Wednesday, July 21, 2010

TILL DIVORCE DO US PART - PART III

In the case of a divorced couple with a child, the parent that has physical custody automatically gets the dependency deduction, unless he/she “releases” the right to the deduction by providing the non-custodial parent with a signed IRS Form 8332. The dependency deduction can be released for one year at a time or for all future years.

What happens if the divorce decree clearly states that the non-custodial parent is entitled to the deduction, but the custodial parent refuses to sign the Form 8332?

The Tax Code requires that Form 8332 be signed by the custodial parent before the non-custodial parent can claim the dependency deduction. If the divorce decree unconditionally allows the non-custodial parent the deduction, an excerpt from the decree can be used in lieu of the IRS form is the wording meets exactly all the requirements of Form 8332 and it includes the dated signature of the custodial parent. However, most divorce decrees are written without the Tax Code in mind, and the majority of Tax Court cases have not accepted an excerpt from the decree.

In most cases, if the custodial parent refuses to sign the Form 8332 the non-custodial parent will have to go back to the state court and get it to order the custodial parent to sign the form.

When negotiating a divorce settlement that gives the dependency deduction to a non-custodial parent make sure to include specific terms that require the signing of Form 8332 and outline what will happen if the custodial parent refuses to do so (i.e. withholding of alimony payments).

More better – make sure that the decree is worded properly to meet all the requirements of Form 8332. According to IRS Publication 504 the divorce decree or agreement must state all three 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.

The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return:

· The cover page (write the other parent's social security number on this page).

· The pages that include all of the information identified in items (1) through (3) above.

· The signature page with the other parent's signature and the date of the agreement.

{Update - Under final regulations issued by the IRS a copy of a court order or divorce or separation decree or agreement that includes the same language as the Form 8332 will no longer be acceptable as an alternative to Form 8332. Only the actual Form 8332 or a similar document containing the same information that is specifically written for the sole purpose of serving as a written declaration in lieu of the Form 8332 will be acceptable}

to be continued…

TTFN

1 comment:

Griffin T. said...

Thanks for the info - Is this type of thing ever included in a prenup?