Source: https://www.bna.com/divorce-child-dependency-n17179872607/
Timestamp: 2019-04-19 04:48:58+00:00

Document:
Just what should we more traditional trusts and estate practitioners be telling our family law colleagues about the child dependency exemption so that they can make sure that settlement agreements and divorce decrees have language that the IRS approves? To add insult to injury, in some cases divorce not only causes stress up to the time of the divorce, but also results in continuing stress, particularly when there are minor children and the parents must continue to interact.
The IRS simply does not want to be entwined in these often negative interactions. So, rules set forth in §152(e)(2)(A) must be followed or the IRS will not allow a noncustodial parent a child dependency exemption: the custodial parent must sign a written declaration (as prescribed by the Secretary) that the custodial parent will not claim the child as a dependent and the noncustodial parent must attach that declaration to his or her income tax return for that year. These are, apparently rather black-and-white rules and getting close does not work.
The majority held that the 2007 state court order, even though signed by the wife, did not comply with §152(e)(2)(A) because it did not "unconditionally declare that the ex-wife `will not claim such child as a dependent'" for the year at issue. The deficiency and accuracy-related penalty were not large enough to justify the cost of going to Tax Court ($1,510 plus $402), so one can only assume that the taxpayer was greatly annoyed with his ex-wife and sought justice from the IRS. Taxpayer and his wife represented themselves. Taxpayer did not achieve justice, though the majority did hold that he was not liable for the penalty.
Why did the majority hold against taxpayer? Presumably because the IRS does not want to be caught in the middle on issues like this: "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. … [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." There must be an unconditional statement that the custodial parent will NOT take a dependency exemption for the child. See Gessic v. Comr., T.C. Memo 2010-88; Thomas v. Comr., T.C. Memo 2010-11; Boltinghouse v. Comr., T.C. Memo 2003-134; and Horn v. Comr., T.C. Memo 2002-290.
The court noted that as custody and support orders get amended over time, "the Internal Revenue Service cannot be expected to police divorce decrees and separation agreements or determine taxpayer compliance therewith." See Gessic. The court writes that the taxpayer's case is sympathetic, but, nevertheless, it must follow the applicable statute.
What should family lawyers do to ensure the child dependency allowance for a client who is entitled to it under the divorce decree? Based on this case, the taxpayer must seek state court enforcement of the provision and leave the IRS out of the mix. For example, the state court could require the custodial parent to sign IRS Form 8332 for all future years allowing the noncustodial parent to claim the child as a "dependent child," and providing that if the custodial parent unilaterally revokes that waiver, then damages for revoking the waiver will include, if that parent is later found to have revoked the waiver without justification (for example, all support payments are up to date) or that parent agrees that he or she should not have revoked the waiver, all income taxes and penalties that were paid as a result of the waivers, reasonable attorneys' fees to enforce the state court's order and reasonable attorneys' and CPA's fees for claiming a refund. The court order could also be signed by the custodial parent and contain language similar to that found in IRS Form 8332 to the effect that the custodial parent will NOT take the child dependency exemption. And, if the non-custodial parent who is entitled to the exemption cannot obtain a signed IRS Form 8332 with a cordial request, consider asking a state court to order the custodial parent to sign IRS Form 8332. If the custodial parent does not do so, a contempt of court order may be in his or her future.
For more information, in the Tax Management Portfolios, see Wofford, 515 T.M., Divorce and Separation, and in Tax Practice Series, see ¶2830, Personal Exemptions.

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