Tax Byte

Melissa Correll claimed her 16-year-old son as a dependent on her 2021 return even though he lived full-time with his father in Georgia. While their divorce agreement allowed her to claim one child of their two children, problems arose when both parents claimed the same child – the only child that qualified for the Child Tax Credit (CTC).

Note. The child must be under age 17 to qualify for the CTC. The other child of the Corrells was 18.

Correll Loses CTC:

The Tax Court strictly applied the qualifying child rules under §152, finding:

• The child didn’t meet the residency requirement of living with Correll for more than half the year
• Correll didn’t qualify for the noncustodial parent exception without a Form 8332 or equivalent declaration
• The divorce agreement alone was insufficient documentation
• Correll was not entitled to the child tax credit, as §24 requires the child be a qualifying child as defined in §152(c)

Tax Practitioner Planning:

1. Residency requirement is primary: The physical residence of the child for more than half the year is a fundamental requirement for qualifying child status that cannot be overcome by informal arrangements.
2. Form 8332 is essential for noncustodial parents: Without a signed declaration (typically Form 8332) from the custodial parent, a noncustodial parent cannot claim a child as a dependent, regardless of divorce agreement provisions. Recommend to clients that the agreement be backed up with a form 8332 signed by the custodial parent.
3. Divorce agreements alone are insufficient: Settlement agreements between divorced parents do not override the statutory requirements for claiming dependents unless properly documented for tax purposes.
4. IRS systems flag duplicate claims: The IRS effectively identified when both parents claim the same child, triggering notices of deficiency and potential for Tax Court litigation. For practitioners, this means you should proactively verify dependency claims with clients who are divorced or separated, as the automated matching system will almost certainly catch duplicates, leading to client audits, and potential penalties.