Fact that Taxpayer Clearly Granted Right to Claim Children for Tax Year Not Relevant When Custodial Parent Did Not Sign Form 8332

Beginning with 2016 tax returns those preparing the returns for taxpayers will be charged with meeting “due diligence” requirements when taxpayers claim the child tax credit and the American Opportunity Credit or face a $510 penalty should the taxpayer not qualify for the credits [IRC §6695(g)].  For this reason, advisers must remember just how strict the rules are for a noncustodial parent to be able to claim a child—and that the mere fact the taxpayers ex is in direct violation of the terms of the decree to release the exemption is not sufficient to allow the noncustodial parent to claim the credit.

This problem is perfectly illustrated in the case of Cappel, Sr. v. Commissioner, TC Memo 2016-150.  And the situation is one that, beginning with 2015 returns, could put a preparer who prepared a return claiming these children at risk for the penalty that Congress added in the Protecting Americans from Tax Hikes Act of 2015.

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