Mom and Dad's divorce was final in November, 2007. Mom got the house, and Dad moved out.
Daughter (10th grade) lived in that house all of 2007. The divorce decree states the parents will alternate the daughter's dependency exemption every other year beginning with dad getting the exemption in
2007.
Mom and Dad now realize that if Mom could take the dependency exemption in 2007, the daughter would qualify for OLAP (a four year college tuition paid program for low income earners). HUGE!
2007 is the last year for the daughter to qualify. Dad's 2007 income is too high for the daughter to qualify.
This is different than everything I am reading because the NON- custodial parent would be giving up his dependancy exemption, and going against the divorce decree. Can this be done through a 8332? Can the divorce decree be changed now? What advise can I give Mom and Dad?
Form 8332 will do the trick for federal taxes. No matter which state mom and dad live in, I'm not an expert on its divorce laws. I also know nothing of the rules of OLAPs.
All the boxes and insturctions for the form 8332 indicate this form is for the CUSTODIAL parent to release their dependency expemtion.....not the NON-CUSTODIAL parent. This is why I posted. Would an 8332 really work???
It can if they want to change it, which costs money, or they can just do a verbal exchange. Well, get the thing in writing on the 8332 who gets to claim in what year(s)....stretch the thing out as far as you need to go. Till the kid is 24 at least.
As the mother was the custodial parent in 2007 (OP stated that the child resided 12 months in the house that the mother lived in) it is the mother that must complete the Form 8332.
Without a copy of the divorce agreement to look at, it is quite possible that the agreement is nonbinding as far as the IRS is concerned. When tax law was changed at the end of 2005, the custodial parent became the parent who had custody for more time in the tax year. The noncustodial parent could only get the exemption if released by the custodial parent using the proper format or the 8332 or there was conforming language in the divorce decree. This change to the definition of custodial parent for purposes of the dependency exemption trumps anything in a divorce decree regarding who is the custodial parent.
The wording in the decree would have to state that in any year that a noncustodial parent is entitled to the exemption, it is without conditions; it must say that the custodial parent will not claim the exemption in any year in which it goes to the noncustodial parent; and it must identify the years in question. In addition, the decree must have the custodial parent's signature. (I know of at least one court case where this last element was lacking and the court ruled for the custodial parent as she had never signed the divorce decree. It was signed and filed by her attorney.)
She also lived in that house with each parent more than 6 months of the year. That means she is the "qualifying child" of both parents for 2007. Tax law couldn't care less which parent claims her, as long as only one parent claims her. No paperwork is required other than one parent's return claiming the exemption and one not.
Everything else that's been discussed involves "tie-breakers" for determining who gets the exemption if both parents claim it. It's all moot if the parents agree.
They should check with their divorce lawyers to see whether they need to go to court to alter the agreement for 2007. If their plan is to keep everything as it was, except swap the even/odd years, a revised order would be helpful even if the lawyers don't think it's needed for 2007.
Yes indeed. If they both wish to have the custodial year(s) changed for some reason, then they both work it out and sign off on the 8332. I recommend doing so for multiple years.
The IRS is never party to the divorce and can't be held to what those two dictate in the decree.
First and foremost - neither the domestic courts, the domestic master (Maryland's version a judge in divorce court), the attorney's nor the parents get to make Federal tax law. Many attorney's and judges overlook this little fact and try to "declare" and arrange for all sorts of things that they have no legal ability to adjust.
If you remember nothing else, remember this - TAX LAW is governed by the theory of substance over form. You have to look the substance of the issue and NOT JUST the written form to determine the proper tax treatment. And unless the attorneys were smart enough to get a tax pro involved who is well versed with divorce planning the likelihood exists that there are tax traps in the decree.
A divorce is much like a contract in two very important ways. First, its governed by the legal theory of FORM over substance. So you look first to the form of the document to try to determine the correct legal (NOT TAX) treatment. But more importantly, it CAN BE CHANGED with the mutal consent of all parties.
With that being said - and with the caveat that IANAL - all your parents have to do is to agree to switch the years in which each will claim the daughter. I would strongly recommend that they reduce this to a writing, signed by both parents in the presence of disinterested witnesses. With that done, there should be NO PROBLEM in mom claiming the daughter as a dependent.
You didn't say when mom and dad separated, just that the divorce was final in November 2007 and that the daughter lived in the house for all of 2007. IF mom and dad separated in May or earlier and the daughter lived with mom in the house, then mom might qualify for Head of Household and the daughter may be a qualifying child for the purpose of the EIC.
I am NOT familar with the OLAP program, but I would also suggest that you look at it closely and make sure you understand their definition of dependent. It may be that their definition has nothing to do with the claiming of a child on a tax return - but I really don't know.
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