When parents divorce, issues can arise as to which parent is entitled to the dependency exemption and related tax benefits from supporting their children.
The dependency exemption is governed by Code Section 152 and includes what seems like a simple rule. Basically, when parents of a child do not file a joint return, the child is the “qualifying child” or dependent, of the parent with whom the child resided for the longest period of time during the year.
In the case of divorce, there is an exception to the above if the custodial parent releases his/her claim to the dependency exemption. A written declaration is required for the custodial parent to release his/her claim.
If the divorce documents were executed in 2009 or after, the noncustodial parent must attach Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” signed by the custodial parent to his/her tax return. The custodial parent can either release his/her claim to the dependency exemption for the current year or for future years on the Form 8332. The form can also be used to revoke the release of the custodial parent’s claim to the dependency exemption for future years.
Based on the above, the divorce agreement should be clear about how parents intend to claim their children as dependents. If the intent is for the custodial parent to release the claim for all future years, the noncustodial parent will prefer to have a signed Form 8832 that says “all future years”. However, the custodial parent does have the ability to revoke the release of the exemption for future years or may instead just prefer to execute a new Form 8332 each year.
If the parents divorced before 2009, certain pages from the divorce agreement can be attached to the tax return in lieu of Form 8332. Form 8332 does not apply after a child turns 19.
The dependency rules for divorced parents can be complex and the outcome affects not only the dependency exemption but also the child credit and other child-related provisions.