Non-custodial parent claimed child care deductions, now my return has been REJECTED

[naturallight]

Hello, I was divorced in 2021, so 2021 will be the first year filing a return just for me.

Our divorce agreement specifies that I am the “custodian” of 2 of our 3 kids for odd years. It also says that we will work together to file a Form 8332 to allow her to claim all three kids as dependents. It was structured this way to allow her to get child tax credits for all three kids (since I income out), but still allow each of us to claim HoH.

I believe, but am not sure, that this structure should also allow me to claim Child Care expenses (dependent care credit) for 2 of 3 kids this year. Here is some language from Form 8332.

Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent

Note: This form also applies to some tax benefits, including the child tax credit, additional child tax credit, and credit for other dependents. It doesn’t apply to other tax benefits, such as the earned income credit, dependent care credit, or head of household filing status.

When I filed my return, it was REJECTED by the IRS because my Form 2441 for Child and Dependent Care Expenses contained the same SSN as another return that was accepted. I'm guessing my ex claimed this Child Care for all three kids but I haven’t been able to confirm with her.

Questions:

(1) Am I correct in thinking that I should be able to deduct Child Care expenses for 2 of my 3 kids even though I don’t claim them as dependents?

(2) What should I be doing now? Should I immediately file for an extension? Or maybe just mail my return in? 

(3) If she refuses to amend her return, what can I do?

Thank you so much. I really appreciate it. 

[xmasbaby0]

Only the CUSTODIAL parent can claim the childcare credit, earned income credit or file as Head of Household using the child as a qualifying dependent to file as HOH.   The NON-custodial parent can get the child tax credit.

The IRS cares about who the child lived with ----the parent who had the child for the most nights ----at least 183 nights of the tax year.    That is the custodial parent as far as the IRS is concerned.

[naturallight]

Yes, our divorce agreement explicitly says that I have 2 of 3 kids for 183 nights in odd years. In even years I only have 1 of 3 kids for 183 nights. 

[Opus 17]

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@naturallight wrote:

Yes, our divorce agreement explicitly says that I have 2 of 3 kids for 183 nights in odd years. In even years I only have 1 of 3 kids for 183 nights. 

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First, the question is not what the order says, but where did the children actually physically live?  If you didn't follow the order due to some unexpected circumstances, you could run into difficulties.  If the children don't actually physically live in your home at least 183 days, you can't use the order to create a "legal fiction" for tax purposes.  

Now, let's assume that child A and B actually physically lived in your home at least 183 nights, and you delivered a signed form 8332 to your ex allowing them to claim the children for the child tax credit.  You are indeed still allowed to file as HOH, and claim the dependent care credit for child A and B.  If your return was rejected, it's either because 

• you made a mistake
• your ex made a mistake and accidentally claimed them as if they lived in her home more than 183 days 
• your ex intentionally claimed them as if they lived in her home more than 183 days 

On your return, you need to answer for child A and B that they lived in your home more than half the year (pick 7 months or longer in the drop down menu, since the program interprets 6 months to be exactly half, and exactly half is not more than half.)  Then you indicate there is a custody order, and you are releasing the children on form 8332.  Turbotax should show their status as "non-dependent, use for dependent care and EIC only".  If the child is listed as a full dependent, you need to go back and change your answers. 

If your return is correct, print it out, sign it, and mail it.  The IRS will pay your refund, and sometime in the next 9 months or so, they will send letters to both you and your ex to straighten things out.  You will need to be prepared to show that the children actually physically lived in your home at least 183 days.  It doesn't really matter if your ex made a good faith mistake or a bad faith claim the IRS will figure that out.

If, on the other hand, the children didn't actually physically live in your home more than half the year, you can't claim the dependent care credit of HOH because you can't use the order to create a legal fiction if the children don't actually live with you.