In a July 31, 2009 opinion by the Dallas Court of Appeals, it was confirmed that Federal law trumps Texas law when it comes to income tax issues. In In re S.L.M., the mother brought child custody proceedings against father. The district court appointed mother and father as joint managing conservators and awarded mother the right to claim the children as exemptions on her federal income tax return. On appeal, father contended the district court erred in awarding mother the right to claim the two children as tax exemptions. In re S.L.M., ___ S.W.3d ___, No. 05-08-01277-CV, 2009 WL 2343264 (Tex. App. – Dallas July 31, 2009, no pet. h.).
The Dallas Court of Appeals held the district court erred in awarding mother the exemption rights and examined tax exemptions under the United States Internal Revenue Code. In computing taxable income, a taxpayer is permitted to claim dependents as exemptions. 29 U.S.C. Sect. 151(a) & (c). The Internal Revenue Code provides that for divorced parents the custodial parent is the party entitled to the dependent exemption. Id. at Sect. 152(e)(1). The Internal Revenue Code defines a custodial parent as the parent having custody of the child for the greater portion of the calendar year. Id. at Sect. 152(e)(4).
In applying the relevant provisions of the Internal Revenue Code to the facts, the court held that on any given week the father had possession of the children for approximately 100 hours as compared to 68 hours a week for the mother. Accordingly, the trial court erred in awarding mother the dependent exemptions and reversed its ruling.
The S.L.M. ruling shows that notwithstanding the power of the district court, Federal law trumps Texas law when it comes to tax issues. As a Dallas divorce lawyer it is important to stay on top of not only family law developments but developments in other areas that impact family law, including (although sometimes mind numbing) tax law.