File Correct Tax Form if Expecting Fair Treatment for Good Behavior

April 2, 2014

Failing to file the right form sometimes takes precedence over doing the right thing – at least when viewed through U.S. tax law.

The Court of Appeals for the Eighth Circuit has affirmed a decision of the Tax Court that again denies a dependency deduction to a noncustodial parent when the custodial parent fails to provide Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or other documents unequivocally releasing their right to claim the deduction.

Billy Edward Armstrong has two children with his ex-wife. When they divorced in 2003, the children remained in her custody.

Armstrong and his ex-wife resolved issues regarding the support of their children via arbitration. Under the arbitration award, Armstrong was granted outright the tax exemption for one child for tax years 2003 and 2004, and he would continue to get the exemption for later years if he stayed current with child support obligations, which he apparently did. The arbitration award, which was eventually incorporated into a court order, did not include a provision requiring his ex-wife to provide him with a Form 8332.

In March 2007, the state court changed the original order and included a provision requiring that the ex-wife provide Armstrong with an executed Form 8332. Armstrong had consistently made his child support payments, but his ex-wife failed to give him an executed Form 8332 for 2007.

Armstrong instead attached a copy of the 2003 arbitration award to his return, and later provided a copy of the 2007 child support order during the IRS audit. The IRS rejected Armstrong’s claim for a dependency exemption deduction and child tax credit and also imposed an accuracy-related penalty.

The Tax Court concluded that the court order – and the ex-wife’s signature on the order – were insufficient to establish unconditionally either that she would not claim a dependency exemption deduction for the child or that she must sign a Form 8332.The court found that the order established circumstances under which she would not release her claim but failed to affirmatively declare that she would not claim the child as a dependent.

On appeal, the Eighth Circuit agreed with the Tax Court. The court rejected Armstrong’s claim that he did all that could reasonably be expected and deserved equitable relief for his substantial compliance (Armstrong v. Commissioner, CA-8, 113 AFTR 2d Paragraph 2014-601, March 13, 2014).

The court stated that, even in situations in which former spouses violate contractual or court-ordered obligations to provide the necessary documents to support claims for federal dependency exemptions, the Internal Revenue Code precludes “attempts to remedy such wrongs in federal income tax proceedings.”