Generally, under the uniform rules defining a “qualifying child” of a taxpayer, the child must have the same principal place of abode as the taxpayer for over half the year. Special rules for parents who are divorced or legally separated or who live apart at all times during the last six months of the year may allow a variation if the child receives over half of his or her support during the year from the parents and is in the custody of one or both parents for over half the year. Under this variation, the noncustodial parent may claim the exemption if there is either a signed written declaration (Sec. 152(e)(2)) or a “pre-1985 instrument” (Sec. 152(e)(3)).
The Service recently issued proposed regulations on this special rule (REG-149856-03). Per Sec. 152(e)(4)(A), a “custodial parent” is “the parent having custody for the greater portion of the calendar year.” Prop. Regs. Sec. 1.152-4(c) provides that the determination is made by counting the number of nights the child spends with a parent. If a child is temporarily absent any night, the child is treated as residing with the parent with whom he or she would otherwise have resided. Unlike prior law, the divorce decree or similar agreement is not used to determine custody.
Under Prop. Regs. Sec. 1.152-4(d), a written declaration required by Sec. 152(e)(2) must:
- Constitute the custodial parent’s unconditional release of the claim for the year or years for which the declaration is effective;
- Name the noncustodial parent;
- Specify the year or years to which it applies;
- Not be a court order or decree; and
- Be on Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or otherwise conform to its substance.
The rules should be simple to apply when the child clearly resides with one parent for a majority of nights during the year and that parent agrees to release the claim. When an otherwise custodial parent is absent (such as for military service), other parties are involved in caring for the child, or the parents disagree over a waiver of the claim, determining for whom the child is a “qualifying child” may be challenging.
The regulations are effective for tax years beginning after their publication as final regulations. On August 8, 2007, the AICPA Individual Taxation Technical Resource Panel submitted comments on the proposed regulations.