Taking Back the Dependency Exemption

BY MICHAEL LYNCH

In divorce situations, the custodial parent is generally entitled to take the dependency exemptions for the children (IRC section 152(e)). This applies as long as both parents provide more than half the children’s support and the children live with either or both parents for more than six months each year.

However, this can be changed if the custodial parent signs Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, and agrees not to claim a particular child as a dependent for a particular year—then the noncustodial parent may claim that child by attaching the signed form to his or her tax return.

Form 8332 allows the custodial parent to release a claim for the deduction in the current year, specified future years, or all future years. It contains no cancellation date. The custodial parent need only sign the form once, but the noncustodial parent must attach it to his or her return every year.

The IRS recently reported it had received a large number of calls on its toll-free telephone lines from taxpayers inquiring if form 8332 could be nullified. This question is not answered on the form itself or in any related publications, and the IRS acknowledged it has not published procedures for revoking the release.

According to IRS legal memorandum 200007031, the only way a custodial parent can void form 8332 and claim the child on his or her own tax return, is to get the noncustodial parent to forgo claiming that child as a dependent. If the two former spouses cannot agree and both claim the same child, then the IRS steps in and an audit results.

Observation. The IRS memorandum discussed above is of no help to a custodial parent who has waived claiming the child for several years and whose ex-spouse fails to make support payments but continues to claim the exemption. To avoid such situations, CPAs should advise their clients to sign off on the exemption only on an annual basis and not to sign long-term releases.

—Michael Lynch, CPA, Esq.,
professor of tax accounting at
Bryant College, Smithfield, Rhode Island.

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