Maryland Bar Bulletin
Publications : Bar Bulletin : November 2013

|

Under the IRC, the primary custodial parent is always entitled to the dependency exemption unless he or she executes a written declaration.

Which parent can claim the child as a dependent for income tax purposes is a disputed issue in custody and child support cases. The child dependency exemption can be valuable: often significantly more valuable to one parent than the other.

Pursuant to the Internal Revenue Code (IRC), the parent with whom the child resides for the longest period of time during a given tax year is entitled to claim the child as a tax exemption.

Therefore, if the allocation of the dependency exemption is not addressed either in an agreement between the parties or by the court, then, under the IRC, the primary custodial parent is entitled to claim the child as an exemption by default.

On the other hand, if the allocation of the dependency exemption is included in an agreement, or is decided by the Court in a contested case, it is absolutely necessary that the language of the agreement and/or the court order does more than merely state that the non-custodial parent is entitled to the exemption.

Under the IRC, the primary custodial parent is always entitled to the dependency exemption unless he or she executes a written declaration (IRS form 8332 Release) that he or she will not claim the child as a dependent for the current year or future years.  26 U.S.C.A. §152(e)(2)(A) (Supp.II, 1984).  Signing the necessary release is the critical piece in transferring the exemption.

Federal law permits a state court to order the primary custodial parent to execute the statutory release in favor of the non-custodial parent who is paying child support. Wassif v. Wassif, 77 Md. App. 750, 761 (1989).

Yet, if the court order merely states that the dependency exemption shall be awarded to the non-custodial parent, then such an order is not sufficient to transfer the dependency exemption. The necessary release must be signed by the primary custodial parent. 

Thus, it is imperative to make sure that the court, in its Judgment of Absolute Divorce or other Order, requires the primary custodial parent to sign the release each year in which the non-custodial parent is entitled to claim the exemption. 

In a recent Court of Special Appeals case, Reichert v. Reichert, 210 Md. App. 282 (2013), the appellate court engaged in a lengthy discussion regarding the allocation of the tax dependency exemption when the parents had equal time with the child (50/50 custody).

Disagreeing with the trial court, which had ordered that the parties alternate each year claiming the child as a dependent, the Reichert court stated: “Where both parents share joint physical custody of the child on an essentially 50/50 basis”, Section 152(e) of the IRC does not apply and the Circuit Court is required to award the exemption to the parent with the higher income pursuant to U.S.C.A. § 152(c)(4)(B)(ii).  Reichert, 210 Md. App. at 346-348. 

Besides reaffirming the Wassif holding (that a court must order the primary custodial parent to execute a yearly declaration releasing his or her right to the tax dependency exemption in order for the transfer to the non-custodial parent to be effective), the Reichert court also made clear that:

  • any allocation of the tax dependency exemption pursuant to 26 U.S.C.A. §152 is an element of the parties’ child support calculation;
  • the tax dependency exemption may be allocated to the non-custodial parent only if doing so enhances the child’s best interest;
  • the court’s order should provide that the duty to execute the release is contingent on the non-custodial parent being current in his or her child support payments;
  • the general principles regarding the exemption remain constant whether the parents share custody or if one parent is the primary custodial parent; and
  • when the court allocates the exemption to the parent with the highest income, the court must also consider whether the tax savings should be channeled into an increase in child support payments.

Regardless of whether the parents have equal shared custody of the child or there is a primary custodial parent or something in between, the court, in allocating the dependency exemption, must analyze whether allocation of the tax dependency exemption is in the child’s best interest.

As with child support, a court simply cannot rubberstamp the parties’ agreement where there is an allocation of the tax dependency exemption without determining whether the allocation is in the child’s best interest.

Carol Ghingher Cooper is a member of Adelberg, Rudow, Dorf & Hendler, LLC, who represents clients in matters related to divorce, custody, visitation, child support, pre-nuptial agreements, post-nuptial agreements, adoption, and other civil litigation.

previous next
Publications : Bar Bulletin : November 2013

back to top