Noncustodial Parent Qualified for Dependency Exemption Based on State Court Order

(Parker Tax Publishing March 2022)

The Tax Court held that the noncustodial parent of a child was treated under Code Sec. 152(e) as having one qualifying child for purposes of claiming the dependent exemption deduction under Code Sec. 151 because the taxpayer qualified for the special rule for noncustodial parents in Code Sec. 152(e). Although the taxpayer failed to attach a written declaration from the custodial parent releasing her claim to the deduction to his return, the court found that a state court order which granted the taxpayer the right to take the deduction for the child satisfied the requirement. Hicks v. Comm'r, T.C. Memo. 2022-10.

Background

James Hicks and Oddimissia Johnson had two children together who were minors in 2014. Hicks and Oddimissia never married and were living separately throughout 2014. During 2014, Oddimissia and her mother, Juanita Johnson, lived in the same principal place of abode and the children resided with Oddimissia and Juanita for more than half of the year. Hicks provided more than half of the children's support for 2014.

In June 2006, the Summit County Court of Common Pleas Domestic Relations Division (state court) adopted a "Shared Parenting Plan," signed by Hicks and Oddimissia, which provided that Oddimissia would claim one child every year and Hicks would claim the other child every year for tax purposes, unless they reached another agreement in writing. In October 2009, the state court entered an order and judgment which adjusted Hicks's and Oddimissia's child support obligations and further stated that, effective for tax year 2009, Hicks was entitled to claim the dependency exemption deduction under Code Sec. 151 for both children each year. The October 2009 order and judgment were not signed by Oddimissia or Hicks. A court order entered in 2010, and in effect for the 2014 tax year, modified the periods in which each parent would have physical custody of the children. Under this arrangement Hicks had physical custody of the children for less than half of 2014 and Oddimissia had physical custody for more than half of that year. However, the August 2010 order did not modify the October 2009 order, which provided that Hicks "shall claim" the dependency exemption for both children each year.

On his 2014 federal income tax return, Hicks claimed dependency exemption deductions and child tax credits for the two children. He did not attach a written declaration signed by Oddimissia showing that she had waived or released her right to claim the deduction for that year. However, he later provided the IRS with a copy of the Shared Parenting Plan that Oddimissia signed and the state court adopted in 2006. Oddimissia did not file a federal income tax return for 2014; however Juanita did file a return and claimed a dependency exemption deduction for Oddimissia and for each of the two children on that return. The IRS disallowed Hicks's dependency exemption deductions and the child tax credits he claimed for the children. Hicks took his case to the Tax Court.

For years before 2018 and after 2025, Code Sec. 151(c) provides that a taxpayer may claim a deduction for each individual who is a dependent of the taxpayer as defined in Code Sec. 152 (i.e., the dependency exemption deduction). A dependent means either a "qualifying child" or a "qualifying relative." To be a qualifying child, an individual must (1) be a child or grandchild of the taxpayer, (2) have the same principal place of abode as the taxpayer for more than half of the year, (3) meet certain age requirements, and (4) not have provided more than half of his or her own support for the year.

However, a special rule in Code Sec. 152(e) allows a child to be treated as the qualifying child of a noncustodial parent if several criteria are met. Code Sec. 152(e) applies to a child who is in the custody of one or both parents for more than half of a calendar year, receives over half of his or her support during the year from his or her parents, and whose parents are divorced, separated, or living apart throughout the last six months of the year. In order for this special rule to apply, Code Sec. 152(e)(2) provides that (1) the custodial parent must sign a written declaration stating that he or she will not claim such child as a dependent for the year, and (2) the noncustodial parent must attach the written declaration to his or her return for that year. Generally, Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, is the form a custodial parent must file in order to relinquish his or her right to claim the child as a dependent. However, under Reg. Sec. 1.152-4(e)(5), a court order or a separation agreement entered prior to July 2, 2008, also qualifies a written declaration. Under Prop. Reg. Sec. 1.152-5(e)(2)(i), the attachment requirement may be satisfied if the noncustodial parent either attaches a copy of the written declaration to an amended return or submits a copy of the written declaration to the IRS during an examination.

Analysis

The Tax Court held that although Hicks was the noncustodial parent in 2014, he was treated as having one qualifying child under Code Sec. 152(e) and therefore was allowed to take the dependent exemption deduction, as well as the child tax credit, for one child for that year. The court found that, even though Hicks did not attach a written declaration to his 2014 return, the written declaration and attachment requirements of Code Sec. 152(e)(2) were both satisfied.

Regarding the written declaration requirement, the court explained that the Shared Parenting Plan could satisfy the requirement if it met the requirements governing written declarations that were in effect in 2006. The court determined that the Shared Parenting Plan met the requirements because, in addition to bearing Oddimissia's signature, it granted Hicks the unconditional right to claim one child every year for tax purposes unless the parties reached another agreement in writing. The court found that, although the state court modified the Shared Parenting Plan in its 2009 order, those modifications did not diminish the right that Oddimissia granted to Hicks in the Shared Parenting Plan.

With respect to the attachment requirement, the court found that Prop. Reg. Sec. 1.152-5(e)(2)(i) allowed Hicks to substantiate his claim to a dependency exemption by submitting the Shared Parenting Plan to the IRS, even though it was not attached to his original return. The court noted that the proposed regulations were published in 2017 but that, until they become final, they may be applied to any open tax year. The court also observed that the IRS never mentioned the proposed regulations in its briefings or made any specific argument that Hicks failed to satisfy the attachment requirement with respect to the Shared Parenting Plan. In the court's view, under the circumstances of this case, Hicks had therefore properly substantiated his right to claim one of the two children as a dependent for 2014. As provided by Code Sec. 152(e)(1) and (2), that child was treated as Hicks's qualifying child for 2014, and he was accordingly entitled to one dependency exemption deduction for that year under Code Sec. 151(c). Further, since Hicks was treated as having one qualifying child for 2014, it therefore followed that he was entitled to the child tax credit for one child for that year under Code Sec. 24(a).

For a discussion of the dependency exemptions available before 2018 and after 2025, see Parker Tax ¶10,720. For a discussion of the child tax credit, see Parker Tax ¶100,700.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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