January 22, 2013 8:30 am

Dependency Exemptions for Children of Divorce

A parent can usually claim a dependency exemption for his or her child. This write-off is a deduction of $3,800 in 2012 and $3,900 in 2013. When parents of a child are no longer married, which parent claims the dependency exemption? Tax rules are clear and must be followed to the letter.

Custodial parent

When parents separate or divorce, the tax law automatically lets the custodial parent take the dependency exemption for their child provided:

  • The parents together provide more than half of the child’s support.
  • The parents are divorced or legally separated or live apart for the last 6 months of the year.
  • The child is in the custody of one or both parents for more than half the year.

The custodial parent is the person with whom the child spends more nights during the year; the other parent is the noncustodial parent. Temporary absences count toward the parent who would otherwise be credited with those nights but for the absences. If the child resides with each parent for an equal number of nights, then the parent with the higher adjusted gross income is treated as the custodial parent.

Waiving the exemption

The custodial parent can waive the exemption and permit the noncustodial parent to take the exemption for the child. The waiver must be in writing; IRS Form 8832 is used for this purpose. The waiver can be made on a year-to-year basis or permanent. The waiver is signed by the custodial parent and attached to the return of the noncustodial parent.

While IRS Form 8832 is the usual way to properly waive the exemption, there are acceptable alternatives. However, the Tax Court has made it clear that a state court order giving the noncustodial parent the right to claim the exemption for his child may not automatically amount to a valid waiver under tax law. For the court order to equal a waiver, it must unconditionally declare that the custodial parent is waiving the right to claim the exemption for the child and will not claim it.

Child support and the waiver

The question of whether a waiver is valid is not dependent on whether the noncustodial parent has met his or her child support obligations. Again, the Tax Court has said that a custodial parent’s release of her right to claim the dependency exemption for her child was valid even though the noncustodial parent failed to meet his child support obligations. Even though the court ordered the noncustodial parent to make child support payments and ordered the custodial parent to waive the right to the exemption, the fact that one parent did not comply with the order did not let the other parent off the hook.

Conclusion

Parents who are going through a marital dissolution should discuss the matter of dependency exemptions for their children. Decisions made and actions taken during this process can impact the couple’s taxes for years to come.

Source: Billy Edward Armstrong, 139 TC No. 18; R. George, 139 TC No. 19

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Factoids
FACT: 

In the government’s fiscal year ending September 30, 2011, the IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion. The IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts.

Source: IRS Fact Sheet 2012-10

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