Earlier this week, the United States Tax Court filed a short memorandum opinion in the case of Espinoza v. Commissioner of Internal Revenue that illustrates the importance of tax issues in divorce cases.
The taxpayer in this case were divorced the year after the birth of their son. As part of their divorce, there was a Permanent Order of Child Support entered by the Washington state court in which their divorce was finalized. Pursuant to this Order, the taxpayer was permitted to claim his son as a dependent on his tax returns every other year as long as he was current on his child support obligations.
The taxpayer fulfilled his child support obligations, and, thus, claimed his son as a dependent on his federal income tax returns in odd years, just as the court’s order permitted.
The IRS determined a deficiency in the taxpayer’s tax for 2007 with one of the grounds being that the taxpayer was not legally entitled to claim his son as a dependent.
The child support clearly provided that the taxpayer had a right to claim his son as a dependent for tax purposes for the year in question. The taxpayer clearly paid his child support.
The taxpayer’s wife did not sign an IRS Form 8332 and provide it to the taxpayer to attach to his tax returns. Form 8332 is a release of claim to exemption for the child of divorced or separated parents.
Under Section 152(c) of the Internal Revenue Code, a taxpayer’s child generally qualifies as a dependent if the child shares the principal place of abode as the taxpayer for more than half the tax year in question. If the parents of the child are divorced or separated, however, a non-custodial parent may claim the child as a dependent if the custodial parent signs an IRS Form 8332 and provides it to the non-custodial parent to attach to his or her tax return. Under the applicable Treasury regulations, the release of the custodial parent’s claim to the dependency exemption can be for a single year, for a number of specified years (such as alternate years), or for all future years.
In the Espinoza case, the child lived with the taxpayer’s ex-wife, and the taxpayer’s ex-wife did not sign and provide a Form 8332 to the taxpayer. Therefore, even though the taxpayer paid his child support obligations, and the court’s order expressly permitted the taxpayer to claim his son as a dependent in alternate years, the IRS still refused to allow the taxpayer a dependency exemption for his son because there was no Form 8332.
The moral of the story is simple. In a divorce or separation situation in which the right to claim a child as a dependent for tax purposes is at issue, always make sure to get a signed Form 8332 as part of the case.