With the new 2018 and 2019 tax laws, this article is in the process of being revised. What you read below may not be up to date. Please do not rely on what is written in this article until it is updated.
IRS Form 8332 is two forms in one - (1) a release and (2) a revocation of a release. Of what? Of the claim of exemption for a child or children, which is commonly called the child dependency exemption or child tax credit.
IRS form 8332 seems self-explanatory enough. You read it, you fill it out and you hand over the child tax credit and dependency exemption to the other parent or you revoke a prior granted release.
Do most parents know about this? No. Do most parents who come to agreements in their California child custody or child support cases for the noncustodial parent to receive the child tax credit and dependency exemption screw this up? Well, that's why we are writing this article. To help you understand the general rules related to releasing the tax credit and dependency exemption in a California child custody and child support order and what it takes to do it right.
We are not tax lawyers or tax advisors. We are experienced divorce and family law attorneys. Should you have any tax questions, please consult with a tax professional. Should you need help with your California child custody or support case, that's why we are here and we can help you properly secure the release of the dependency exemption and child tax credit, pursuant to IRS form 8332, in the CA court order.
Before we go further, here is a copy of the IRS Form 8332 Release as of the date this article was written. Check the IRS website for updates.
IRS Code 152(e)(2)
This IRS code section and subsection states the following on this specific issue of releasing the child tax credit and exemption:
(2) Exception where custodial parent releases claim to exemption for the year
For purposes of paragraph (1), the requirements described in this paragraph are met with respect to any calendar year if-
(A) the custodial parent signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year, and
(B) the noncustodial parent attaches such written declaration to the noncustodial parent's return for the taxable year beginning during such calendar year.
Does the California child custody, support or divorce agreement need to state that the custodial parent is releasing the child tax credit and dependency exemption?
Let's just say it is a really bad idea to rely on a verbal agreement or loosely put together written agreement. You want agreements that are court orders and you want them spelled out on this issue to ensure there is no misunderstanding or miscommunication. Why is that?
Court orders are punishable if violated.
If your spouse or other parent (a) signs an agreement that becomes a court order and that gives you the child tax credits and dependency exemption, (b) the order specifically spells out that your spouse or the other parent will execute the IRS form 8332 and (c) then fails to do any of this, you have rights. You can potentially seek a family law contempt action against him or her, you can seek an order to be reimbursed the amount of money you lost as a result of not receiving the child tax credit and dependency exemption or seek other orders.
Could you use a form other than IRS form 8332?
Yes but would you? When the IRS gives you a form that complies with all of its rules and gives you the security of knowing you are doing it right, why in the world would you create a separate document? Having a court order + the IRS form 8332 is the best way to go.
Want a nightmare example when shortcuts were taken? There have been cases where a noncustodial parent was denied the tax credit and exemption because the letter executed by the custodial parent which specifically acknowledged the noncustodial parent's right to claim it and stated the custodial parent was to execute the required documents wasn't good enough.
Even court orders, by themselves, may not be enough. That is why we like to include specific language that the custodial parent must execute an IRS form 8332 form.
What about California law and the head of household exemption?
There is a lot of similarity between California law and Federal law but there is an exception. While a full discussion of Revenue and Taxation Code 17054.5 is beyond the scope of this article, a review of it will help you understand the head of household status in joint custody situations.
Why would a custodial parent ever sign a court order and an IRS form 8332 to give up the child tax credit and dependency exemption?
Simple. Because it has far less value to that parent. This typically occurs when the noncustodial parent has significantly more income than the custodial parent, especially when the custodial parent doesn't have any and doesn't have a need for the child tax credit and dependency exemption. Consultation with an experienced tax professional is important before making such a decision. If the noncustodial parent is of a particularly high income, the credit and exemption may not have any value because the code doesn't permit him or her to claim it.
Can the court order the release of the child tax credit and dependency exemption without an agreement of the custodial parent?
There is California case law that says yes. A 1991 case called Monterey County v. Cornejo addressed this issue. The trial court held that the noncustodial parent would be the one allowed to claim the child as a dependent for state and federal income tax purposes until further order of the Court. That didn't sit well with the district attorney's office who was enforcing the child support order and the California Attorney General's office then filed an appeal.
There was some division among the States as to whether the amendments to IRS Code 152 at that time were intended to divest (take away) the Court's power to order (without an agreement) the child tax credit and dependency exemption to the noncustodial parent. This California Court of Appeal concluded that it would take what it considered to be the "majority" view and allow it. In short, the court concluded the amendments to the IRS code 152 were not intended to take the court's power away but rather to ensure proper protocol was followed (which gave birth to the now IRS form 8332) to ensure the release occurs.
Do you have a California child custody case? Got questions about child support? Need an agreement that property releases the child tax credit and dependency exemption and obtain an order to execute IRS form 8332? Call us. We are ready to help.
Circular 230 Disclaimer
Circular 230 Notice: Although nothing contained herein is intended to nor should it be construed as tax advice, we are nevertheless informing you that, in compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.