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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10877
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My minor son has dividends and capital gains causing a tax

Customer Question

My minor son has dividends and capital gains causing a tax liability of over $2000 .. The funds are in my sons account and is managed by my ex husband .. I have no access or control to these funds.. My ex husband says that because it's my year to claim him the tax liability is mine .. I can't find anything on the irs website that addresses this ... But it doesn't seem right that I can be responsible for something that I have no access or control over .. I don't even know how much money is in his account
Submitted: 1 year ago.
Category: Tax
Expert:  ShawnA replied 1 year ago.

ll to discuss why this is NOT your issue and YOU should not worry about it.

Expert:  ShawnA replied 1 year ago.

I have just sent the offer. All you need do is accept.

I am free now. EST 4:37 but will be leaving soon.

Expert:  ShawnA replied 1 year ago.

In a situation where HE has the control and HE is listed as the Guardian (I am assuming your son still a minor) HE should be reporting this.

On the call we can discuss this and I will explain your ability to not have to be burdened with this.

Expert:  Lane replied 1 year ago.
Hi,Sory, but the above is incorrect. It's not quite that simple...The link is between the childs tax responsibility is to the parents NOT to the person that happens to be the custodian on the UTMA/UGMA account.Custodians can be grandparents, uncles, etc.... Even though you have this agreement to to share the dependency exemption, federal law will trumps state civil law... IRS rules don’t depend on what the custody agreement states. This creates certain confusion at tax time. ... The person who has the responsibility either to (1) help the child complete their own tax return OR (2) elegt to have that income added to their own return us the CUSTODIAL: parent .... According to the IRS, the custodial parent is the parent who the child spent the most number of nights with during the past tax year.... and other than the exception below... Only the custodial parent may then claim the child as a tax dependent.
Customer: replied 1 year ago.
I had found in tax code that as long as the minor child's income was "unearned" that the tax liability was the child's ..,only when there is earned income that the parents can be liable
Expert:  Lane replied 1 year ago.
No this has to do with what's called the kidddie tax: the tax on over 2000 of UNEARNED income that has to be taxed at the parent's rate ... This was first instituted by comgress to keep parents from shifting investments to the kids to keep the interest and dividends from being taxed at the parents' higher tax rates.Here ''s IRS guidance on this ... and it only apploes to UN-earned incomehttp://www.irs.gov/taxtopics/tc553.html
Expert:  Lane replied 1 year ago.
Now, let me try to get in the whole answer I was trying to get in before...This MIGHT still work to your advantage
Expert:  Lane replied 1 year ago.
OK, here goes ... read this threouogh and let's see where you are... The link is between the childs tax responsibility is to the parents NOT to the person that happens to be the custodian on the UTMA/UGMA account.Custodians can be grandparents, uncles, etc. Even though you have this agreement to to share the dependency exemption, federal law will trumps state civil law. IRS rules Do NOT depend on what the custody agreement states. The person who has the responsibility either to (1) help the child complete their own tax return OR (2) elect to have that income added to their own return ... is the CUSTODIAL parent. According to the IRS, the custodial parent is the parent who the child spent the most number of nights with during the past tax year.... and other than the exception below. Only the custodial parent may then claim the child as a tax dependent ADn has the responsibility to deal with the child's income. An exception does apply when parents agree to alternate the dependency deduction from year to year. But this next part is important ... For this to carry any weight with IRS, the custodial parent must sign Form 8332, waiving their right to the dependency deduction and the noncustodial parent attaches it to their tax return. (This is something that's tested every year) Noncustodial parents would be wise to obtain this signed waiver as a part of the divorce settlement.... MORE IMPORTANT, again, is the need to attach it to the tax return each year the exemption is claimed. I't an absolute. SO, as you can see, it's not even as simple as who claims the dependent (that has the responsibility as the CUSTODIAL PARENT) it's EITHER (1) the ACTUAL custodial parent or (2) the NON-Custodial (IF the 8332 form has been signed by the custodial parent) allowing the exemption and requiring that they essentially stand in for the custodial parent What happens with joint custody and a child that splits their time equally between the parents? For tax purposes, the IRS has tiebreaker rules clearing up ANY any doubt to who is the custodial parent when the question arises. According to the IRS, the parent with the highest adjusted gross income is the custodial parent for tax purposes when children split their time 50/50 among both parents. Here's the IRS guidance on this: http://www.irs.gov/publications/p17/ch03.html Let me know if you have questions... lane
Customer: replied 1 year ago.
My question is not about dependent exemption ... That is not at issue .. The problem is that my son has over $18,000 of dividends and capital gains of which his tax liability calculated on my tax rate is $2,213 .. My question is based on IRS tax law who is responsible for the minor child's tax liability? If as custodial parent I am personally liable for a tax liability based on assets and income for which I have no access or control over then I will have to go back to family court and try and obtain some resolve there because I don't see how I can be liable for an income tax liability for income which is not mine or available to me .. It seems the assets that generared the tax should pay the tax
Expert:  Lane replied 1 year ago.
That's a completely reasonable assumption.First step is to make the determination as to the custodial parent.Who gets the dependency exemption is NOT the issue, although it's related.The tax policy/logic here is that if you ARE the custodial parent... which you may not BE, under IRS definition, which (unless your husband gave the 8332 ) and are able to take the dependency exemption, child tax credit, earned income credit, use the child's medical costs as a deduction, etc., etc. then the decision whether to report the income as yours or as your child's is yours to make ... THIS year This IS your child's tax liability not yours ... ALTHOUGH becasue of the kiddie tax rules, taxed at the parent's rate. YOU have every right to demand that the assets of the child be used to pay the tax. At this juncture your choices are (1) make the case that you are NOT the custodual parent or (2) do the tax return for the child and let IRS attach the child's assets to pay the taxes. This is you child's tax liability, not yours.
Expert:  ShawnA replied 1 year ago.
Different expert here. If there is an IRS issue I would claim that since you have no access to the account or the account records and your ex spouse in the guardian on the account, and since there is no mention of this in the divorce decree, I would argue that he ( as he controls) the account and has the statements and tax paperwork sent to him, HE should have to do the paperwork.
This is my perspective.
Expert:  Lane replied 1 year ago.
I have given you the rules. ... and they are what they are.If you'll do the research (possibly talk to a tax attorney, not an accountant) to ascertain the rule of law here, you'lll see this over and over.Custodial parent is the person who benefits AND has the responsility of electing either to pay on their own return or have the child pay on their own return.If you have the child pay... eventually ... the child's assets will be attached, to pay.But I would look closely to determine whether you ARE the custodial parent under federal law... If the husband has a higher AGI, it's VERY possible for THAT reason thet he is the responsible person.