Tax Court Cases Still Fighting the Dependency Exemption Battle

by Annette Burns on May 28, 2013

I’ve written before about the sometimes harsh results a parent finds in tax court after trying to claim a dependency exemption without a Form 8332 [You Almost Can’t Win With the IRS]    State courts are even faced with the argument that they don’t have the authority to allocate dependency exemptions at all.  (That argument of a litigant wasn’t accepted.)   Peter O’Reilly’s column at posits that state courts need to focus not only on allocating the exemption between parents, but ordering a parent to execute Form 8332, which is the only way the IRS and tax court recognize a non-custodial parent’s ability to claim the exemption.   See the cases cited in my earlier “You Almost Can’t Win” post.

O’Reilly notes:   “Dependency exemptions seem to take on a role in divorce negotiations that is out of proportion to their economic significance.”   Truer words about the dependency exemption were never spoken.     In 2013, the dependency exemption is a $3900.  That is not a tax credit; that’s a deduction from taxable income, so your taxable income is reduced by that amount.   So, if your effective tax rate is 18%, the dependency exemption is worth $3900 X 18% which is $702 for the year, or $58.50 per month.  If you have your attorneys fight about the dependency exemption for much time at all, you’ve lost money.

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