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Child Dependency Claims By Noncustodial Parents

By Wei-Chih Chiang, CPA, DBA; Karen Pierce, CPA, DBA; and Jianjun Du, Ph.D.
September 23, 2019


From The Tax Adviser - Journal of Accountancy

Tax Credits



Note: Due Diligence is obviously required in deciding which tax credits the taxpayer may qualify for. Please CLICK HERE to download a Due Diligence Checklist prepared by Frank Sands, CPA, President TACPA.

When a couple divorce, the divorce decree may grant the noncustodial parent the right to claim a child or children as dependents for tax purposes. While the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, reduced the personal exemption for taxpayers, spouses, and dependents to zero for tax years 2018 through 2025, the special rule of Sec. 152(e) allowing a noncustodial parent to claim a child as a dependent is still important because it also allows the noncustodial parent to claim a child tax credit, which the TCJA increased and expanded. To claim this tax benefit, however, the noncustodial taxpayer should closely follow the special rule's statutory and regulatory requirements, about which taxpayers often have misperceptions.

Sec. 152(e) applies to parents who are divorced, legally separated, or living apart during the last six months of the calendar year and provide more than one-half of the child's support for the calendar year. The child must be in the custody of one or the other parent for more than half of the year (Sec. 152(e)(1)). If these requirements are met, the custodial parent may then release the right to claim a dependency exemption under Sec. 152(e)(2) to the noncustodial parent. To release his or her claim to the dependency exemption, the custodial parent must sign a written declaration for the years that he or she is not claiming the child as a dependent, which must be attached to the noncustodial parent's tax return.

FORM 8332 OR WRITTEN DECLARATION

The IRS issued Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, for parents to use to satisfy the written-declaration requirement. Form 8332 requires the custodial parent to furnish the name or names of the child or children for whom the claims are released, the year or years for which the claims are released, the custodial parent's Social Security number (SSN), and the name and SSN of the noncustodial parent. The custodial parent must also sign and date the form. Use of Form 8332 is not mandatory, though, and parents may satisfy the written-declaration requirement by attaching a document conforming to the substance of the form and executed for the sole purpose of serving as a written declaration under Sec. 152 (Regs. Sec. 1.152-4(e)(1)(ii)).

A court order, decree, or separation agreement executed in a tax year beginning after July 2, 2008, may not serve as a written declaration. Additionally, the written declaration must be unconditional. That is, the custodial parent's release cannot require satisfaction of any condition such as the noncustodial parent's fulfillment of a child support obligation (Regs. Sec. 1.152-4(e)(1)(i)). The custodial parent may revoke a written declaration by providing a written notice of revocation to the noncustodial parent (Regs. Sec. 1.152-4(e)(3)(i)).

Even if the noncustodial parent may claim the child as a dependent under Sec. 152(e), this does not entitle him or her to head-of-household filing status, the earned income tax credit, the child and dependent care credit, or the exclusion from income for dependent care assistance, any or all of which only may be claimed by the custodial parent (Notice 2006-86).

COMMON MISTAKES

A review of numerous court cases involving the release of claim suggests the following practical advice to noncustodial taxpayers.

Noncustodial parents often have a misperception that they may claim a child as a dependent merely by paying child support. However, this is irrelevant for the release of claim (see, e.g., Allred, T.C. Memo. 2014-54). Moreover, noncustodial parents commonly think that once the divorce decree, separation agreement, mediation agreement, or court order grants them the dependency exemption, they can claim it even if the custodial parent violates the agreement by refusing to sign a release. Again, this is a misunderstanding. If a custodial parent violates the agreement, the noncustodial parent must go to the state court for a remedy, not the IRS (see Armstrong, 139 T.C. 468 (2012), aff'd, 745 F.3d 890 (8th Cir. 2014)).

Sec. 152(e)(2) requires Form 8332 or other sufficient written declaration to be attached to the noncustodial parent's tax return. Regardless of this requirement, in many court cases, noncustodial parents did not attach Form 8332 or any other written declaration to their tax returns.

A written declaration should specify the children and tax years for which a custodial parent releases the claim (see Loffer, T.C. Memo. 2002-298). Specifically, if there are several children, and a custodial parent does not release all of them, a written declaration should clearly identify the ones the custodial parent will not claim as dependents. Likewise, if the custodial and noncustodial parents agree to claim a child as a dependent in alternate years, the years assigned to the noncustodial parent should be identifiable. A written declaration specifying "all future years" is treated as specifying the first tax year after the execution year and all subsequent years.

Taxpayers should carefully maintain a copy of the original Form 8332 or other written declaration. If the claim to the dependency exemption is released for more than one year, the noncustodial parent must attach the original release to the tax return for the immediate tax year and attach a copy of the release to subsequent tax returns. The Tax Court has held that the failure to attach a copy of a Form 8332 because the form was destroyed in a fire (Chamberlain, T.C. Memo. 2007-178) or irretrievable from previously filed tax returns (Vokovan, T.C. Memo. 2013-37) was not a legitimate excuse for the lack of a Form 8332.

Be aware that the release of a claim to the dependency exemption can be revoked by the custodial parent and, regardless of a prior valid Form 8332 or conforming document, the noncustodial parent will lose the right to claim a dependency exemption. If this happens, and the custodial parent is required to provide a release, the noncustodial parent may pursue a remedy in state court for the custodial parent's failure to provide the release.

EVEN MORE IMPORTANT UNDER TCJA

The ability to claim a child as a dependent and thus claim a dependency exemption for the child remains important even after the TCJA repealed the exemption for tax years 2018 through 2025. To take the child tax credit for a child, a taxpayer must be able to claim the child as a dependent. Under Sec. 151(d)(5)(B) and Notice 2018-84, the reduction of the exemption to zero under the TCJA does not affect whether the exemption is allowed or allowable for purposes of other provisions of the Code. Under the TCJA, the amount of the child tax credit is doubled to $2,000 per qualifying child, and the phaseout threshold has increased dramatically. These changes make the child tax credit more valuable and available to middle-income noncustodial taxpayers. Therefore, careful compliance with the requirements of the special rule in Sec. 152(e) can be even more important to CPAs' clients.

Wei-Chih Chiang, CPA, DBA, and Jianjun Du, Ph.D., are associate professors of accounting at the University of Houston—Victoria in Katy, Texas. Karen Pierce, CPA, DBA, is an associate professor of accounting at Morehead State University in Morehead, Ky.


Tax Cuts


  Recent Changes to Moving, Mileage, and Travel Expenses
The Tax Cuts and Jobs Act includes changes to moving, mileage and travel expenses:

  • Move-related vehicle expense
    • The new law suspends the deduction for tax years beginning after Dec. 31, 2017, through Jan. 1, 2026. During the suspension, no deduction is allowed for use of an auto as part of a move using the mileage rate listed in IRS Notice 2018-03.
    • This does not apply to members of the Armed Forces on active duty who move related to a permanent change of station.
  • Unreimbursed employee expenses
    • The Act also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. This change affects unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel. For additional guidance, see IRS Notice 2018-42.
  • Standard mileage rates for 2018
    • The standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:
      • 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
      • 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
      • 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
  • Increased depreciation limits
    • The recent legislation also increases the depreciation limitations for passenger autos placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan.
    • The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017.
Many thanks to Sandy Zinman, CPA, Chair of the National Tax Committee, NCCPAP

Resources on IRS.gov help all taxpayers understand tax reform


IRS Tax Tip 2018-115

IRS.gov is a great place for taxpayers to visit when they have questions about the Tax Cuts and Jobs Act. The legislation, which was passed late last year, includes changes to many areas of the tax law. Here are some of the resources on IRS.gov that will help individual taxpayers, businesses and the tax community understand the law and its effect on their taxes:

  • Tax Reform Web Page. The Tax Reform page highlights what taxpayers need to know about the tax law changes and how these changes affect them. This page also links taxpayers and tax professionals to news releases, tax tips, publications, notices, and legal guidance related to the legislation.

  • Updated Withholding Calculator. The IRS encourages everyone to use the Withholding Calculator to perform a “Paycheck Checkup,” which is even more important this year because of the tax law changes. The calculator helps taxpayers determine if they’re having the right amount of tax withheld from their paychecks.

  • Updated Form W-4, Employee’s Withholding Allowance Certificate. Taxpayers who determine they need to make changes to their withholding can complete a Form W-4, which reflects the tax law changes. Employees will submit the completed Form W-4 to their employers.

  • Frequently Asked Questions. The IRS posted new FAQs to help people understand how to use the Withholding Calculator and the changes to the Withholding Tables.

More information about the tax law changes will be coming throughout the year. IRS.gov will be updated to reflect changes as they develop.


Tax Reform: Changes to Depreciation Affect Businesses Now

IRS Tax Reform Tax Tip 2018-68


As employers across the country celebrate National Small Business Week, the IRS reminds businesses that the passage of the Tax Cuts and Jobs Act may affect their depreciation deductions and taxes. Business taxpayers can generally depreciate tangible property except land, including buildings, machinery, vehicles, furniture and equipment. Changes to depreciation and how they will affect businesses may include:

•Businesses can immediately expense more under the new law; taxpayers may elect to expense the cost of any property and deduct it in the year the property is placed in service. •Maximum deduction increased from $500,000 to $1 million. •The phase-out threshold increased from $2 million to $2.5 million.
•The new law allows taxpayers to elect to include improvements made to nonresidential property. The improvements must have been made after the date the property was first placed in service.

These improvements include:
• Any improvement to a building’s interior
• Roofs
• Heating and air conditioning systems
• Fire protection systems
• Alarm and security systems

Improvements that do not qualify:
• Enlargement of the building
• Service to elevators or escalators
• Internal structural framework of the building

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Retirement Plans

Retirement Plans Can Make Harvey Loans


IR-2017-138
August 30, 2017
WASHINGTON --

The Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families.

Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey and designated for individual assistance by the Federal Emergency Management Agency (FEMA). To qualify for this relief, hardship withdrawals must be made by Jan. 31, 2018.

More information


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