Kenneth M Scott, CPA, Esq.

U.S. Tax Court Opinion: Exemptions and Noncustodial Parents

In two separate cases the U.S. Tax court has recently issued opinions related to the release of dependency exemptions and noncustodial parents. In summary 1) divorce orders must unconditionally award the exemptions to the noncustodial parent in order for the noncustodial parent to claim the exemption with other supporting documents as a substitute for Form 8332, and 2) A properly signed Form 8332 may takes priority over the language in a divorce decree.

Divorced taxpayer was noncustodial parent. His ex-wife had custody of their son. As a result of the state court divorce proceedings the taxpayer was entitled to the dependency exemption for the minor child on the condition that Noncustodial parent pay child support in full. He paid the full child support for the year and was current on his obligation, however, his ex-wife failed to provide the executed Form 8332. Taxpayer timely filed his federal income tax return, attaching court documents to support the claim of an exemption for his son. The IRS disallowed the exemption. Subsequently the Tax Court ruled that the supporting documents failed to comply with IRC sec. 152(e)(2)(A) because it failed “to unconditionally declare that the ex-wife ‘will not claim such child as a dependent’ for the year at issue.” Armstrong v Commission of Internal Revenue, Docket No. 28738-09. December 19, 2012.

In a separate case, the taxpayer and her ex-husband divorced and taxpayer was awarded custody of the minor children. The noncustodial ex-husband was required to pay child support. The divorce judgment did not expressly provide how or whether dependent status of the children would be allocated for tax purposes after the divorce. Subsequently, the noncustodial father became delinquent on the child support obligation and filed a child support modification request in the state court. As a result, the court ordered a modification of the support, entitled him to the dependency exemption for the minor child (the other had reached the age of majority) on the condition that the child support obligation be current, and required the custodial parent to execute Form 8332 (“Release of Claim to Exemption for Child of Divorced or Separated Parents”). Taxpayer signed and executed the Form 8332 releasing her right to claim the exemption for the years(s) at issue despite the noncustodial parent being in arrears on the child support payments. The Taxpayer filed court actions, in an attempt to have the court reconsider its order requiring her to execute form 8332. The state court denied the request.

Both parties filed timely tax returns for the years at issue and both claimed exemptions for the child. Taxpayer requested that the Form 8332 be disregarded arguing that the Form 8332 was invalid because it was signed under duress. She alleged that the state court improperly ordered her to execute the form. She also contended that Form 8332 should be disregarded because the noncustodial parent being in arrears at the time of execution.

The tax court ruled that the Form 8332 was valid and not signed under duress as alleged by the taxpayer, and as a result, the taxpayer was not allowed the exemption for the dependent. According the Tax Court, duress occurs when “an unlawful act” induces action and in the present case, complying with a lawful court order is not duress. Taxpayer claimed that the state court order was erroneous. The Tax Court determined that the taxpayer challenged the order in the state court and was unsuccessful and therefore the Tax Court would honor the ruling on the matter as entered at the state court. Rachel George v. Commission of Internal Revenue, Docket Nos. 15083-10, 6116-11, December 19, 2012.

 

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