The IRS misapplied Sec. 152 (e) waiver requirements, the Tax Court ruled.
Even if a divorce certificate granted custody of a child to its mother, the father of the child could claim the child for a dependency exemption and earn an income tax credit because he was the custodial parent, ruled in the Tax Court.
Facts: Patrick A. Davis divorced, and in 2000 a Louisiana court awarded custody of the two children of the marriage to their mother, his ex-wife.
In the year of issue, 2010, one of the children of the marriage, 19-year-old Ashley, was living with Davis and her mother. Ashley was a full-time student at Southern University in Baton Rouge, La. Davis, her mother, Ashley’s mother, and Ashley’s maternal grandfather provided her with financial support during the year. Ashley had her own room in her paternal grandmother’s house, slept there five nights a week and ate most of her meals there.
Davis claimed Ashley as a dependent and also claimed an earned income tax credit of $ 2,726 on his 2010 tax return. The IRS denied both tax benefits.
Problems: The IRS argued that Ashley was not Davis’ qualifying child because she did not have the same primary place of residence as Davis for more than half of the tax year (Sec. 152 (c) (1) (B)). The IRS also denied that she met the age requirement and no more than half of her own support requirement (Sections 152 (c) (3) and 152 (c) (1) (D )).
Additionally, apparently because the Louisiana court named Davis’ ex-wife as Ashley’s custodial parent, the IRS argued that Davis was a non-custodial parent and could not claim Ashley as an eligible child because that he did not attach a correctly executed Form 8332,
Waiver / Revocation of the waiver of the exemption request for the child by the custodial parent, or any other written statement required under Sec. 152 (e).
Holding: The Tax Court ruled that Davis was entitled to a dependency exemption and an income tax credit for Ashley as an eligible child. The court concluded that the special rule of Sec. 152 (nd) did not apply because Davis was in fact Ashley’s custodial parent. As a full-time student under 24, Ashley met the age requirement, the court ruled. She lived with Davis and her mother for more than half of the year and therefore met the criterion of principal place of residence. The court also found that Ashley received more than half of her support from family members, including Davis, so the support requirement was met.
-Davis, TC memo. 2014-147
Through James M. Hopkins, CPA, professor of accounting, Morningside College, Sioux City, Iowa.