Generally, IRC section 151(c)(1) allows taxpayers an exemption for dependent children. In the case of divorced parents, the custodial parent gets the exemption. That parent, however, may release his or her claim to the exemption, allowing the noncustodial parent to claim the deduction. The custodial parent does this by signing Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, which the noncustodial parent attaches to his or her tax return.
In lieu of form 8332, the noncustodial parent may attach a written declaration conforming to the substance of form 8332. To meet the requirements of IRC section 152(e)(2), this statement must include the
Name of the dependent child.
Special rules apply in the case of joint or “split” custody. In this situation, the parent who has custody for the greater part of the year is considered the custodial parent. An executed shared custody agreement incorporated as part of a divorce decree may stipulate the noncustodial parent is “entitled to claim” the children as dependents. However, such a stipulation may not effectively grant the dependency exemption to the noncustodial parent for federal tax purposes. A release of claim of exemption in a divorce decree must meet the written declaration requirements of section 152(e)(2).
Case in point. Dundra (the father) and Cramer (the mother) divorced on June 6, 1988. Their divorce decree provided for shared custody of three minor children, but Cramer’s home was to be the children’s primary residence. The decree also said Dundra would pay child support and be “entitled to claim the three children as dependents for federal income tax purposes.”
A later divorce court order, filed on November 29, 1995, reduced Dundra’s child support obligation, reaffirmed his federal tax exemptions for the minor children and ordered Cramer to waive the exemptions by executing the necessary IRS forms to transfer the exemptions to Dundra.
In 1998 two remaining minor children lived with Cramer for most of the year. Each parent claimed the dependency exemptions on their 1998 federal tax returns. Dundra attached a copy of the last page of the divorce decree to his return, but did not attach form 8332. Cramer and Dundra both received deficiency notices disallowing the dependency exemptions. Both parents petitioned the Tax Court, which consolidated the cases.
In Cramer v. Commissioner , TC Summary Opinion 2003-2, the court ruled that since Cramer had had custody for the greater part of the year, she was the custodial parent and thus entitled to claim the exemptions unless she expressly released them to Dundra.
Dundra contended his ex-wife’s signature on the divorce decree attached to his return satisfied the requirement of a statement conforming to the substance of form 8332. The court disagreed, stating that Cramer’s signature on a divorce decree dated in 1988 did not indicate her intent to release exemptions in 1998. The court also noted the attachment did not conform to the substance of form 8332 as it had not specified the children’s names, the year the exemptions were released or Dundra’s Social Security number.
Dundra said he had not attached form 8332 because he did not think Cramer would sign it. She testified she would not have signed the form because she had no intention of releasing the dependency exemptions. Dundra also claimed he had relied on an IRS publication that said form 8332 was unnecessary and that a copy of the divorce decree granting him the dependency exemptions was sufficient.
The court replied that IRS publications are not authoritative and taxpayers rely on such publications at their own peril. The court disallowed Dundra’s exemptions because he had not attached form 8332 or a statement conforming to its substance to his return and allowed Cramer the exemptions.
Observation. CPAs should advise clients that a copy of a divorce decree will not serve as an effective release of a custodial parent’s claim to dependency exemptions unless it contains all of the required information. Only form 8332 or a statement conforming to its substance will release the exemptions to a noncustodial parent. CPAs should also advise their clients to use caution when relying on IRS publications as they do not constitute an authoritative source of tax law information.
—Tina Quinn, CPA, PhD, associate professor of accountancy, Arkansas State University, Jonesboro, and Claire Y. Nash, CPA, PhD, associate professor of accounting, Christian Brothers University, Memphis.