The question of which parent can claim their child as an exemption on their tax returns after a divorce comes up very often, even being litigated on occasion by parties. Last week, the U.S. Tax Court issued a Summary Opinion in Scalone v. Commissioner of Internal Revenue, again explaining the requirements for claiming a child as a dependent exemption.
The Scalone's were divorced years ago (in 2001) and under the terms of their separation agreement, Mr. Scalone was entitled to claim the parties' child as a dependent on his tax returns going forward from the year 2000. In 2006, Mrs. Scalone refused to sign the required IRS form and when Mr. Scalone claimed the child on his taxes for that year by attaching a copy of the parties' separation agreement, litigation ensued.
The opinion does a good job of explaining the basic operations of the child dependent exemption, including the use of IRS Form 8332 for filing with the tax return. Using that form usually resolves these matters and no red flags are raised.
The underlying issue is what qualifies a child as a "dependent" under the tax regulations. As the Court describes it
But "dependent" is one of those English words that the Code tortures into having a very specific meaning: A "dependent" child in tax law means a child who gets more than half her support from a taxpayer with whom she lives for more than half of the year. See, sec. 152(a)(1), (c)(1). The general rule for children of divorced parents is that the "custodial" parent gets to claim them as dependents, but the divorce decree or separation agreement can say otherwise. Sec. 1.152-4(c), Income Tax Regs.
The Court explains that the above is a "general" rule with a variety of exceptions, including using a declaration from the custodial parent that they won't claim the child and the declaration is attached to the non-custodial parent's tax return. In Scalone, the Court looked into the attachment of the separation agreement and if it provided enough information to entitle Mr. Scalone to claim the child as a dependent on his tax return.
In the end, the Court found that although the separation agreement didn't include the parties' social security numbers, that oversight wasn't fatal and the agreement was treated as a declaration entitling Mr. Scalone to taking his child as a dependent in 2006.
For more information on family law and the dependent deduction for purposes of your tax return or to schedule a consultation, please call my office (718.568.0221) or visit my website (AndrewMAyers.com) for more information.