Tax / divorce / waiving the dependency exemption?

H %26amp; W divorce Dec %26#039;07. Sep agmt (adopted by the court in the divorce) awards sole custody of youngest child to W. W has custody of the child for 100% of %26#039;07. Agmt also states H can claim all children for dependency exemption but then purports to separate out the child tax credit for W. I understand this is contrary to IRS regs and federal law.

Exact language: %26quot;Because of the financial considerations received by the W by the terms of this agmt, the parties agree and stipulate that all of the tax exemptions for the minor children shall be allocated solely to the H. This agmt includes all tax years for which any exemption for a minor child is available until and unless modified by future court order. The federal child tax credits, to the extent it is available, shall be claimed [by] each party for the minor child residing with them for that year.%26quot;

W contacted her div lawyer. He said (1) he relied on his accountant, (2) it%26#039;s not a lot of $.

How to handle this yrs taxes?

Tax / divorce / waiving the dependency exemption?

Neither rtfm nor franz is correct - the parent who gets the exemption also gets the child tax credit, but it%26#039;s the custodial parent who can claim head of household and EIC, and also dependent care, if they are eligible, the other parent can%26#039;t claim the children who don%26#039;t live with them for these.

The lawyer needs a new accountant - that accountant REALLY screwed this one up. And since what was in the agreement is against what is legally allowed, the IRS would most likely toss it out and revert to the basic rule that custodial parent gets the exemption.

Tax / divorce / waiving the dependency exemption?

EDIT - Dang. I was mixing up who gets to claim child tax credit and who gets to claim EIC.

OK, go read Pub. 501 for yourself, anyone who wants to understand this stuff better.

Sorry for the confusion.

Tax / divorce / waiving the dependency exemption?

It isn%26#039;t permitted to split the tax benefits of a single child between two parties. See IRS Pub 17, page 28. So if one parent takes the exemption, that parent is also entitled to HOH, Child Tax Credit, EIC (if any), etc. Your lawyer and accountant probably didn%26#039;t know this because such arrangements were legal up until 1 or 2 years ago. If there is more than one child, they can be split with each taking benefits for 1 child.

Assuming that the parents cohabited for the majority of 2007, either party could claim the tax benefits. Under the terms of the agreement, it would seem that H, and only H, is entitled to claim such benefits. That%26#039;s OK for 2007, but may cause trouble in future years, since several of these benefits can be claimed only by a parent who has custodial care for the majority of the year.