Apply Rules in EA Study Materials To Conflicts Over Dependent Child Claims

February 27, 2012 by  Filed under: Taxes 

During every tax season, some clients of enrolled agent tax preparers encounter rejection of their returns by the IRS. One cause of this phenomenon is the case of a taxpayer claiming a dependent child after an ex-spouse has already claimed the exemption.

Filing a tax return is not a race between former spouses to report a dependency exemption for their child. The IRS has rules covered during enrolled agent education that address eligibility for claiming a child dependent. A parent who declares a dependent without following the rules is easily caught because the parent actually entitled to claim the child easily discovers the false declaration.

A parent facing the potential problem of a former spouse incorrectly claiming their child should hire a tax professional who meets enrolled agent requirements. This provides an advocate for presenting the circumstances to the IRS. Illegitimate reporting of dependents is a fraudulent tax filing punished by the IRS.

The parent with whom the child lives is entitled to the dependency exemption. These parents are referred to in EA study materials as custodial parents. Also, dependent children must meet age restrictions and generally not file joint tax returns if married. In addition, qualifying children cannot provide more than half their own support. That means another parent or anyone else who doesn’t live with the child can provide for the child’s cost of living. Child support payments from an absent parent are one example.

The person who supports the child is not necessarily entitled to claim the dependency exemption. But many do so and will eventually face adverse consequences with the IRS. The tax return of the custodial parent may undergo rejection when filed electronically, but a professional with enrolled agent certification knows how to resolve the matter.

A paper return of the custodial parent replaces the rejected electronic return. When processed by the IRS, the conflict is discovered with the earlier filed return of the other parent. The result is IRS letters to both parents. If the circumstances are not settled by amending the incorrectly filed return, the IRS demands documentation from both parents. The parent proving custody is entitled to the exemption for a qualifying child and associated tax credits.

An exception applies if the custodial parent executed Form 8332 to grant the dependency exemption to the non-custodial parent. This form is only valid for one year at a time.

Agreements prior to 2008 between divorced or never married parents can provide for the non-custodial parent to claim the exemption if the parents share custody and the child receives at least half support from the parents combined. If an agreement collapses, the child is claimed by the custodial parent. For equal custody situations, the tie-breaker gives the exemption to the parent with the highest adjusted gross income.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for enrolled agent tax preparers and tax professionals. Access to free questions for the enrolled agent education is available on their website.

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