New IRS Ruling on divorce and custody issues

[kcjenkins]

From the new IRS Ruling on divorce and custody issues:

Reg. §1.152-4

Who Is the Custodial Parent?

Who is the custodial parent is a critical question, as all the rules for the custodial parent to claim the child dependency exemption or to allow it to pass to the noncustodial spouse are based upon this determination. The final regulation parrots the proposed regulation; the custodial parent is the parent with whom the child resides with the most nights during the year. Reg. §1.152-4(d)(1).

Prior law did not explain how the parent with custody the greater part of a year was determined. The resulting ambiguity was reflected in varying court decisions. The courts used the number of days rule, number of weeks, number of hours and number of nights rules. See B.E. Kennedy, TC Summary Opinion 2003-121, for number of days; M.J. Dail, 86 TCM 89, Dec. 55,231(M), TC Memo. 2003-211; and R.L. Womack, 85 TCM 1536, Dec. 55,197(M), TC Memo. 2003-182, for number of weeks; F. Planko, TC Summary Opinion, and M.A. Echevarria, TC Summary Opinion 2003-92, for number of hours; K.L. McCullar, 86 TCM 384, Dec. 55,299(M), TC Memo. 2003-272, for number of nights.

The nights rule is mostly straight-forward and simple to apply. In the unlikely situation where each parent has custody the same number of nights, the parent with the higher adjusted gross income (AGI) is the custodial parent. Reg. §1.152-4(d)(4).

A parent who has a child sleep at his/her residence may not count a custodial night if the child has reached the age of majority based upon state law. Reg. §1.152-4(d)(1).

Filing Status

The main head of household test for divorced parents is that a qualified child under Code Sec. 152© must live in the parents' home for more than half of the year. Code § 2((1)(A)(i).

Since a custodial parent, using the nights test, is always the parent who has the child for more than half the year, only the custodial parent may claim head of household status. This is true even if he/she releases the exemption to the noncustodial spouse. The noncustodial parent will always file single.

[Lion EA]

OK, so for a college student, no longer a minor, who sleeps at her mother's house 35 nights and at her father's house 30 nights and in her own apartment near her college campus 300 nights, is anyone the custodial parent? Does anyone claim HOH based on this college student? Does anyone claim the dependency exemption? The student provides 35% of her own support, the father 65%, the mother 0.

[jainen]

>>a college student, no longer a minor<<

"Custody" rules can only be used when the parent has custodial rights under state law, so they do not apply after a child is emancipated or reaches the age of majority. An adult student can be a qualifying child if she is considered to be temporarily out of the home during school, and the exemption and filing status can be determined accordingly, but the one parent who maintains that home can not release the exemption to the other (unless the tiebreaker rules are available for a qualifying child of both parents).

If the student has established a separate home, the parent who provides more than half the support can claim her under the qualifying relative rules.

[jainen]

>>The noncustodial parent will always file single<<

Not necessarily. If the child lived with the non-custodial parent for more than half the year (for example, if the family split up late in the year), she might be a qualifying child for the non-custodial parent too.

[kcjenkins]

Not according to Reg. §1.152-4 which says clearly that only one of them can be HOH.

[jainen]

>>only one of them can be HOH<<

Very true. One at a time. My point is that, depending on the circumstances, that is not necessarily the custodial parent. For example, suppose they were all one big happy family until June 30. Then Dad split with the kid while Mom moved to Grandma's. Two months later, she gets her kid back. Mom is custodial parent ten months to eight, but Dad also has the qualifying child (if Mom does not claim tiebreaker rules). So if Dad paid the bills while they lived together he can file HoH. This is a pretty common pattern, you know.

In this way the Qualifying Child regs are much more flexible than the old Form 8332 procedure. It's especially nice for the custodial parent--no lawyer bills, and she can wait until October 15 of the next year to decide what she wants!