Parents who file separate tax returns cannot both claim the same children as tax exemptions, this includes divorced parents, unmarried parents or married parents who are filing separately. The IRS may audit both returns if it discovers this error on one parent’s return. The general IRS rule is that the parent who has physical custody of the child for the majority of the year is entitled to claim the exemption. 26 U.S.C. § 152. However, if the parent who does not have physical custody for the majority of the year provides more than 50% of the child’s financial support, they are entitled to the exemption.
Parents must complete and file IRS Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, with their tax return if the non-custodial parent plans to use the exemption. This form must be signed by the custodial parent in order to be valid. If the non-custodial parent claims the exemption without filing this form, they may have to prove that they furnished over 50% of the support for the children if the IRS questions or audits their return.
Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parent, which standardizes the written declaration a custodial parent must give in order for the noncustodial parent to claim the dependency exemption deduction for their child, requires a taxpayer to furnish: (1) the name of the child; (2) the name and Social Security number of the noncustodial parent claiming the dependency exemption deduction; (3) the Social Security number of the custodial parent; (4) the signature of the custodial parent; (5) the date of the custodial parent’s signature; and (6) the years for which the claims were released. 26 U.S.C.A. § 152(e)(2)(A).
Divorcing couples may also stipulate which parent will claim the child as a dependent and receive the tax exemption in their divorce settlement. If the parents would like to alternate the years in which they are allowed to claim the children, they must file IRS Form 8332 with their tax return each year the non-custodial parent claims the exemption. The parents must also be sure to arrange which parent will claim the children for each year. For example, the mother will claim the exemption on even-numbered years, father will claim the exemption on odd-number years. It is also important to specify the date that this arrangement will begin to take place so there is no confusion following the divorce.
Importantly, for all divorces finalized after December 31, 2008, the IRS is no longer accepting a copy of a divorce decree to show who has the right to claim the dependency exemption. You must file Form 8332 or a substantially similar statement with the return or, if you file electronically, with Form 8453. If the divorce decree was dated before January 1, 2009, the IRS may accept certain pages of the divorce decree as a substitute for a Form 8332, if the decree unconditionally provides that the noncustodial parent may take the exemption for a child, the custodial parent signs the decree, and the decree otherwise conforms to the substance of Form 8332.