Divorce and child custody disputes sometimes concern tax-related matters. For example, when one parent claims a child as a dependent despite a custody order or divorce decree stating that the other parent is entitled to do so, challenges can arise.
The IRS has its own rules for determining who may claim dependent-related tax benefits. These rules may or may not reflect the realities of a particular custody or divorce decree order. As a result, these cases are not always as straightforward as one might initially assume.
What happens next? The IRS will be involved
If both parents claim the same child on separate tax returns, the IRS will typically identify the duplicate claim during processing. This may delay one or both returns while the agency requests additional information or documentation. In some cases, the IRS may send notices asking each parent to substantiate their eligibility for the dependency-related tax benefits they’ve claimed.
The IRS is not responsible for enforcing state court custody orders. Instead, the agency generally applies federal tax law to determine which parent is entitled to claim the child at issue. Depending on the circumstances, that analysis may involve residency requirements, the amount of time the child lived with each parent, whether a valid release of the dependency exemption or related tax benefits was executed when required, and other applicable federal rules.
If the IRS determines that a parent improperly claimed the child, it may disallow the claimed tax benefits. The parent may be required to repay any resulting tax savings, along with applicable interest and, in some situations, penalties. The dispute may also result in consequences in family court if the claim violated the terms of a custody order or divorce agreement.
Whether a parent is being accused of claim-related misconduct or needs to enforce the terms of a court order in their tax-related favor, seeking personalized legal guidance can facilitate a fair resolution to what may be a contentious and consequential concern.