Divorce in this country, as my brother explained to me before I got married, can be nothing more than a glorified breakup: today’s legal system makes it far easier to get out of a bad marriage than, say, a cell phone contract.
Where divorce gets sticky, however, is when there’s a child involved. Negotiations get contentious, resentment builds, and it’s inevitably the poor kid that suffers most. Unless, of course, the kid is savvy enough to play their mother and weekend daddy against each other in an endless battle for his love and affection. In that case, he or she can really clean up.
That’s not to say divorce with a child involved doesn’t hurt the parents as well. Consider the case of Gary Scalone, who upon getting divorced to his first wife, had to give up custody of his child. As part of their separation agreement, Scalone’s ex-wife agreed that Scalone would be entitled to claim the dependency exemption for his child — and the resulting child tax credit — for the tax year 2000 and all future years, and as long as he stayed current with his child support obligations, she would sign a “form acceptable to the IRS” releasing her right as the custodial parent to claim the child as a dependent.
Unfortunately for Scalone, by 2006 his ex-wife grew tired of the arrangement, despite the fact that Scalone stayed current on his child support payments. She refused to sign a Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents for 2006, leaving Gary high and drive come tax return time. Without a Form 8332, Gary simply attached a copy of the separation agreement to his return, and claimed his child as a dependent and took a child tax credit anyway.
The IRS denied both the dependency exemption and the child tax credit. At this point, a quick review of the dependency rules is in order:
In general, a dependent child is one who gets more than half her support from a taxpayer with whom she lives more than half the year. [i] The general rule for divorced parents is that the “custodial” parent gets the dependency deduction, but a divorce decree or separation agreement can dictate otherwise.[ii]
Divorcing parents can either agree who has custody, or they can leave it to a judge to count the days the child spends with each parent.
Because Scalone did not have custody of his child, the general rules of I.R.C. § 152 deny him a dependency exemption. Section 152(e)(2) provides an exception, however, which applies where the custodial parent signs a written form, called a declaration, in which she states that she won’t claim the child as a dependent and the noncustodial parent then attaches the executed declaration to his tax return for the year. [iii]
Form 8332 has been designed by the IRS to serve this purpose. The 2006 version of the form required:
- The name and social security number of the custodial parent;
- The name of the child;
- The tax year or years the exemption was being released for;
- The custodial parent’s social security number;
- The signature of the custodial parent; and
- The date of the signature.
Because no Form 8332 was attached to Scalone’s 2006 tax return, the IRS disallowed the dependency exemption and the child tax credit. The Tax Court, however, saw things differently and sided with Scalone.
In reaching its decision, the court concluded that the signed separation agreement — while not containing Scalone or his ex-wife’s social security numbers — “conformed to the substance of Form 8332,” as is allowed by Regulation Section 1.152-4T(a), Q&A 3.
The Tax Court differentiated the present facts from those of previous decisions where a noncustodial parent simply failed to attach any signed declaration to the return or where his right to claim the child was conditioned on other events that could not be independently verified.
Because Scalone’s separation agreement clearly indicated that he was entitled to a dependency exemption for 2000 and all future years, while also containing his ex-wife’s signature and the name of the child, the court held that the absence of his ex-wife’s social security number was not fatal. Thus, the signed separation agreement sufficed as the required declaration.