My ex wife has our 3 children more than half the time and is considered the custodial parent. She comes from a very wealthy family and is supported by her parents but she lives in her own home. She claims no income and does not file taxes. I do not pay alimony or child support per our legal agreement.
I have our children a third of the year and support them in all of their activities during that time. I maintain a 4 bedroom home to accommodate them and pay out of pocket for family health insurance.
I want to claim the child tax credit but my ex wants to prevent it. Can she claim the credit if she doesn't file a tax return? Can her parents claim the credit if our kids don't live with them? Can anybody else claim them?

If nobody else can claim the credit, can I file for it even though I am the Non-custodial parent and my x-wife won't sign the tax form relinquishing that claim?

As the non-custodial parent you cannot claim the children as your dependents unless your ex signs the authorization form that you mentioned. As for whether your ex in-laws may claim them - perhaps. If your wife doesn't file a return and they provide more than half the cost of the children's support. if you aren't paying child support, and the in-laws are providing food, shelter and clothing, then they very well may claim them.

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Can she claim the credit if she doesn't file a tax return?

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In that filing a return is the only way to "claim" the children for tax purposes, no. Of course not.

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Can her parents claim the credit if our kids don't live with them?

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No.

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Can anybody else claim them?

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I don't see how. Children must live with someone to be "claimed" by that person for tax purposes.

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If nobody else can claim the credit, can I file for it even though I am the Non-custodial parent and my x-wife won't sign the tax form relinquishing that claim?

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No. You are not eligible to claim the credit.

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Originally Posted by AK lawyer

Children must live with someone to be "claimed" by that person for tax purposes.

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Not necessarily true. The children could be considered to be "qualifying relatives" of their grandparents, and hence do not have to live with the grandparents to be claimed as dependents. The requirements to claim a person as a qualifying relative are:

1. The person must be related - son, daughter, grandchild etc. all qualify.

2. The person must not be a "qualifying child" of another taxpayer. Since the mother is not filing a tax return, she is not a taxpayer. And the OP isn't custodial so he can't claim them as qualifying children.

3. The person must have less than $3950/year in his/her own income.

4. You must provide at least half the financial support of the person.

I would bet that in this case the grandparents claim their daughter as well as their grandchildren as dependents.

If the children do not ever live in their grandparents house and the grandparents do not have any ownership of the hose the children live in, how can they make any claim for directly providing food and shelter? If they are giving there daughter money that is indirectly supporting the children, isn't that taxable income?

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Originally Posted by tunger66

If the children do not ever live in their grandparents house and the grandparents do not have any ownership of the hose the children live in, how can they make any claim for directly providing food and shelter?

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By paying the rent/mortgage, paying for food and clothing, utilities, etc.

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Originally Posted by tunger66

If they are giving there daughter money that is indirectly supporting the children, isn't that taxable income?

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No - money paid for support of a dependent is not income. It's not like alimony, if that's what you're thinking -- when a person pays alimony they effectively shift the tax burden for that income from themselve to their ex. But in providing financial support for a dependent you don't shift income tax responsibility, so it's not considered taxable income.

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Originally Posted by ebaines

Not necessarily true. The children could be considered to be "qualifying relatives" of their grandparents, ...

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I stand corrected.

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Originally Posted by ebaines

... But in providing financial support for a dependent you don't shift income tax responsibility, so it's not considered taxable income.

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If the grandparents have no legal duty to provide support for the grandchildren, it may be a gift (theoretically subject to the gift tax, although there are substantial exclusions), but agreed: it is not subject to income taxation.

All of this is academic, in any event. Unless the OP claims his children on his taxes (which he is not entitled to do), it is very doubtful that he will ever be in a position to know what is claimed in tax returns filed by his ex, or her parents.

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Originally Posted by AK lawyer

If the grandparents have no legal duty to provide support for the grandchildren, it may be a gift (theoretically subject to the gift tax, although there are substantial exclusions), but agreed: it is not subject to income taxation.

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I think it depends how the money is paid. If the grandparents directly pay the utility bill themselves, that's support and not a gift (assuming the daughter is their dependent). But if they send the daughter $500 cash to do with as she wishes, then that may be considered a gift. But it's moot, because unless the gifts add to more than $28K/year (the annual gift tax exclusion for a couple) there are no gift tax implications at all, and only when the sum of gifts made over the years in excess of the annual exclusion adds up to over $5.3 million (the lifetime gift exclusion) would the grandparents actually be on the hook for paying any gift tax.

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Originally Posted by ebaines

By paying the rent/mortgage, paying for food and clothing, utilities, etc.

There is no rent or mortgage. My Ex-wife and children still live in our marital home that I signed over all of my equity to her. I currently pay over $1500/month mortgage on the home that I share with my children. Seems to me that I am providing everyone's shelter. I bet that $1500 in addition to what I pay for food, clothing , utilities, transportation, etc. would add up to over 50% of their support

No - money paid for support of a dependent is not income. It's not like alimony, if that's what you're thinking -- when a person pays alimony they effectively shift the tax burden for that income from themselve to their ex. But in providing financial support for a dependent you don't shift income tax responsibility, so it's not considered taxable income.

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I understand the tax implication but I do not see how one can possibly document what percentage of her monthly stipend supports my children versus supporting my Ex-wife and her lifestyle of the rich and famous. After all, I have no obligation to support my Ex, nor am I seeking a tax credit for it.

The question is: who pays the majority of your children's upkeep? I am assuming from this: "she comes from a very wealthy family and is supported by her parents but she lives in her own home" and "I do not pay alimony or child support" that her parents support her, and that they also support the grandchildren when they are with her (which is the majority of the time). The fact that you are living in a house large enough for the kids is not really relevant, since you only have them part-time. But you are correct that it would take a forensic accountant to sort out whether the grandparents are paying at least 50% of the kids' upkeep, especially given that you pay the medical insurance for all. Nevertheless, you originally asked if you can claim the children as dependents and the answer to that is clearly "no." Whether the grandparents can claim them is a bit murkier.

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Originally Posted by ebaines

I think it depends how the money is paid. If the grandparents directly pay the utility bill themselves, that's support and not a gift (assuming the daughter is their dependent). But if they send the daughter $500 cash to do with as she wishes, then that may be considered a gift. But it's moot, because unless the gifts add to more than $28K/year (the annual gift tax exclusion for a couple) there are no gift tax implications at all, and only when the sum of gifts made over the years in excess of the annual exclusion adds up to over $5.3 million (the lifetime gift exclusion) would the grandparents actually be on the hook for paying any gift tax.

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The gifts to her are closer to $250K/year. About $20k/month deposited into an account that she uses to pay all of her bills and expenses via a debit card and on-line banking. The majority of that money is spent lavishly and certainly not on necessities for our children. I would hope that a $35K Spring Break trip or going to Ruth Chris 3x/week does not contribute to her percentage of support.

Sounds to me like the grandparents should be filing a gift tax return each year. I did a bit more research and indeed found that cash given to a dependent can be considered as gifts by the IRS. The courts have ruled that financial support that is legally mandated should not be considered gifts, but in this case there is no legal requrement for the grandparents to pay their daughter, so those payments are gifts.

AK_Lawyer - I stand corrected!

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Originally Posted by ebaines

Not necessarily true. The children could be considered to be "qualifying relatives" of their grandparents, and hence do not have to live with the grandparents to be claimed as dependents. The requirements to claim a person as a qualifying relative are:

1. The person must be related - son, daughter, grandchild etc. all qualify.

2. The person must not be a "qualifying child" of another taxpayer. Since the mother is not filing a tax return, she is not a taxpayer. And the OP isn't custodial so he can't claim them as qualifying children.

3. The person must have less than $3950/year in his/her own income.

4. You must provide at least half the financial support of the person.

I would bet that in this case the grandparents claim their daughter as well as their grandchildren as dependents.

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Im going to jump in here. Since the children are clearly qualifying relative of the OP. Then I would seek to take the deduction. What may need to happen is to return to court for a clarification. Some parents alternate years for taking the deduction and it is perfectly legal since the courts put a stamp of approval on it.

Either way it needs to be resolved.

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Originally Posted by cdad

Im going to jump in here. Since the children are clearly qualifying relative of the OP. Then I would seek to take the deduction. What may need to happen is to return to court for a clarification. Some parents alternate years for taking the deduction and it is perfectly legal since the courts put a stamp of approval on it.

Either way it needs to be resolved.

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In 2013 we filed as "Married-joint", so the IRS has no current knowledge of a change in marital status. The Custodial parent is not filing a return for 2014, so the kids SS# won't show up there. If I (OP) file as "Head of Household" and claim the children, there may be a red flag raised if the Grandparent has claimed them also. At that point, I would think that I would be entitled to the deduction, being the other parent (OP), with the burden of proof being on the Grandparent to document over 50% of their support that is needed to claim them as a qualifying relative.
Is it worth the risk to seek the deduction? After all, I stand no chance of getting the credit if I don't file for it.

Do NOT file as HoH - you are not qualified. To file as HoH you must have a qualifying relative living with you at least for half the year. File as single.

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Originally Posted by cdad

... What may need to happen is to return to court for a clarification. Some parents alternate years for taking the deduction and it is perfectly legal since the courts put a stamp of approval on it.
...

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I don't believe getting the courts to "put a stamp of approval on it" will help. It is out of the courts' hands:

Read this. See Table 3, no. 3: "The child must have lived with you for more than half of the year." And read the "Special rule for divorced or separated parents (or parents who live apart)".

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4. Either of the following applies.

1. The custodial parent signs a written declaration, discussed later, that he or she will not 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, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , or Post-2008 divorce decree or separation agreement , later.
2. A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2014 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not 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 2014. See Child support under pre-1985 agreement , later.
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It appears to me that neither of these paragraphs apply.

They are rich, so have lawyers, and accountants, on their side, so don't go into this blind, or ALONE. That's the difference between a calculated risk, and a very foolish one.

It would be very wise to assume they are set up by a professional, and have every contingency planned for. Sorry guy, you are playing checkers on a chessboard, and I doubt there are many moves you can make that they haven't planned for.

If you are going to piss them off, CYOA, because rest assured they are covering theirs.

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Originally Posted by AK lawyer

No. As I said before, you are flat-out not qualified for the deduction: "... Qualifying child. To be your qualifying child, a child must live with you for more than half the year and meet other requirements.. . " Publication 503 (2014), Child and Dependent Care Expenses

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The only person qualified is the Custodial Parent and she is not filing taxes. The children do not ever live with the grandparents. What makes the grandparents more qualified to claim the deduction then the OP (where they live 1/3 of the year)?

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Originally Posted by tunger66

The only person qualified is the Custodial Parent and she is not filing taxes. The children do not ever live with the grandparents. What makes the grandparents more qualified to claim the deduction then the OP (where they live 1/3 of the year)?

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You are trying to compare apples and oranges. You don't qualify (I removed the portion you quoted from one of my earlier posts: I believe I copied the wrong IRS rule.). And the grandparents may qualify under a different provision. If they are using it (and, as I wrote yesterday, you probably will never know if they are), that provision doesn't require that the children live with them at all. Frankly, it is none of your business how they do their taxes.

I'm going to forego the legal lingo for a moment and offer another question...

Wouldn't it be prudent in this case for the OP (original poster) to return to court so that the court could determine who is able to use the child(ren) as a deduction? This is common in many divorce/custody cases.

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Originally Posted by AK lawyer

You are trying to compare apples and oranges. You don't qualify (I removed the portion you quoted from one of my earlier posts: I believe I copied the wrong IRS rule.). And the grandparents may qualify under a different provision. If they are using it (and, as I wrote yesterday, you probably will never know if they are), that provision doesn't require that the children live with them at all. Frankly, it is none of your business how they do their taxes.

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I understand the rules state that I do not qualify because the kids spend less than half of the year living with me, but this same condition exist for the Grandparents, so why would it not exclude them from qualifying as well.
Please help me understand what "Different Provision" would allow them to qualify. Can I apply the same provision to qualify myself?

I was reading the tie-breaker rule below for when more than one party qualifies and it clearly benefits the "Parent" over another qualifying party. Does the same rule apply if neither party qualifies?:

Tiebreaker rules. To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply.

• If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent.
  
  

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Originally Posted by tunger66

Please help me understand what "Different Provision" would allow them to qualify. Can I apply the same provision to qualify myself?

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Please read pages 16-18 of the instructions for Form 1040: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf

On page 16 you will see why the children are not "qualifying children" for you (because you don't have custody and your ex hasn't signed the waiver described on pages 17 & 18), and on page 17 why your children are not "qualifying relatives" for you (because apparently you don't provide at least half their upkeep).

If after reading this you still have questions as to why you don't qualify, please ask.

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Originally Posted by ebaines

Please read pages 16-18 of the instructions for Form 1040: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf

On page 16 you will see why the children are not "qualifying children" for you (because you don't have custody and your ex hasn't signed the waiver described on pages 17 & 18), and on page 17 why your children are not "qualifying relatives" for you (because apparently you don't provide at least half their upkeep).

If after reading this you still have questions as to why you don't qualify, please ask.

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I read all of those pages in detail and have come to the conclusion that only the custodial Parent (mother)technically "qualifies" to claim the children as her dependent because they live with her the majority of the year. Since she is not a taxpayer, the next question is whether the children can be claimed as a "Qualifying relative" by anyone else [i.e. the other parent (OP) or the Grandparent]. It does seem that both the OP and the Grandparent equally meet those conditions. The only gray area there is the condition of providing "over half of his or her support" which has never been documented to determine what amount is "half" and who is exceeding that amount of support.
Without documentation showing that one party HAS NOT provided over half of their support, then technically both parties can claim to provide over 50% of the children's support thus both parties can claim the children as "qualifying relatives". But only one party can take the credit so the "tie-breakers rules are invoked. The first "tie breaker" rule benefits a Parent over a Non-parent.
What did I miss?

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Originally Posted by J_9

I'm going to forego the legal lingo for a moment and offer another question...

Wouldn't it be prudent in this case for the OP (original poster) to return to court so that the court could determine who is able to use the child(ren) as a deduction? This is common in many divorce/custody cases.

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I don't think so. As I detailed in Post # 16, it appears that the courts are no longer given the discretion which they once were in determining who gets the "deduction". And, as I also have suggested, OP doesn't have standing to look into or contest the grandparents' taxes.

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Originally Posted by AK lawyer

I don't think so. As I detailed in Post # 16, it appears that the courts are no longer given the discretion which they once were in determining who gets the "deduction". And, as I also have suggested, OP doesn't have standing to look into or contest the grandparents' taxes.

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If both the OP and the Grandparent claim the children as "Qualified Relatives" under the same criteria and conditions on their respective 2014 tax returns:
1.)How does the IRS determine who to give the credit to?
A.)Do they assume both parties were correct in their assertion that the criteria was met by both parties and invoke the tie-breaker rules? Or
B.)require each party to prove they meet each criterion and to provide financial records to determine who(if either/or both) provides over 50% of the children's support?
2.) What are the penalties and/or risk involved for the OP to claim the children as( and honestly believes they are) Qualified relatives on the 2014 return if:
a.)the Grandparent makes the same claim?
b.)it is later determined that the OP provides less than half of the support?

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Originally Posted by tunger66

The only gray area there is the condition of providing "over half of his or her support" which has never been documented to determine what amount is "half" and who is exceeding that amount of support.

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Indeed all my comments throughout this thread have been based on your statement that you provide no child supoort, just food & shelter 4 months/year. I would suggest reading pages 18 and 19 of Pub 501, which has a more in-depth discussion of how to determine the cost of upkeep. See: http://www.irs.gov/pub/irs-pdf/p501.pdf

Upkeep includes food, lodging, clothing, education, medical & dental, recreation, transportation, and similar necessities. Note that the value of lodging is determined by the fair market value of the room provided for the child - in other words, even though your ex has no mortgage there is a value to the room she provides, and that value is most likely related to the value of her home.

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Originally Posted by tunger66

The first "tie breaker" rule benefits a Parent over a Non-parent.

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As I read it the tie breaker applies only to breaking ties for two people who can both claim a child as a "qualifying child." But neither you nor the grandparents can do that - the question is whether the children are your "qualifying relatives," not "qualifying children," and there is a big difference. I don't see any tie breaker rules for qualifying relatives. So it boils down to doing the calculation of (a) the upkeep you provided divided by (b) the total upkeep provided by all parties throughout the year. If that number is greater than 50% then by all means go ahead and claim the children. But be sure to keep notes of yuor calculations so that if you are audited in 2-3 years you can justify your filing.

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Originally Posted by tunger66

If both the OP and the Grandparent claim the children as "Qualified Relatives" under the same criteria and conditions on their respective 2014 tax returns:
1.)How does the IRS determine who to give the credit to?

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They would require both parties to submit evidence of amount of support provided, and then do the math to see whose claim is better.

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Originally Posted by tunger66

2.) What are the penalties and/or risk involved for the OP to claim the children as( and honestly believes they are) Qualified relatives on the 2014 return if:
a.)the Grandparent makes the same claim?
b.)it is later determined that the OP provides less than half of the support?

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As long as it's clear that fraud is not involved (and here I think there is little risk of that), then if your claim is disallowed you would have to pay the additional taxes due plus a "failure to pay" penalty of 1/2% per month plus interest charges of about 5%/year. For example, if two years from now the IRS disallows your claim and you get socked for $2000 additional taxes owed, you would have to pay $2000 + 12% + 10% = $2440.

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Originally Posted by ebaines

Indeed all my comments throughout this thread have been based on your statement that you provide no child supoort, just food & shelter 4 months/year. I would suggest reading pages 18 and 19 of Pub 501, which has a more in-depth discussion of how to determine the cost of upkeep. See: http://www.irs.gov/pub/irs-pdf/p501.pdf

Upkeep includes food, lodging, clothing, education, medical & dental, recreation, transportation, and similar necessities. Note that the value of lodging is determined by the fair market value of the room provided for the child - in other words, even though your ex has no mortgage there is a value to the room she provides, and that value is most likely related to the value of her home.



As I read it the tie breaker applies only to breaking ties for two people who can both claim a child as a "qualifying child." But neither you nor the grandparents can do that - the question is whether the children are your "qualifying relatives," not "qualifying children," and there is a big difference. I don't see any tie breaker rules for qualifying children. So it boils down to doing the calculation of (a) the upkeep you provided divided by (b) the total upkeep provided by all parties throughout the year. If that number is greater than 50% then by al means go ahead and claim the children. But be sure to keep notes of yuor calculations so that if you are audited in 2-3 years you can justify your filing.

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I believe the answer lies in the wording of the tie-breaker rules below. The custodial parent is not claiming the children by not filing a return. The OP has the higher AGI because the custodial parent claims no income.

[SIZE=1]If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year.

If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents.


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I think what is missing here is that we dont know who is filing what. The grandparents cannot claim the children if they are also claiming the mother of the children. It is an either or situation not both.

I would say at this point file for an extension for taxes and go to court to straighten it out.