And Don’t Sweat the Numbers

Here’s good news for supporting parents, whose divorced or separated partners welsh on the deal to sign a Form 8332, delivered by none other than the Judge who writes like a human being, the Great Dissenter Judge Holmes. The case is Gary L. Scalone and Sandra Vieira Scalone, 2012 T. C. Sum. Op. 40, filed 5/2/12.

Unfortunately this is a Section 7463 “not-for-nuthin’”, so it’s useless as precedent. But read and heed, matrimonial lawyers; use the reasoning, and especially use the language. And please, even if it’s not necessary, get the SSANs.

Usual story. Gary and former spouse Denise have minor child N. S., who lives with mother, but Gary furnishes more than half of support. The separation agreement says “Gary ‘shall be entitled to claim’ N.S. as a dependent for tax purposes ‘[f]or calendar year 2000 and for any taxable years henceforth.’ And Denise promised to sign a declaration ‘on forms acceptable to the Internal Revenue Service’ that she would not claim N.S. as a dependent if Gary kept current on his child support.” Gary did, but Denise didn’t.

Incidentally, Gary and current spouse Sandra have a child who lives with them; IRS denied exemption and credit for both children, but conceded Gary and Sandra’s child, earning a wry compliment from Judge Holmes.

As to N.S., no Form 8332 or equivalent means no exemption and no credit; see my blogposts “Supported Child; Unsupported Exemption”, posted 7/11/11, and “Kicking Richard Nixon”, posted 11/25/11.

But Judge Holmes rides to the rescue, with a pardonable understatement: “What makes this part of tax law complicated is that some of the information that’s listed on the Form 8332 is absolutely required, and some is just helpful to the IRS in processing the return.” 2012 T. C. Sum. Op. 40, at p. 6.

Having no fully-executed Form 8332 from the welshing Denise, Gary and Sandra attached a signed copy of the separation agreement to their return for the year at issue. Both Denise and Gary signed. This gets past the critical hurdle: the custodial parent and the non-custodial parent must manually sign whatever document substitutes for the Form 8332. The cases say that the signatures are the “controlling factor.” 2012 T.C. Sum. Op. 40, at p.6.

Moreover, “…Gary correctly points out that almost all the information on a Form 8332 is in that agreement–the only things missing are his and Denise’s Social Security numbers. That Gary’s number isn’t in the agreement isn’t a problem–his number is elsewhere on the return–but the absence of his ex’s number may be a problem.” 2012 T.C. Sum. Op. 40, at p. 6.

Except it isn’t. IRS cites Richard A. Nixon, 2011 T.C. Mem. 249, but in that case there was nothing signed by Richard’s ex. Then  IRS cites Gessic, 2010 T.C. Mem. 88, but there taxpayer attached one initialed page from the separation agreement, and even that did not adequately specify to what years it applied. Even though Gessic produced a complete copy at the trial, it may not have been signed by the custodial spouse.

Gary had the magic language  “calendar year 2000 and for any taxable years henceforth.” That’s enough, says Judge Holmes.

“This turns out to be very important. The separation agreement here states that Gary ‘shall’ receive the dependency exemption ‘[f]or calendar year 2000 and for any taxable years henceforth.’ With this language, Denise was giving Gary the right to claim N.S. as a dependent for all years from 2000 into the future. The applicable regulations specifically allow this kind of general release. See sec. 1.152-4T, Q&A-4, Temporary Income Tax Regs., supra (release may be ‘for all future years’). We also specifically find that this phrase is Denise’s unconditional promise not to claim N.S. as a dependent.” 2012 T. C. Sum. Op. 40, at p. 9.

Moreover, the fact that the separation agreement was not incorporated in the divorce decree doesn’t matter, nor the fact that Denise’s declaration relinquishing exemption and credit is dependent upon Gary being current with this child support.

“The Commissioner has a second argument, though. He argues that even if the absence of the parents’ Social Security numbers doesn’t sink the Scalones, ‘conditional’ language in the separation agreement should. There is conditional language, kind of. But we disagree that it’s important. The language the Commissioner points to states that

‘Wife agrees to sign a written declaration on forms acceptable to the Internal Revenue Service that she will not claim the child as an income tax dependent exemption for any taxable year commencing calendar year 2000, provided that for the applicable calendar year she continues to receive child support payments as agreed from the Husband and such payments are current as of December 31 of the applicable tax year. The Wife further agrees to attach the declaration form required by the applicable rules and regulations of the Internal Revenue Code to her income tax return.'[Emphasis added.]

“This provision mentions a ‘written declaration’–clearly a Form 8332. And the Commissioner is correct that it has a quid pro quo. But it’s a very odd one: if Gary is current with support, Denise promises to complete a Form 8332 and attach it to her tax return–something that would have no effect on Gary’s right to claim N.S. as a dependent on his tax return, which she gave away in the preceding sentence of the agreement. It would sure have been a lot easier for Gary if Denise had given him a signed Form 8332, but as we pointed out earlier, the Code doesn’t require it.” 2012 T. C. Sum. Op. 40, at pp. 11-12.

Gary gets the exemption and the credit, and justice is done. Way to go, Judge Holmes.

Takeaway- Matrimonial lawyers, go and do thou likewise.