Q-1:

Subject: Tax question

Hi Kerry,

I am willing to pay for this advice, just please tell me how and how much.

My ex and I share custody of our 2 children exactly 50%.  Our divorce decree in 2004 states that we shall each claim one child as an exemption and shall each file as Head of Household. 

The IRS is disallowing my claim for HoH in 2003.  We were legally separated and meet all the other requirements. 

My question is:  if two parents have two children and each keep them exactly 50% of the time, can they each file as HoH?  How do you “prove” this to the IRS?

The IRS is asking for school records or medical records, which I don’t have.  Is there a precedent for this?

Thank you!

A-1:

What makes this a little more difficult than normal is the fact that you were still legally married as of 12/31/03.  Following are the rules for persons in your situation to qualify for HoH status, copied from page 4-7 of my QuickFinders book:


Considered unmarried. A married taxpayer can file as HOH if all of the following tests are met:
1) The taxpayer files a separate return.
2) The taxpayer paid more than half the cost of keeping up his or her home for the tax year.
3) A spouse did not live in the home during the last six months of the tax year. [Tax Court denied HOH status to a taxpayer whose spouse slept a single night in her home during the last six months of the year (Hopkins, TC Memo, 1992-326).]
4) The taxpayer's home was the main home for more than half the year of his or her child or step-, adopted or foster child.
The child must be a dependent unless the child's noncustodial parent is allowed the exemption under a decree, agreement or release of exemption. To qualify as a foster child, a child must be a member of the taxpayer™s household for the entire year.
5) The taxpayer is a U.S. citizen or resident during the entire year.

Keeping up a home. The cost of upkeep includes property tax, mortgage interest, rent, utilities, repairs, property insurance, food consumed on the premises and other household expenses.

Two unmarried taxpayers living with their own dependent children in a shared home may both qualify as HOH if they maintained separate households and each paid more than half the cost of his or her separate household (SCA 1998-041). Factors discussed in the memorandum that showed separate households include: the adults did not share a bedroom, each household had a separate phone, and the taxpayers gave gifts separately and made separate charitable contributions.



If you note, the rules specify "more than half the year."  This means that claiming exactly 50% custody for each of you makes you both ineligible.  You may want to negotiate with your ex and decide which one of you would most benefit from claiming more than 50% custody for 2003 for at least one of the kids so that either you or she can benefit from the HoH filing status.  Changing the custody to something like 49/51 and 51/49 might allow you both to qualify for HoH.

Unfortunately, this is a very commonly misinterpreted technicality in the tax code, where the dividing point is designated as more than 50% and not exactly half. 

This is also not going to just be a problem for 2003.  Even when you are single, the language to qualify as Head of Household specifies more than 50%.  Whoever advised you that you could both claim the HoH with an exact 50/50 division of custody was not reading the tax rules properly.   You may want to revisit the entire agreement for your custody situation to see if you can work out a better plan than the screwed-up one you currently have.  

Having two kids should make the solution a lot easier than if there were only one.  While your own legal and tax advisor may come up with a better solution, I have often seen cases like this where each parent gets to claim that one of the kids was with him/her for more than half of the year.  That would make both parents eligible for the HoH.

I hope this helps.  As always, you should consult with a tax pro for more specific advice on how these and other tax rules affect your situation.

Good luck.

Kerry Kerstetter

 Q-2:

Thanks, Kerry.

I guess the real glitch is how you prove the >50%.  Using your recommendation of each kid being 51/49 and 49/51,

It could be a challenge because it looks like the only acceptable methods regarding the kids are:

 DOCUMENTS TO SUPPORT Head of household status

 1.   School records listing the qualifying person’s address as the same

 2.   Medical records listing the qualifying person’s address

 The kids’ records would need to be different.

A-2:

I don't see how the school record addresses are as important as you and your ex coming up with a consistent record of the number of days each child lived in each home.  If you can coordinate the preparation of a kind of attendance record for each kid that you will both vouch for, and if that shows you each with one of the kids more than 182.5 days in your home during the year, you should be okay in terms of qualifying for the HoH status.

I'm assuming that you and your ex each pay the cost of maintaining your own separate homes, so there will be no problems covering that part of the HoH requirement.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/12/2006 01:10:00 PM Send this post: