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Divorce CPA discusses Form 8332 | differences between Civil Courts and the IRS

Divorce CPA discusses Form 8332

Gary Bode, CPA: proactive attention to tax consequences during divorce makes sense. For a free phone consult call (910) 399-2705.

Civil Courts sometimes set up tax sensitive financial arrangements during divorce that can’t be implemented through the IRS. I think this happens more often with middle and low-income groups. Wealthier folks get pricier attorneys, who then engage a divorce CPA for proactive integration of tax consequences into the divorce settlement. While some of these tax issues lend themselves to post divorce cooperation, surprise surprise, that isn’t always possible. I think it’s better to nail down all the loose ends ASAP to help folks move along with their lives. Loose ends just lead to more civil snivel that only helps the lawyers. Can you tell I’ve been divorced?

Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, is a good example. Form 8332 allows a non-custodial to claim a child’s exemption and, subsequently the Child Tax Credit. When this isn’t part of the Divorce decree, it’s difficult to get the custodial parent to sign it. Here’s part of the problem. The exemption looks like it’s worth $3800 (expected in 2012). But this is $3800 of gross income. The actual cash value, depending on your marginal federal tax rate, might only be $540. But I’ve seen folks swallow that $3800 figure and fight hard for it.

Form 8332 can’t be used to claim the Dependent Care tax credit. Yet Accounting Today featured an article where the parents ended back in Civil Court because the intent of the Divorce decree simply couldn’t be achieved through the IRS, legally at least. The intent was for the parents to split child care expenses. But of course, only the custodial parent could use the Dependent Care tax credit. The decision? Civil Court upheld the financial arrangement despite the tax consequences favoring the custodial parent, probably by thousands of dollars per year.

I’m a divorce CPA with a virtual office to serve clients and attorneys beyond my Wilmington NC based offices. Please click the Divorce category in the drop down box in the right sidebar to read my other divorce postings. Sometimes proactive attention to tax details during divorce really matters. For a free phone consult please call (910) 399-2705.

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