What happens when parents claim the same dependent on their taxes?

Jason Demar, the Non Custodial Parent, Claimed his Son but Didn’t Attach a Form 8332

(Jason Demar v. Comm., TCM 2019-91)

Form 8332 Claiming Dependents

Both Jason Demar and his ex-wife claimed their son as a dependent. Jason Demar’s son did not live with him, but with Mr. Demar’s ex-wife. The IRS audited Mr. Demar’s 2015 tax return, and because he didn’t attach a Form 8332 to the return, disallowed the exemption, the child tax credit and the earned income credit.

Note:The EIC is generally irrelevant in our practice because of our client base, but even for the low income client, a non-custodial parent cannot claim EIC for a child even if he or she has been given permission by the custodial parent to claim the child as a dependent.

Form 8332 is still important after TCJA.

The Demar case is a 2019 decision but it’s about the old law. Why do we care after tax reform about Mr. Demar and his Form 8332? Because some clients and their attorneys think that if exemptions are now gone, the Form 8332 is not necessary. Even after the Tax Cuts and Jobs Act (TCJA), the Form 8332 is required if the non custodial parent wants to claim the child tax credit.

When to sign or not sign a Form 8332.

TCJA changes to the child tax credit mean many clients benefit from the $2,000 tax credit that didn’t before. The custodial parent is unlikely to give up her $2,000 credit just to be nice to her ex-spouse. Advise the client that you represent (custodial or non custodial) that the divorce decree should specifically address the dependency and why. If a Form 8332 is required, the non custodial parent (but not necessarily the custodial parent) is better off securing a several-year-signature when the divorce is finalized, rather than begging the ex-spouse each year. See effective dates that apply for the Form 8332 in Part II. See instructions on how the custodial parent can revoke her several-year-Form 8332 if circumstances change.