario above. The court said:
The IRS’s Form 8332 provides an effective and uniform way for a custodial parent to make the declaration required in section 152(e)(2)(A) for the benefit of the noncustodial parent. But a noncustodial parent like Mr. Armstrong may also rely on an alternative document, provided that it “conform[s] to the substance” of Form 8332.5 See 26 C.F.R. sec. 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., supra. In particular, for tax years including the year at issue here, a court order that has been signed by the custodial parent may satisfy section 152(e)(2)(A) as the noncustodial parent’s declaration if the document “conform[s] to the substance” of Form 8332.6 See Briscoe v. Commissioner, T.C. Memo. 2011-165 (concluding that the court order attached with the return did not conform with the substance of Form 8332); cf. Boltinghouse v. Commissioner, T.C. Memo. 2003-134 (holding a separation agreement conformed with the substance of Form 8332).
A basic element necessary for satisfying section 152(e)(2)(A) is a custodial parent’s declaration that she “will not claim” the child as a dependent for a taxable year. A custodial parent accomplishes this on a Form 8332 with the following statement: “I agree not to claim * * * for the tax year”. This statement is unconditional; and in order for a document to comply with the substance of Form 8332 and ultimately section 152(e)(2)(A), the declaration on the document must also be unconditional. See Gessic v. Commissioner, T.C. Memo. 2010-88; Thomas v. Commissioner, T.C. Memo. 2010-11; Boltinghouse v. Commissioner, T.C. Memo. 2003-134; Horn v. Commissioner, T.C. Memo. 2002-290.
The opinion points out that there are four considerations in determining whether a party is entitled to claim the dependency exemption: (1) Whether the “child receives over one-half of the child’s support during the calendar year from the child’s parents … who are divorced … under a decree of divorce”, sec. 152(e)(1)(A); (2) whether the child was “in the custody of one or both of the child’s parents for more than one-half of the calendar year”, sec. 152(e)(1)(B); or (3) whether “the custodial parent signs a written declaration (in such a manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year”, sec. 152(e)(2)(A); and (4) whether “the noncustodial parent attaches such written declaration to the noncustodial parent’s return” for the appropriate taxable year, sec. 152(e)(2)(B).
To rub a little salt in the wound, the Tax Court held that, since Mr. Armstrong had been ruled not to be entitled to claim the dependency exemption, the children were not “qualifying” within the regulations, so he could not claim the child credit, either. Ouch.
For drafting purposes, at a minimum you should include language that the non-claiming parent will timely execute IRS form 8332 for every tax year covered in the agreement. At least in that way you can ask the court for relief under MRCP 70(a). I have no idea whether a form executed by another party per the rule would satisfy the IRS, but it’s better than nothing. It would have the added benefit of documenting that you have made your client aware of the requirement of the form.
If I were practicing today, I would confer with my favorite CPA for advice about how best to avoid problems with this situation. Can you get the other party to sign ten years’ worth of forms in advance, each for the specific year in which your client will be claiming the exemption? I don’t know, but a CPA will know.
Of course, Mr. Armstrong could seek relief via contempt from the fomer Mrs. Armstrong. Contempt is a dish best served cold, as they say. But it has the disadvantages that one has to hire an attorney and try to collect money that may no longer be there. Yes, you can put that ex in jail, which may provide a measure of comfort and satisfaction, but it may not make you whole financially.
NOTE: Armstrong involves tax returns filed before the above-cited regs were adopted, and the language of the parties’ divorce decree included a clause that made claiming the exemption conditional upon payment of child support, but I believe my interpretation of the law above is accurate.
The Better Chancery Practice Blog 
Do you think that this would be a situation where a petition for a writ of assistance would be appropriate? I have heard that this tool is being used more and more in lieu of filing a petition for contempt. I have done cursory research as to what types of grievances a writ of assistance may help ameliorate family squabbles, but I can’t say that the rule or case law clearly delineates when to use it. Thoughts?
I have not heard of anyone using a writ of assistance for anything since the mrcp came into effect in 1983. But as long as the respondent gets due process and has the requisite notice under the mrcp, I suppose you can call your pleading whatever you like.
Contract law. Do you take clients? If not, do you recommend anyone?
I can not practice law or give legal advice, but if you email me at primeauxl@yahoo.com, I might be able to point you in the right direction.