Custodial Determination Changes Under Proposed
Regulations
by David & Mary Mellem, EAs
Ashwaubenon Tax Professionals
Proposed Regulation §1.152-4 contains changes that
will surprise many taxpayers as well as tax
professionals. We’ll number the provisions just for
simplification.
1) The rules apply when the child’s parents are
divorced, legally separated, or live apart at all
times during the last 6 months of the calendar year.
It is not necessary that the parents are or were ever
married to each other.
2) The custodial parent is the parent with whom the
child resides for the greater number of nights during
the calendar year. When a child does not reside with
either parent for a night, the child is deemed to be
residing with the parent with whom the child would
have resided other than for the absence. However if
the child would not have resided with either parent,
such as in the case of a court-ordered third party
custody situation, the child is deemed to have resided
with neither parent. If the number of nights is
equal, the “custodial parent” is the parent with the
highest AGI.
3) The noncustodial parent can claim the child if the
custodial parent signs a written declaration
unconditionally releasing the exemption. This
declaration can be on the Form 8332 or any other form
that conforms to the substance of the Form 8332. The
noncustodial parent attaches the original form to the
original return. If the waiver is for multiple years,
a photocopy can be attached to the future years’
returns.
This regulation further states, “A state court order
or decree does not operate to allocate the federal
exemption between parents.” (paragraph d(1)) This
wording appears to say the decree can say who gets the
exemptions, but it is worthless for tax purposes.
Example 5 in the regulation states the parents (L and
M) of the child execute a written separation agreement
that provides the child will live with L and M will
pay child support. The agreement also states L will
not claim the child for the years 2007 or after and
does not mention any conditions tied to this part of
the agreement. The IRS states this is an acceptable
Form 8332 substitute since it specifies L will not
claim the child, specifies the applicable years, and
does not have any conditions attached to it.
4) The custodial parent can revoke a written
declaration (Form 8332). The revocation is on an IRS
designated Form (or other form that conforms to the
substance of the Form 8332). It must specify the year
or years for which the revocation is effective. The
phrase “all future years” means the calendar year
following the year the form is executed. The
custodial parent attached the original form to the
original return. If the revocation is for multiple
years, a photocopy can be attached to the future
years’ returns. IRS anticipates revising Form 8332 to
accommodate a revocation.
Continuing in Example 5 of the regulation, in 2008 M
fails to make all child support payments and L signs a
Form 8332 revoking the release for 2009 and delivers a
copy to M and keeps the evidence of delivery. L
attaches the Form 8332, keeping a copy, to L’s 2009
tax return.
5) All of the examples are useful, but Example 8 is
worth repeating here in brief. R and S are divorced,
Child lives with R, and the decree requires R to sign
a Form 8332 releasing the exemption for Child. R
doesn’t sign the Form 8332. S cannot claim Child as a
dependent.
6) IRS is soliciting comments on this regulation with
a due date of July 31, 2007. The Preamble to the
regulation contains specifics if you are interested in
submitting comments.
This regulation is proposed to apply to taxable years
beginning AFTER the date the regulation is published
as a final regulation. This could be published as a
final regulation as early as shortly after the hearing
date in late July or as late as never.
This regulation should be available on the IRS web
site as 149856-03. We can also send you a pdf copy
attached to an email upon request.
~~~~
This text has been shared with you courtesy of: David
& Mary Mellem, EAs & Ashwaubenon Tax Professionals,
920-496-1065 (fax 920-496-9111) davidmellem@yahoo.com,
davidmellemea@yahoo.com, marymellemea@yahoo.com, and
marymellem@yahoo.com.
©2007 Ashwaubenon Tax Professionals. No reproduction
of this article is permitted without the express
consent of Ashwaubenon Tax Professionals, 2140
Holmgren Way, Suite 1040, Green Bay, WI 54304.
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