If You File Electronically

• If you try to electronically file your return, but your child's other parent has already claimed your child as a dependent, your return won't go through. The IRS computer isn't able to accept it if your child's Social Security number has already appeared on another return as a dependent. You'll have to file a paper return. When you do, and if you claim your child as a dependent on it, the IRS will catch it. An agent will contact you and notify you that the IRS is inspecting your returns. The IRS will ultimately apply its tiebreaker rules to determine which of you gets the exemption, and an agent will notify you as to its decision.
  
  

IRS Rules For Dispute

• The IRS will give your child's dependency exemption to the parent the child lived with most during the year. Its tiebreaker rules defer to the custodial parent. If your child lived half the year with you and half the year with his other parent, the IRS will give the exemption to whichever of you has the higher adjusted gross income, the income you have left after you make all other available deductions.
  
  

Possible Penalties

• The IRS doesn't impose any penalties against the parent who wins the tiebreaker contest. However, the other parent might be vulnerable. If you lose the tiebreaker and the IRS decides that you knew you had no right to claim your child as a dependent, and if you also claimed a child tax credit along with the dependency exemption, the IRS can fine you 20 percent of the credit. As of the time of publication, the child tax credit was $1,000, so this could result in a $200 penalty. IRS rules would also disallow you the credit; it would go to your child's other parent who can claim him as a dependent. Your tax bill would go up $1,000, just as though you hadn't tried to use the credit in the first place. If the fact that both of you tried to claim your child was an honest mistake, the IRS might not charge you with any penalties. But if your return is held up beyond tax day while the IRS investigates the situation, you could still be liable for a late filing penalty, and a late payment penalty if losing the dependency exemption results in you actually owing taxes.
  
  

Tips

• If the IRS computer blocks you from e-filing your return because your child's other parent has already claimed him as an exemption, call the IRS at (800) 829-1040 before mailing a paper return. Alert an agent as to what happened. Your phone call will become part of the IRS records, indicating that you did not try to claim your child for fraudulent purposes because you reported the problem yourself.