If you've recently received a notice from the IRS with the bold heading "You Need To Make Sure Someone Is Your Dependent," the red lights and whistles should be going off because someone has filed a fraudulent tax return that is claiming your children as their dependents. In most cases, that other person will turn out to be your ex-spouse or your child's other parent.
The sting of lost custody in a separation or divorce can leave the spurned party grasping for straws, looking for any recourse in the face of child support, medical expenses and other court imposed childcare costs. The solution they are looking for can manifest itself during tax time when the opportunity to claim dependents is provided on the face of the 1040 Individual Income Tax Return. People get the mistaken impression, particularly when filing a self-prepared return, that filing a claim for dependent and the additional child tax credit is a race to beat the other by filing first. They couldn't be more mistaken. The IRS rules for claiming a dependent provides the custodial parent as the exclusive taxpayer able to make the claim on their children.
Determination of who the custodial parent can most easily be determined by a Court Order which names the custodian and thus the parent eligible to claim the dependents. But there are often cases where there is no Court Order; there is a situation where the parents are simply living apart; or the parents have shared custody. Who gets to claim the dependents then?
The IRS determines that the custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year. (Code Sec. 152(e)(4)(A) , Reg. Sec. 1.152-4(d). ) The rules state "that a child resides for a night with a parent if the child sleeps (1) at the parent's residence (whether or not the parent is present), or (2) in the company of the parent when the child does not sleep at a parent's residence (for example, if the parent and child are on vacation)." The IRS Rules do not provide for both parents to claim dependents for the purpose of dependency exemption and the additional child tax credit.
The only way for a non-custodial parent to claim a child as a dependent is when the custodian signs a written declaration (in the manner and form that IRS prescribes) stating that they won't claim that child as a dependent for the tax year beginning in that calendar year. The prescribed form is IRS Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents but the IRS allows substitute documents that conform in substance to Form 8332.
So what do you do when you receive the "You Need To Make Sure Someone Is Your Dependent" letter?
The IRS recommends that once you have verified that the dependent has been correctly claimed by you, no further action is required. But this will never serve as a deterrent to the offending party who may continue to file a fraudulent return resulting in the custodian receiving this notice year-after-year. The custodian should respond to the IRS letter stating in effect:
"I am the custodial parent based on the rules of IRC 152(e)(4)(A). The dependent spent X number of nights in my custody in tax year 20xx. Further, I have signed no documents releasing my custody of the dependent for the purpose of claiming a dependent exemption or the additional child tax credit."
This serves the purpose of getting your custodial claim on record. The custodian should also provide a copy of the response letter to the non-custodial parent as a further deterrent for future fraudulent filings. A pro-active custodian can quickly put to a stop any tax tricks tried by the Ex.
This is my first article. Hope you enjoy it.
Article Source: http://EzineArticles.com/?expert=James_Tax_Campbell
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