Court Opinion

ID: 9374857
Source: CourtListenerOpinion
Date Created: 2023-02-24 15:05:44.099169+00
Date Added: 2024-06-11T17:16:53.630024
License: Public Domain

RENDERED: FEBRUARY 17, 2023; 10:00 A.M.
                          TO BE PUBLISHED

                 Commonwealth of Kentucky
                           Court of Appeals

                              NO. 2021-CA-1490-MR

JAMES ERIC BANKSTON                                                    APPELLANT

                APPEAL FROM MARION CIRCUIT COURT
v.            HONORABLE SAMUEL TODD SPALDING, JUDGE
                       ACTION NO. 17-CI-00076

JENNIFER S. MATTINGLY                                                    APPELLEE

                                OPINION
                        REVERSING AND REMANDING

                                   ** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; JONES AND KAREM, JUDGES.

JONES, JUDGE: The Appellant, James Eric Bankston, brings this appeal

following entry of the November 22, 2021 order issued by the Marion Circuit

Court (“circuit court”). The order specified that the Appellee, Jennifer S.

Mattingly, and Bankston could each claim the parties’ minor child as a dependent

on his/her federal income tax returns every other year on a rotating basis. On

appeal, Bankston asserts the circuit court’s order is erroneous as a matter of law.
For the reasons set forth below, we reverse the circuit court and remand this

matter.

                                        I. BACKGROUND

                 Bankston and Mattingly were never married. They have a child

together who was born in July 2015. The parties have always had joint legal

custody of the child, but it was not until April of 2018, that Bankston received

equal timesharing. As noted by the circuit court under the current timesharing

schedule the parties “essentially alternate physical custody on an equal basis.”

However, Bankston has a considerably higher income than Mattingly, and he pays

her monthly child support despite the fact that he has the child half of the time.

                 In 2018, by agreement of the parties, Bankston was permitted to claim

the parties’ child as his dependent for purposes of his federal income taxes.

However, thereafter, a disagreement arose as to which party would be able to do so

going forward. On September 29, 2021, Bankston moved the circuit court to be

able to claim the child each year as his dependent, pursuant to 26 U.S.C.1 § 152.

Mattingly, however, requested a court order allowing her to claim the child every

other year such that she would be able to claim the child during the years she was

not able to claim her older child as a dependent.2

1
    United States Code.
2
    Mattingly’s older child does not belong to Bankston.

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             The circuit court determined that if Bankston did not claim the child

on his taxes his refund would be approximately $4,073 less, and that not claiming

the child would result in Mattingly getting $4,347 less. Citing Adams-

Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 781 (Ky. 2015), the circuit court

concluded that the Kentucky Supreme Court has directed state trial courts “to

allocate the tax credit in a manner which will maximize the greatest financial

benefit to the children.”

             Following what it believed to be the Supreme Court’s directive in

Adams-Smyrichinsky, the circuit court then determined:

             [I]f the tax credit is alternated, each party will receive an
             increased refund of just over $4,000.00 during the year
             they claim [the child]. Because the parties share joint
             custody and are exercising timeshare on an equal basis,
             the Court concludes, pursuant to Smyrichinsky, that the
             tax credit should be alternated. [Bankston] will claim
             [the child] during the taxable years when [Mattingly] is
             claiming her older child. When [Mattingly] is not
             claiming her older child, she shall claim [the child] for
             tax credit purposes.

November 22, 2021 Order at 2.

                                    II. ANALYSIS

             “Giving a party the tax exemption is simply a property award, not

directly a matter of setting support, since it affects the amount of money the parent

enjoying the exemption takes home.” Adams-Smyrichinsky, 467 S.W.3d at 781.

Whether a party is entitled to the exemption is primarily a matter of federal law;

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however, as discussed in greater detail below, in certain situations, the family court

may order the parties to execute a waiver allowing one or the other to claim the

child on his or her taxes. Id.

                “A taxpayer may claim a dependency deduction for a child . . . only if

the child is the qualifying child of the taxpayer[.]” 26 C.F.R.3 § 1.152-4(a). To be

a qualifying child of the taxpayer, the child must have “the same principal place of

abode as the taxpayer for more than one-half of such taxable year.” 26 U.S.C. §

152(c)(1)(B). “A child is in the custody of one or both parents for more than one-

half of the calendar year if one or both parents have the right under state law to

physical custody of the child for more than one-half of the calendar year.” 26

C.F.R. § 1.152-4(c).

                Thus, the first determination is whether the child was in the custody of

either Bankston or Mattingly for more than one-half of the calendar year. The

circuit court determined that the parties have equal timesharing, and that the child

does not reside with either parent more than the other. In such situations, 26

U.S.C. § 152(c)(4)(B)(ii) applies. This section explicitly addresses situations, like

the present, where two or more taxpayers appear eligible to claim the same

qualifying child under the general custody rules. It provides that “if the child

resides with both parents for the same amount of time during such taxable year, the

3
    Code of Federal Regulations.

                                            -4-
parent with the highest adjusted gross income” shall be treated as the parent of the

qualifying child. Thus, under the federal tax code, Bankston should be entitled to

claim child as his qualifying child, for any year in which he has a higher adjusted

gross income than Mattingly.

                 However, the IRS4 regulations provide that the noncustodial parent

may claim the child if:

                 (A) the custodial parent signs a written declaration (in
                 such 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, and

                 (B) the noncustodial parent attaches such written
                 declaration to the noncustodial parent’s return for the
                 taxable year beginning during such calendar year.

26 U.S.C. § 152(e)(2). The custodial parent can be ordered to execute the

exemption “under threat of contempt from a state court that has assigned the

exemption to the noncustodial parent.” Adams-Smyrichinsky, 467 S.W.3d at 782.

                 The circuit court appears to have read Adams-Smyrichinsky as

requiring it to allocate the tax deduction between the two parties. This is not what

the Court actually held. The federal income tax code allocates the tax deduction.

And, in this case, it gives the award to the party with the higher adjusted gross

income. The circuit court was not required to look beyond this rule and order that

4
    Internal Revenue Service.

                                             -5-
party to execute a release in favor of the other party. What the Adams-

Smyrichinsky Court actually held was that the circuit court can do so but only if it

determines first that there are extraordinary reasons that compel disregarding the

normal IRS rules. In other words, the circuit court should presume that the IRS

rules apply, and it should not displace those rules simply for the sake of fairness or

achieving mathematical equality between the parties.

             Such orders require “the state trial court to meet the heavy burden of

stating sound reasons [on the record] that this award actually serves as a support

issue benefitting the child.” Id. at 784. “[I]f the court cannot articulate a sound

reason for why awarding the exemption to the noncustodial parent actually benefits

the child, and thus affects the child’s support, then it is not making a support

award in the first instance, and it simply should not be done.” Id. (emphasis

added).

             The Court explained:

             Discretion, even in determining equity, or best interests,
             must have a reasonable and meaningful basis if we are
             not to undermine the integrity of judicial decisions and
             thereby erode public faith in the judiciary. To that end, a
             state court must do more than . . . simply divide the
             exemptions, or simply alternate years. There is no
             judgment in such an award, and no true finding of how it
             is in a child’s best interest, or how the extra money
             saved from taxes in one parent’s household actually
             benefits the child. . . . Otherwise, this is simply arbitrary
             action.

                                          -6-
Id. at 784 (emphasis added).

              It appears from the record that Bankston qualified for the tax

deduction not Mattingly. The circuit court’s order that the parties alternate years is

not the IRS rule. In cases where the parties have roughly equal timesharing, the

IRS rule dictates that the deduction belongs to the party with the higher adjusted

gross income. Here, the circuit court made a determination what the deduction

would mean for each parent’s finances, but it did not make a determination what

it would mean to this child. Absent from the circuit court’s analysis is the critical

discussion of “how the extra money saved from taxes in one parent’s household

actually benefits th[is] child.” This could very well differ from Bankston to

Mattingly, especially since Mattingly has other children that might dilute the

benefit to this child.

              “The trial court cannot award the exemption like a piece of property

and thereby bind third parties, like the IRS, by its orders; the court can only order

the ‘custodial parent’ to sign a waiver in favor of the noneligible party for a stated,

sound reason reliably related to the support of the child.” Id. at 784-85 (emphasis

added). “Because the [circuit] court did not state a reasonable nexus to support

assigning the exemption to [Mattingly for the alternating years] the [Marion

Circuit] Court abused its discretion.” Id.

                                          -7-
                                  III. CONCLUSION

             Accordingly, for the foregoing reasons, the order of the Marion

Circuit Court awarding the dependent-child tax deduction to the parties on

alternating years is reversed, and this matter is remanded to the circuit court for

entry of any and all appropriate orders.

             ALL CONCUR.

 BRIEF FOR APPELLANT:                       BRIEF FOR APPELLEE:

 Robin C. Bennett                           Dallas E. George
 Lebanon, Kentucky                          Lebanon, Kentucky

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