Service Provides Guidance on Children of Divorced Parents

By Alistair M. Nevius, J.D.

On August 18, 2008, the IRS released guidance on the circumstances under which it will treat a child of parents who are divorced, separated, or living apart as the dependent of both parents for various purposes when the custodial parent has not released the claim to the child's exemption under Sec. 152(e)(2) (Rev. Proc. 2008-48).

The revenue procedure applies to taxpayers who are divorced, legally separated, or live apart at all times during the last six months of the calendar year. In addition, the taxpayers must be parents of a child who receives over one-half of his or her support from the parents, is in the custody of one or both parents for more than onehalf of the year, and who is (under Secs. 152(c) or (d)) a qualifying child or relative. The Service will treat such a child as the dependent of both parents, whether or not the custodial parent releases the claim to the child's exemption, for purposes of:

  • The Sec. 105(b) exclusion for certain employer-provided medical expense reimbursements;
  • The Sec. 106(a) exclusion for certain employer-provided accident or health insurance coverage;
  • The Sec. 132 no additional cost or qualified employee discount fringe benefits;
  • The Sec. 213 medical expense deduction; and
  • The exclusion for distributions from Archer medical savings accounts (Sec. 220(d)(2)) and health savings accounts (Sec. 223(d)(2)).

The revenue procedure was effective August 18, 2008, but taxpayers may apply it in any tax year beginning after December 31, 2004, that was still open as of August 18, 2008.

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