Representation before the IRS · Supporting documentation
Legal documents
tax year · reviewed 2026-08-19 · I. Ohu
The rule
Legal documents come into a tax file for a reason that is easy to state and easy to over-read: they establish facts, and facts feed into federal tests. They do not establish the federal answer. A state court can determine who has custody of a child; only the Code determines who may claim that child. A settlement agreement can allocate a payment; only IRC § 104 determines whether it is excluded from income. The practitioner’s task is to read the document for the facts the federal test needs, and to resist the client’s assumption that the document decided the question.
Birth certificates and similar records go to relationship, age and residency — the building blocks of the dependency tests. They prove parentage and date of birth; they do not prove who provided support or where the child lived, which are separate elements requiring separate evidence.
Divorce decrees carry two quite different loads, and the law changed underneath one of them.
- For a dependent child, a special rule applies (IRC § 152(e)) where a child receives over half of their support from parents who are divorced or legally separated under a decree, separated under a written separation agreement, or living apart at all times during the last six months of the year, and is in the custody of one or both parents for more than half the year. In that situation the child is treated as the qualifying child or qualifying relative of the noncustodial parent only if the custodial parent signs a written declaration that they will not claim the child, and the noncustodial parent attaches that declaration to their return. Form 8332 is that declaration. A decree awarding the exemption to the noncustodial parent, without the signed declaration attached, does not satisfy § 152(e)(2).
- For alimony, the deduction under IRC § 215 was repealed by the Tax Cuts and Jobs Act. The repeal applies to divorce or separation instruments executed after 31 December 2018, and instruments executed on or before that date and modified afterwards where the modification expressly so providesTY2026. So the decree’s date is now the first question asked of it, and a decree executed in 2016 and modified in 2022 may or may not have moved regimes depending on what the modification says.
Settlement agreements determine the character of a payment for IRC § 104(a)(2), which excludes from gross income the amount of any damages, other than punitive damages, received whether by suit or agreement and whether as lump sums or periodic payments, on account of personal physical injuries or physical sickness. Three words in that provision do the work: punitive is always outside, the injury or sickness must be physical, and the payment must be on account of it. Where an agreement allocates between claims, the allocation is evidence of the parties’ intent — and it is far more persuasive where it was negotiated at arm’s length than where it was inserted after the fact for tax reasons.
Current figures
| Item | Content |
|---|---|
| Alimony deduction repeal — instruments covered | divorce or separation instruments executed after 31 December 2018, and instruments executed on or before that date and modified afterwards where the modification expressly so providesTY2026 |
| Charitable contribution requiring a written acknowledgment | $250 or more per contribution, requiring a contemporaneous written acknowledgment from the donee organizationTY2026 |
| What the acknowledgment must contain | 3 items — the amount of cash and a description (but not value) of any non-cash property contributed; whether the donee provided any goods or services in consideration; and a description and good faith estimate of the value of any such goods or services, or a statement that they consisted solely of intangible religious benefitsTY2026 |
| When it must be obtained to be contemporaneous | obtained on or before the earlier of the date the return for the year of the contribution is filed, or the due date including extensions for that returnTY2026 |
How it works in practice
Ask for the decree, and read the date first. Execution date, and the date and terms of any modification, decide which alimony regime applies. A modification after 2018 moves the instrument into the post-repeal regime only where it expressly provides that the TCJA amendment applies. Clients routinely assume a modification changed everything or changed nothing; the answer is in the language.
Form 8332 travels with the return, every year it is needed. The declaration may cover one year or several, and the noncustodial parent must attach it. A representative taking on a noncustodial parent mid-stream should establish whether a multi-year release exists, who holds the original, and whether it has been revoked — a revocation takes effect for years beginning after the year the custodial parent gives written notice.
A decree is not a release. This is the most frequently litigated point in this area and the most frequently misunderstood by clients. State courts allocate the dependency benefit as part of a settlement all the time; § 152(e)(2) requires a signed written declaration attached to the return. The practitioner’s move when a client produces a decree is to explain what is needed and to help get it, not to file on the decree.
Read a settlement agreement for what it says the payment is for. Where the underlying claim was for physical injury, the exclusion is available for the compensatory portion. Where it was for emotional distress not attributable to physical injury, it is not. Where the agreement is silent, the character is determined from the underlying claim, the pleadings and the negotiation record — which is why a representative should ask for the complaint as well as the agreement. Punitive damages are income whatever the agreement says, and any portion attributable to previously deducted medical expenses is pulled back in by the opening words of § 104(a).
Wage claims inside a settlement are wages. A settlement of an employment dispute frequently includes back pay, which is compensation subject to employment tax and reported on Form W-2, alongside any excludable component. The client’s expectation that “a lawsuit settlement isn’t taxable” survives until the Forms W-2 and 1099 arrive in January, and the conversation is better had in the year the agreement is signed.
Death certificates, wills and letters of appointment establish authority as well as facts. A personal representative’s authority to act, and to receive information, rests on the appointment document — and Form 56 notifies the IRS of the fiduciary relationship. These belong in the file before any return or representation is undertaken for a decedent.
The decree that awarded the exemption
Bartholomew Achebe-Lindqvist’s divorce decree, entered in 2021, states that he is entitled to claim his daughter in odd-numbered years. He files claiming her and attaches the relevant page of the decree.
The claim fails on the statute. Where § 152(e) applies, the child is treated as the noncustodial parent’s only if the custodial parent signs a written declaration that they will not claim the child and the noncustodial parent attaches that declaration to the return. A decree, even an unambiguous one, is not that declaration. What his representative should do is obtain a signed Form 8332 from the mother — the decree gives him a contractual right to insist on it, enforceable in the state court — and attach it. What the representative should not do is file again on the decree and hope.
The settlement with one number
Ottoline Vasquez-Brennan settles a claim arising from a workplace injury. The agreement recites a single sum with no allocation. She assumes none of it is taxable.
Part of it may be excludable and part not. Section 104(a)(2) excludes damages other than punitive damages received on account of personal physical injuries or physical sickness. Her claim included both a physical injury component and a retaliation claim, and the settlement covers both. With no allocation in the agreement, character is determined from the underlying claim and the negotiation record, so her representative asks for the complaint, the demand letters and counsel’s correspondence. The lesson for the next client is earlier: an allocation negotiated at arm’s length, in the agreement itself, is worth far more than one reconstructed afterwards.
The 2017 decree modified in 2023
Séverine Oyelowo-Kasprzak has paid alimony under a 2017 decree and deducted it each year. In 2023 the decree was modified to change the amount. Her new preparer deletes the deduction, reasoning that alimony is no longer deductible.
That is too fast. The repeal of IRC § 215 applies to instruments executed after 31 December 2018, and to earlier instruments modified after that date only if the modification expressly provides that the TCJA amendment applies. The 2023 modification has to be read: if it is silent, the pre-TCJA regime continues and the deduction survives. Deleting a legitimate deduction is as much an error as claiming one that has gone, and the answer is in four lines of a court document nobody had opened.
How this has changed
The dependency rules were reorganised by the Working Families Tax Relief Act of 2004, which created the uniform definition of a qualifying child; § 152(e) survived that reorganisation as the special rule for divorced and separated parents, and the requirement of a signed written declaration attached to the return has been consistent throughout.
Alimony is the genuine break. The Tax Cuts and Jobs Act repealed IRC § 215 and the corresponding inclusion, so for instruments within the repeal there is neither a deduction to the payer nor income to the recipient. The result is that two clients with identical payment obligations can be on opposite sides of the line depending on when their instrument was executed, and that state of affairs will persist for decades. This is one of the few places in current practice where the first question about a document is simply how old it is.
Section 104(a)(2) was narrowed by the Small Business Job Protection Act of 1996, which inserted “physical” before “injuries” and “sickness” and confirmed that emotional distress is not treated as a physical injury or physical sickness. Settlement agreements drafted on pre-1996 assumptions, and older practitioner intuitions, still surface.
Exam focus
The reliably tested point is that a divorce decree does not substitute for Form 8332: where § 152(e) applies, the noncustodial parent needs a signed written declaration from the custodial parent, attached to the return. Know that § 104(a)(2) excludes damages other than punitive damages received on account of personal physical injuries or physical sickness, and that emotional distress unconnected to physical injury is outside it. Know that the alimony deduction was repealed for instruments executed after 2018, and for earlier instruments modified afterwards where the modification expressly so provides.
Check yourself
1. A divorce decree awards the dependency claim to the noncustodial parent. What else is required?
A. Nothing; the decree is sufficient B. A signed written declaration from the custodial parent, attached to the noncustodial parent’s return C. A court order directed to the IRS D. A copy of the child’s birth certificate attached to the return
Answer: B. Form 8332 is that declaration.
2. Which is excluded from gross income under IRC § 104(a)(2)?
A. Punitive damages awarded in a personal injury suit B. Compensatory damages received on account of personal physical injuries C. Damages for emotional distress not attributable to physical injury D. Back pay in an employment settlement
Answer: B. Punitive damages are expressly excluded from the exclusion, and emotional distress unconnected to physical injury does not qualify.
3. For which instruments was the alimony deduction repealed?
A. All instruments, from 2018 onward B. Instruments executed after 31 December 2018, and earlier instruments modified afterwards where the modification expressly provides that the amendment applies C. Only instruments executed after 31 December 2025 D. Instruments where the payments exceed a stated annual amount
Answer: B.
4. What does a birth certificate establish for dependency purposes?
A. Relationship and age B. Support C. Residency for more than half the year D. All of the dependency tests
Answer: A. Support and residency require separate evidence.
5. A settlement agreement recites a single sum with no allocation between a physical injury claim and a retaliation claim. How is the character determined?
A. The whole amount is excluded B. The whole amount is included C. From the underlying claim, the pleadings and the negotiation record D. Half is excluded by default
Answer: C — which is why an allocation negotiated in the agreement itself is worth obtaining.
Change log
- Initial draft.