Tuesday, March 27, 2007

Who gets the tax exemption?

The IRS says that the custodial parent gets the tax exemption for the children unless a court orders a waiver of the exemption. In my practice this issue has not been a complicated one. My cases fall into tow categories: 1) the custodial parent lacks employment and the exemption has no use for her or 2) the non-custodial parent is behind in support and the court will not reward the failure to pay child support with the tax exemption. What I have yet to see are two parents with good jobs fighting over the tax exemption.

However, Indiana has just such a case: Harris v. Harris, 800 N.E.2d 930 (2003) (Html format). Father lost his attempt to get the tax exemption. The Indiana Court of Appeals looked to Indiana's Child Support Guideline for the minimum factors the trial courts are to consider in these cases:

(1) the value of the exemption at the marginal tax rate of each parent;
(2) the income of each parent;
(3) the age of the child(ren) and how long the exemption will be available;
(4) the percentage of the cost of supporting the child(ren) borne by each parent; and
(5) the financial burden assumed by each parent under the property settlement in the case.
Child Supp. G. 6.
Father failed "...to specifically demonstrate the tax consequences to the parties if the exemption were transferred and, most importantly, how such transfer would benefit the children."

I see one key problem for the non-custodial parent in these close cases. Determining how the children benefit from a non-custodial parent having the tax exemption seems in the abstract to be a tough nut to crack. First, the non-custodial parent needs to be ready to pay for crunching numbers and counsel needs to be prepared to crunch those numbers. Second, the numbers need presented in such a way that the judge understands their significance.

The best solution? The parties agree to alternate the tax exemption.

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