Divorced parents and parents who have never married must deal with the annual dilemma and anxiety regarding which parent is going to take the tax dependency exemption for a minor child. Typically, the physical custodial parent is the only parent legally entitled to take this valuable exemption. If parents litigate over custody, Maryland law permits the Court to order the transfer of the dependency exemption. The Court would typically order the exemption to be transferred when the non-custodial parent is providing a significant level of child support and/or alimony. If the Court orders the transfer of tax dependency exemption or when the parents agree to transfer the tax dependency exemption, the custodial parent will execute IRS Form 8332, the same which releases the tax dependency exemption to the non-custodial parent.
The interesting and legally troubling question is what happens when the “wrong” parent (for the purposes of this analysis, the wrong parent would be the parent who is not legally entitled to the dependency exemption) claims the minor child as a tax dependency exemption. For instance, whenever a parent claims the minor child as a tax dependency exemption, the e-filing system will “lock out” the other parent from claiming the exemption. In cases where the wrong parent takes the tax dependency exemption, the parent entitled to the dependency exemption always has the option of filing a paper tax return with an explanation as to why the IRS should disallow the other parent from claiming the exemption. The IRS would then have the authority to disallow the exemption wrongfully taken. If for any reason the IRS wrongfully allows the parent who improperly took the exemption to maintain the exemption, the parent in the right has the option of pressing the matter through the IRS review process and/or pursuing the matter in Court. If a parent wrongfully takes the dependency exemption, the Court has a variety of remedies, including holding the wrongdoing parent in contempt of Court, awarding attorney’s fees against that parent, and even threatening jail or actually incarcerating a wrongdoer who refuses to remedy the situation to the satisfaction of the Court.
If you believe that you have been wrongfully deprived of the tax dependency exemption for a child, you should call your attorney and/or CPA for guidance. Of course, if you are not sure whether you are entitled to claim a child, it is always better to obtain legal and/or tax advice before you file your tax returns.