Father was custodial parent for dependency exemption and earned income credit

The IRS misapplied the Sec. 152(e) waiver requirements, the Tax Court holds.

Even though a divorce instrument awarded custody of a child to her mother, the child’s father could claim the child for a dependency exemption and earned income tax credit because he was the custodial parent, the Tax Court held.

Facts: Patrick A. Davis was divorced, and in 2000 a Louisiana court gave custody of the two children of the marriage to their mother, his ex-wife.

During the year of issue, 2010, one of the children of the marriage, Ashley, age 19, lived with Davis and his mother. Ashley was a full-time student at Southern University in Baton Rouge, La. Davis, his mother, Ashley’s mother, and Ashley’s maternal grandfather provided her financial support during the year. Ashley had her own room in her paternal grandmother’s house, slept there five nights a week, and ate most of her meals there.

Davis claimed Ashley as a dependent and also claimed a $2,726 earned income tax credit on his 2010 income tax return. The IRS denied both tax benefits.

Issues: The IRS contended that Ashley was not Davis’s qualifying child because she did not have the same principal place of abode as Davis for over one-half of the tax year (Sec. 152(c)(1)(B)). The IRS also denied that she met the age requirement and the test of not providing over one-half of her own support (Secs. 152(c)(3) and 152(c)(1)(D)).

In addition, apparently because the Louisiana court had named Davis’s ex-wife as Ashley’s custodial parent, the IRS contended that Davis was a noncustodial parent and could not claim Ashley as a qualifying child because he did not attach a properly executed Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or other written declaration required under Sec. 152(e).

Holding: The Tax Court held that Davis was entitled to a dependency exemption and earned income tax credit for Ashley as a qualifying child. The court found that the special rule in Sec. 152(e) did not apply because Davis was in fact Ashley’s custodial parent. As a full-time student under age 24, Ashley met the age requirement, the court held. She lived with Davis and his mother more than half of the year and therefore met the principal-place-of-abode test. The court also found that Ashley received more than one-half of her support from family members, including Davis, so the support requirement was met. 

– Davis, T.C. Memo. 2014-147

By James M. Hopkins, CPA, professor of accounting, Morningside College, Sioux City, Iowa.