Beware the Consequences of Failing to Provide Form 8322: Cook v Commissioner

by Sandra D. Glazier, published in the Michigan Family Law Journal, Volume 49 Number 5, May 2019, p.20

On May 7, 2019, the U.S. Tax Court confirmed the harsh consequences that can result when a child doesn’t reside with a parent for more than half the year, that parent provides the majority of a minor child’s support claims child as a dependent, but that parent does not obtain and attach a Form 8322 to his return. In Cook v. Commissioner, decided May 7, 2019, the Tax Court upheld an IRS deficiency assessment against Jason Cook resulting from disallowance of his daughter as a qualified dependent for income tax purposes.

Jason Cook and Tara Taylor had a child out of wedlock. That child primarily resided with Tara and did not reside with Jason for more than ½ the calendar year. After the child was born, Tara married another and while she had no income, it is likely that she filed a joint return with her spouse and they claimed the child as a dependent.

Pursuant to a court order, Jason was required to pay child support for the minor child until she attained the age of 18, but if she was a full-time high school student, was not self-supporting and was living in Tara’s home, support was to continue until she attained the age of 19 or graduated from high school, whichever first occurred. Jason was also responsible for 100% of the child’s reasonable and necessary unreimbursed medical and dental expenses to the extent they exceeded $250 in a calendar year. The order did not reference who could claim the child as a dependent, but Jason and Tara had a verbal agreement that Jason could claim her, which he did. The IRS rejected Jason’s claim that the child was his dependent and disallowed his claims for head of household status, child tax credit and earned income tax credits with regard to the child. While this case related to the adjustment of a 2012 return (before the changes in the Internal Revenue Code (IRC) took effect on December 22, 2017 which eliminated certain dependency exemptions for federal income tax purposes), the issues addressed are still pertinent to whether a taxpayer will qualify for “Head of Household” status and/or be entitled to claim certain credits and Michigan dependency exemptions which remain dependent upon definitions contained within IRC §152(c)(1).

To be a taxpayer’s qualifying child, the child must generally (A) bear a specified relationship to the taxpayer, (B) have the same principal place of abode as the taxpayer for more than ½ the taxable year, (C) not have attained the age of 19 during or before the taxable year in issue, (D) not have provided the majority of his or her own support during that year, and (E) the child must not file a joint return for that year.1 While the requirements of (A)(C)(D) and (E) were met, the child did not reside with Jason for more than ½ the taxable year. The failure of the child to reside the requisite time with Jason would not have been fatal to Jason’s position had he obtained and attached a Form 8322 to his return (or a reasonable substitute)2. An oral agreement between Jason and Tara that Jason could claim the child (and Tara would not) was insufficient. Citing George v. Commissioner, 139 T.C. 508, 516 (2012) and Miller v. Commissioner, 114 T.C. 184, 189 (2000), the Tax Court found that the lack of the form barred Jason’s ability to claim his child as a dependent under the facts presented. Because “Head of Household” status, the Child Tax Credit under IRC §151, and Earned Income Tax Credit under IRC §32(c)(1)(A) (i) are all dependent upon the child being deemed a “qualifying child” within the meaning of IRC §152(c)(1), Jason was unable to receive these benefits to reduce his taxable income because he failed to obtain and attach the requisite form.

The moral of this case – it remains important to consider the implications of and address whether a child will be treated as the dependent of a parent when the child does not reside more than ½ the time with that parent and address whether a Form 8322 will be provided.

About the Author
Sandra D. Glazier, Esq., is an equity partner at Lipson Neilson, P.C., in its Bloomfield Hills, MI office. She is also the recent recipient of Bloomberg Tax’s Estates, Gifts and Trusts Tax Contributor of the Year Award and Trusts & Estates Magazines Authors Thought Leadership Award. Sandra concentrates her practice in the areas of estate planning and administration, probate litigation and family law.

Endnotes:

  • 1. See Internal Revenue Code (IRC) §152(c)(1).
  • 2. IRC §152 (e)(2)(B).