When parents divorce, the question of who can claim a child as a tax dependent is usually covered in the property settlement agreement and divorce decree.
However, the Tax Court Memo 2019-91 for Jason D. DeMar shows that even then, it can be a problem to get the tax returns filed correctly.
Basically, the couple divorced in 2010 and they agreed to alternate years for each of them to claim the son as a tax dependent. Mrs. DeMar agreed to sign form 8332 for year 2015 that would allow him to claim the son for the exemption, child tax credit and earned income tax credit.
She did finally sign form 8332 in 2017 (late), but Mrs. DeMar did NOT amend her 2015 return to remove the claim of the son as her tax dependent. An IRS proposed regulation requires the form 8332 be signed and her return is to be amended.
IRS sent Mr. DeMar a tax deficiency notice for his 2015 return that disallowed the son as his tax dependent. IRS said the requirements of the proposed regulation were not met. She claimed the son as a dependent and she never filed an amended return (to not claim the son).
Also, Mr. DeMar failed to attach form 8332 to his return (as required by the tax code) and IRS said that was a reason he was not allowed the son as his tax dependent.
The divorce agreement clearly established Mrs. DeMar was the custodial parent. So, IRS code sections 152(e)(2) A and B applied. She was to sign a declaration (or tax form) that she would not claim the son in 2015 and he was to attach that declaration to his 2015 return.
He timely filed his 2015 return, but she did not timely execute form 8332 and he did not attach it to his 2015 return. And, she did not amend her return to remove the son as a dependent.
IRS did not allow him to claim the son in 2015 as a dependent and he had to pay more tax than he should have if everything was done correctly and timely.
He represented himself at Tax Court instead of having an attorney. That might have been a mistake.
It is OK to sign several forms 8332 for current and future years at the time of the divorce so this kind of problem might be avoided.
Did you hear “If you can’t fix it with duct tape, you haven’t used enough.” Author Unknown