IRS Chief Counsel Advice Outlines What Documents Will Be Needed for Noncustodial Parents to Claim Exemptions

Generally the custodial parent is granted the right to claim the exemption for a child under §152(e) unless that right is waived in writing by the custodial parent to allow the noncustodial parent to claim the exemption. The IRS was granted the authority to write regulations prescribing the form of such a written declaration.

The IRS had created confusion on this matter over the years by comments in Publication 501 and the instructions to Form 1040 that stated a taxpayer could comply with the requirements by either attaching a properly completed Form 8332 or pages from a divorce or separation agreement that the noncustodial parent could claim the exemption unconditionally. Litigation ensued when taxpayers attached such documents that, for instance, allowed the exemption if the noncustodial parent was current on child support. The Courts ruled such documents did not comply with the then existing regulations, even if evidence was submitted showing the noncustodial parent met the condition.

When the IRS issued final regulations, effective for tax years beginning after July 2, 2008 (thus meaning 2009 calendar years for most taxpayers), the IRS required that the release must be on either a Form 8332 or a document that conforms to the substance of Form 8332 and has as its only purpose the release of the claim—thus, divorce decrees will no longer work.

CCA 200925041 thus ruled that for returns for years beginning on or before July 2, 2008, a divorce decree is only sufficient to allow the noncustodial parent to claim the exemption if it unconditionally grants the exemption. It also ruled that if the taxpayer has such a document from a pre-July 2, 2008 divorce, the taxpayer may continue to use that document in lieu of Form 8332 on future returns.

However, documents after July 2, 2008 will not be accepted, even if they grant an unconditional right. Rather, taxpayers must either submit a Form 8332 or the limited purpose document that says the same things. We need to inform our clients about these requirements both while they are involved in divorce proceedings and after the fact.