Tax code change allows custodial parent to revoke release of dependent exemption

Separation and Property Settlement Agreements as well as court support orders are potentially effected by a recent change in the Internal Revenue Code. The change may benefit custodial parents with an interest in claiming an exemption for their children, thereby revoking the release of exemption to the noncustodial parent. After reading the following general discussion, custodial and noncustodial parents may find it beneficial to consult a tax attorney and/or CPA.

In some cases, “what the court givith, the IRS taketh away.” Depending on the language in certain court orders, this change in legislation may allow a custodial parent to revoke a dependency exemption despite what a state judge ordered in a divorce decree.

A recent review of the Internal Revenue Code revealed the change in 2008. The change in law is a result of court cases and comments from the public and tax professionals. A custodial parent is now likely able to release or revoke an exemption for a child from a noncustodial parent. According to the IRS website, “if the custodial parent provides notice of revocation to the noncustodial parent in 2009, the earliest tax year the revocation can be effective is the tax year beginning in 2010.” The IRS has also further clarified and modified its definitions of a custodial parent and noncustodial parent.

A revocation of a release will likely have federal and state tax implications for both parents. A custodial parent can revoke a previous release of an exemption on IRS form 8332. As a result, the noncustodial parent may be prevented from claiming the child exemption on their Federal return. Moreover, if the custodial parent revokes a release, the noncustodial parent may be prevented from claiming a child credit/deduction on their State return. Exceptions do exist to the new tax rules on release and revocation.

The change requires that the individual claiming an exemption attach specific paperwork to their tax return. The original tax form 8332, signed by the custodial parent, is usually required. Court cases have ruled that some previously acceptable documents are no longer accepted by the IRS in lieu of a signed form 8332. If a signed form 8332 is not available, noncustodial parents should immediately consult a tax professional to ensure they comply with the new requirements.

The IRS Web site, www.irs.gov, provides further explanation, definitions, and some examples.

IRS CIRCULAR 230 DISCLOSURE: Rice Law, PLLC does not provide tax advice. Accordingly, pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained herein (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.