Accounting & Bookkeeping & Small Business Forum

[Richard Noot]

New Regulations Regarding Form 8332 Including Revocability


Back in 1984 Congress changed the rules involving a noncustodial parent’s right to
claim a child as a dependent. The rules basically state the custodial parent has the
right to claim the child. They further state the noncustodial parent can claim the child
as a dependent when the custodial parent signs Form 8332 or a statement that says the
same thing.

Divorce decrees often have a provision that states something like “ (name of
noncustodial parent) can claim (name of child) as a dependent for tax purposes for
(identified years). Form 8332 generally states ** “I will not claim _____________ for
the tax year _____.** The divorce decree wording we used here is not the same as the
Form 8332 wording. Some taxpayers have used the divorce decree as the authority to claim
the child even though the wording is different. The courts have generally enforced the
requirement to have a Form 8332 or similar statement.

NOW IRS HAS RELEASED NEW REGULATIONS DEALING WITH THIS ISSUE
New Regulation 1.152-4 states the child is “the qualifying child of the parent with
whom the child resides for a longer period of time during the taxable year…”. It
further states “if the child resides with both parents for an equal period of time,
[the child is treated as the qualifying child] of the parent with the higher adjusted
gross income.”

A noncustodial parent can claim the qualifying child if the custodial parent provides a
proper release.

The “custodial parent” is now defined as “the parent with whom the child resides
with for the greater number of nights during the calendar year”. No longer will this
be determined based on the number of days, but now it is based on the number of nights.

Further a child is not considered residing with either parent starting with the date the
child is emancipated under state law (reaches the age of majority). Therefore a child
who reaches the age of majority on or before the day after the half-way point of the year
(normally July 3) will not be in the custody of the parents for MORE THAN ½ of the year.

RESIDE – A child is deemed to reside with a parent if the child sleeps:
1) At the residence of that parent (whether or not the parent is present), or
2) In the company of the parent, when the child does not sleep at the parent’s
residence (such as when on vacation together).

OVERLAPPING NIGHT – If the night overlaps two taxable years, such as December 31st, the
night is counted towards the year it begins (December).

ABSENCES – If the child does not reside with either parent for a night, the child is
considered to be residing with the parent with whom the child would have resided for the
night. This is true even if the parent with whom the child would have resided is away on
military duty. If it cannot be determined which parent the child would have resided with
for the night, the child is deemed to be residing with NEITHER parent for that night.

EQUAL NIGHTS – If the number of nights is equal, the parent with the highest AGI is the
custodial parent for that year.

EXCEPTION – If a child resides with one parent for a greater number of days, but not a
greater number of nights DUE TO THE PARENTS NIGHTTIME WORK SCHEDULE, this parent is
deemed to be the custodial parent. For this purposes, on school days, the child is
deemed to be residing during the day with the primary residence registered with the
school.

RELEASE OF EXEMPTION TO NONCUSTODIAL PARENT
As provided in the Internal Revenue Code, the new regulation permits the custodial parent
to release the exemption to the noncustodial parent. However the method has changed
slightly. The changes are partly due to the results of Court cases and comments from the
public and tax professionals.

The custodial parent’s release of the exemption must name the noncustodial parent, the
year or years for which it is effective. A release that states “all future years” is
treated as starting the year AFTER the year the release is signed. Therefore if the
release is to be effective earlier, it must specify the year.

This release can be accomplished by the use of Form 8332 or by the custodial parent
providing a written declaration that is an UNCONDITIONAL release. A release is NOT
unconditional if the release has ANY conditions, such as having to be current in support
payments. This written declaration must conform to the substance of the Form 8332 and
also must be a “document executed for the SOLE PURPOSE of serving as a written
declaration”. The regulations further state “A court order or decree of a separation
agreement may not serve as a written declaration.” Again, court cases have repeatedly
denied the exemption to the noncustodial parent based on divorce decrees because their
wording does not conform to the Form 8332, so this last statement in the regulation is
understandable. Written declarations issued on or before July 2, 2008, are still
effective in the future as long as they were effective when written.

The Form 8332 or written declaration must be attached to the NONCUSTODIAL parent’s
return for each year the noncustodial parent claims the child.

REVOKING FORM 8332.
The custodial parent’s release of the child’s exemption to the noncustodial parent
can be revoked. Previously IRS gave us a ruling that stated a revocation can be
accomplished by the noncustodial parent not claiming the child AND the custodial parent
claiming the child. Now we have new rules.

The custodial parent can revoke a previous release by providing written notice of the
revocation to the noncustodial parent. This revocation is effective for the year
designated on the revocation, but not earlier than the year AFTER the year the revocation
is provided to the other parent. In other words a revocation provided during 2008 can be
effective no earlier than 2009. The custodial parent must make reasonable efforts to
provide actual notice to the other parent AND must keep the evidence of the delivery of
the notice to the other parent. It may be a good idea to have the custodial parent mail
the revocation using CERTIFIED MAIL as proof of the fact that the revocation was sent and
the date it was sent.

The revocation can be made using Form 8332 (as revised) or a written declaration that
conforms to the substance of the Form 8332. The written declaration again must be a
document executed for the SOLE PURPOSE of serving as a revocation. A revocation that
does not specify a year is not a valid revocation. A revocation that states “all
future years” will be treated as effective the year following the year the revocation
is properly executed and all future years.

The Form 8332 or written declaration revoking the release must be attached to the
CUSTODIAL parent’s return for each year the custodial parent claims the child. A copy
of the revocation and evidence of delivery of the notice to the other parent, or the
reasonable efforts to provide actual notice.

These revocation procedures are effective to revoke any release of exemptions including
ones from prior years. Written release declarations issued on or before July 2, 2008 can
also be revoked under these new procedures.

The regulation has 20 examples that help in the understanding of these issues.

The regulation can be found at www.irs.gov/pub/ by clicking on irs-regs and then on
TD-9408 or searching www.irs.gov for TD-9408.