Divorce decree and who can claim which "child"

[vonnec]

Divorce decree states "the parties shall take one child as a dependent, and the other shall take the other child or children as dependents, and rotate such claims so long as the children are considered as tax dependents until one child remains eligible for dependent status. At that time, the parties shall rotate annually taking that child as a dependent for income tax purposes."

2021 Tax Year

Child 1 (age 17/18)

      Alternated week on/off between divorced parents homes (Jan-Apr 2021)

      Lived with Parent 1 fulltime May-Dec 2021 and Parent 1 supported 100% of  living expenses 

      Turned 18 in July 2021

      Part-time college student (Jan - Dec 2021)

      Income $12,550+

Child 2 (age 12) 

Alternated weeks between divorced parents homes (Jan-Dec 2021) - 50/50 support

2020 Tax year - each Parent claimed one child 

Parent 2 believes, each party can still claim one "child" each per the decree for 2021 regardless of living arrangements for Child 1. 

Parent 1 believes, that Child 1 (age 18) no longer factors in the equation for Parent 2 2021 tax purposes and only Child 2 is factored now in the "rotate" annually for 2021, but who gets Child 2 first?

If Parent 1 has higher AGI can Parent 1 claim both Child 1 and 2 for Tax year 2021? 

Then Tax year 2022 Parent 2 can claim Child 2 and rotate annually so long as child 2 continues 50/50 days?

[ColeenD3]

The custodial parent claims the child. IRS regulations supersede the divorce decree.

Custodial parent and noncustodial parent.   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.

If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year.

  A child is treated as living with a parent for a night if the child sleeps:

• At that parent's home, whether or not the parent is present, or
• In the company of the parent, when the child doesn't sleep at a parent's home (for example, the parent and child are on vacation together).

Equal number of nights.   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income (AGI).

[Opus 17]

First, you have to understand the IRS follows federal tax law, which supersedes court orders.

Everything you need to know is here, under "special rules for children of divorced or separated parents."

https://www.irs.gov/pub/irs-pdf/p501.pdf

First rule is that the only parent who can automatically claim the child is the parent where the child lived more than half the nights of the year.   This is the custodial parent for tax purposes, and the IRS counts nights, rather than anything in a court order.  The other parent can only claim the child if the custodial parent gives the non-custodial parent a form 8332 dependent release.  This allows the non-custodial parent to claim the tax credit but not file as head of household or the dependent care credit, since those benefits always stay with the custodial parent and can't be waived, shared, or transferred.

Note that if you have been "rotating" your dependent claim without using form 8332, the parent where the child lived more than half the nights of the year may have lost certain tax benefits and the parent where the child lived less than half the nights of the year may have claimed illegal tax benefits.

Also note that it is impossible, except in a leap year, for the child to live with each parent an equal number of nights.  If it is very close, you may have to count on a calendar.  More than half can just mean 1 more day (183 versus 182 nights) but one parent must have the child more than half the nights.  In the unlikely event that the nights were exactly equal, then no parent gets to file as head of household because exactly half is not more than half.

Second rule is that the special rules for children of divorced or separated parents stop when the child is of legal age, usually 18. At that point, the child is treated as though they did not live with either parent.  

So child #1 can be claimed by parent #1, because they lived more nights with parent 1 than parent 2 for the time period between 1/1/21 and their birthday in 7/21.  The court order no longer applies to child 1.  See example 6 on page 14 of publication 501. 

The court order still applies to child #2.  I would assume that the parent who did not claim child #2 for 2020 is the parent who claims child #2 for 2021.  That's what "rotate" would mean to me, but I am not an attorney, and more importantly, I am not your attorney.

If the parent where child 2 lived 183 or more nights is the one claiming the child, they don't need any forms.  If the parent with custody for 182 or fewer nights is the one to claim the child, they must get a signed form 8332 from the custodial parent, and that form gets mailed to the IRS after e-filing the rest of the return.  If the parent where child 2 lived 183 or more nights  refuses to give the form 8332, the non-custodial parent can't claim the child under any other tax concept.  The non-custodial parent could go to family court to try and enforce the order, but the IRS does not get involved in custody disputes.  They only follow actual physical custody or the form 8332. 

AGI does not come into it.  Since you are separated, the dependent claim is controlled by where the child actually lives, not the income of the parents.