In a decision published on May 6th of this year the United States Tax Court held that the Treasury Department and the Internal Revenue Service were not bound by state court rulings that allocate child dependency deductions for federal income tax purposes.

In Shenk v. Commissioner, a state court divorce judgment had assigned to a Father the right to claim the dependency exemptions for all three of his children, even though they lived primarily with their mother, provided that he was current with his child support. In violation of the state court judgment, the former wife refused to execute Federal Form 8332 which is required for non-custodial parents to claim the exemption.

Notwithstanding the state court ruling Tax Court judge David Gustafson held “ultimately, it is the Internal Revenue Code and not the state court orders that determine eligibility to claim a deduction for federal tax purposes.” Gustafson essentially put the burden on the Taxpayer to get a state court order compelling the mother to sign Form 8332.  If a parent does not have primary custody the only means to claim a child is by securing the form from the primary custodian.  A taxpayer must have that problem resolved within three years or the statute of limitations (26 U.S.C. 6501(a)) will bar an amended filing. In this case, the taxpayer did not secure the signed form within three years so the claim was lost.

In addition the failure to secure the exemption also prevented the taxpayer from claiming head of household status. Could the taxpayer sue his former spouse in state court for the additional tax and penalty prompted by her refusal to abide the state court judgment granting him the deductions?