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Non-custodial dad wins tax court fight with IRS

In a prior post, we highlighted what divorcees should do in preparation for annual tax filings. Part of it included understanding one’s tax filing status (i.e. single or married) as well as what the tax basis would be on acquisitions, through settlement agreements or maintenance awards. However, we did not discuss the child tax credit, and we would like to do so here, while highlighting an important controversy regarding the ability of a non-custodial parent to claim it.

In one case described in Forbes magazine, a non-custodial parent was facing the payment of back taxes and penalties because he was accused of wrongfully claiming the child tax credit without including the specific form (Form 8332) that would entitle him to realize the credit.

Commonly, a child custody order will detail who has legal and physical custody and will set forth a parenting time schedule. However, when life happens and the order is not updated, it could subject the non-custodial parent to severe tax issues.

In the instant case, the parties were never married, and only signed a “conciliation agreement” which only had basic assignments of custody. The problem was, it did not necessarily support the IRS’ view who a custodial parent was, even though the non-custodial parent spent a majority of time with the child during the disputed tax years. Fortunately, the parent was able to prove to the tax court judge that he did just that. He included testimony from the child’s grandmother, as well as the purported custodial parent in order to prove his point. Ultimately, he was successful in reversing the tax charges.

Source: “Football dad beats IRS in tax court,” Peter J. Reilly, April 25, 2014

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