I clicked the e-File button to submit a last-minute client’s tax return. Within minutes, the IRS pinged me in their cryptic code: “Another taxpayer has claimed this dependent in a tax return already filed.” When that happens, there can only be two scenarios: either somebody has stolen their child’s identity or their ex-spouse has beat them to the punch to claim the child. One or the other. Which is worse?
A regular client came in late March to file her tax return with me. She was awarded her child as a dependent in the divorce. When I e-filed her return, it was rejected with that same message: the dependent was already claimed by another party. We certainly knew who the guilty party was. It was her ex-husband. Because of confidentiality regulations, the IRS can’t tell you the name of who actually claimed the child, but you don’t have to be Sherlock Holmes to know who did it.
Last year, a client legally adopted her sister’s children (sister had died). Her sister’s deadbeat ex-husband retained their Social Security numbers and took those kids as dependents.
Dependent status, i.e., which parent will have the dependent exemption or take the child as a dependent, should ALL be spelled out specifically in the divorce decree. This is a valuable asset, as many tax credits stem from having your child as a dependent. These include the earned income credit, the child tax credit, child and dependent care tax credit, and head of household status. They can add up to major money and will impact your entire tax return. Failure to designate this item in your marital settlement agreement is a common error.
The person who files last often must fight to maintain their rightful exemption.
What if your spouse claims your child when the child was really yours to claim?
The IRS usually follows “tie-breaker” rules to determine who the exemption belongs to. In the case of a divorce, where you’ve clearly been awarded the dependent, the rules are different.
If this has happened to you, it can not be remedied by e-filing again. Start by filing a signed paper return and begin a stream of written communication with the IRS by mail. Print out your tax return, sign it. Attach a copy of your divorce decree blocking out all other sensitive information besides the dependent status award. Include a letter stating that you were given the rights to claim the child as a dependent in the divorce. Be sure to send it as “certified mail.” Unfortunately, there is no quick fix, and this will probably take a few months to resolve.
In the reverse situation, if you’re the custodial parent and you’ve given away the right to have the dependent, you will need to file IRS Form 8332 to give permission to the non-custodial parent to take the dependent.
This is one of the many important financial details that a CDFA will include when advising you on how to structure the monetary aspects of your divorce.
Do you know someone who battles their ex over the right to claim their child as a dependent each year? Let us hear from you.