Who Gets the Exemption?



Generally a taxpayer must provide more than half the support for a person to claim that individual as a dependent for tax purposes. IRC section 152(e)(1) provides an exception for parents who (1) are divorced or legally separated, (2) are separated under a written separation agreement or (3) live apart at all times during the last six months of the tax year. In such cases, the dependency exemption for their child is granted to the parent having custody (the custodial parent) for the greater portion of the year if (1) the parents’ combined support for the child exceeds 50% of total support and (2) one or both parents have custody of the child for more than half the year. The noncustodial parent may claim the exemption if the custodial parent releases it to the noncustodial parent using form 8332.

Sabrina King and Jimmy Lopez are the biological parents of Monique Vigil, born in 1986. Lopez and King were never married. Monique lived with her mother, who completed and signed form 8332 granting the dependency exemption to Lopez for 1987 and all future years. Lopez claimed the exemption for those years. Beginning in 1993, King and her husband also claimed Monique as a dependent.

In 2002 the IRS disallowed the exemptions for both taxpayers for 1998 and 1999 to protect the government from being whipsawed. King and Lopez lived apart for all of 1998 and 1999, and the child lived with King at all times during the two years. King and her husband filed a petition with the Tax Court for relief, as did Lopez and his wife. The Tax Court consolidated the two cases.

Result. For Lopez (the noncustodial parent) and his wife. The IRS argued the special support test of section 152 (e)(1) applied only to taxpayers who had been previously married; therefore King should be allowed the exemption since she had provided over 50% of Monique’s support. The Tax Court disagreed. It said the statute’s plain language meant it applied to any parents who lived apart for the last six months of the tax year and who, together or individually, provided more than 50% of their child’s support. Despite the specific language of section 152(e)(1), the IRS argued Congress intended the provision to apply only to parents who previously had been married to each other. The Tax Court also rejected this argument. It examined the legislative history and found nothing to indicate such intent. The court noted that the House conference report said the purpose of the exception to the support test was to “resolve disputes…between parents.” The court could find nothing in the report to indicate the provision was intended to resolve disputes only between parents who previously had been married to each other.

The instructions for form 8332 for 2001 and 2002 specifically say the special support test does not apply to parents who were never married to each other. Publication 501 also takes the same position. Therefore, based on this information, a custodial parent who was never married to the noncustodial parent may not have claimed an exemption in situations where the noncustodial parent provided more than 50% of the child’s support. As a result of the case, these taxpayers may want to examine their returns to determine if they wish to file amended returns. Also, noncustodial parents who have claimed the exemption based on the information in Publication 501 need to fill out form 8332 and have the custodial parent sign it if the two have agreed the noncustodial parent should get the exemption.

Jeffrey R. King and Sabrina M. King v. Commissioner; Jimmy R. Lopez and Suzy O. Lopez v. Commissioner, 121 TC no. 12.

Prepared by Charles J. Reichert, CPA, CIA, professor of accounting at the University of Wisconsin, Superior.

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