I set aside the case of Hicks v. Commissioner, T.C. Memo 2022-10 to possibly write about the procedure for claiming a qualified child dependent who doesn’t live with you. That procedure requires taxpayers to carefully follow certain steps that can be difficult to follow as a family breaks apart. I will talk about the facts and the law regarding the case. Before I do so, I feel compelled to discuss the amazing amount of time it took the Tax Court to decide a dependency exemption case in which there was no delay in answering the case, no continuance of the trial, and no brief by the pro se petitioner.
The case took almost 17 months after the filing of the petition before the trial occurred because petitioner selected place of trial in Cleveland and the Tax Court doesn’t go there too often. Seventeen months between petition and the trial in a case with no continuance is a bit longer than normal but not extraordinary for cities to which the Court does not frequently travel and depending on the timing of the petition vis a vis the timing of the Court’s calendar. The trial in the Hicks’ case occurred on October 1, 2018. The only brief filed in the case was filed by the IRS on November 14, 2018, at which time the case was ready for the Tax Court to decide. Three years and three months later the Tax Court issued its opinion.
This seems like an extraordinary amount of time for a case involving a dependency exemption issue. I have noted on a number of occasions lengthy periods of time in Tax Court cases between the petition and the opinion and will continue to do so, but the Hicks case stands out since it is such a clean case with no continuances or anything that suggests reason for delay other than that the Tax Court is extraordinarily slow in providing parties with an opinion.
Delays sometimes occur if an opinion is precedential since that requires a process of review within the Court. Delay may occur as the Court does research the pro se taxpayer was unequipped to do. As discussed below, the Court parses through the facts and the law to find, in part, for the taxpayer based on research by the judge or the judge’s clerks. Delays could occur because of a heavy trial calendar imposed on a particular judge caught up trying a huge case for weeks or months. I would have thought the pandemic might have provided the judges with more time to write opinions since it reduced travel and, for a time, reduced trials.
No matter how I factor it, three years and three months to decide a dependency exemption case after the trial, even one that required three government lawyers against one pro se taxpayer, seems much too long. I don’t expect an explanation from the Court, but I do expect some type of docket management that moves cases faster than this. It doesn’t seem fair to cause petitioners to wait almost five years to learn whether they can claim a dependent.
Moving past my rant regarding the timing of the opinion, the case does provide some insight into the rules regarding how to claim a qualified child dependent who lives elsewhere. In this case the petitioner, Mr. Hicks, is the father of two children and claimed both on this return for 2014. He starts with an uphill battle for claiming the children because they lived for more than half of 2014 with their mother and grandmother. IRC 152(c) sets up five tests that a taxpayer must meet in order to claim a dependent and one of those tests involves residence. It requires that a qualifying child dependent live with the taxpayer for more than half the year. A taxpayer who fails any of the tests loses the ability to claim the dependent as a qualifying child.
But, an exception to the residence rule exists if the custodial parent grants to the non-custodial parent the right to claim the child. That exception and the rules governing it become the focus of the case. Here, the parents had gone to court where:
On June 15, 2006, the Summit County Court of Common Pleas Domestic Relations Division (state court) adopted a “Shared Parenting Plan” that had been signed by petitioner and Oddimissia, which provided, inter alia, that “Mother [Oddimissia] will claim [Child 12] every year and Father [petitioner] will claim [Child 2] every year for tax purposes unless [the] parties reach another agreement in writing.”
The parties later went back to the court and it
entered an order and judgment on October 28, 2009, which adjusted petitioner’s and Oddimissia’s child support obligations and further stated: “Effective tax year 2009, Father [petitioner] shall claim the dependency exemption for both minor children each year.” The October 2009 order and judgment were not signed by Oddimissia or petitioner.
Mr. Hicks timely filed his 2014 return claiming the dependency exemption for both children as provided in the 2009 state court order; however, he did not attach to his return Form 8332 or a written declaration or waiver signed by Oddimissia or a pre-2008 court decree or separation agreement. Subsequent to filing the return and during the examination process, he did submit to the IRS a copy of the Shared Parenting Plan that Oddimissia signed and the state court adopted in the 2006 order.
Oddimissia did not file in 2014 but her mom did and her mom also claimed both children as dependents, setting up the fight. The court does not state if the grandmother’s return was also audited. The IRS has created a race to file the tax return in these situations because only the first person to claim a dependent can file electronically. My observation, without any empirical evidence, is that it frequently audits the return of the second filer, leaving the return of the first filer alone. If that’s what happened in this case, the length of the Tax Court case has allowed the statute of limitations to run on the making of any adjustment to the grandmother’s return at this time in the absence of fraud of which there is no indication.
The Court recounts the statutory rules for qualified children and qualified relative dependents before getting to the heart of this case involving separated parents and their ability to claim dependents. Then it turns to IRC 152(e) which allows the non-custodial parent to claim as a qualified child dependent someone who fails the residency test if two conditions are met:
(1) the custodial parent “signs a written declaration (in such manner and form as the Secretary may by regulations prescribe)” stating that he or she “will not claim such child as a dependent” for the year at issue, and (2) the noncustodial parent “attaches” the written declaration to his or her return for that year.
To satisfy the written statement requirement Mr. Hicks needed to attach a Form 8332 to his return or a statement providing substantially the same information as required by Treas. Reg. § 1.152-4(e)(1)(ii). Since he did not attach the Form 8332, he had to hope that one or both of the state court orders could suffice. Generally, the Tax Court has not given much leeway with this requirement because of the language in the regulation. Treasury Regulation § 1.152-4(e)(5) permits a taxpayer to use a court order or separation agreement entered prior to July 2, 2008; however, a court order entered after that date does not work. The IRS was trying to get out of the business of interpreting sometimes vague court orders and drive taxpayers to the clear grant of permission provided in Form 8332.
In Mr. Hicks’ case this means that the older court order could work but the more recent one could not because it was entered after July 2, 2008. So, the court grants him one dependent after analyzing the earlier court order and determining that it meets the requirements of the regulation by providing the needed information. The court found that the order contained the information required by Form 8332 with the exception of the parties’ social security number. It found the absence of their SSNs did not invalidate the order as an appropriate written statement.
Next the court dealt with the requirement that Mr. Hicks should have attached the court order to his return. It finds that for year 2014, this requirement could also be met by providing the order to the IRS during the examination phase. For years after 2017, taxpayers must attach the Form to their return and could not rely on submitting it subsequently. Mr. Hicks benefited from the old rules in both the timing of the order and the timing of the regulation, but because the older court order only allowed him one child as a dependent, the court limits him to only one of the two dependents he claimed.
The Court notes that he also receives the Child Tax Credit for the child who was determined to be his dependent. It’s not clear if he qualifies based on his income, however, if he did qualify from an income perspective, a qualifying child dependent cannot form the basis for claiming the earned income tax credit. This is one of the quirks of claiming a qualified child dependent by the non-custodial parent.
So, after his long wait, Mr. Hicks gets half a loaf. The facts in the case don’t show whether he has already received a refund for the larger amount both children would bring and must now pay the IRS the additional tax plus several years of interest or if his refund was frozen by the IRS meaning he will now finally get his money which will include several years of interest. A delay of this length for a low income taxpayer can place upon them a significant economic burden.