Proposed regulations issued last year provide greater certainty for parents with whom dependent qualifying children do not reside but who are allowed by the custodial parent to claim certain dependent tax benefits under Sec. 152(e)--a provision with respect to which taxpayers are prone to make errors.
The Sec. 152(e) special rule applies only to the dependency exemption and child tax credit, including the refundable portion. The exemption amount is zero for tax years 2018-2025 under P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA). However, the TCJA also significantly increased the child tax credit, which (for children who qualify under Sec. 24) can also be assigned to the noncustodial parent under the Sec. 152(e) release (see "Tax Practice Corner: Child Tax Credit Now Higher, More Widely Available," JofA, June 2018, tinyurl.com/y996gals). Thus, far from being moot, this guidance could be even more significant for parents who are divorced, separated, or living apart from one another.
WAIVING THE CLAIM
The dependency exemption and child tax credit for a qualifying child are generally allowed for the parent who has primary custody of the child (custodial parent) during the calendar year. Sec. 152(e)(2) and Regs. Sec. 1.152-4 allow the custodial parent to waive those benefits to allow the noncustodial parent to claim them, provided the following conditions are met:
* The parents are divorced or legally separated under a decree of divorce or separate maintenance, separated under a written separation agreement, or lived apart at all times during the last six months of the calendar year, including parents who were never married;
* One or both parents together provided more than half the child's total support for the calendar year;
* One or both parents exercised legal custody of the child for more than half the year; and
* The custodial parent signs Form 8332, Release/ Revocation of Release of Claim to Exemption for Child by Custodial Parent (or a substantially similar document), stating that he or she will not claim the exemption for the child, and the noncustodial parent attaches a copy of the form to his or her own original or amended return for each year he or she claims the exemption and/or child tax credit. The custodial parent may execute Form 8332 effective for one, more than one, or all future tax years.
The release of the dependency exemption and child tax credit to the noncustodial parent does not affect any other child-related...