Questions about Shared Custody Agreement

This reply is based on the original post and subsequent replies thru Stuart B's 4th response.

Congress explicitly changed the rules regarding who gets to claim a child when you have divorced, separated or never married parents in order to get out of having to make family court decisions. Since changing the law, the rules are hard wired (IRC Sec. 152(e)) and every tax court decision has conformed to those rules.

To be a qualifying child, you must first answer two questions: was the child in physical custody of both parents for more than half the year and did the parents provide more than half of the child's total support. If yes, the exemption goes to the parent who had physical custody for the most number of nights. That parent is treated as the custodial parent for tax purposes. The divorce decree or separation agreement has no bearing on this. All of the benefits attributable to having a qualifying child go to the custodial parent. The only way the non-custodial parent can claim the dependency exemption (since 2018 the exemption deduction is zero)) and obtain the $2000 child tax credit (I believe the child was one year old) is if the custodial parent provides Form 8332 (but see below) to the non-custodial parent. The non-custodial parent would now claim the child as a dependent and also claim the child tax credit. The custodial parent still has available any other tax benefit that goes with having a qualifying child living with that parent (assumes any relevant test is passed). E.g., the custodial parent could file as HOH; claim the earned income tax credit; claim the child and dependent care credit, etc.

Once the child reached age 17, the non-custodial parent could claim the $500 Other Dependent Credit.

In those situations where the custodial parent has refused to sign the

8332 in violation of the contents of the divorce or separation agreement, the IRS has stood firm that the exemption stays with the custodial parent.

Relative to Form 8332, the courts have accepted substitute documents as long as the document provided the same information required by Form 8332 and was signed and dated by the custodial parent. The most important element of the declaration is that the custodial parent will not claim the child as a dependent and it identifies the year or years.

The wording in the divorce/separation agreement that says who may claim the child in any given year fails this test! The IRS and the courts require an affirmative signed statement from the custodial parent that the exemption will NOT be claimed.