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Tax Dependency Exemptions

In a case decided last month, the Court held that a Judge of the Massachusetts Probate and Family Court has the authority to order the allocation of tax dependency exemptions for divorced parents.  When parents divorce, only one parent is permitted to claim the tax dependency exemption for parties' minor child(ren) on his/her tax returns.  For the 2013 tax year, the tax dependency exemption is $3,900 for each dependent (subject to phase out based upon certain income levels).  Disputes between divorcing parties can arise regarding tax dependency exemptions because being able to claim the tax dependency exemption for the minor child(ren) may provide one party with real tax savings. 

In Phalla IV v. Samath Hang, the Wife, who was granted physical custody of the parties' two minor children, appealed the provisions set forth in the Judgment of Divorce Nisi related to taxes and, specifically, the Husband's right under the terms of the Judgment to take the tax dependency exemption for both minor children born of the marriage on his State and Federal tax returns.  Generally, the Wife argued that the provisions set forth in the Judgment allocating tax dependency exemptions to the Husband conflicted with current Federal law (and the explanation of the law set forth in the Treasury regulations) that requires, in part, that a custodial parent sign a specific written declaration (Form 8332 or a successor form) to the noncustodial parent agreeing to release the dependent for tax purposes.  "A court order or decree or a separation agreement may not serve as a written declaration."  (See 26 C.F.R. ยง1.152-4).  The Wife took the position that State courts could no longer allocate dependency exemptions because current Federal law provides that the custodial parent "is entitled to the dependents unless that custodial parent has agreed to release the dependents using a specified form or format."  Moreover, the Wife claimed that even a Judgment that requires a custodial parent to execute a written declaration to the noncustodial parent (which was not included in the Judgment at issue) is "ineffective to allocate the right to claim the child as a dependent," thereby making the terms of Judgment allocating the dependency exemption to the Husband "unlawful."   

Disagreeing with the Wife's position, the Court held that a Probate and Family Court Judge has the authority to allocate dependency exemptions in divorce Judgment.  

A copy of Form 8332 can be found here.

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