Legal Ruling 1993-3

Effect of Federal Form 8332 - California and Federal Dependents

Issue

Where a custodial parent signs federal Form 8332, Release of Claim to Exemption for Child of Separated or Divorced Parents, releasing his or her claim to the child's federal exemption, may that parent treat the child as a dependent under the California Personal Income Tax Law?

Facts

H and W were divorced in Year 1. In Year 2, W was the custodial parent of child C. With her federal income tax return for year 2, W executed and attached federal Form 8332, Release of Claim for Exemption for Child of Divorced or Separated Parents. W did not claim C as a dependent on her Year 2 federal income tax return.

Law and Analysis

Dependents Generally

Internal Revenue Code §151 allows an exemption deduction for dependents. Section 152 defines "dependent" generally as a family member for whom the taxpayer provided over one-half the support during the year. Subsection (e) provides special rules in the case of divorced or separated parents. Essentially, while the custodial parent is normally deemed to have provided more than half the support, the parties can agree that the child shall be treated as having received over one-half of the support from the noncustodial parent if certain conditions are met. The §151 exemption amount phases out for higher income taxpayers.

California incorporates the §152 definition of "dependent" by reference in Revenue and Taxation Code §17056. Therefore, if a child meets the factual tests to be a dependent for federal purposes, that child is a dependent for state purposes. Conversely, if a child does not qualify as a dependent for federal purposes, the child does not qualify for state purposes.

Section 17054 allows a credit for each "dependent" (as defined in §17056) for whom an exemption is allowable under Internal Revenue Code §151(c). In addition, the credit amount is zero if the credit is allowable to another individual for the same child. (§17054(h).) Section 17054.1 effectively adopts the federal "phaseout" rules for upper income taxpayers.

Release of Claim - IRS Form 8332

Internal Revenue Code §152 sets forth generally the definition of "dependent." Subsection (e) provides a special support test in the case of divorced or separated parents. Paragraph (1) sets forth the general rule that the custodial parent is treated as providing over half the support for the year.

Paragraph (2) of §152(e) provides an exception where the custodial parent signs a written declaration that he or she will not claim the dependent exemption for that child and the non-custodial parent attaches that declaration to the return. If this is done, the noncustodial parent is treated as having provided more than half of the support for the year. This means that for all purposes, that child is the noncustodial parent's dependent within the meaning of §152. This release is made on Federal Form 8332 - "Release of Claim to Exemption for Child of Divorced or Separated Parents."

Because California directly conforms to the §152 definition of dependent in §17056, and the filing of the Federal Form 8332 makes the child in question the "dependent" of the noncustodial parent under federal law, the federal treatment is binding for state purposes.

The California Supreme Court discussed the legislative history and application of Internal Revenue Code §152 and the effect of Form 8332 at great length in Monterey County v. Carnejo (1991) 53 Cal.3d 1271 rejecting the argument that the claiming of a dependency exemption [credit] and the execution of Form 8332 was a voluntary election of the taxpayers and holding that state courts may order an involuntary waiver of the exemption [credit] for state and federal purposes by execution of Form 8832 by the custodial parent.

In Carnejo, the trial court ordered that the noncustodial parent be allowed to claim a child as a dependent for state and federal purposes. This was accomplished by conditioning the child support increase upon the execution of a federal Form 8332. (See Carnejo at fn. 8.) As explained above, the execution of the federal form had the effect of transferring the right to claim the state credit as well as the federal exemption to the noncustodial parent.

Holding

Where a custodial parent signs federal Form 8332, Release of Claim to Exemption for Child of Separated or Divorced Parents, releasing his or her claim to the child's federal exemption, that custodial parent cannot treat the child as a dependent under the California Personal Income Tax Law.

Drafting Information

The principal author of this notice is Bruce R. Langston of the Franchise Tax Board Legal Division. For further information regarding this notice, contact Mr. Langston at the Franchise Tax Board Legal Division, P.O. Box 1468, Sacramento, CA 95812-1468.

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