Child Dependent Rules Not An Easy Part of Registered Tax Return Preparer Study Material

December 22, 2011 by  Filed under: Taxes 

Among the complicated matters that every paid tax preparer is certain to encounter each year are controversies about claiming children as dependency exemptions. Divorce decrees often fail to acknowledge the tax impact of children. Only one parent can claim an exemption for a child. If a dispute arises between both parents, the IRS follows certain rules and doesn’t care about the divorce decree.

The basic rule from tax preparation training is that the parent with physical custody of a child is entitled to the tax exemption claim. When parents share custody, the parent with whom the child spent the most nights during the year is considered the custodial parent. That parent has the right to claim a tax exemption for the child – even if the difference is just one night.

However, the custodial parent has control over releasing the right to claim the dependency exemption. Situations often encountered in tax return preparer work entail a non-custodial parent with a right to claim a child as a dependent. The IRS requires some documentation to support these cases. Again, in case of dispute, the IRS ignores a divorce decree granting a tax exemption for the non-custodial parent.

The custodial parent signs Form 8332 to release a claim of exemption. Non-custodial parents should provide this form to their tax preparers in order to include it with the filed tax return. Even if the release covers multiple years, Form 8332 is mailed for every e-filed tax return.

A substitute to Form 8332 is acceptable if it meets a few guidelines. First, no restrictions are allowed in a custodial parent’s release of the child exemption. For example, the dependency claim for the non-custodial parent cannot have a contingency for up-to-date child support payments. Both parents sign such agreements.

A review of registered tax return preparer study material reveals all the qualifications for claiming a dependent child. First, claiming a child requires that the taxpayer can’t be claimed as dependent of someone else. Secondly, a dependent cannot file a joint tax return – unless doing so merely to claim a refund and otherwise having no filing requirement.

Dependent children must be less than age 19 or less than 24 years old if attending school full-time. Children are only dependents if they don’t earn enough income to provide half their own support. Some important details from tax preparer classes are that dependent children can include stepchildren, foster children, siblings, and stepsiblings – or descendents of any of them, such as a niece or nephew. All dependent children must be US citizens or residents of the US, Canada, or Mexico.

Issues regarding dependent children are often confusing. Properly conducting tax preparer jobs demands thorough knowledge to address every situation.

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 paid tax preparer and tax professionals. Access to free questions for the tax preparation training is available on their website.

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