In many Texas divorces and Texas Suits Affecting the Parent-Child Relationship, an agreement is made between the parties regarding whom will have the right to claim a child as a dependent for tax deduction purposes. To make this agreement enforceable, the parties should execute an IRS form 8332. This form allocates the tax dependency in one or more years regardless of who would normally be able to take the deduction.
A recent U.S. Tax Court case shows that failure to file this IRS form may mean the IRS will deny the deduction.
In Chamberlain v. Commissioner, the U.S. Tax Court ruled that the former husband (taxpayer) was not entitled to the dependent deduction for one of his children because he didn’t attach a valid IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) to his 2003 Federal tax return (the child credit was also denied because it is premised on being entitled to the dependent deduction for the child). The Tax Court concluded that the attachment of a Post-It note referencing the initial (1995) Form 8332 didn’t satisfy the statutory requirement of attaching a valid written declaration.
The taxpayer’s former wife executed a Form 8332 in which she relinquished the dependency deduction for one of their two children beginning in 1995 and for all future years. The taxpayer claimed that he attached the original Form 8332 to his 1995 return, but that a subsequent fire destroyed all of his copies. The IRS was unable to provide a copy because their 1995 tax return information had been destroyed (pursuant to IRS document destruction policies).
This result may seem harsh, but as the Court indicated, “Although we are sympathetic with [taxpayer’s] plight, we are bound by the wording of the statute as enacted and accompanying regulations when consistent therewith. ”
Source: Family Law Taxation