Recent Posts in Tax Returns Category
| March 08, 2012 |
| FORM 8332 NOW MANDATORY TO CLAIM DEPENDENCY EXEMPTIONS |
| Posted By Thurman W. Arnold, III, C.F.L.S. |
 |
Form 8332 Must Now Be Submitted With Your Return
If A Noncustodial Parent Wishes to Receive the Dependency Exemption for a Child
Palm Springs CPA Brian Wachs recently brought to my attention an important 2011 change in IRS policies with regard to the paperwork that is required in order for a non-custodial parent to claim and receive dependency exemptions relating to children.
IRC section 152(c) permits a custodial parent, where a minor child resides with that parent for more than half the year as the child's principal place of abode, to claim a Dependency Exemption. This exemption can be released to the other parent.
However, the Tax Court issued an opinion in late 2011 holding that a noncustodial parent was not entitled to a dependency exemption deduction or the Child Tax Credit for his minor child, where the divorce decree stipulated that the noncustodial parent (the father) would be entitled to take his son as a dependent if he kept current on his child support payments. (Defernez v. Comm. TCS 2011-87). The mother did not sign a Form 8332 or similar declaration stating that she would not claim the dependency exemption, and indeed claimed it despite the language in the judgment. Father was therefore denied the credit.
Similarly, the tax court ruled last year that a noncustodial taxpayer who attached a pre-2009 divorce decree to his return was insufficient to entitle him to a credit because the decree failed to contain the custodial parent's Social Security number or the years to which it applied. (Briscoe v. Comm. TCM 2011-165).
It used to be that a custodial parent could release his or her claim to the dependency exemption by signing Form 8332 or "a similar statement" to enable the noncustodial parent to claim the dependent - these are to be attached to the noncustodial parent's tax return.
The "similar statement" needed to provide at least the following information:
- The name of the child
- The name and social security number of the noncustodial parent claiming the exemption deduction
- The social security number of the other parent
- The signature of the custodial parent
- The date of custodial parent's signature
- The year(s) for which the claims are released
However, for divorce decrees (or similar orders) issued after 2008, the IRS will no longer accept a divorce decree in lieu of of Form 8332 or the qualifying statement.
For divorce decrees or orders issued before 2009, if the decree or a separation agreement went into effect after 1984 and before 2009, the noncustodial parent can attach certain pages from the decree or agreement instead of Form 8332, provided that these pages provide information that is substantially similar to 8332. However, to be eligible to do this, the divorce decree must state:
- That the noncustodial parent can claim the child as a dependent without regard to any condition (i.e., such as the common language that the claiming parent must first be current on their support obligation)
- That the other parent will not claim the child as a dependent; and
- The years for which the claim is released
The noncustodial parent must attach all of the following pages from the decree or agreement:
- A cover page (that includes the other parent's SSN)
- The pages that included all the items described above
- A signature page with the other parent's signature and the date of the agreement
This means that in every child support order from now on (and before as stated above), particularly where the Court utilizes the guideline formula (Xspouse, Dissomaster, etc.) and in doing makes assumptions about how the dependency claims will be distributed, that there must be additional order directing the custodial parent to sign Form 8332 -and parties will be very well served to have that form with them at the hearing so that they can ask the custodial parent to sign it then and there.
Otherwise, a payor noncustodial parent may find that they were ordered to pay more support by the Court than otherwise on the mistaken belief that they would be getting a tax savings, only to find that the IRS disallows it.
Here is Form 8332.
Thanks Brian! By the way, I highly recommend Brian's services as a thorough professional tax preparer, accountant, and CPA.
|
|
| Continue reading "FORM 8332 NOW MANDATORY TO CLAIM DEPENDENCY EXEMPTIONS" » |
|
Permalink | Comments(0)  |
| |
| March 30, 2011 |
| TAX TIME Advice for SEPARATED COUPLES About JOINT TAX RETURNS |
| Posted By Thurman Arnold |
|
Q. I'm separated from my ex-husband, and we are in the process of a divorce. He has asked me to file jointly on a 2010 return, and I am wondering if this is a good idea. Any suggestions?
Trudy
Trudy:
I am neither a tax specialist or a CPA. As a family law attorney who is frequently asked this question, I can answer it generally (and do answer it specifically for my clients). I would need much more information in order for you to rely upon my suggestions in answer to the question you present to me. This question is highly fact/situation specific.
You refer to your husband as your "ex" which people commonly do even when they are still married but an action is pending, and I am assuming that there was no termination of your marital status in 2010 in answering this question. If your marital status was indeed terminated on or before 12/31/10, you cannot file jointly for that year.
The chief attribute of filing a joint tax return (for couples who remain married at the end of the tax year), besides potential tax savings from better tax treatment for married couples (who must be opposite-sex gendered under federal law), is something called "joint and several" liability for any amounts due and owing either based upon the return itself, or that may arise later if there is an audit and a deficiency is assessed against either/both of you - if jointly filed, the tax assessment will be joint.
If you file jointly and taxes were underpaid or under-reported, the Internal Revenue Service holds you each equally responsible for the entire amounts that should have been paid. In my experience the risk of these sort of deficiencies exists most frequently where one or both parties is self-employed, particularly in a business. People write off all kinds of expenses, and the IRS audits very few returns compared to the number that are filed. Some statistics (Kiplingers) say this one out of 150 personal tax returns. The risk of tax reporting abuse is high where the IRS is relying upon schedule C's. Perhaps obviously, business write-offs are much more susceptible to IRS attack than payrollees - depending upon what salaried employees claim as write-offs.
If you received spousal support in 2010 and you file jointly with the payor, he/she doesn't get that deduction and you pay no taxes on what you actually received. Depending upon the numbers, this may benefit you. There is no deduction for child support for the payor. For more information about "Family Support" please use my on-site search engine at the top upper right of this page.
It is common for me to see people who separated and/or filed for a dissolution in the final quarter of the prior year to then decide to file jointly for that year even where spousal support was paid, because the payor may be better off overall by electing to not deduct the alimony payments that would otherwise be deductible (and therefore taxable to you) in light of other deductions (particularly head of household). Often it is useful to have a tax preparer run the numbers both way - married filing separately and jointly. A major reason for this is the head of household deduction, which gets shared in a joint filing but is only otherwise available to the parent who had physical custody of 50.1 percent or better for six months and a day or more during the prior year (2010). The high earner gets an advantage from this. Again, I want you to check with your accountant.
There may be other benefits that accrue to a child or spousal support recipient where parties file jointly - if parties file jointly, because the California support guidelines are supposed to be "tax-effected" in the sense that people's actual filing status should be inputted into guideline support calculations (see Family Code section 4059), the payor has more "net disposable income" available to pay child or temporary spousal support when they file MFS (married filing separately) or joint. They pay the greatest taxes as "single", and so their support is lowered. However, these advantages only last so long as the marriage has not been legally terminated, whether by
bifurcation of marital status or otherwise.
I find that parties are better off cooperating about joint tax filings, when it is safe to do so. If you can file jointly because you are still married, and IF your soon to be ex-spouse gets a benefit from that joint filing (depending upon you receive spousal support or not) that is important to him (or her), I recommend that you negotiate a deal where he/she pays you a tad more support in exchange for helping him/her out on the joint filing. You will also want to agree how to divide any refunds - some or all of this refund may be community property depending on how late in the prior year you separated (monies paid to taxing authorities from community property sources remain community property).
Remember - we want to pay Uncle Sam as little as is legal. We want to make more money available to support children. Take advantage of the bias in favor of married couples when it makes economic sense for you. Cut a deal that benefits you too! This issue may give you important leverage that will help you to support the family in terms of net dollars. Otherwise, given the risks why file jointly at all?
Thurman W. Arnold, C.F.L.S. |
|
| Continue reading "TAX TIME Advice for SEPARATED COUPLES About JOINT TAX RETURNS" » |
|
| Permalink | Comments(0) |
| |
| March 02, 2011 |
| Must I Submit My TAX RETURNS to the COURT or to the OTHER PARTY? |
| Posted By Thurman Arnold |
|
Q. I have a hearing coming up involving my ex-wife's request to modify spousal and child support. I've received a letter from her attorney demanding I bring my 2010 tax returns to court, and I do have them since I always file early. However, I don't want to produce these. I've always thought that these documents are confidential and that I cannot be made to produce them if I am not trying to borrow money or something like that. What are my rights?
A. The Revenue and Taxation Code sections 14251 and 19542 do declare that our income tax records are generally privileged from disclosure. However, in California that privilege does not bar production and consideration of your income tax records according to
Family Code §3552 in proceedings involving any kind of support requests.
They are always available in discovery proceedings prior to the hearing itself.
However, what I do recommend is an agreement with the other party or their attorney that while the records may be voluntarily exchanged that they be disposed of or returned after the hearing. Always redact your social security number. Note that Family Code §3665(b) prohibits the other side from disclosing the contents of your tax returns to anyone except:
- the court
- the party's accountant
- some other financial consultant providing assistance with the case
- anybody else the court specifically approves
Of course, once you lose possession of them there is little practical way to enforce these limitations. This is a good reason to not simply hand them over in response to an informal request without safeguards in place.
Since you report that you were asked to bring them in a letter request rather than in response to a subpoena or some other form of discovery request that seek the returns prior to the hearing itself, you might hold on to them until the hearing. If they are to be discussed at the hearing (or if you don't exchange them before because no agreement can be reached on how to protect their confidentiality), then bring them but ask the court under FC section 3552(c) to seal them in the file if the court retains them, or to turn them back to you at the conclusion of the hearing. An advantage to you in handling it this way is that the other party won't have the benefit of reviewing them before the hearing, or have the prior opportunity to have them looked at by their expert.
Obviously, for parties who want to see the other side's returns they are better off obtaining them prior through a demand for production (assuming enough time exists since without a court order shortening time production demands don't have to be answered earlier than 35 days from the date of mailing), and receiving on the date of the hearing might justify asking the court to continue the matter to review them if they are complicated.
By the way, the rules are a little different if you file joint returns, or if your returns contain information that relates to a non-party like a new spouse or possibly a family corporation or LLC that you are only one of several participants of, since their information remains privileged and can only be produced under certain circumstances and using specific procedures - which is another Blog.
|
|
| Continue reading "Must I Submit My TAX RETURNS to the COURT or to the OTHER PARTY?" » |
|
| Permalink | Comments(3) |
| |
| November 11, 2010 |
| Is It Possible to Get My Ex's TAX RETURNS Without Any MOTION to MODIFY Pending Between Us? |
| Posted By Thurman Arnold |
|
Q. We were divorced three years ago and I haven't taken my ex-husband back to Court. I think he is earning a lot more now. Is there anything I can do to find out what his situation is short of actually filing a modification motion?
A. Absolutely. There is a little known trick for obtaining useful information, possibly with a minimum of trouble, once each year. This is the Request for a completed Income and Expense Declaration (Form FL-150) pursuant to
Family Code section 3664.
When there is no motion or OSC pending for a modification, termination, or set aside of earlier support orders you are limited in terms of your discovery rights in California - assuming the proceedings were completed in the sense that nothing is pending or presently calendared (if there is no final judgment in a divorce, partnership dissolution, or paternity action then you are entitled to continue to utilize discovery and what I say here doesn't apply). You cannot, for instance, schedule a deposition or send out interrogatories or even subpoena records, at least not properly. I have seen lawyers send subpoenas when nothing was pending and if I had done nothing they probably would have gotten the information requested since the receiving party doesn't know the status of the case, but when I objected they backed off and canceled the subpoenas at once because it was abuse of process to do what they were attempting.
But in your case you only have the option provided for by FC section 3664. This entitles you to send out on an approved
FL-396 Request for Production of An Income and Expense Declaration After Judgment a request no more than once each year
(Family Code section 3663) for the other party to produce for you an updated Income and Expense Declaration.
Importantly, the responding party is required to attach to it their last year's federal and state personal income tax returns. (Family Code section 3665).
If they do not respond to you within 35 days, or if there information is incomplete as to wages, you may serve Judicial Council Form Request FL-397 upon their employer per
Family Code section 3664(b) and (c). Unfortunately, compliance by the employer is voluntary and so this provision lacks teeth. Yet if you later do file a motion and can show a history of noncompliance by the employer and/or the other party you are more likely to recover attorney fees or sanctions as well as prove that the other party is being evasive or possibly dishonest and this may help you not only to carry your burden of proof and obtain a modification but it may impact how strongly the court acts towards your ex. In the case of family businesses where there is a lack of cooperation it helps the Court to see that you are being stymied.
Section 3664 is also a very useful tool for parties who are trying to modify or terminate support payments that they have been ordered to make. If you are a payor former spouse or domestic partner and want to terminate the other party's support rights, you would begin by sending them the Request. Again, if they fail to cooperate and comply it makes them look like they are hiding something.
Finally, Family Code section 3667 entitles you to recover certain sanctions where the Income and Expense declaration wasn't provided you, was incomplete, or lacked the required tax return attachments. While you cannot recover attorney fees if you don't actually have an attorney (and this section doesn't provide for them anyway), you can recover deposition and related costs, like for subpoenaed records (which can be significant charges), even where you are a self-represented party.
Good luck!
Thurman W. Arnold III,
Certified Family Law Specialist
Board of Specialization, State Bar of California
|
|
| Continue reading "Is It Possible to Get My Ex's TAX RETURNS Without Any MOTION to MODIFY Pending Between Us?" » |
|
| Permalink | Comments(3) |
| |
| January 25, 2010 |
| FORM 8332 is required to release DEPENDENCY EXEMPTIONS to Father awarded deduction! |
| Posted By Thurman Arnold |
|
Please Note: There have been some important changes to IRS policies for how to claim the dependency exemption since this Blog was first written over two years ago - please click here for the latest information.
TWA - March, 2012
The Tax Court rules that noncustodial father is not entitled to claim dependency exemption because custodial-parent M failed to complete
Form 8332 releasing exemption and disso judgment, which father attached to return, does not contain substantially same information.
This is a really common situation, where a parent wrongfully claims a child or children on their tax return despite the fact the other parent is entitled to it that year according to the terms of a Judgment or Order. It holds that despite the language of a Judgment, without Form 8332 signed and attached to the return, the IRS will not recognize the deduction.
You still have your claims against the other parent, however, but now you have avoidable attorney fees or must waste your own valuable time enforcing your rights.
Click here to download IRS Form 8332
Here's a useful tax decision that outlines the perils of not handling how you will get your spouse to cooperate several months before April 15th.
Thomas v. Commissioner [full text] (1/19/10) TCM 2010-11, No. 17922-08 (Vasquez) 2010 WL 174107. When Arizona resident (F) was divorced from M in 6/94, their disso judgment awarded custody of their 3-year-old daughter (C) to M; F was awarded 30 days of visitation in summer, plus reasonable visitation in C's state of residence. F was also ordered to pay child support of $400/mo through AZ T/CT. Disso judgment further provided that M would claim dependency exemption and child tax credit for tax year 1995 and succeeding odd-numbered years, while F would claim exemption and credit in even-numbered years if he was current in his child-support payments. M was required to execute necessary forms to permit F to claim exemption and credit, but only if F's child-support payments were not in arrears.
In 2006, F was not delinquent in his child-support payments for C, who lived with M in Ohio. On his 2006 federal income tax return, prepared by CPA, F claimed dependency exemption and child care credit, but CPA subsequently notified him that his return was rejected from electronic filing because someone else claimed dependency exemption. CPA then filed F's paper return, to which F attached copy of disso judgment, but not IRS Form 8332 exemption release. IRS sent deficiency notice to F, claiming that he was not entitled to claim either dependency exemption or child tax credit. F then petitioned U.S. Tax Court for relief, but TAX COURT RULES FOR IRS. Tax Ct finds that (1) per IRC §152(e), F, as non-custodial parent, was not entitled to claim dependency exemption unless (a) C received more than half of her support from M and F, (b) M and F were divorced, separated, or living separate and apart for last 6 mos. of 2006, (c) C was in custody of either M or F more than half of 2006, and (d) M, as custodial parent, released dependency exemption and F attached Form 8332 release or document conforming to its substance to his return ; (2) F could meet conditions (a), (b), and (c), but not (d); (3) disso judgment did not qualify as conforming document because it lacked Social Security numbers for M and F, M's signature was not dated, and release of exemption was conditioned on F's being current with child-support payments; (4) F could not claim dependency exemption; and (5) F's being unable to claim dependency exemption meant that he was also ineligible to claim child tax credit. Tax Ct concludes that although it is sympathetic to F's predicament, it is bound by statutes and regs as written.
Thurman W. Arnold, III, C.F.L.S.
|
|
| Continue reading "FORM 8332 is required to release DEPENDENCY EXEMPTIONS to Father awarded deduction!" » |
|
| Permalink | Comments(0) |
| |
|