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Lessons from the Tax Court: A showing of ‘good form’

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in Small Business Tax,Small Business Tax Deduction Strategies

Taxes aren’t always about form over substance. In a new case, the IRS granted a dependency exemption for a child to a noncustodial parent even though the requisite tax form wasn’t signed by the custodial parent.

Facts of the case: A divorced couple had a 5-year-old child who lived with the mother most of the year. In their separation agreement, the mother stated that the father would be entitled to claim the child as his dependent as long as he continued to pay child support on time, which he did. She also promised to sign Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, and attach it to her tax return, but she failed to do it.

The father claimed the dependency exemption for the child anyway and attached a copy of the separation agreement to his tax return. Is that enough to secure the exemption?

The Tax Court said "yes." The agreement had most of the important information required on Form 8332 (other than the applicable Social Security numbers). Based on these facts, the Tax Court allowed the father to claim the exemption. (Scalone, TC Summary Opinion 2012-40)

Icing on the cake: This also entitles the father to claim the child tax credit. This credit, which is $1,000 for 2012 but phases out for high-income taxpayers, is scheduled to expire in 2013.

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