Tax Court Summary Decisions are not precedent but can be educational.  In David Charles Katz and Mary Joan Wring v. Commissioner, T.C. Summary Opinion 2013-98, the Tax Court again upheld the IRS denial of a dependency exemption when Form 8332 was not attached to the taxpayer’s return or obtained and delivered to IRS before tolling of the statute of limitations on the former spouse’s return.

David Katz (David) married Victoria Pursell (Victoria) in 1989 and the couple divorced in 2005.  They had two children, both of whom were under age 19 on December 31, 2009, the year in question.

David remarried and his new wife Mary Joan Wright filed jointly with him for 2009 and is therefore a co-petitioner in this case.

The decree that divorced David and Victoria provided as to the children:

• Awarded joint custody to David and Victoria.
• Gave Victoria primary physical custody expressly stating that the children should reside with her.
• David and Victoria were each entitled to claim one child as a dependent for tax purposes.
• Either David or Victoria could purchase the second exemption from the other by paying to the other the amount of tax benefit that would inure from the deduction.
• The divorce decree was not signed by David and Victoria.

Sometime in 2009 or before David filed his return in 2010, David paid $908 to Victoria to purchase the second child’s exemption for the year 2009.  David and his wife then filed their 2009 joint return claiming both children as dependents.  They did not obtain and attach to the return, Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, signed by Victoria.

Unfortunately, Victoria did not abide by her agreements and also claimed both children as dependents on her tax return filed for the year 2009.  Her return was filed on or before April 15, 2010.  IRS did not examine her return or disallow either of her claimed dependency exemptions for the children.

The IRS examined David’s joint return and disallowed both claimed dependency exemptions because Victoria was the custodial parent and David did not attach Form 8332 to the return.  David timely filed his petition with the Tax Court, and during the pendency of the case obtained from Victoria Form 8332 for 2009 (signed on September 22, 2013) releasing the exemption for the second child.  The Form 8332 was then faxed to the IRS attorney handling the case on September 23, 2013.  At that time IRS could no longer adjust Victoria’s return to disallow her claimed exemption because the statute of limitations had run on her return on April 15, 2013.

Under Sections 152(c) and 152 (e) a divorced parent who is the custodial parent may claim a deductions for a dependent child who will be considered a qualifying child if:

• The child is in the custody of one or both parents for more than one-half of the calendar year.
• The child receives more than one-half of his or her support from both parents on a combined basis.
• The child is younger than the taxpayer, under age 19 or under age 24 if a full-time student.
• The child has not filed a joint return for the same year.

The custodial parent is the parent has custody for the greater portion of the calendar year.  The other parent is called the noncustodial parent (IRC Section 152(e) (4) (A) & (B)).

Notwithstanding the above, the custodial parent can transfer entitlement to claim the dependency deduction to the noncustodial parent.  Section 152 (e) (2) prescribes how the transfer must be made, namely:

 (A) the custodial parent signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year, and

(B) the noncustodial parent attaches such written declaration to the noncustodial parent’s return for the taxable year beginning during such calendar year.

The IRS has prescribed that the transfer must be made on a signed Form 8332. The form includes the signed declaration:  “I agree not to claim the exemption for _____________ (child) for the tax year(s) ____________.”

The taxpayer can also attach and equivalent writing that is signed by the releasing custodial parent and contains the same declaration and information that is required to be included in Form 8332.

Based on the foregoing law, the court reluctantly upheld the IRS disallowance of David’s claimed dependency exemptions because:

•  He was clearly not the custodial parent as to either child.
• He did not attach Form 8332 or an equivalent signed declaration to the filed return.
• The divorce decree was not signed by either party and hence could not be an equivalent declaration even had it been attached to the return, which it was not.
• The Form 8332 obtained before trial was simply obtained too late.  Supplying the Form 8332 after IRS could legally assess tax against Victoria was insufficient to comply with the requirements of Section 152(e) (2) (A) cited above. In this regard the court cited Shenk v. Commissioner 140 TC at __, holding:

 (O)nce the period of limitations for assessment has expired and the custodial parent’s claim of the child as a dependent is not susceptible to being disturbed, any statement by her that she “will not claim such child as a dependent” for that year would be absurd.  The time for her to declare what she “will” do as to that taxable year has necessarily come and gone. As a logical matter and by definition, she is unable to declare what she “will” do about a past year now closed, so she is no longer capable of signing a declaration that qualifies under section 152(e)(2)(A).”

The result is unfair to David in this case but the law, when absolutely clear, leaves the court no discretion.  It remains to be seen commented the Shenk Court whether a Form 8332 delivered after filing the return claiming an exemption would be accepted by IRS or the Tax Court.

This case illustrates once again the importance of having the court order or marital settlement agreement set forth a procedure for delivery of Form 8332 well in advance of the tax filing deadline and also providing for damages should a spouse refuse to sign and deliver the Form, when required, in a timely fashion.

© 2013 by Robert S. Steinberg, Esquire
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