730 / Who is entitled to claim a dependency exemption for a child in the case of divorced parents?

Editor’s Note: The 2017 tax reform legislation suspended the personal exemption and dependency exemption for tax years beginning after December 31, 2017 and the 2025 OBBB made this change permanent.  For qualified disability trusts and all other relevant IRC provisions, the “deemed personal exemption amount” for $5,100 for 2025, $5,000 for 2024, $4,700 in 2023, $4,400 in 2022, $4,300 in 2020-2021, $4,200 in 2019 and $4,150 in 2018.¹

In tax years beginning prior to 2018, the following rules applied: In the case of divorced parents who between them provide more than one-half of a child’s support for the calendar year, and have custody of the child for more than one-half of the calendar year, the custodial parent (i.e., the one having custody for the greater portion of the year) is generally allowed the dependency exemption. However, the noncustodial parent can claim the exemption if the custodial parent signs a written declaration (i.e., Form 8332, or a statement conforming to the substance of Form 8332) agreeing not to claim the child as a dependent, and the noncustodial parent attaches the declaration to the tax return for the calendar year. The noncustodial parent can also claim the exemption if a divorce decree or separation agreement executed before 1985 expressly provides such and he provides at least $600 for the support of the child during the calendar year.² The Tax Court held that the special support rule under IRC Section 152(e) applies to parents who have never been married as well as divorced parents.³

The Service has clarified that a custodial parent may revoke the release of the dependency exemption and, therefore, claim the dependency exemption himself, but only if the noncustodial parent agrees and does not claim the child.⁴

In Miller v. Comm.,⁵ the Tax Court denied the dependency exemption to the noncustodial parent where the custodial parent had not signed a release of the claim to the exemption. The court order, which gave the noncustodial parent the right to claim the exemption, was held not to be a valid substitute.

In Boltinghouse v. Comm.,⁶ the Tax Court held that there is no requirement in IRC Section 152(e) or the regulations that a spouse’s waiver of his claim to a dependency exemption deduction be incorporated into a divorce decree to be effective. The court stated that such a requirement would make Form 8332 itself ineffective on its own. The court also recognized that under the applicable state law (Delaware), the separation agreement created binding contractual obligations that did not cease upon the entry of a divorce decree (regardless of whether the agreement was merged or incorporated into the decree).

In Omans v. Comm.,⁷ the Tax Court determined that the custodial parent’s certified signature on the settlement agreement signified her sworn agreement to the settlement agreement’s contents, including her former spouse’s entitlement to the dependency exemption.

A state appeals court held that federal law does not preempt a state family law court in its discretion from alternating the dependency exemption between the parents, even though one parent may have custody during the calendar year for less than half the year.⁸

The IRS has provided interim guidance under IRC Section 152(c)(4), which is the rule for determining which taxpayer may claim a qualifying child when two or more taxpayers claim the same child. It clarifies that unless the special rule in IRC Section 152(e) applies (see above), the tie-breaking rule in IRC Section 152(c)(4) applies to the head of household filing status, the child and dependent care credit, the child tax credit, the earned income credit, the exclusion for dependent care assistance, and the dependency deduction as a group, rather than on a section-by-section basis.⁹