The IRS has finalized a regulation regarding the entitlement of divorced or separated parents who lived apart at all times during the last six months of the year to claim a child as a dependent. The regulation generally applies to tax years beginning after July 2, 2008.
For a noncustodial parent to claim the dependency exemption, the custodial parent must release a claim to the exemption. Under the final regulation, this can only be done on an executed (1) Form 8332 or (2) a written declaration that is not on Form 8332 but conforms to the substance of that form and is a document executed for the sole purpose of releasing the claim. A court order or decree or a separation agreement cannot serve as the written declaration.
The noncustodial parent must attach a copy of the Form 8332 or the written declaration to the parent's return for each year that the child is claimed as a dependent. Note that the child must still qualify as a dependent under IRC Section 152(e).
The custodial parent may revoke the release to the dependency exemption by providing written notice of the revocation to the other parent. Under the final regulation, this may be done by either (1) executing a Form 8332 or (2) a written declaration that conforms to the substance of Form 8332 and is a document executed for the sole purpose of serving as a revocation.
The revocation cannot be effective any earlier than the tax year that begins in the first calendar year after the calendar year in which the parent executing the revocation provides written notice or makes reasonable efforts to provide such notice to the other parent. For example, on December 1, 2009, Samantha provides notice of revocation to her former husband Timothy. The revocation would be effective for Samantha's 2010 tax filing year.
The parent revoking the release of the claim must attach a copy of the revocation to the parent's return for each year that the child is claimed as a dependent.
The final regulation also defines the terms "custody" and "custodial parent" for purposes of IRC Section 152(3).
"Custody": A child is in the custody of one or both parents for more than one-half of the calendar year if one or both parents have the right under state law to physical custody of the child for more than one-half of the calendar year. A child is not in the custody of either parent when the child reaches the age of majority under state law.
"Custodial Parent": The custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year (the "counting nights" rule). Under the final regulation, a child resides for a night with a parent if the child: (1) sleeps at the parent's residence, whether or not the parent is present, or (2) sleeps in the company of the parent when the child does not sleep at a parent's residence (i.e., when the parent and child are on vacation). There is an exception to the counting nights rule under the final regulation when a child resides for a greater number of days, but not nights with a parent who works at night.
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