Claiming a child in taxes!
In your case, I think you have the option of either being nice (and assuming you may have to be nice every year) or sticking to the letter of the custody agreement.
I'm going to make an argument that you probably agree with - you don't divvy up children on tax returns just to be "fair" to the taxpayers involved. If you did, I'd have to lend one of my kids to a childless neighbor. If letting the ex have the deduction would make your lives easier (and it might), then consider it a small price to pay for a little bit of harmony. But it's not about "fair." Your DH gets deductions for three kids some years, and four kids some years, because you two are supporting that many kids!
In regards to penalties - At this point in the year, if you pay your estimated taxes by 1/15/13, you will not have to pay any penalties for overwithholding. When your DH's year-end pay stub comes through, use the info on it to estimate what you owe and determine, by the fifteenth, whether you should send in an estimated payment to avoid penalties. Paying penalties, or not, is entirely within your control at this juncture, and shouldn't need to enter into your thinking.
Honestly, I have no idea how the IRS deals with court orders regarding custody that don't align with their rules. It's a pretty common situation though.
Might I add that we carry the child on our insurance even though its her responsibility to do so. We are saving her money every month by doing that.
I can totally understand standing by the language of the divorce decree for all you're worth.
Do not spend a dollar to avoid fifty cents of trouble. Are you in love with every single dot and comma in the custody agreement? If your DH's ex started digging in her heels on every little thing and demanding exact adherence, would you and he and the kids be happy with the results? Is a tax deduction on one kid a reasonable price to pay for a little more ease and harmony?
And remember that MDC is completely google-able.
if she only has the kid half time then claiming every other year is fair. how many other kids he has custody of and can claim has nothing to do with her. i absolutely would only let her claim the child on the years she's allowed to and no more. if she claims the child when it's not her turn and you have a court order saying so you have grounds to sue her in small claims
i dont thinks so, turbo tax specifically asked me if there was a court order regarding who can claim. i think that rule posted above is there in the event a court order does not exist