Claiming the Dependent Exemption in Custody Cases

 

IRS Regulations address the issue of custody and the allocations of dependent exemptions.   There are slightly different rules for divorces after 1987 when the Domestic Relations Tax Act changed and clarified the rules.

The general rule is that the parent having physical custody takes the exemption.  The parent having custody, however, may waive his or her right to claim the exemption and award it to the non-custodial parent.  The waiver must be expressly set forth in any marital termination agreement; and, under Minnesota case law the non-custodial parent must be current in his or her child support by December 31st of the year in which he or she seeks to claim the exemption.  The IRS requires that the custodial parent execute the wavier in a formal manner by signing Form 8332 indicating that the exemption will be used by the non-custodial parent.  

In view of the Domestic Relations Tax Act the best approach is to draft a marital termination agreement that includes specific language on the issue of the allocation of the dependent exemption; the language should allocate the exemption; include an explanation of the rationale for the award; direct the non-claiming parent to execute Form 8332; and provide a remedy for the claiming parent in the event the non-claiming parent refuses to sign Form 8232.

About Kate Willmore, Esq.

Kate Willmore, Saint Cloud, Minnesota, divorce, custody and family attorney brings over 25 years experience to every client's legal matter. *** Licensed in Minnesota and in California

2 Responses to “Claiming the Dependent Exemption in Custody Cases”

  1. I have been informed by 3 different tax professionals in the state of Minnesota that if I am the custodial parent with my children living with me for over 50% of the year, that no matter what our divorce decree states, I am legally able to claim them as my dependents. Our decree is very vague and states one parent claim 2 dependents and the other 1 dependent in odd years and vice versa in even years. Can you tell me what is the legal way to go about this?

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    • Your tax professionals are correct. The IRS issued a regulation that simply put- allows the custodial parent to take the tax dependency exemption regardless of what the marital termination agreement or divorce decree says. Minnesota case law gives the Court discretion to decide how to allocate the exemption in divorces. Parties to a divorce may agree to allocate the exemptions between themselves. The exemptions are usually alternated with the non-custodial parent’s requirement of having to be current in his or her child support. Minnesota law has not caught up with the IRS regulation. In order to modify the decree that shares the exemption with a non-custodial parent, the custodial parent may want to file a motion to change the exemption allocation and allege a significant change of circumstances, which is the standard. The IRS regulation would be considered a significant change. If a party unilaterally takes the exemption without a modification, then that party is in contempt of court. Minnesota will have to address this IRS regulation through case law. I had a case in Stearns recently where I argued MN has jurisdiction over the divorce despite the IRS ruling and that the other party was in contempt for taking the exemption when the decree held otherwise. The court granted the motion. I aruged that the other party had to file a modificaiton of the decree alleging a change of circumstances to allocate the exemptions in a different manner. The Court agreed. The situation here is MN state law vs. the Feds. It will be very interesting to follow this line of cases. Thanks for the comment.

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