For purposes of deductions and exemptions, a custodial parent can claim a child as a dependent in many cases. The tax law has very specific rules about who can qualify as a custodial parent. The following describes a specific situation in which the rules of custodial parents needed to be examined closely to determine which taxpayer had the right to claim the child.
The Situation
Married in 2001, a taxpayer had a rocky relationship with his wife and was often splitting up and getting back together again. In 2013, the entire family – the husband, wife, and children – were living in the same public housing, however come 2014, the couple splits again and chooses to proceed with divorce.
When filing his 2013 tax return, the husband claimed an exemption for each of his children, along with the Earned Income Tax Credit, the child tax credit while using the Head of Household status. He didn’t include Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent with his 2013 return.
Because of his error in not including the form, the IRS didn’t permit the dependency exemption deduction, Earned Income Tax Credit or the child tax credit for 2013. He was also ineligible to file as Head of Household, so the IRS switched his status to Single.
In court, the IRS claimed he was not the custodial parent to the children, and without Form 8332, he had no legal right to claim exemptions or credits for dependents. As of August 1, 2015, a child support order had become effective, which played a major role in the IRS decision.
Alternatively, the court ruled that this was not substantial reason to determine that the taxpayer was not the custodial parent at the time in question. The taxpayer testified that during the year of 2013 he was married, living in the same house as his wife and their children, and had previously been ordered to pay child support during their times of separation.
Because of his testimony, the court was unable to contradict his statement using the August 1, 2015 child support order. Since he wasn’t considered a noncustodial parent, he wasn’t required to attach Form 8332 for 2013, making him eligible for the child tax credit, additional child tax credit, dependency exemptions and the Earned Income Credit.
He still couldn’t file as Head of Household, because he was married and living with his wife during the last six months of 2013. So even the IRS was incorrect in changing his filing status to Single, as the correct status would be “married, filing separately.”
As such, the taxpayer shouldn’t have been eligible for the Earned Income Credit, as taxpayers who use married, filing separately as a status are not able to claim the credit.
