Questions about Shared Custody Agreement

Most of your questions really boil down to one fundamental question: Can the "deemed" nights in the divorce agreement override the IRS regulations that specify actual nights? I don't know the answer to that question, so I can't answer most of your questions. As a general rule, family court decrees cannot override federal tax laws and regulations. I don't know whether specifying "deemed" nights is a valid way of getting around that general rule.

If using deemed nights is valid, your daughter and her ex will have a problem in leap years. In a leap year 183 nights is exactly half the year, so the parents would each have an equal number of nights. The IRS rules specify that if each parent has an equal number of nights, the custodial parent is the one with the higher adjusted gross income. Based on what you said, that would be your daughter, under their current circumstances. But a leap year is always an even-numbered year, and the intent was for the father to be the custodial parent in even-numbered years. This year,

The one question that I can answer is number 5, about medical expenses, your daughter can deduct medical expenses for her child in any year that she pays them, whether or not she claims the child as a dependent that year. This is a special rule specifically for medical expenses of a child of divorced parents. It also requires that the child be in the custody of one or both parents for more than half the year, and that the parents together pay more than half of the child's support.

Bob Sandler

The way it should work is that, as a part of the divorce settlement, the parties execute IRS Form 8332, which allows them to determine which parent gets to claim a child irrespective of the otherwise applicable rules. According to the instructions for that form,

"If the divorce decree or separation agreement went into effect after

In other words, a divorce decree for a post 2008 divorce does not supersede the rules unless Form 8332 is executed.

There was no form 8332 executed or even discussed during the Mediation Settlement meeting. There is no reference to form 8332 in the Mediation settlement agreement. The only reference to taxes and tax-related issues is the paragraph I cited in the original post.

As noted, that paragraph states very clearly that the husband is "deemed to have the child for 183 overnights" in even-numbered years, including 2020 and is therefore entitled to the tax breaks during those years. But as Bob correctly noted in his response, 2020 and the subsequent leap years will all have 366 days, so splitting custody 50-50 in 2020 should actually result in perfect 50-50 custody, which means my daughter "should" get the tax breaks in 2020 under IRS rules due to her having the higher income.

So I am confused about what we should do for tax year 2020. You would think that the two experienced lawyers (three, if you include the mediator) who drafted the settlement agreement would have at least a rudimentary understanding of tax law and must have drafted similar agreements for other couples over the years. The signed agreement was submitted to and approved by the court. Yet it is obvious to me in reading the tax instructions that the IRS seems to be pretty clear-cut in its rule about counting days and breaking true ties with the higher income. I don't see any reference in the tax instructions to any exceptions to their day-counting rules other than with a form 8332, and that doesn't even cover everything (e.g., it doesn't affect HOH designation). More to the point, since form 8332 was never discussed and is not in the agreement, it seems to me that my daughter would be well within her rights to refuse to sign such a form if the ex-husband had the wherewithal to try get her to sign it.

Recommendations?

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"Rick" snipped-for-privacy@nospam.com wrote in news:r46nvi$1mdi$ snipped-for-privacy@gioia.aioe.org:

I'd go back to court and ask the court to order her to sign the 8332. That's the only thing I can think of.

In my 20+ years IRS collection experience, I found that many lawyers who don't specialize in tax law have only a vague understanding of tax law.

I agree. I have often seen especially divorce lawyers enter into agreement that have significant tax effects, without knowing what they were doing with respect to the tax issues, and without seeking assistance from someone who does know. You'd think that after something like that happens to a lawyer several times, that the lawyer would learn and get professional assistance. But it seldom happens.

Well the husband could certainly try to do that, but wouldn't my daughter have a pretty good defense which is that the court already approved a mediated settlement that both parties agreed to? I'm not sure the courts here are in the habit of forcing one of the parties in an agreement to a term that wasn't in the signed agreement. Wouldn't another alternative be for my daughter to go back to the court and try to get that section of the agreement invalidated since it appears to conflict with IRS tax law?

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If your daughter had agreed to something that was blatantly illegal, then she might have an argument. However her ex getting the deduction is not illegal - it's perfectly legal. There's just the bureaucracy of her having to sign a particular document.

If her ex's lawyer is smart enough to go back to court (he may well not be), he is likely to get the judge to order your daughter to sign the form and comply with her agreement. She agreed to it. She should execute the paperwork to make it happen. But until they actually ask her to do it, She can do what she wants (within what the law provides).

Fair enough. But there is still the point that the form only covers the child dependency and credit, but not HOH status. So even if the form is filled out and traded back and forth consistent with the settlement agreement, wouldn't the HOH status still go to whoever has the most number of days? So for example, if my daughter fills out the form for 2020 and allows her ex to take the child credit and dependency, wouldn't she still claim HOH status and the accompanying higher standard deduction based on the number of days rule? If she files as HOH but he files with the child care credit and dependency (and the form 8332), will that raise any IRS eyebrows?

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So given all this, what should my daughter do? It is clear that she will get the full tax benefits for tax year 2019 since the agreement stipulates this, and she coincidentally did have physical custody of the child for more than half the year anyway.

The problem is 2020. The settlement agreement says the husband gets custody in all even-numbered years. But even given their agreement to split physical custody 50-50, my daughter will still have the child for 183 nights in a 366-day leap year, so under IRS tie-break rules, she should be entitled to all tax benefits in 2020. As noted, there is no reference to form 8332 anywhere in the settlement document and you have said the wording in the agreement does not constitute a substitute for an actual form 8332. So should she just go ahead and claim all benefits on her 2020 return, knowing that when the IRS discovers two returns claiming the same child, they will side with her, since she can show she had custody 183 days? If she does this, she will gain the financial benefit on her 2020 return, but she will also risk losing custody because she violated the settlement agreement.

Or should she voluntarily provide the ex-husband with the form 8332 so he can claim the exemption and child credit in 2020, but then she can still legitimately claim HOH status?

Just not sure what the best course of action is at this point.

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"Rick" snipped-for-privacy@nospam.com wrote in news:r48j32$1gt7$ snipped-for-privacy@gioia.aioe.org:

What does your daughter want to do? Normally someone can't claim HOH status if they don't have a child who they are claiming as a dependent. If your daughter wants to try it, go ahead and see what happens. My guess is that it will blow up and become very heated, and very expensive. And in the end your daughter will probably lose. But I have been known to be wrong from time to time. (Just ask my ex!)

Yes, it will raise IRS eyebrows, because HOH and the child care credit both go to the custodial parent. You can't separate those two benefits and have one parent use the child for HOH while the other parent claims the child care credit for the same child.

For 2020 she should arrange for the child to spend one extra night with the father. Then he will have 184 nights and she will have 182 nights. That makes him the custodial parent, and allows him to claim all the tax benefits that the divorce agreement says he gets. No Form 8332 is needed. This satisfies the intent of the divorce agreement and also satisfies all the tax rules. The IRS will not complain as long as both parents agree and your daughter does not claim the child for anything. They can repeat this arrangement every four years, as long as both parents remain willing to do it.

The other thing your daughter might consider doing is to go back to her divorce lawyer and say "This divorce agreement that you negotiated for me doesn't conform to federal tax laws. Fix it."

Bob Sandler

The only way to fix it and be consistent with the agreement would be for them to file Form 8332. If she's not willing to do that, she can ask that the settlement agreement be voided and start over from scratch, which the court will be very unlikely to do.

I agree that no 8332 is required as long as both parents agree each year. But I got the impression that she is not happy doing that and would like to get a more advantageous agreement. That's not likely to happen either.

My perspective is that she can either execute an 8332, or be forced to spend money and be orderd to do that at some point in the future if she ever wants to do something other than what she already agreed to.

All things being equal, I suspect my daughter will do nothing and just go with the flow of what was in the agreement. But when it comes time to do her 2020 taxes and she gets the sticker shock of filing as single with the corresponding lower standard deduction, she may feel differently.

Regarding the Form 8332, I get that people normally don't claim the HOH when they're not claiming the child. But I see many articles that go out of their way to emphasize that the 8332 does not transfer HOH status. So the IRS must be aware of that and prepared to see the HOH and the child credit and exemption filed by opposing parents.

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There is no way my daughter would EVER allow her son to spend any extra time with her father and basically get nothing in return. The agreement already gives him the tax breaks for 2020, so this would not change that and she would have the added negative of less time with her son. She would have no motivation whatever to do this.

And going back to her lawyer and asking the agreement to be rewritten and renegotiated for no gain to her would also be a likely non-starter. Why incur extra legal fees, not to mention loss of time and possibly the need to go back to court and re-file the agreement if she literally gets nothing out of it?

If she just follows the agreement as written, she would be no worse off than she would be following the above steps.

I think realistically unless there is a way for my daughter to take the tax breaks in 2020 she is entitled to under IRS regs, she will probably do nothing and just follow the agreement as written.

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I'm not sure what you mean by "child credit." The child TAX credit and the child CARE credit are two different things.

It's normal and quite common for HOH and the child TAX credit to be claimed by different parents when the parents are divorced. The IRS is certainly accustomed to seeing that and has no problem with it. What the IRS is not prepared to see is HOH and the child CARE credit claimed by different parents. That's not allowed. Form 8332 does not transfer HOH status, and it also does not transfer the child CARE credit. It does transfer the child TAX credit.

Under the current tax law, for 2018 through 2025 the exemption for a dependent is zero, and exemptions don't even appear on the tax return. For practical purposes exemptions don't exist.

Bob Sandler

Your daughter apparently signed an agreement that had the intention of alternating the tax benefits of "Head of Household, the dependency exemption and any associated tax credits" between the mother and father on an odd/even year basis.

To implement the agreement to unambiguously assign the dependency exemption and any associated tax credits, a form 8332 should be filled out and signed by the taxpayer not taking the exemption for the year and given to the other taxpayer. If the form 8332 isn't filled out for a year, the taxpayer taking the dependency exemption may need to prove that they actually qualify for it (the divorce settlement agreement is not binding on the IRS and number of nights "deemed" for each parent is meaningless - the IRS can ask the taxpayer asking for the exemption to prove the number of nights.) Your daughter needs the 8332 signed by the ex-husband for the years she is claiming the dependency exemption every bit as much as the ex-husband needs the 8332 signed by your daughter for the years he claims the dependency. It is in both their interests to play nice and cooperate here. Note: The taxpayers should keep the 8332 in their records and not file it with their tax returns. The only time a parent would use the 8332 is if the IRS later asks them to prove they (and not the other parent) qualify for the dependency exemption.

Your daughter and the ex-husband never had ability to assign HOH status to the other if he/she didn't already qualify for it so that part of the agreement mostly shows the questionable professional advice that was received. The HOH situation is a bit of a mess. The parent qualified to file HOH is the parent who actually had physical custody for the most number of nights. The divorce settlement agreement is not binding on the IRS and number of nights it "deemed" for each parent is meaningless - the IRS only cares about the actual number of nights and can ask the taxpayer asking for HOH status to prove it. To prove HOH status, record keeping is important and it is desirable to avoid attracting IRS attention to poor quality documentation. This is another instance where it is in both ex-spouses interests to play nice and cooperate. The IRS is unlikely to seriously question HOH status unless both parents try to use the same kid to qualify. The IRS is even less likely to question HOH status if the spouse claiming it is also claiming the child as a dependent.

If this was my daughter, my advice would be: Do what you already agreed to. Implement as follows:

- For odd numbered years, get an 8332 signed by the ex, make sure the kid spends at least 183 nights (preferably a few more) with you, document this, file as HOH and claim the kid.

- For even numbered years, send an 8332 to the ex, make sure the kid spends at least 184 nights (preferably a few more) with him, file as single and do not claim the kid.

- Try and work cordially and cooperatively with the ex to raise the child and do not re-litigate the terms of your divorce agreement.

This argument clearly shows why English majors make better tax preparers than math majors. Think Dad should spend some money and see a Tax lawyer for advice on his daughter's agreement for the years to come.

bw

Thanks for your thoughtful reply.

I don't think either party would object to trading the form 8332 back and forth if they thought it was needed. But I can tell you pretty clearly that my daughter, at least, would probably never agree to give up any days with her son from what is in the agreement. At this point he is still a baby and I doubt she would willingly give up any time with him from what was agreed. So asking her to let the baby stay with the father a few extra days will probably not fly, even if he agrees to do the same in the following year.

I suspect both parties will just follow the letter of the agreement and will not worry about the occasional year where the person claiming the benefits didn't have the child the most number of days. The issue is kind of obvious for 2020 because it is a leap year and it is clear she actually deserves the benefits for this year, and that will bother her when it comes time to do her 2020 return. If she can get past that, she will probably just grin and bear it for the next couple of years. A point I forgot to mention is that the settlement agreement is only valid until the baby turns 5 and a school will have to be selected. At that time a new agreement will have to be made with a new parenting plan, and the visitation terms may change. Knowing what we now know, my daughter will probably ask for the terms to be re-written in a way that is more consistent with IRS rules.

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