As a Portland divorce attorney, when tax season is looming I am frequently asked about which parent is entitled to claim the dependency exemption after a divorce or child custody proceeding. Some clients are under the mistaken belief that state courts can “award” the dependency exemption in a divorce or custody judgment. However, the IRS, as a federal agency, is not bound by state courts. Instead, the IRS determines which parent can claim the exemption based on which parent has the child the majority of the time during the tax year.
Parties to a divorce or custody proceeding do have the option of using the dependency exemption as a bargaining tool. The IRS allows the parent entitled to the exemption to sign IRS form 8332, which is a waiver to the exemption. This may allow the parent who would benefit more financially in claiming the exemption to “buy out” the other parent. Be sure to discuss tax implications with your attorney during a divorce or custody action, as they may have lasting financial repercussions.