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In Smith v. Commissioner, the United States Tax Court (Tax Court) addressed the issue of whether the taxpayer, a non-custodial parent, could claim the dependency deduction. The Tax Court also addressed whether the taxpayer could claim the child care credit, child tax credit, and earned income credit.

The taxpayer had a biological child with a woman (mother) that he never married. During the year in question (2003), the taxpayer and the mother did not live together and the son lived with the mother and her husband during the majority of the year. The taxpayer and the mother did not have a written agreement regarding who could claim the child as a dependent. Both the taxpayer and the mother claimed the child as a dependent and the IRS denied the taxpayer's dependency deduction, as well as other child-related credits. The taxpayer did not attach to his 2003 return a Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) or similar statement.

Deduction for Dependents: A taxpayer is generally allowed a deduction for each dependent (see IRC section 151). A dependent includes a son or daughter of the taxpayer in which the taxpayer provides over half the support during the year (see IRC section 152).

Divorced or separated parents: A child that receives over half its support from parents that are divorced, separated or live apart during the last six months of the year is treated as receiving over half the support from the parent that had custody for the greatest part of the year. The non-custodial parent may claim the dependency deduction if the individual files Form 8332 or similar statement that the custodial parent will not claim the child as a dependent.

Court Decision: The Tax Court held that the taxpayer was not entitled to the dependency exemption deduction since he was a non-custodial parent (i.e., did not have custody over half of the year) and did not attach Form 8332 to his return.

The Tax Court also denied the child care credit and child tax credit since those credits require that the taxpayer satisfy the dependent requirement under section 151. Lastly, the Tax Court also denied the earned income credit because the child's principal place of abode was not with the taxpayer for more than half the year.

FAMILY LAW TAXATION is subject to this Circular 230 Disclosure.

Source:  "Non-Custodial Parent's Deduction for Dependents: Tax Court Denies Dependency Deduction for Non-Custodial Parent Because Taxpayer Did Not Include a Signed Form 8332 With His Return" published at the Family Law Taxation blog.