Tax Brake with Robert G. Nath, Esq.
"Dependent exemptions - It's hard to win even when you win"
- Week of 7/8/02 -
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| Try this one case on for size. Ray and Jill were husband and wife and had three boys. They had marital difficulties and separated in 1996. Jill began divorce proceedings.
Each, of course, wanted to continue in life using the boys as exemptions. So, Jill got the county court to award “joint” custody of the boys. But Jill got physical custody (subject to visitation rights). Ray had to pay child support, which he did. Wanting the exemption, Ray got the following language inserted in the divorce papers: “If [Ray] is current on his support obligation…[he] gets the two youngest children as dependents for income tax purposes.” Clear enough, you say? Not to the IRS. They challenged the exemption. Who won? The IRS, of course. The “default” rule under Section 152 of the Internal Revenue Code and the implementing regulations is that the parent having “physical custody” of the child for the greater part of the calendar year gets the exemption. But the non-custodial parent is “treated” as providing more than half the support (and therefore entitled to the exemption) IF the custodial parent signs IRS Form 8332, OR a written declaration (attached to the tax return) containing the same information. Jill refused to sign that statement. “But,” said Ray, “I have a COURT ORDER!” Not enough, said the US Tax Court. State court determinations can't govern federal tax consequences, so if Jill refused and would not sign any statement allocating the exemptions, Ray was out of luck. To add insult to injury, Ray contended that the IRS agent “advised him that he could claim exemptions” for two boys. The court rejected that claim. The IRS “is not bound by erroneous legal advice given by [its] agents.” So, it was a bad day for Ray. But the case shows how careful one must be in framing the entitlement to these exemptions. It also shows the IRS is quite vigilant in policing this system. |
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