In years past, this question was an easy answer. Moms were getting custody routinely and dads were getting the children every other weekend. Every parent knows the more dependents you are able to claim the lower your tax bill will cost them. That is the primary reason parents want the ability to claim their children as dependents.
Today with the ever-changing parenting plans that occur in divorce situations, tax exemptions come up over and over again. Despite how complicated the parenting plan or visitation schedule becomes, the simple rule-of-thumb is the parent with whom the child has more overnights with is the parent entitled to claim the tax deduction. When this simple formula is put into place, it separates the line of who is the custodial parent and who is the noncustodial parent.
With all of this in mind, there are ways to simply this decision during a divorce. Should the parties agree to who can claim the child and some times for which years (even or odd, etc), they can enter into an agreement which creates a contract between them. Parents can even alternate years which will allow each parent to change their deductions on the years they do not claim the child.
A recent decision from the IRS in May 2013 from the United States Tax Court says that the IRS is not bound by state court rulings that allocate which parent may claim the child for a tax dependent. So, for federal income tax purposes the the IRS rules govern. The decision sums up tax dependency by saying that it is the IRS rules and state court orders that determine which parent can claim the children. Since federal law governs a person’s federal returns, they should look to IRS rules. This makes it impossible for state courts to rule which parent may claim the children on their federal tax returns and that is based upon eligibility set out by the IRS regulations. However, state tax returns may be governed by state court orders.
The state of Alabama defines tax dependent eligibility as the parent who supports the child for more than 50% of his or her support during the tax year. This ultimately puts the tax dependent claim with the custodial parent since even though a parent pays child support that does not cover more than 50% of that child’s support. This is ordinarily the case but not the rule. There are a lot of considerations to be taken into account before answering this question. Consulting a family law attorney will be most helpful in this case. Our firm handles divorce and child custody cases routinely and the tax question is one that we have litigated in several cases. Obtaining an opinion and order from the court puts the issue at rest. Plus the parent who claims the child on their taxes has an order to produce in cases of dispute. If both parents claim the same child as a tax dependent, the one with an order as proof of tax dependency will win the deduction. Call us today if you need help in any divorce or child custody case (205) 623-1001. We are here to help you find real solutions.