Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Double Counted Dependent Child

Posted by taxguru on August 25, 2007

Q:

Mr Guru – hope you don’t mind my picking your brains on this matter.  I have a couple who divorced early in the decade with a dependent child  Father was to claim child in odd years and Mother in even years.  In 2006, I prepped Mother’s 2005 return, who instructed me to claim the child regardless that this was an odd year.  Now, Father (who had some long-standing tax problems) wants to finally file his 2005 1040 & claim child.  Ethically, do I need to notify Mother that I’m filing Father’s 1040 claiming child?  Should I automatically file a 2005 1040X for Mother taking off the child?  Or just let me IRS notify them both?  Any ideas?

 

A:

That kind of every other year arrangement is increasingly common with divorced parents, so this kind of thing does pop up frequently.

As you most likely already have experienced, IRS is very efficient at catching attempts to claim the same child more than once and they will generally allow the first parent’s return to have the exemption and deny the second parent’s.

This brings you to your point; how to remedy the problem.  While there may be a number of ways to correct the situation, here are some ideas. 

Technically, in the IRS’s eyes, they don’t have to honor the agreement between the parents and will leave it up to them to hash it out between themselves to equalize the situation.  While the short-changed parent could notify IRS of the inappropriate dependent claim and try to trigger some IRS pressure on his ex, I have found that IRS really isn’t very concerned about this kind of thing and will most likely do nothing.  This leaves a civil lawsuit as the remedy for the short-changed parent to enforce his rights under the divorce agreement, most likely in Small Claims Court. 

I wouldn’t just go ahead and prepare the 1040X without getting an agreement from the mother that she will indeed file it with IRS and pay you for doing that work.  Otherwise, you have wasted your time for nothing.

If the mother agrees to filing a 1040X to remove the child, that’s fine and sets the stage for the father to later file his proper 1040.

However, I have seen a number of occasions where the first parent didn’t want to rock the boat with IRS by filing a 1040X and instead agreed to reimburse the other parent directly for the difference in the taxes with and without the child.  In those kinds of cases, you can prepare draft returns both ways to document the difference in Federal and State taxes, and the mother would then write a check for that amount to the father, plus the additional costs for you to do those calculations, since it was her fault in improperly claiming the child. 

Obviously, who bears these additional costs is negotiable between the three of you.  If you want to accept some responsibility for the screw-up on the mother’s 1040, and do the extra work for free, that’s your call to make.

Obviously, there’s no cut and dried answer; but I hope this gives you some ideas to work with.

Good luck.

Kerry

Follow-Up:

Mr Guru – thanx for your input, as always.  I’ll take it from here.

 

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