Under what condition can the custodial parent transfer the dependency exemption to the non-custodial parent?

The dependency exemption for a child can indeed be transferred from the custodial parent to the non-custodial parent under specific conditions. The correct answer highlights that this transfer can occur for one or more years, as stipulated by the IRS guidelines.

For the transfer to take place, the custodial parent must provide written consent, typically via IRS Form 8332, which allows the non-custodial parent to claim the dependency exemption on their tax return. This transfer can be set up for either a single year or for multiple years, depending on the mutual agreement between the parents.

This provision ensures that both parents have some flexibility regarding the financial responsibilities of child support and tax benefits, depending on their arrangements post-divorce. It's important to highlight the necessity for clear documentation to uphold the legitimacy of the claims made on tax returns.

Other options, while they touch on relevant aspects of custodial arrangements and tax law, do not accurately represent the specific circumstances under which the dependency exemption is transferable. For instance, while both parents agreeing can play a role, it’s not a standalone condition defining the transfer; similarly, the notion that transfer is not allowed contradicts the IRS's allowance under certain conditions.