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Federal Regulations Define Who Gets Exemption

Treasury regulations effective 2 July 2008 clarify the definition of "custodial parent" for purposes of the dependency exemption. See CFR §1.152-4. The Internal Revenue Code, section 152(e)(4) says that custodial parent means the parent having custody for the longer period of time during the taxable year. The regulations explain how to determine "longer period of time."

Generally, this requires counting the nights the child spends at each parent's residence or with the parent at another location. If the child is at the parent's residence, the night counts even if the parent is not present. The parent with the greater number of nights is the custodial parent. If a parent who works nights has the child most of the days in the year, that parent is "custodial." In the night work scenario, on a school day, the child is treated as residing in the primary residence on school registration.

For children age 19 and over, the parent who provides over half the support may claim the exemption, provided that the child otherwise qualifies as a dependent.

The regulations spell out a tie-breaker if the child resides with each parent a equal number of nights - the parent with the higher adjusted gross income is treated as "custodial."

The "custodial parent" may release the right to claim the exemption to the other parent. Beginning 3 July 2008, the divorce decree alone may not be used to transfer the right. Instead, the custodial parent must sign IRS form 8332 or a declaration conforming to the substance of form 8332. (Earlier decrees are still valid.)

The regulations allow a "custodial parent" to revoke a release for future years. This must be done on IRS form 8332 (or a successor form), which must be attached to the tax return for the first applicable year. Written notice must be given to the "non-custodial" parent and the notice documented.

The regulations with commentary are available on the Government Printing Office site. Note that the regulations themselves begin on page 5 of this document, beginning at "Part I - Income Taxes." A useful discussion of these changes is available at http://www.dissotax.com/news.html.

Tags: custodial parent, exemption, IRS form 8332, nh divorce law

Posted October 27, 2008

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