As Bruce points out “This is a pretty basic information form, but one that gets both abused and ignored. A lot of divorced parents aren’t even aware that it exists.” Bruce explains that this is usually because “they never really explain their situation fully to their preparer, or they are still doing their own returns, not knowing what this is”. Bruce goes about explaining the form in his post.
The July issue of NATP’s “TAXPRO Monthly” reported on a Tax Court opinion in the case of William N. Ward v. Commissioner (TC Summary Opinion 2008-54) that applies to the requirements for a non-custodial parent to claim a child as a dependent.
The rules for Form 8332 state that a substitute for the form can be used, and must be attached to the return. According to IRS Publication 504 (Divorced or Separated Individuals) the substitute can be a divorce or separation decree or agreement that states all of the following -
1. The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support.
2. The custodial parent will not claim the child as a dependent for the year.
3. The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent.
Under item number 1, if the decree or agreement has a condition placed on it it cannot be used as a substitute to Form 8332.
In the case discussed in the NATP publication the separation agreement stated that the father could claim his two children as dependents on his Form 1040 “so long as [he] is current in the payment of his child support obligations”. The father was current and claimed the children as dependents. But the mother, who was the custodial parent, also claimed the children on her 1040. The mother had not provided the father with a signed Form 8332, so he had attached a copy of the separation to his return.
Because the agreement specifically stated the condition that the father had to be current with all child support payments in order to claim the exemption the IRS did not allow it as a substitute for Form 8332. So as there was no Form 8332, or qualifying substitute, attached to the return the IRS disallowed the exemptions for the children. The Court decided for the IRS.
Was the father screwed? In this case the answer was no. He took his case to the Juvenile and Domestic Relations District Court in his county and the Court ordered that the mother reimburse the father for the tax benefit of claiming the children as dependents, which is this case was $2,326.00.
So if a custodial parent does not provide a Form 8332 to the non-custodial parent, as required by the divorce or separation decree or agreement, and the decree or agreement will not qualify as a substitute for Form 8332, the non-custodial parent should seek relief from the appropriate State or County court.