James Eric Bankston v. Jennifer S. Mattingly ( 2023 )

RENDERED: FEBRUARY 17, 2023; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-1490-MR
JAMES ERIC BANKSTON APPELLANT
APPEAL FROM MARION CIRCUIT COURT
v. HONORABLE SAMUEL TODD SPALDING, JUDGE
ACTION NO. 17-CI-00076
JENNIFER S. MATTINGLY APPELLEE
OPINION
REVERSING AND REMANDING
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BEFORE: THOMPSON, CHIEF JUDGE; JONES AND KAREM, JUDGES.
JONES, JUDGE: The Appellant, James Eric Bankston, brings this appeal
following entry of the November 22, 2021 order issued by the Marion Circuit
Court (“circuit court”). The order specified that the Appellee, Jennifer S.
Mattingly, and Bankston could each claim the parties’ minor child as a dependent
on his/her federal income tax returns every other year on a rotating basis. On
appeal, Bankston asserts the circuit court’s order is erroneous as a matter of law.
For the reasons set forth below, we reverse the circuit court and remand this
matter.
I. BACKGROUND
Bankston and Mattingly were never married. They have a child
together who was born in July 2015. The parties have always had joint legal
custody of the child, but it was not until April of 2018, that Bankston received
equal timesharing. As noted by the circuit court under the current timesharing
schedule the parties “essentially alternate physical custody on an equal basis.”
However, Bankston has a considerably higher income than Mattingly, and he pays
her monthly child support despite the fact that he has the child half of the time.
In 2018, by agreement of the parties, Bankston was permitted to claim
the parties’ child as his dependent for purposes of his federal income taxes.
However, thereafter, a disagreement arose as to which party would be able to do so
going forward. On September 29, 2021, Bankston moved the circuit court to be
able to claim the child each year as his dependent, pursuant to 26 U.S.C.1 § 152.
Mattingly, however, requested a court order allowing her to claim the child every
other year such that she would be able to claim the child during the years she was
not able to claim her older child as a dependent.2
1
United States Code.
2
Mattingly’s older child does not belong to Bankston.
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The circuit court determined that if Bankston did not claim the child
on his taxes his refund would be approximately $4,073 less, and that not claiming
the child would result in Mattingly getting $4,347 less. Citing Adams-
Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 781 (Ky. 2015), the circuit court
concluded that the Kentucky Supreme Court has directed state trial courts “to
allocate the tax credit in a manner which will maximize the greatest financial
benefit to the children.”
Following what it believed to be the Supreme Court’s directive in
Adams-Smyrichinsky, the circuit court then determined:
[I]f the tax credit is alternated, each party will receive an
increased refund of just over $4,000.00 during the year
they claim [the child]. Because the parties share joint
custody and are exercising timeshare on an equal basis,
the Court concludes, pursuant to Smyrichinsky, that the
tax credit should be alternated. [Bankston] will claim
[the child] during the taxable years when [Mattingly] is
claiming her older child. When [Mattingly] is not
claiming her older child, she shall claim [the child] for
tax credit purposes.
November 22, 2021 Order at 2.
II. ANALYSIS
“Giving a party the tax exemption is simply a property award, not
directly a matter of setting support, since it affects the amount of money the parent
enjoying the exemption takes home.” Adams-Smyrichinsky, 467 S.W.3d at 781.
Whether a party is entitled to the exemption is primarily a matter of federal law;
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however, as discussed in greater detail below, in certain situations, the family court
may order the parties to execute a waiver allowing one or the other to claim the
child on his or her taxes. Id.
“A taxpayer may claim a dependency deduction for a child . . . only if
the child is the qualifying child of the taxpayer[.]” 26 C.F.R.3 § 1.152-4(a). To be
a qualifying child of the taxpayer, the child must have “the same principal place of
abode as the taxpayer for more than one-half of such taxable year.” 26 U.S.C. §
152(c)(1)(B). “A child is in the custody of one or both parents for more than one-
half of the calendar year if one or both parents have the right under state law to
physical custody of the child for more than one-half of the calendar year.” 26
C.F.R. § 1.152-4(c).
Thus, the first determination is whether the child was in the custody of
either Bankston or Mattingly for more than one-half of the calendar year. The
circuit court determined that the parties have equal timesharing, and that the child
does not reside with either parent more than the other. In such situations, 26
U.S.C. § 152(c)(4)(B)(ii) applies. This section explicitly addresses situations, like
the present, where two or more taxpayers appear eligible to claim the same
qualifying child under the general custody rules. It provides that “if the child
resides with both parents for the same amount of time during such taxable year, the
3
Code of Federal Regulations.
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parent with the highest adjusted gross income” shall be treated as the parent of the
qualifying child. Thus, under the federal tax code, Bankston should be entitled to
claim child as his qualifying child, for any year in which he has a higher adjusted
gross income than Mattingly.
However, the IRS4 regulations provide that the noncustodial parent
may claim the child if:
(A) the custodial parent signs a written declaration (in
such manner and form as the Secretary may by
regulations prescribe) that such custodial parent will not
claim such child as a dependent for any taxable year
beginning in such calendar year, and
(B) the noncustodial parent attaches such written
declaration to the noncustodial parent’s return for the
taxable year beginning during such calendar year.
26 U.S.C. § 152(e)(2). The custodial parent can be ordered to execute the
exemption “under threat of contempt from a state court that has assigned the
exemption to the noncustodial parent.” Adams-Smyrichinsky, 467 S.W.3d at 782.
The circuit court appears to have read Adams-Smyrichinsky as
requiring it to allocate the tax deduction between the two parties. This is not what
the Court actually held. The federal income tax code allocates the tax deduction.
And, in this case, it gives the award to the party with the higher adjusted gross
income. The circuit court was not required to look beyond this rule and order that
4
Internal Revenue Service.
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party to execute a release in favor of the other party. What the Adams-
Smyrichinsky Court actually held was that the circuit court can do so but only if it
determines first that there are extraordinary reasons that compel disregarding the
normal IRS rules. In other words, the circuit court should presume that the IRS
rules apply, and it should not displace those rules simply for the sake of fairness or
achieving mathematical equality between the parties.
Such orders require “the state trial court to meet the heavy burden of
stating sound reasons [on the record] that this award actually serves as a support
issue benefitting the child.” Id. at 784. “[I]f the court cannot articulate a sound
reason for why awarding the exemption to the noncustodial parent actually benefits
the child, and thus affects the child’s support, then it is not making a support
award in the first instance, and it simply should not be done.” Id. (emphasis
added).
The Court explained:
Discretion, even in determining equity, or best interests,
must have a reasonable and meaningful basis if we are
not to undermine the integrity of judicial decisions and
thereby erode public faith in the judiciary. To that end, a
state court must do more than . . . simply divide the
exemptions, or simply alternate years. There is no
judgment in such an award, and no true finding of how it
is in a child’s best interest, or how the extra money
saved from taxes in one parent’s household actually
benefits the child. . . . Otherwise, this is simply arbitrary
action.
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Id. at 784 (emphasis added).
It appears from the record that Bankston qualified for the tax
deduction not Mattingly. The circuit court’s order that the parties alternate years is
not the IRS rule. In cases where the parties have roughly equal timesharing, the
IRS rule dictates that the deduction belongs to the party with the higher adjusted
gross income. Here, the circuit court made a determination what the deduction
would mean for each parent’s finances, but it did not make a determination what
it would mean to this child. Absent from the circuit court’s analysis is the critical
discussion of “how the extra money saved from taxes in one parent’s household
actually benefits th[is] child.” This could very well differ from Bankston to
Mattingly, especially since Mattingly has other children that might dilute the
benefit to this child.
“The trial court cannot award the exemption like a piece of property
and thereby bind third parties, like the IRS, by its orders; the court can only order
the ‘custodial parent’ to sign a waiver in favor of the noneligible party for a stated,
sound reason reliably related to the support of the child.” Id. at 784-85 (emphasis
added). “Because the [circuit] court did not state a reasonable nexus to support
assigning the exemption to [Mattingly for the alternating years] the [Marion
Circuit] Court abused its discretion.” Id.
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III. CONCLUSION
Accordingly, for the foregoing reasons, the order of the Marion
Circuit Court awarding the dependent-child tax deduction to the parties on
alternating years is reversed, and this matter is remanded to the circuit court for
entry of any and all appropriate orders.
ALL CONCUR.
BRIEF FOR APPELLANT: BRIEF FOR APPELLEE:
Robin C. Bennett Dallas E. George
Lebanon, Kentucky Lebanon, Kentucky
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