Tax law

[Hbielawski]

If divorce papers say non custodial parent can claim children on odd years but then state that" Further, federal law with regard to dependents and claiming dependents for income tax purposes will dictate this part of the order." CAN custodial parent claim children every year? Due to federal law? Or does divorce decree dictate? 

[macuser_22]

Yes and both.  According to tax law ONLY the custodial parent can claim the child unless they relinquish the dependent to the non-custodial parent with a signed 8332 form, however, if the divorce decree specified that the non-custodial parent can claim the dependent on specific years then the custodial parent can be held in contempt of court if they fail to issue the 8332 form for those years.

These are a paraphrase of the IRS rules for divorced or separated parents that live apart.

[Note: Unless the parents have been separated at all times during the last 6 months of the year, these rules do not apply.]

See “Children of divorced or separated parents or parents who live apart” in IRS Pub 501 for full information.

https://www.irs.gov/publications/p501#en_US_2018_publink1000220904

This assumes that the child is under age 18 (in most states).  Once the child becomes an adult (Emancipated child), custody becomes mute and these rules no longer apply.(See examples 5 & 6 in Pub 501 for more information)

There is no such thing in the Federal tax law as 50/50, split, or joint custody. The IRS only recognizes physical custody (which parent the child lived with the greater part, but over half, of the tax year. That parent is the custodial parent; the other parent is the noncustodial parent.)

Who can claim the exemption and credits depends on who is the custodial parent. (By the IRS definition of custodial parent for tax purposes - this is not the same as the legal custody that a court might grant.).

The test that the IRS uses to determine the custodial parent is where the child lived for more than 1/2 (or greater part) of the year. The IRS will go so far as to require counting the nights spend in each household - that person is the custodial parent for tax purposes (if exactly equal and more than 183 days - The custodial parent is the parent with the highest AGI, if less than 183 days then neither parent has custody so the child cannot be claimed by either parent). And yes they are that picky.

See Custodial parent and noncustodial parent  in Pub 501

https://www.irs.gov/publications/p501#en_US_2018_publink1000220906

Only the Custodial parent can claim: (Child would be listed as non-dependent EIC & CC only)
-Head of Household
-The Earned Income Credit
-The Child and Dependent Care Credit
-The Health Coverage Tax Credit

The non custodial parent can only claim: (Child would be listed as dependent)
- The child as a dependent
- The Child Tax Credit or credit for other dependents

But only if specifically specified in a pre-2009 divorce decree, separation agreement or the custodial spouse releases the exemption with a signed 8332 form - after 2009 the IRS only accepts a signed 8332 form that must be attached to the non-custodial parents tax return.

Note. If you are the non-custodial parent filing your return electronically, you must file Form 8332 with Form 8453, (U.S. Individual Income Tax Transmittal) for an IRS e-file Return. See Form 8453 and its instructions for more details. This must be done within 3 days of your e-filed return being accepted by the IRS.

This does NOT mean that the custodial parent can ignore any Decree or court order allowing the non-custodial parent to claim the exemption - they can be required to issue the 8332 form. They could be required by the court to do so or be in contempt.

[Critter]

The divorce decree is trying to be "correct" (not conflicting)  by referring to the IRS rules on divorced parents  however the order clearly says the non custodial parent may claim the child in the ODD years ... so the custodial parent must comply with the court order in accordance with the IRS rules to  sign and give a form 8332 as ordered.  You can give the other parent one signed form for each tax year you are waiving the dependent exemption  OR  give one form which has all the year on it ... read the form 8332 instructions carefully. 

If you are the custodial parent where the child physically lived for more than half the year (183 nights) then:

When you enter the dependent, you say that he/she is "Your child" (not you and your spouse if remarried), 
he/she lived with you the whole year, 
“no” the child did not pay more than half of his/her own support,
"yes", you have a custody agreement, 
and "yes", the other parent is claiming this year.  

That will give you the EIC, Child Care Credit and Head of Household filing status if you otherwise qualify.

The child would be listed as "non-dependent EIC & Dependent Care only".
The other (non-custodial) parent can claim the child’s exemption and child tax credit only and needs a signed 8332 form to do so.

===

There is no such thing in the Federal tax law as 50/50, split, or joint custody.  The IRS only recognizes physical custody (which parent the child lived with the greater part, but over half, of the tax year.  That parent is the custodial parent; the other parent is the noncustodial parent.)

Who can claim the exemption and credits depends on who is the custodial parent. (By the IRS definition of custodial parent for tax purposes - this is not the same as the legal custody that a court might grant.).

The test that the IRS uses to determine the custodial parent is where the child lived for more than 1/2 (or greater part) of the year. The IRS will go so far as to require counting the nights spend in each household - that person is the custodial parent for tax purposes (if exactly equal and more than 183 days - The custodial parent is the parent with the highest AGI, if less than 183 days then neither parent has custody so the child cannot be claimed by either parent). And yes they are that picky.

See Custodial parent and noncustodial parent  under the residency test in Pub 17

https://www.irs.gov/publications/p17#en_US_2017_publink1000170899
 
Only the Custodial parent can claim: (Child would be listed as non-dependent EIC & CC only)
-Head of Household 
-Earned Income Credit
-Child Care Credit

The non custodial parent can only claim: (Child would be listed as dependent)
-The Exemption
-The Child Tax Credit

But only if specifically specified in a pre-2009 divorce decree, separation agreement or the custodial spouse releases the exemption with a signed 8332 form - after 2009 the IRS only accepts a signed 8332 form that must be attached to the non-custodial parents tax return.

Note. If you are the non-custodial parent filing your return electronically, you must file Form 8332 with Form 8453, (U.S. Individual Income Tax Transmittal) for an IRS e-file Return. See Form 8453 and its instructions for more details.  This must be done within 3 days of your e-filed return being accepted by the IRS.

[Critter]

One more wrinkle ... the decree just says the non custodial parent claims the exemption in the odd years... it is possible that the custody (according to the IRS rules) could change every tax year depending on where the child lived during the year. If this happens then it is possible that the same person would legally claim the child every year.

For instance :
2018 MOM claims as custodial parent
2019 MOM claims as NON custodial parent
2020 MOM claims as custodial parent
2021 MOM claims as NON custodial parent

[macuser_22]

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@Critter wrote:
One more wrinkle ... the decree just says the non custodial parent claims the exemption in the odd years... it is possible that the custody (according to the IRS rules) could change every tax year depending on where the child lived during the year. If this happens then it is possible that the same person would legally claim the child every year.

For instance :
2018 MOM claims as custodial parent
2019 MOM claims as NON custodial parent
2020 MOM claims as custodial parent
2021 MOM claims as NON custodial parent

---

Yes.  That is very common in divorce decrees - that is more usual then unusual.

As I posted above the custodial parent (the parent that the child physically lived more then half the year), must issue a 8332 to the non-custodial parent (where the child did not live more than half) if it is the year for the non-custodial parent to claim.   Of course, if physical custody (where the child lived) changes year-to-year then the custodial parent would also change.   As long as the parent where the child physically lived claims the child then no 8332 would be necessary.  (That would be an unusual agreement, though, for the child to change the location where the child lives, year-to-year.)

[TomD8]

Here's a link to Form 8332, in case you'd like to see what it looks like:  https://www.irs.gov/pub/irs-pdf/f8332.pdf

To sum up, if the custodial parent provides Form 8332 to the non-custodial parent in odd years, the parents would be in compliance with both the divorce decree and the requirements of federal tax law.

[macuser_22]

And do not get confused by the term "custody" in the divorce decree.   As I pointed out in the long answer above, with IRS cites, the term "custody" for *tax* purposes only means the parent who the child spent 183 (or more nights) with during the tax year and has nothing to do with "custody" that a court might order.    (This is a case of one word with two totally different meanings depending how it is used.)