In family court proceedings involving child support there are several IRS tax rules that every family law attorney and judge should know:
- Taxable v. Deductible: Receipt of child support is not reported as taxable income and child support payments are not tax deductible by the payor. IRC §71 (C)(1).
- General (IRS) Rule—Dependency Exemption: The custodial parent (defined as the parent having actual custody of a child for the greater portion of a year—IRC §152 (c)(3)(A)) is entitled to claim the child as a dependent unless the custodial parent affirmatively waives the right to claim the exemption in writing and the writing is attached to the noncustodial parent’s tax return. §152(e)(2). This rule encompasses both married parents and parents who never married each other. King, 121 T.C. 24 (2003). The waiver must be written and can be for a single year, a number of years, or permanent. A signed IRS Form 8332, “Release of Claim …,” must be attached to the noncustodial parent’s tax return. Subject to a grandfather provision for older decrees, the IRS will strictly enforce this requirement. Reg. §1.152.
- Allocating Exemption to the Noncustodial Parent: In Minnesota, a district court may, at its discretion, “allocate tax dependency exemptions to a noncustodial parent incident to the determination of child support and physical custody” provided that the district court finds such allocation is in the best interests of the child. Rogers v. Rogers, 622 N.W.2d 813, 823 (Minn. 2001). In exercising its discretion, the district court may consider the relative resources of the parties and the financial benefits that will accrue from such a transfer. Crosby v. Crosby, 587 N.W.2d 292, 298 (Minn. App. 1998); Hall v. Hall, A07-116 (Minn. App.12/18/2007) (unpublished).
- Alternating Exemption between Custodial and Noncustodial Parent: In appropriate cases (i.e. best interest of the child), the court may order or approve an agreement that allocates the exemption to the noncustodial parent on alternating years. Such provisions are usually accompanied by a requirement that the noncustodial parent be current with all child support payments by December 31st of the year the exemption is to be claimed. For enforcement purposes, some judges include provisions that require the custodial parent to cooperate in the signing of IRS Form 8332.
Hon. Alan F. Pendleton
10th Judicial District