®
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
Comments on
PROPOSED REGULATIONS ON SPECIAL RULE UNDER
SECTION 152 FOR A CHILD OF DIVORCED OR SEPARATED PARENTS
OR PARENTS WHO LIVE APART (REG-149856-03)
Individual Tax Technical Resource Panel’s
Section 152 Working Group
Sabrina Covington
Lorraine Evans
Michelle Musacchio
Annette Nellen, Chair
Lisa Winton, AICPA Technical Manager
AUGUST 8, 2007
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AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
Comments on
Proposed Regulations on Special Rule Under Section 152 for a Child of Divorced or Separated Parents or Parents Who Live Apart (REG-149856-03)
BACKGROUND
The Working Families Tax Relief Act of 2004 (WFTRA),(P.L. 108-311, 10/4/04) and the Gulf Opportunity Zone Act of 2005 (GOZA) (P.L 109-35, 12/21/05) simplified several rules involving a child. WFTRA created a uniform definition of child. GOZA modified the rules at Code section 152(e) for parents who: (1) are divorced or legally separated under a decree of divorce or separate maintenance; (2) are separated under a written separation agreement, or 3) live apart during the last 6 months of the calendar year. These proposed regulations provide additional guidance under section 152(e) on the terms and requirements needed to determine which parent may claim a child.
COMMENTS
Section 1.152-4(c)(1), Counting nights: We agree that counting nights is an appropriate measure to determine which parent has custody for the greater part of a year. Counting days would be problematic as a child might spend parts of a day with either parent. The regulations should emphasize that in determining the “custodial parent,” the provisions of any divorce agreement are not relevant. Basing the determination on the divorce agreement may not reflect the reality of which parent a child resides with throughout the year. We therefore suggest that prop. reg. section 1.152-4(c)(1) should be amended to indicate: “For purposes of this determination, the actual number of nights the child resides with a parent should be used and not the nights agreed to in the divorce decree or similar document.”
Section 1.152-4(c)(2), Absences of child: Proposed reg. section 1.152-4(c)(2) explains how to count nights when the child is not with either parent due to an absence. We recommend that the IRS look at existing guidance under reg. section 1.152-1(b) in explaining when a child’s absence is temporary such that it still counts as a night with the parent.
The implication from this provision and the examples is that the child is away for a short time, such as because they are visiting a friend. It would be helpful to also explain how absences are to be treated when a child is absent for longer periods than those described in 1.15 2-1(b) to include unexpected activities, such as the child has run away from home.
Section 1.152-4(c)(2), Absences of parent: The language of prop. reg. section 1.152-4(c)(2) focuses on situations where the child is without either parent due to an absence. However, this provision could be interpreted to include situations when the parent is absent from the child’s home. For example, a child could reside with the mother but the mother is absent due to a business trip, hospital stay, or military service. If the parent is absent for the reasons stated in reg.section 1.152-1(b), and if the child would otherwise be with the absent parent, those nights are counted as the child residing with the absent parent assuming the parents meet the conditions of section 152(e) including the child being in the custody of 1 or both of the child’s parents for more than one-half of the calendar year. We recommend that the regulation include language indicating that the general rule of Code section 152 should be reviewed to determine if the qualifying child may be claimed by someone other than the parents. We also recommend deleting “for example” in the parenthetical so that the only time that the nights a child spends with neither parent are non-attributable to parents is if the child is spending the night with someone who has a legal right to have custody of the child for that night.
Example 1: B and C, parents of Child, are divorced. In 2007, Child lives in B’s home for 240 days. For 60 nights, B is absent from the home on Army Reserve duty while Child resides in B’s home with B’s parent. The 60 days of B’s absence are treated as nights that Child resides with B. Since the Child does not have the same principal place of abode as B’s parent for more than one-half of the taxable year, B’s parent is not able to claim Child as an exemption. B is able to claim the exemption and is able to release the exemption to C.
An example should also be added to clarify how nights are treated when Child, who should be residing with Parent B, is residing with Parent C due to the absence of Parent B.
Example 2: The facts are the same as Example 1 except that Child resides in C’s home during B’s absence. The 60 days of B’s absence are treated as nights the Child resides with C because the Child is residing with a parent for those nights. The special rule regarding absences does not apply since the child is with a parent. B is considered the custodial parent since the Child resided with B for the greater number of nights than with C. B is able to claim the exemption and is able to release the exemption to C.
Another example should be added to clarify how the general rule of section 152 would apply when the parent’s absence is long enough for someone else to be able to claim the dependency exemption. For purposes of determining who is the custodial parent, nights a child spends with neither parent are only non-attributable to parents if the child is spending the nights with someone who has the legal right to have custody of the child for those nights.
Example 3: B and C, parents of Child, are divorced. In 2007, Child lives in B’s home for 240 days. For 240 nights, B is absent from the home while Child resides with B’s parent. The 240 days of B’s absence are treated as nights that Child resides with B. However, since the Child has the same principal place of abode as B’s parent for more than one-half of the taxable year, B’s parent is able to claim Child as an exemption. B is not able to release the exemption since the general rule gives the exemption to B’s parent.
Section 1.152-4(d)(1), Form of declaration: Proposed reg. section 1.152-4(d)(1) explains the form a written declaration must take in order for it to serve to release the custodial parent’s claim to the child as a dependent for the year. Various requirements are stated. A court order or decree can not serve as a proper declaration. Given the strict requirements and their importance, it would ease tax administration to require that a declaration may only be made on a properly completed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents.
Similarly, revocation of the written declaration should be required to be on a properly completed Form 8332 to reduce the chance of error on the part of the parents.
Section 1.152-4(d)(1)(i), Court order or decree versus written separate agreement: If the suggestion for valid declarations only being on Form 8332 is not adopted in final regulations, we recommend clarification of when a divorce, separation or other document or agreement may be used to release the custodial parent’s claim to the child. Proposed reg. section 1.152-4(d)(1)(i) states: “A court order or decree may not serve as the written declaration.” However, example (5) at prop. reg. section 1.152-4(f) allows for a written separation agreement which states that the custodial parent will not claim Child as a dependent to be attached to the return to release the dependency exemption to the noncustodial parent. Agreements between divorced or separated parents may have a variety of titles and if some agreements can serve as valid written declarations and others cannot, the regulations need to provide details as to when an agreement can be the written declaration.
Section 1.152-4(f): Make examples tie to regulation language: The examples, such as Example (1) at prop. reg. section 1.152-4(f) should use nights, rather than months. The proposed regulations provide that the records should be kept of where the child resides each night in order to determine who is the custodial parent. Thus, Example (1) should state: “Child resides with B for 212 nights and with C for 153 nights” – rather than stating 7 months and 5 months.
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