Child tax credit

[Live0417]

My children have been living with me for over two years. I am the only person who financially supports them, providing there medical, vision and dental coverage, food, shelter, clothing ect. Their grandmother has legal custody and refuses to allow me to claim them as dependents. Legally is it my right to claim them? Can an ammendment be done on last year's taxes after she claimed them and received stimulus money for them but they lived with me the entire year?

[Critter-3]

You do have the right to claim the kids if they live with you ... "legal custody" means nothing to the IRS.  So you can amend your returns if you like  but be aware that you will probably need to prove your claim to a future IRS inquiry since both parties trying to claim the same dependents will both need to address. 

For details see:

http://taxes.about.com/od/dependents/qt/Dependents-Audits.htm

[Hal_Al]

You may have more of a legal question, than a tax question.  For example, what does the court order, giving the grandparent legal custody, say she gets to claim the dependent. Even if it does, there's some question whether it's even valid.

The general rule is the custodial parent has first priority on claiming the children on her taxes. The IRS goes by physical custody, not legal custody. The (physical) custodial parent does not need the legal custody taxpayer’s permission to claim the child.

Here’s the standard answer to that general question:

If someone else claimed your child inappropriately, and if they file first, your return will be rejected if e-filed. You would then need to file a return on paper, claiming the child as  appropriate (including filing an amended return). The IRS will process your return and send you your refund, in the normal time. Shortly (up to a year) thereafter, you'll receive a letter from the IRS, stating that your child was claimed on another return. It will tell you that if you made a mistake to file an amended return and if you didn't make a mistake to do nothing. The other party will get the same letter you did. If one of you doesn't file an amended return, unclaiming the child, the next letter, from the IRS, will require you to provide proof. Be sure to reply in a timely manner.

Winner gets the tax benefits; loser gets to pay the IRS back with penalties and interest.  The custodial parent almost always wins. The IRS goes by physical custody, not legal custody.

[Opus 17]

The IRS does not follow state court custody rules, the IRS follows its own federal regulations which are based on the relationship of the person to the child and where the child physically lives.

If you are the biological, adoptive, or stepparent of the child, and the child lives in your home more than half the nights of the year, then you are the only person who has the legal right under IRS regulations to claim the child as a dependent. You may also be allowed to claim head of household status if you meet the other qualifications. 

You may be able to file amended tax returns for past years if this was the situation in the past, as well as filing this way for 2022.  The grandparent may be required to repay part or all of their prior tax refunds with penalties and interest if the IRS determines in your favor.

If you and the grandparent both claim the children as dependents, the IRS will send letters to both of you to start an investigation and you will need to be able to prove where the children actually lived.

Note that if you and the grandparent both claim the child as dependents, the one that e-file‘s first will go through the E filing system and the one who files second will have to print their tax return and mail it to the IRS. This by itself does not constitute a ruling on who is allowed to claim the child. If you file by mail, the IRS will still pay the refund that you claim and will still begin the investigation of who is entitled to claim the dependent.

I don’t know if the court custody issues raised by the other experts will apply in the situation of a grandparent rather than two divorced or separated parents.  It is common in cases of divorce or separation for the court to issue an order that one parent be allowed to claim the child as a dependent even if they don’t have custody more than half the year. This is implemented using a form 8332. The IRS will not enforce the court order, but if the custodial parent refuses to sign the form allowing the non-custodial parent to claim the child, they may be in violation of a court order and may be subject to penalties in state court.  This may or may not apply to a grandparent. And in any case, form 8332 can never be used to transfer a dependent exemption from a parent to a grandparent or from a grandparent to a parent.  

Under the facts that you’ve described, there is no legal way for the grandparent to claim the child as a dependent even if you do not, and there is no form that you can be forced to sign to allow the grandparent to claim the child as a dependent. If the court order requires that the grandparent claim the child as a dependent, that court order is illegal under federal law and unenforceable.