Don Read, Tax Law for Family Law Attorneys

Dependency Exemption. Divorcing parties often want to know which former spouse will be entitled to the $3,400 (for 2007) dependency exemption. The exemption is granted with respect to a "qualifying child" or "qualifying relative."

The "qualifying" rules are found in Internal Revenue Code §152, and there are many exceptions and requirements. Basically, a qualifying child generally must be an unmarried american flag graphic citizen or resident of the United States who lives with the person claiming the exemption for more than half of the year, is under age 19 (age 24 if a student) and has not provided more than half of his or her own support and is the child of the taxpayer.

If both parents could claim the exemption, the exemption goes to the parent with whom the child lived more of the time. If the parents had equal time, the exemption goes to the parent with the higher income. This may be a disadvantage because the exemption starts phasing out at $100,000 of income (individual returns in 2007).

There is a special rule for divorced or separated parents that allows the custodial parent to waive the dependency exemption in favor of the noncustodial parent. Generally, the waiver is done by the custodial parent's signing an IRS Form 8332 and the noncustodial parent's attaching the document to his or her return.

Effective July 2, 2008, the IRS adopted final regulations regarding dependency exemptions for children supported by their parents who are divorced, separated or living apart for the last 6 months of the year and have legal custody of the children. The "custodial" parent is, generally, the parent with whom the child spends the most nights during the year. The custodial parent can release the exemption to the noncustodial parent by executing a separate document outside the MSA or judgment) - IRS Form 8332 or a substantially similar statement - declaring that the custodial parent will not claim the dependency exemption for the designated period. The statement can be unilaterally revoked, effective starting the year after the custodial parent gives written notice of revocation to the other parent.

Head of Household. Head of household filing status has favorable tax rates, between the joint return and individual rates. Under Internal Revenue Code §2(b) it is available to an unmarried person in whose household a qualifying child has his or her principal place of abode for more than half the year. Under Internal Revenue Code §7703(b) and §2(c), under certain circumstances parents can be treated as unmarried, even if they are not divorced. There is no phase-out of the benefits of this filing status, and it cannot be transferred from one divorced parent to the other without increasing the time the child spends with the parent claiming head of household status.

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Donald H. Read - Attorney and Certified Tax Law Specialist     Cell Phone: (510) 409-4927     E-Fax: (413) 677-0609