[tunger66]

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?

[ebaines]

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.

[AK lawyer]

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

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

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

No.

Can anybody else claim them?

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

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?

No. You are not eligible to claim the credit.

[ebaines]

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

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.

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

[ebaines]

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?

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

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

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.

[AK lawyer]

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

I stand corrected.

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

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.

[ebaines]

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.

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.

[tunger66]

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.

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.

[ebaines]

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.

[tunger66]

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.

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.

[ebaines]

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!

[cdad]

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.

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.

[tunger66]

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.

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.

[ebaines]

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.

[AK lawyer]

... 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.
...

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)".

"...
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.
   "

It appears to me that neither of these paragraphs apply.

[talaniman]

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.

[tunger66]

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

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)?

[AK lawyer]

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)?

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.

[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.