What Happened to the ITC (Income Tax Considerations) Adjustment??

40805168 - close up u.s. individual tax form 1040 with calculator and pen.Before 2012, Section A of Appendix V to the Kansas Child Support Guidelines simply said “If the parties share or alternate the exemption, Section A [the dependent’s exemption and the Federal Child Tax Credit] should not be used. Appendix V, Section A. Dependent’s Exemption and Child Tax Credit, CSG 2008, AO 216.

Before 2012, the examples in Section A of Appendix V also provided a mathematical formula to calculate the adjustment, if there was no sharing or alternating of the exemption(s):

The value of the exemption to the noncustodial parent may be calculated by multiplying the applicable exemption amount by the noncustodial parent’s applicable highest marginal rate at both the federal and Kansas levels. The combined federal and Kansas amount should be divided by 12 to arrive at the monthly amount. A portion of this amount would then be allocated to the noncustodial parent based upon his/her share of the combined income [emphasis added].

In 2012 however, Appendix V was redrafted to read

If the custodial parent agrees to alternate the exemption, the additional tax benefit to the noncustodial parent should be shared with the custodial parent equitably. If the noncustodial parent agrees to allow the custodial parent to claim the exemption in years that the noncustodial parent was entitled to the exemption [ed. note: the noncustodial parent is never “entitled” to the exemption unless the custodial parent consents in IRS Form 8332”], the additional tax benefit to the custodial parent should be shared with the noncustodial parent equitably. (emphasis added)

If the custodial parent elects not to alternate the income tax exemption for the minor child by executing IRS Form 8332 or a substantially similar form, the court shall consider the actual economic effect of the failure to alternate the exemption on the noncustodial parent and may adjust the noncustodial parent’s monthly child support accordingly.” Appendix, V Section A.1 – Dependent’s Exemption (emphasis added)

and

If the right to claim a qualifying child as a dependent is not shared between the parents, the monthly value of the tax credit should be included in the Income Tax Considerations adjustment. Appendix, V Section A.II – Federal Child Tax Credit

The mathematical formulaic approach set out in the pre-2012 Guidelines was eliminated by these new 2012 provisions, with the result that mathematically calculating a suggested ITC adjustment became impossible as a mathematical exercise.

Consider: “Multiply value A times value B” is a mathematical concept, whereas “shared equitablyor “adjusted accordingly” is not. The allocation of Income Tax Considerations adjustment thus becomes open to argument as to what is “equitable” or “fair.”

To be sure, the dollar amount of the economic tax benefit to each parent the TRV (Tax Reduction Value) is not hard to determine. The value remains (as it was before the 2012 revisions) “the applicable exemption amount [multiplied] by the noncustodial parent’s applicable highest marginal rate at both the federal and Kansas levels.”

(The TRV of each child as a dependent for either Mom or Dad can also quickly be determined by simply consulting the Tax Results report produced by the Bradley Kansas Child Support Calculator.™)

Things can get pretty complicated, however, if the right to claim a child as a tax dependent is alternated for future years, or is not limited to a single child, or where the family custodial arrangements are “creative.”

For example, in a given case, one could argue that if custodial parent Mom is allowed to claim Sarah (who would have a tax reduction value for Dad of $50.00 per month if he were allowed to claim her), while Dad is allowed to claim John (whose tax reduction value to Mom would be only $35.00 per month because Mom is in a lower tax bracket than Dad), it would be equitable to subtract the tax reduction value surrendered by custodial Mom for John ($35.00) from the tax reduction value denied to Dad for Sarah ($50.00) and view the Income Tax Considerations adjustment as having a value of $15.00 per month (reduction in Dad’s child support). In other words, the $50.00 benefit Dad could have realized had he claimed Sarah is offset by the $35.00 benefit he denied to Mom in claiming John, so the net tax reduction value lost by Dad is $15.00 per month – thus it is “equitable” to reduce Dad’s child support obligation to Mom by $15.00 per month.

What would be equitable, however, if Mom had denied Dad’s desire to claim John as his dependent, and offered to allow Dad to claim Sarah instead? Or should Mom’s refusal to allow Dad all of his requested parenting time with Sarah be considered? What about the children’s requests regarding custody arrangements? What of a teenager’s refusal to participate in parenting time to a degree that it affects a parent’s ability to claim the child as a dependent? What if Mom gets a “Head of Household” benefit for the children with her – should we reduce Dad’s child support by some percentage of the HOH benefit even if he has remarried and files a joint return with a new spouse (thus denying himself any HOH benefit)? The permutations are endless!

For the foregoing reasons, we are unable to suggest what the TRV of an alternated child should be.

For a simple, alternative approach, please see our blog item “Ignore the Alternated Child?”

About Brad Short

CEO : Bradley Software; Of Counsel at Short, Borth & Thilges, Attorneys at Law, LLC, Overland Park, Kansas. Born Birmingham, Alabama, December 27, 1941; admitted to bar,1966, Kansas and U.S. District Court, District of Kansas; 1975, U.S. Court of Appeals, Tenth Circuit; 1976, U.S. Supreme Court. Education: University of Colorado (B.A., 1963; J.D., 1966). Contributing Author, Practitioner's Guide to Kansas Family Law, Kansas Bar Association, 1997. Listed in: The Best Lawyers in America, Family Law, every year from 1987 through 2013. Member, Technology Advisory Committee, Kansas Judicial Council, 1991-1998. Member: Bourbon County, 1966-1977 (President, 1970-1971), Johnson County (Member: Ethics and Grievance Committee, 1984-1998; Family Law Bench/Bar Committee, 1984-), Kansas and American (Vice-Chair, Solo Practitioners and Small Firms Committee, Economics of Law Practice Section, 1984-1985) Bar Associations; Kansas Trial Lawyers Association, 1974-1984 (State Treasurer, 1975-76; Member, Board of Governors, 1974-1984). Fellow, American Academy of Matrimonial Lawyers, 1994-2013 . Practice areas: Family Law.
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