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Indiana Supreme Court Changes Burden Of Proof On Child Support Tax Exemptions In Indiana

| Jul 22, 2020 | Firm News

 Prior to January 1, 2016, the Indiana Child Support Guidelines, case law, and the Indiana Statute on granting of tax exemptions placed the burden of proof on different parties.

            The case law was originally set in the case of Eppler v. Eppler, 837 N.E.2d 167 (Ind. App., 2005, trans. denied 2006), which interpreted the then existing child support guidelines to automatically grant the child tax exemption to the custodial parent unless the court makes a finding based upon evidence presented.  This case made it clear that at that time the burden was on the noncustodial parent to prove that he or she was entitled to the exemption based upon factors set out in the guidelines.

            In 2011 the Indiana General Assembly added a provision to the Indiana code addressing tax exemptions.  As you can see, the statute was neutral as to who received the exemption and the law required the court to make a finding as to who should receive the exemption.  The statute used the same factors but did not presume who would receive the exemption.

IC 31-16-6-1.5
Claiming child for tax purposes; considerations; conditions

     Sec. 1.5. (a) A court shall specify in a child support order which parent of a child may claim the child as a dependent for purposes of federal and state taxes.

                When the Supreme Court was revisiting the child support guidelines, a committee of the bar association of which I was the subcommittee chair pointed out the conflict between the statute, the case law, and the guidelines.  The new guidelines now bring the statute and the guidelines into agreement effectively overruling the presumption in the case law and prior guidelines.

                The best practice now is to present evidence to show your client should receive the exemption under the guidelines.  If the decree or order is silent, then you revert to the federal law.  According to https://www.irs.gov/publications/p17/ch03.html#en_US_2015_publink1000170897 the federal law is:

Children of divorced or separated parents (or parents who live apart).   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true.

  1. The parents:
  2. Are divorced or legally separated under a decree of divorce or separate maintenance,
  3. Are separated under a written separation agreement, or
  4. Lived apart at all times during the last 6 months of the year, whether or not they are or were married.
  5. The child received over half of his or her support for the year from the parents.
  6. The child is in the custody of one or both parents for more than half of the year.
  7. Either of the following statements is true.
  8. The custodial parent signs a written declaration, discussed later, that he or she won’t claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later. If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later.)
  9. A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2015 states that the noncustodial parent can claim the child as a dependent, the decree or agreement wasn’t changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child’s support during the year.

  If statements (1) through (4) are all true, only the noncustodial parent can:

  • Claim the child as a dependent, and
  • Claim the child as a qualifying child for the child tax credit.

However, this does not allow the noncustodial parent to claim head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, the earned income credit, or the health coverage tax credit.

            You should not assume that the higher earning party should receive the exemption.  If the tax benefit does not benefit the child by giving it to the noncustodial parent then they are not to be awarded the exemption.  One way it would not is set forth in Cross v. Cross , 891 N.E. 2nd 635, (Ind. Ct App., 2008), where the court upheld the denial of the exemption to the noncustodial parent who made more money than custodial because the noncustodial parent did not show how his receiving the exemption would benefit the child as he had no contact with the child.  Another way the higher income person may not qualify is if their income has reached the phase out amount for exemptions.  This phase out is demonstrated below:

Phaseout of Exemptions

You lose at least part of the benefit of your exemptions if your adjusted gross income (AGI) is above a certain amount. For 2015, the phaseout begins at the following amounts.

Filing Status AGI Level That Reduces
Exemption Amount
Married filing separately $154,950
Single 258,250
Head of household 284,050
Married filing jointly 309,900
Qualifying widow(er) 309,900

You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero.

            There are many other factors that are not determined by the court as to whether the IRS will allow you to claim a child as a dependent which are not addressed here.  As an attorney you should review these cases, guidelines, and the IRS regulations as well as consult a CPA on these matters as they can cost your client a substantial amount of money each year.

Prepared by Richard A. Mann of Mann Law, P.C. Attorneys at Law, www.rmannlawoffice.com

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This blog does not constitute legal advice nor does it establish an attorney client relationship.  This is for general information purposes as in most legal situations the facts and terms of an agreement between the parties can affect the result.