In Uncategorized on 12/20/2012 at 18:09

Has hit Tax Court, and today, 12/20/12, all the filed cases involve unattached Forms 8332, the disclaimer of deductions and credits for children of divorced or separated parents.

I’ve been blogging this subject almost continually since Mickel and Mary Briscoe, 2011 T.C. Memo. 165, filed 7/11/11; see my blogpost “Supported Child, Unsupported Exemption”, 7/11/11. I blogged it again yesterday; see my blogpost “Swift, Light and Unattached”, 12/19/12.

The problem, of course, lies with the trade-off of tax benefits for timely payment of child support. As The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, His Honor Mark V. Holmes, put it in his dissent in Billy Edward Armstrong and Phoebe J. Armstrong,  139 T. C. 18, filed 12/19/12. “…maybe the Secretary, Congress, or our reviewing courts will decide that the more reasonable course is to read the Code to ensure that conditions on allocating the tax benefits of parenthood–conditions that Congress expected to continue when it enacted section 152(e), conditions that several states require as part of their family law, and conditions that parents assume in good faith are enforceable and effective will, if a parent like Mr. Armstrong fulfills them, be honored.”

I know IRS is neither Family Court nor Judge Judy. Commissioner Campbell cannot decide whether Daddy paid the full boat so he gets the deductions and credits; her job is to collect the revenue and enforce the law as Congress wrote it. IRS has few enough resources as it is. Just ask National Taxpayer Advocate Nina (“The Big O”) Olson.

And suing the matrimonial lawyers won’t help, if State law provides that tax incidents must be considered in awarding child support and alimony. And even if State law doesn’t, if Mama won’t sign a Form 8332, or a document that says exactly the same thing and states it was prepared solely and exclusively as a substitute for Form 8332 and for no other purpose or purposes whatsoever (in which latter event why not just sign a Form 8332?), Papa can sue her. Lotsa luck.

In fact, Jackson M. Browning did exactly that, in 2012 T. C. Sum. Op. 121, filed 12/20/12. Papa Jack and Mama Dane were never married, but had a son. They had a joint parenting agreement embodied in an order of the local court. They didn’t live together during the year at issue. Mama had custody but Papa Jack had visitation rights. He had to pay child support for his son, and Mama and Papa Jack would take the tax breaks in alternate years, but Jack got his only if he paid.

Judge Gale: “The permanent orders required petitioner and [Mama Dane] to alternate claiming the ‘tax dependency exemption’ for [son]. They granted petitioner the right to claim the exemption for 2007 and succeeding odd-numbered years and [Mama Dane] the right to claim the exemption for 2008 and succeeding even-numbered years. Petitioner was not entitled to claim [son] as a dependent for a given year unless he had paid all court-ordered child support for that year. The permanent orders were signed by [Mama Dane’s]  attorney indicating they were ‘approved as to form’ but not by [Mama Dane] personally.” 2012 T. C. Sum. Op. 121, at p. 3.

How the local judge allowed that eludes me, unless Mama Dane personally participated in all the hearings and is estopped to deny the deal. Howbeit, Papa Jack files his return without the Form 8332. Papa Jack doesn’t ask for the Form 8332 for the year at issue for nearly four years, but when he does, Mama Dane tells him to take a walk as he’s a deadbeat. He sues Mama Dane in local court, but when the Tax Court trial comes on, the local judge hasn’t ordered Mama Dane to cough up.

Post-trial, the local judge orders Mama Dane to sign, and she does. Papa Jack files the signed 8332.

Too late, says IRS. Mama took the deductions and credits, and now the year is closed so we can’t get back the credits from Mama Dane, and giving Papa Jack the deductions and benefits now would be a double-dip. “We have concluded in a number of cases that a noncustodial parent who fails to attach a Form 8332 to his or her return as filed is ineligible to claim the dependency exemption.” 2012 T. C. Sum. Op. 121, at p. 10. I omit the string of citations.

Judge Gale buys the double-dip argument. No deductions or credits for Papa Jack, but IRS generously doesn’t ask for penalties.

OK, so what do we do now? Educate the local matrimonial-family law bar, and the judges too, for a start, so they stop making unenforceable booby-trap deals. Perhaps enact legislation that filing a Form 8332 when all payments due for child support have not been made, or claiming the tax benefits where another is rightfully entitled, is a separate criminal act under State law (although putting Daddy or Mommy in jail doesn’t help the children much). Or maybe have the divorce and family court judges just stop figuring and apportioning tax benefits up front, let the custodial parent get the deductions and credits, and give the noncustodial parent an annual offset against support for what the deductions and credits would have yielded if she or he had timely paid up, and let the local courts decide if the noncustodial spouse paid or not, and the number of the offset if they did.

Then we can forget about the stupid Form 8332, the IRS can get back to collecting the revenue, Section 152 with its giant slalom of conditions can wither away, and Tax Court need no longer be “not unsympathetic” to those who pay child support, bargain for the tax benefits, and then don’t get them.

Lawyers, legislatures and judges, please copy.


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