"Notice of Deficiency"

[SunTaxMan]

Taxpayer received and brought to me a "notice of deficiency," which advises only one option - taxpayer can "contest this determination in court before making any payment."

This is my first time with a "notice of deficiency." Is there only one option available? Is there a potential of submitting documentation to the examiner involved to resolve withOUT court involvement?

Taxpayer was denied exemption for son - divorced situation, with divorce decree specifying "odd" and "even" years applicable to each parent for claiming exemption. Spouse claimed exemption in wrong year and filed first. Taxpayer received notice of "no exemption."

Thanks for your thoughts, etc.

[TAXBILLY]

Who is the custodial parent?

taxbilly

[jainen]

>> Is there a potential of submitting documentation to the examiner involved to resolve withOUT court involvement?<<

Yes, but it is remote and risky. The IRS is notorious for being uncooperative about Notices of Deficiency (well, to take their side this was not the first contact), and once the 90 days run it is almost impossible to change anything. Since your issue is pretty simple, you might try the humble penitant approach, but if you don't see major progress within one month go to Plan B.

Plan B has little court involvement. You just file the petition, at which point your rights are preserved but the court kicks the whole thing back to Appeals, where it will probably be resolved with one phone call and a fax.

Now, I said your issue is simple, but so far you have it entirely wrong. The divorce decree is basically irrelevant, especially if it is only a few years old. So is whoever filed first. What matters is where the child lived, defined as the most number of nights in the calendar year, and whether a Form 8332 was filed. I recommend you review the current Pub 17 or other reference for dependency rules, apply them literally, and support your position with solid documentation.

[SunTaxMan]

Custody is joint/dual. Schedule in divorce decree, and followed, is strict 50/50 custody. Child lives with both. Time spent in each home is equal. Both spouses share "equally" in support, but taxpayer has greater income.

[jainen]

>>Time spent in each home is equal<<

On my calendar there were 365 nights in 2009, so unless the litigants were still living together the child couldn't be in two places at the same time. In my opinion you should follow the regs literally, including the one that specifically says a court decree can not be used to determine custody for tax purposes.

I would guess the spouse has already figured this out, in which case you are wasting your time.

[kcjenkins]

Only in leap years are there "equal halves" of the year. And even in those years, the rule is that the parent who has the child MORE THAN 50% of the time has the exemption, unless they give it to the other with a 8332. So if it really was 50/50 [highly unlikely unless they live next door to each other or the child is under school age] then you would be looking at the tie-breaker rule. But if he stays with Mom Monday night through Thursday night, and Dad Friday night through Sunday night, and they share the vacations equally, she has the kid anytime she wants to take him.