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Tuesday September 15, 2015

Kentucky Supreme Court Renders Decision on a Trial Court’s Authority in Awarding Federal Tax Exemptions
posted by Rebecca Smither

Kentucky Supreme Court Renders Decision on a Trial Court’s Authority in Awarding Federal Tax Exemptions

Very often, in divorce, child custody and child support disputes, the issue of federal income tax exemptions and the right to claim a child as a dependent arises.  For the first time, under the case of Adams-Smyrichinsky v. Smyrichinsky, the Kentucky Supreme Court addressed the authority Kentucky trial courts have in awarding a tax exemption as part of a child support award. 

As a bit of background, it is important to know and understand just how the Federal Internal Revenue Code (IRS Code) treats claiming dependents as exemptions for income tax filing purposes.  The IRS Code and regulatory provisions, found under 26 U.S.C. §152(e), assign federal tax exemptions to the “custodial parent.”  A custodial parent is defined as the parent with whom a child resides for the greater number of nights during the calendar year.  The non-custodial parent is the parent who is not the custodial parent.  26 C.F.R. §1.152-4.  The federal provisions permit a non-custodial parent to receive the federal exemption if the custodial parent signs a written waiver declining to claim the exemption. This form is often referred to as IRS Form 8332. 

Often times, parents will agree to alternate years claiming a child as an exemption for tax filing purposes.  But where there is no agreement, the question arises regarding what authority the Kentucky state trial courts have in awarding a federal tax exemption.

In its August 20, 2015 Opinion, the Kentucky Supreme Court held that awarding

the tax exemption as part of a support order is modifiable, but the award of the tax exemption requires an actual nexus to the support of the child.

The Court explained that an award of a tax exemption to a party who does not qualify for it under the IRS Code, and the attendant order requiring the otherwise entitled party to sign an involuntary “waiver” of his or her federal statutory right to claim the exemption against income taxes, requires the state trial court to meet the heavy burden of stating sound reasons that the award actually serves as a support issue benefiting the child. 

Thus, a state trial court must articulate a sound reason for why awarding the exemption to the non-custodial parent and how the award actually benefits the child and affects the child’s support. When the state trial court cannot articulate these reasons, then the award to the non-custodial parent must not be done

The Court clearly explained that who is entitled to receive a tax exemption is defined by federal law under the IRS Code.  A state trial court cannot award the exemption like a piece of property.  The trial courts may only order a custodial parent to sign a waiver in favor of the non-eligible party for stated, sound reasons reliably related to the support of the child.

This Kentucky Supreme Court decision will no doubt have an impact on tactics to be utilized during negotiations and trials held in divorce, custody and child support proceedings. 

For more information, or if you are seeking answers to questions you may have regarding your rights in a divorce, custody or child support matter, please contact Rebecca A. Smither, via phone at 502-254-2110, or email at