By Nick Richards and Keith Buckley
When parents are going through a lengthy divorce proceeding, who claims the child for that year? In a recent tax court case, Jason M. Roach v. Commissioner, the court sought to clarify this issue. The issue was who could claim the child as a “qualifying child” in between temporary orders and final orders.
Parents may share parental responsibilities 50/50 but not the tax benefits in a given year. The term “joint-custody” means that both parents share legal custody of their child. However, the IRS doesn’t care who has joint-custody, rather they only care who can and cannot claim the child. When submitting a tax return, you are only allowed to take the whole exemption or no exemption. This causes issues when the “custodial” parent and the “non-custodial” parent claim the same child on their tax returns.
In determining which parent may treat a child as a “qualifying child”, the custodial parent is determined by looking at how long the child has lived with the parent for the taxable year and how much support the parent has given during that year. The parent will be deemed to be the custodial parent if these amounts are over half during the tax year. This designation has a dramatic impact on an individual’s tax return for that year, if the claim is mistaken it will result in penalties. Therefore, it is important to know the limitations and restrictions while you work through a divorce.
Post-divorce, a well-crafted separation agreement should detail who is and who is not entitled to claim a child. This may allow for a noncustodial parent to treat the child as a qualifying child. This is accomplished only if the custodial parent signs a written declaration conforming to Form 8332, relinquishing their right to claim the child in the taxable year.
Dependency rules for divorced parents are somewhat complex. The outcome of who may file the exemption also affects other child-related provisions such as the child credit. It is important to discuss the tax consequences surrounding your separation agreement with a tax professional, including alimony, child support, and the basis of transferred assets during and after a divorce.
If you have questions about your separation agreement or are in the process of going through a divorce, contact us at Dill Dill Stonbraker & Hutchings, PC. Our tax attorneys will be able to provide guidance and clarification on the tax implications of a divorce. Contact us directly at (303) 777-3737 or firstname.lastname@example.org.
This is part 1 in a 3 part series where we will discuss other tax implications of Divorce. Coming soon – Part 2: Alimony? Is It Always Income?