Opinion ID: 1864411
Heading Depth: 1
Heading Rank: 6

Heading: Circuit court erred in awarding federal income tax exemption to appellee

Text: The circuit court was faced with the issue of the federal income tax exemption for the parties' child in October 1986, on Dathe's motion to show cause. The circuit court deferred ruling on the income tax exemptions, but referred the case to DSS for determination of child support. This was error, as allocation of this tax exemption affects the financial situation of the parties and constitutes a factor in considering ability to pay child support. These are absolutely interlocking considerations. See Baird v. Baird, 760 S.W.2d 571, 573 (Mo.App.1988); Lorenz v. Lorenz, 166 Mich.App. 58, 62-64, 419 N.W.2d 770, 772 (1988). The tax exemption question should have been decided at the same time as the child support issue. As DSS is not given statutory authority to allocate federal tax exemptions, the second DSS child support determination was based on a faulty legal premise. In these circumstances, the trial court was inherently mandated to take jurisdiction of this case to decide the tax exemption issue which it had reserved to itself before the second DSS hearing. Dathe was awarded a federal income tax exemption by the trial court for Todd, the parties' minor son residing with Sarver, although 26 U.S.C. § 152(e) provides that, for tax years beginning after December 31, 1984, the custodial parent is to receive the exemption, subject to three exceptions. Two of the three exceptions require written declarations that the custodial parent, or other person contributing support pursuant to a multiple support agreement, that said custodial parent will not claim the child as his dependent. See 26 U.S.C. § 152(e)(2), (3). These exceptions do not apply here, as Sarver has never made such a declaration. The third exception, § 152(e)(4), which was explained in State v. Dryden, 409 N.W.2d 648, 652 n. 2 (S.D.1987), applies in cases involving Qualified pre-1985 instruments. A Qualified pre-1985 instrument is any decree of divorce or separate maintenance or written agreement, executed before January 1, 1985, which expressly allocates a deduction for the child in question to a non-custodial parent who provides at least $600 for support of that child, and which is not later changed in a modification expressly providing that this paragraph (the general rule) shall not apply. See Dryden, id. This last exception is inapplicable in this case as the 1979 divorce decree and support agreement make no reference to allocation of the exemption for the child and no express modification to the 1979 instruments exist. As none of the three exceptions to the general rule of Section 152(e) are appropriate to the facts of this case, the circuit court erred in allocating the federal tax exemption to Dathe. Prior to January 1, 1985, a trial judge could assign IRS exemptions for minor children to either the custodial or noncustodial parent. (Citation omitted.) This is no longer permitted. Dryden, id. In so holding, we acknowledge that some state courts have ruled that they have authority to, in effect, override federal tax law by ordering custodial parents to execute an exemption waiver and thus qualify noncustodial parents under 26 U.S.C. 152(e)(2). [3] See, e.g., McKenzie v. Jahnke, 432 N.W.2d 556 (N.D.1988). We deem such rationale to be an unconstitutional meddling with Congressional authority granted under the Sixteenth Amendment to the United States Constitution and, therefore, contrary to the Supremacy Clause of the U.S. Const. art. VI, cl. 2. We agree with the position of the Michigan Court of Appeals [4] : Since the exception does not apply, defendant, as the custodial parent, is entitled to claim the exemption unless she releases her claim to the exemption in accordance with 26 U.S.C. 152(e)(2). The trial court was without authority to order that plaintiff is entitled to claim the deduction without obtaining defendant's consent. The court could, however, consider which parent had the benefit of the exemption under the amended tax statute and its effect on the parties ability to pay as relevant factors in deciding the amount of the modification, if any, that was justified. Accordingly, on remand, the court should consider the effect of 26 U.S.C. 152 on the child support dispute, but may not decide which party is entitled to the dependency exemption, which must be resolved as a matter of federal tax law. Varga v. Varga, 173 Mich.App. 411, 419, 434 N.W.2d 152, 155-56 (1989). See also In re Marriage of Vinson, 83 Or.App. 487, 732 P.2d 79, 84 (1987), rev. denied, 303 Or. 332, 736 P.2d 566 (1987); Fullmer v. Fullmer, 761 P.2d 942, 950 (Utah App.1988).