As tax season approaches, recent United States Tax Court decisions have shed important guidance on parents who intend on claiming their child or children as dependents on their federal income taxes. This is especially important for divorced or unwed couples who have a minor child or children in common and have not entered into an agreement that addresses the ability of either parent to claim the children or child as a dependent on the parent’s federal income taxes.
Taxpayers are allowed a dependency exemption deduction with respect to their dependent children. In the case of divorced or separated parents, the exemption is allowed only to the parent having physical custody for the greater portion of the year, unless the custodial parent waives that right to the noncustodial parent with a signed release, to be attached to the noncustodial parent’s tax return. See I.R.C. §§ 151, 152(e). The amount you can deduct for each exemption has increased for 2015 taxes. It was $3,950 for 2014. It is $4,000 for 2015.
In August of 2015, in the case of Hiram L. Porter v. Commissioner, the United States Tax Court denied a dependency exemption to a father because he could not produce a waiver signed by the mother. A court order signed by the judge awarding the father the ability to claim the child as an exemption. However, the Tax Court found that this court order, only signed by the judge in the parties’ divorce case, did not meet the statutory requirements.
The parties in the referenced case were married and had three children from their marriage. In 2002, the husband and his former wife’s marriage had been dissolved by a Florida court by the entry of a final judgment of dissolution of marriage. The final judgment embodied and incorporated the terms of the parties’ mediated agreement reached by the then-divorcing spouses. The judgment specified that the mother was to have majority timesharing/custody of all three children and was entitled to claim the oldest and youngest children as dependents for federal income tax purposes. Per the parties’ mediated agreement, the father was entitled to claim the middle child as a dependent. The final judgment dissolving the parties’ marriage was signed by the trial judge, but not by the father or the mother.
The father attempted to electronically file his federal income tax return for 2010. Without his knowledge, the mother had previously claimed all three children as dependents on her 2010 return, which caused the Internal Revenue Service (I.R.S.) to reject the father’s electronic filing. The father then submitted a paper return, mistakenly claiming his youngest instead of his middle child as a dependent, and also claimed head-of-household filing status and a child tax credit. He did not attach I.R.S. Form 8332, Release of Claim to Exemption for Child by Custodial Parent, or any other document signed by his former wife, stating that she would not claim either child as a dependent – i.e., a waiver. The father later tried to correct his error in claiming the youngest rather than the middle child, but this did not change the fact that the mother had not provided him with a signed waiver, and had herself claimed exemptions for all three children, despite this conduct being in violation of the court’s final judgment dissolving the parties’ marriage and their mediated settlement agreement. The father took the issue to the Tax Court.
The father argued that the Florida court order signed by the judge, awarding him the dependency exemption with respect to the middle child, should meet the requirement for a waiver. However, the Tax Court held otherwise, explaining that the applicable statute requires that the waiver be signed by the custodial spouse with the right to the exemption, and the signature of the judge alone does not suffice. The Tax Court stated that it was bound by the wording of the statute to deny his claim. The Tax Court further held that because the dependency exemption was denied, the father’s claims for head-of-household filing status and a child tax credit were also denied, because those tax benefits turned on the existence of a valid dependency exemption.
This decision provides guidance to any parent intending on claiming their child or children as a dependent on their federal income taxes that court order that is not signed by the custodial parent will not satisfy the express statutory requirements of I.R.C. § 152(e)(2)(A). The requirement for a signed waiver from the custodial parent was enacted with the intent to keep the I.R.S. out of disputes between divorced and separated parents on the subject of claiming their minor child or children as dependents on their federal tax returns. But the problem is that, although a divorce or paternity judgment or order may purport to award an exemption to one parent, the award is not self-enforcing and the court order by itself has no effect in the eyes of the I.R.S. As such, a parent can decide to sign a waiver or simply refuse to sign any waiver for the other parent.
In the case of Porter, the only remedy Mr. Porter had was to take this matter to the Florida court to ask it to enforce the court’s previous order and have his former wife to execute the required written waiver. In consideration of the 2015 exemption value of up to $4,000.00, this is one thing parents who can claim dependents need to be aware of these important implications.
John V. Moore, Esquire
Morgan & Barbary, PA,
Greater Melbourne, Florida and Brevard County,
Link to I.R.S. Form 8332: https://www.irs.gov/pub/irs-pdf/f8332.pdf
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