Who Gets to Claim the Kids?

When parties get divorced, they often have a property settlement agreement wherein they agree who will claim the children as tax exemptions. It is not uncommon for the parent who is not entitled to claim the child to claim that child as an exemption when it comes time to file the tax return.

The IRS has passed new rules clarifying who may claim the children as exemptions on their tax returns when the parties are divorced or separated. Form 8335 must be signed by the custodial parent and attached to the tax return for the non-custodial parent in order for the non-custodial parent to be entitled to claim the child.

In the past, if a parent wrongfully claimed a child as an exemption, the parent who would be entitled to claim the child would simply have to submit to the IRS the part of the final judgment for divorce or property settlement agreement setting forth the language as to who is entitled to claim the child and the problem would be solved. The IRS would accept the second tax return and go against the first filer to get back any refund that was wrongfully claimed. That is no longer the situation.

The IRS will be following the “first to file” rule and that is, if the parent claiming the child files first and claims the child – even if not allowed to do so under the FJD, that parent will get the deduction. The IRS will not correct the situation when the second tax return gets filed and that parent attempts to claim the child. The parent who is entitled to claim the child will have to file a motion with the family court requesting that the other parent be ordered to sign Form 8335 and the to be submitted to the IRS.

What if the parties never reached an agreement as to who would claim the child/ren? In this case, the custodial parent is entitled to claim the child. The definition of “custodial parent” is tricky because in many families, the parents have a shared parenting arrangement. In that case, the “counting rule” is the new rule to determine who is entitled to take the exemption.

Now, it does not matter if your divorce decree says you can claim your child. You will need your Ex to sign Form 8335 and attach it to your tax return in order to get the deduction. Effective for tax years beginning after July 1, 2008, the exemption for a qualifying child of parents who are divorced, separated under a written separation agreement or who lived apart at all times during the last six months of the year goes to the custodial parent, regardless of what the divorce decree or written separation agreement says, unless the noncustodial parent attaches a signed waiver effective for that tax year.

Where one or both parents have physical custody for over one-half of the calendar year and the child is under the age of majority, the parent with whom the child lives longer during the calendar year is the custodial parent. The child is deemed to reside with a parent using the counting -nights rule, where each night that a child sleeps at the parent’s residence or sleeps in the company of the parent when the child does not sleep at te parent residence, such as when they are on vacation, is a night of residence for that particular parent. In the case of a parent who works at night, a child resides with the parent based on the greater number of days, not nights.

The IRS also passed new rules regarding the child tax credit, the HOPE scholarship and Lifetime Leaning benefits. Also, both parents who are divorced or separated can now take deductions on behalf of a dependent child even if the custodial parent has not released his or her claim of an exemption for the child.

I suggest you talk with your tax advisor to be sure you will get to claim your child or can take advantage of other deductions.

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