Neal v. Commissioner

T.C. Memo. 1999-97

UNITED STATES TAX COURT

TERRY U. NEAL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 23065-97. Filed March 29, 1999.

Terry U. Neal, pro se.

Robert S. Bloink, for respondent.

MEMORANDUM OPINION

COUVILLION, Special Trial Judge: This case was heard
1
pursuant to section 7443A(b)(3) and Rules 180, 181, and 182.

1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 2 -

Respondent determined deficiencies of $2,199, $2,100, and

$2,267 in petitioner's Federal income taxes for 1994, 1995, and

1996, respectively.

The issues for decision are: (1) Whether petitioner is

entitled to dependency exemptions for 1994, 1995, and 1996 for

his daughter, Amanda Elder, and for his sons, Adam Elder and

Nathan Neal; (2) whether petitioner is entitled to itemized

deductions for 1994 in excess of an amount allowed by respondent;

and (3) whether petitioner is entitled to deductions for trade or

business expenses for 1994 in excess of an amount allowed by

respondent.

Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference. At the time the petition was filed, petitioner's

legal residence was Naples, Florida.

Petitioner was previously married to Debra Lynn Mosley (Ms.

Mosley). Two children were born to the couple prior to marriage,

namely, Adam Elder (Adam), born May 29, 1986, and Amanda Elder

(Amanda), born April 30, 1988. A third child was born to the

couple during their marriage; namely, Nathan Neal (Nathan), born

May 18, 1990. Petitioner and Ms. Mosley were divorced on

March 11, 1992, pursuant to a Decree of Dissolution (divorce

decree) by a Kentucky State court, the Fayette Circuit Court

(Fayette Circuit Court). In the divorce decree, petitioner and
 - 3 -

Ms. Mosley were granted "joint care, custody and control" of

Nathan, with Ms. Mosley as the "primary custodian and the

deciding parent in case of disagreement between the parties, and

subject to liberal visitation with notice by" petitioner. The

divorce decree made no provision for the custody of Adam and

Amanda. Since the divorce, Adam, Amanda, and Nathan have resided

with Ms. Mosley.

During May 1992, the Fayette Circuit Court issued an Order

(dependency exemption order) stating:

IT IS ORDERED AND ADJUDGED that the Decree of
Dissolution, entered herein on March 11, 1992, is
amended insofar that the Petitioner, Terry Neal, shall
be entitled to claim the child of the parties, namely
Nathan T. Neal, born May 18, 1990, as a dependent for
all income tax purposes, including federal, state and
local, since his birth year of 1990 when the Petitioner
began to pay child support for said child, and for all
subsequent years.

The dependency exemption order made no provision for Adam and

Amanda. Moreover, the dependency exemption order contained no

reference to the execution of any documents that might be

necessary to enable petitioner to claim the dependency exemption

for Nathan.

On his Federal income tax returns for 1994, 1995, and 1996,

petitioner claimed dependency exemptions for his three children

in the amounts of $7,350, $7,500, and $7,650, respectively.

Further, on his 1994 return, petitioner claimed Schedule A
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miscellaneous itemized deductions totaling $4,711, subject to the

2 percent of adjusted gross income limitation of section 67(a),

and Schedule C trade or business expenses of $8,799. Petitioner

attached to his returns Internal Revenue Service (IRS) Forms

8332, Release of Claim to Exemption for Child of Divorced or

Separated Parents; however, these Forms 8332 were not signed by

Ms. Mosley. Petitioner did not attach to the returns any

statement executed by Ms. Mosley that would contain substantively

the same information called for on Form 8332. The record

contains no evidence as to whether Ms. Mosley claimed the three

children as dependents on her Federal income tax returns for the

years at issue.

In the notice of deficiency, respondent disallowed the

dependency exemptions claimed by petitioner for the three

children for all years at issue. Further, respondent disallowed

$876 of the Schedule A miscellaneous itemized deductions and

$2,069 of the Schedule C trade or business expenses claimed by

petitioner for 1994.

The first issue is whether petitioner is entitled to

dependency exemptions in 1994, 1995, and 1996 for his three

children, Adam, Amanda, and Nathan. Respondent disallowed the

dependency exemptions on the ground that petitioner had not

established that he provided over one-half of the total support

of any of the children. Respondent further contends that
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petitioner was not entitled to the dependency exemptions for the

reason that Ms. Mosley, as the custodial parent, had not released

claim to the exemptions for the years in question, which release

would be reflected on Form 8332 or any other written statement

conforming thereto.

Section 151(c) allows taxpayers an annual exemption amount

for each "dependent" as defined in section 152. Under section

152(a), the term "dependent" means certain individuals, such as a

son or daughter, "over half of whose support, for the calendar

year in which the taxable year of the taxpayer begins, was

received from the taxpayer (or is treated under section (c) or

(e) as received from the taxpayer)".

The support test in section 152(e)(1) applies if: (1) A

child receives over half of his support during the calendar year

from his parents; (2) the parents are divorced under a decree of

divorce; and (3) such child is in the custody of one or both of

his parents for more than one-half of the calendar year. If

these requirements are satisfied, as in the present case, the

"child shall be treated, for purposes of subsection (a), as

receiving over half of his support during the calendar year from

the parent having custody for the greater portion of the calendar

year (* * * referred to as the custodial parent)", thus, allowing

the dependency exemption to be claimed by the custodial parent.

Sec. 152(e).
 - 6 -

To decide who has custody, section 1.152-4(b), Income Tax

Regs., provides that custody "will be determined by the terms of

the most recent decree of divorce" if there is one in effect.

Section 1.152-4(b), Income Tax Regs., further provides that, if a

divorce decree or written separation agreement does not establish

who has custody of a child, or in the event of so-called split

custody, custody will be "deemed to be with the parent who, as

between both parents, has the physical custody of the child for

the greater portion of the calendar year." Since the divorce

decree does not provide for the custody of Adam and Amanda, and

provides split custody for Nathan, and all three children resided

exclusively with Ms. Mosley during the years in question, Ms.

Mosley is considered the custodial parent under section 152(e).

Petitioner, as the noncustodial parent, is allowed to claim

a child as a dependent only if one of three statutory exceptions

are met. Under these exceptions, the noncustodial parent is

treated as providing over half of a child's support and,

therefore, entitled to the dependency exemption if:

(1)(a) The custodial parent signs a written declaration

that such custodial parent will not claim such child as a

dependent, and

(b) the noncustodial parent attaches such written

declaration to the noncustodial parent's return for the taxable

year, section 152(e)(2); or
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(2) a multiple support agreement pursuant to section 152(c)

determines support, section 152(e)(3); or

(3)(a) a qualified pre-1985 instrument provides that the

noncustodial parent shall be entitled to any deduction allowable

under section 151 for such child, and

(b) the noncustodial parent provides at least $600 for

the support of such child during the calendar year, section

152(e)(4).

In the present case, the exceptions in section 152(e)(3) and

(4) do not apply. There was no multiple support agreement and,

since petitioner's divorce decree and subsequent dependency

exemption order were rendered after 1985, there was no pre-1985

instrument. Thus, petitioner is entitled to the dependency

exemptions only if the requirements of section 152(e)(2) are met.

Section 152(e)(2)(A) specifically requires that the

custodial parent sign "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".

Pursuant to this statutory provision, temporary regulations were

promulgated that provide: "The written declaration may be made

on a form to be provided by the Service for this purpose. Once

the Service has released the form, any declaration made other

than on the official form shall conform to the substance of such
 - 8 -

form." Sec. 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., 49
2
Fed. Reg. 34459 (Aug. 31, 1984).

Form 8332 is the IRS form intended to satisfy section

152(e)(2), and this form requires (1) names of the children for

which exemption claims were released, (2) years for which the

claims were released, (3) signature of the custodial parent,

(4) Social Security number of the custodial parent, (5) date of

signature, and (6) name and Social Security number of the parent

claiming the exemption. The Forms 8332 that petitioner attached

to his returns for the years at issue were not signed by Ms.

Mosley. Nor did he attach to those returns any written

statements that were signed by Ms. Mosley and which would, in

substance, comply with the requirements of section 152(e)(2).

Because petitioner attached to his returns Forms 8332 that were

not signed by Ms. Mosley as required by section 152(e)(2),

respondent did not accept these Forms 8332, and disallowed the

dependency exemptions for each year. Petitioner testified that

he was unable to procure Ms. Mosley's signature because he had no

idea of her whereabouts at the times he filed his respective

returns. The provisions of section 152(e)(2) have not been

2
The Court notes that temporary regulations have binding
effect and are entitled to the same weight as final regulations.
See Peterson Marital Trust v. Commissioner, 102 T.C. 790, 797
(1994), affd. 78 F.3d 795 (2d Cir. 1996); Truck & Equip. Corp. v.
Commissioner, 98 T.C. 141, 149 (1992); see also LeCroy Research
Sys. Corp. v. Commissioner, 751 F.2d 123, 127 (2d Cir. 1984),
revg. on other grounds T.C. Memo. 1984-145.
 - 9 -

satisfied in this case. The Court holds that none of the

statutory exceptions described above applies to the present case.

Although the divorce decree, by and through the dependency

exemption order, provides that petitioner is entitled to the

dependency exemptions for Nathan, it is well settled that State

courts, by their decisions, cannot determine issues of Federal

tax law. See Commissioner v. Tower, 327 U.S. 280 (1946);

Kenfield v. United States, 783 F.2d 966 (10th Cir. 1986); Nieto

v. Commissioner, T.C. Memo. 1992-296. Unfortunately, regardless

of what is stated in the divorce decree and dependency exemption

order, the law is clear that petitioner is entitled to the child

dependency exemptions in 1994, 1995, and 1996 only if he complied

with the clear provisions of the Internal Revenue Code.

Petitioner has failed in this regard. Thus, the Court concludes

that, pursuant to section 152(e), petitioner is not entitled to

claim his three children as dependents for 1994, 1995, and 1996.

A partial remedy for petitioner, if any, lies in the Fayette

Circuit Court for enforcement of the provisions of the divorce
3
decree and dependency exemption order with respect to Nathan.

Petitioner contends that he relied on IRS publications,

which stated that it would be sufficient for petitioner to attach

3
Petitioner did not indicate that he exerted any effort
whatsoever to locate Ms. Mosley, nor did he indicate a belief
that, if he were to locate her, she would refuse to sign the
Forms 8332.
 - 10 -

to his returns a copy of his divorce decree and dependency

exemption order granting him the right to claim the child

dependency exemptions. Although the publications upon which

petitioner contends he relied were not introduced into evidence,

the testimony indicates that these publications required that any

document attached to the return for purposes of satisfying

section 152(e)(2) must contain the signature of the custodial

parent. This sort of requirement in a publication would

certainly correspond to the statutory provisions of section

152(e)(2) and the regulations thereunder. Although petitioner

attached copies of the divorce decree and dependency exemption

order to his returns for 1994, 1995, and 1996, these documents

provide that petitioner is entitled to claim a dependency

exemption for Nathan only. Moreover, petitioner admits that he

failed to attach a signature page for either of these documents,

as required by the publication, containing the signature of Ms.

Mosley. Petitioner argues that the State of Kentucky does not

require signatures of the parties on divorce decrees; thus, he

should not be required to attach to his returns a document

containing Ms. Mosley's signature.

Petitioner's argument in this regard is misplaced. An

obvious purpose of the aforementioned IRS publications is to

insure that taxpayers understand the requirements for compliance

with section 152(e)(2) and the corresponding regulations.
 - 11 -

Section 152(e)(2) and the corresponding regulations require,

unequivocally, that the signature of the custodial parent be

attached to the return of a noncustodial parent claiming a

dependency exemption, regardless of the form or nature of the

documentation attached to the return. It appears from the record

that petitioner failed to comply fully with the instructions in

the aforementioned IRS publications. Thus, not only did

petitioner fail to satisfy the statutory requirements of section

152(e)(2), but also he failed to satisfy the requirements of the

IRS publications upon which he contends he relied.

Finally, petitioner contends that he should be allowed to

claim the dependency exemptions because he provided over half of

the three children's support in 1994, 1995, and 1996. Petitioner

failed to produce any evidence to show that he provided over half

of the support for any of his three children in 1994, 1995, and

1996. Petitioner acknowledged that Ms. Mosley and the children

were receiving some measure of financial assistance from Aid to

Families with Dependent Children (AFDC); however, he did not

produce evidence of the amount of support provided by AFDC.

Additionally, petitioner failed to produce evidence of either the

total amount of support he provided for any of the three children

during the years at issue, or the total amount of support

provided for any of the three children from all sources during

the years at issue.
 - 12 -

Petitioner introduced a Judgment of the Fayette District

Court (paternity judgment), rendered on June 6, 1991, in

connection with a paternity action brought by the Commonwealth of

Kentucky on behalf of Ms. Mosley, Adam, and Amanda requiring

petitioner to pay $100 per week for the support of Adam and

Amanda. The paternity judgment also required petitioner to

obtain and maintain medical and dental insurance covering Adam

and Amanda and to pay one-half of any expenses not covered by

such insurance. Additionally, the divorce decree provided that

petitioner pay Ms. Mosley $105 per week for the support of

Nathan. However, when questioned by the Court as to how much

total support he provided for the children, petitioner replied:

"I don't have that."

In Blanco v. Commissioner, 56 T.C. 512, 514-515 (1971), this

Court held that, in establishing that more than one-half of a

dependent's support has been provided, a prerequisite to such a

showing is the demonstration by competent evidence of the total

amount of the dependent's support from all sources for that year.

If the amount of total support is not established and cannot be

reasonably inferred from competent evidence available to the

Court, it is not possible to conclude that the taxpayer claiming

the exemption provided more than one-half of the support of the

claimed dependent.
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On this record, the Court holds that petitioner is not

entitled to dependency exemptions for Adam, Amanda, and Nathan

for 1994, 1995, or 1996. Consequently, respondent is sustained

on this issue.

The second issue is whether petitioner is entitled to

itemized deductions for 1994 in excess of that allowed by

respondent. On Schedule A, Itemized Deductions, of his 1994

return, petitioner claimed miscellaneous itemized deductions

subject to the 2-percent-of-adjusted-gross-income limitation of

section 67(a) for job hunting expenses totaling $4,600. These

expenses consisted of $3,269 for mileage expenses (11,271 miles

at 29 cents per mile), telephone expenses of $1,152 (long

distance and cellular), vocational materials of $98, postage of

$52, and printing of $29. Respondent disallowed a portion of

these expenses, including $358 for mileage expenses, $384 for

telephone expenses, $40 for vocational material expenses, and $52
4
for postage expenses.

Petitioner presented no documentary evidence to show he

actually incurred any of the aforementioned expenses disallowed

by respondent. It is well established that this Court is not

4
At trial, respondent conceded that, although the notice of
deficiency disallowed $876 in itemized deductions, this was due
to a mathematical error, and the correct amount of disallowed
itemized expenses should have been $834. Thus, respondent
conceded that petitioner was entitled to an additional $42 of
miscellaneous itemized deductions.
 - 14 -

required to accept self-serving testimony in the absence of

corroborating evidence. See Niedringhaus v. Commissioner, 99

T.C. 202, 212 (1992); Tokarski v. Commissioner, 87 T.C. 74, 77

(1986). Moreover, the Court is not convinced that petitioner

incurred any job hunting expenses in excess of those allowed by

respondent. Consequently, on this record, the Court holds that

petitioner is not entitled to any miscellaneous itemized

deductions, for 1994, in excess of those allowed by respondent.

The final issue is whether petitioner is entitled to trade

or business expenses for 1994 in excess of those allowed by

respondent. On Schedule C, Profit or Loss From Business, of his

1994 return, petitioner reported $5,377 for gross receipts and

claimed $8,799 for total expenses in connection with a computer

services activity. The expenses consisted of $907 for car and

truck expenses, $14 for commissions and fees, $3,614 for

depreciation, $11 for office expenses, $236 for rental of

vehicles, machinery, and equipment, $375 for supplies, and $3,638
5
for other expenses. "Other expenses" included $1,440 for

telephone expenses, $250 for storage, $58 for professional

journals, $450 for contract labor, $316 for software, and $1,124

for diskettes. Respondent disallowed $2,069 of these expenses,

5
These figures total $8,795 rather than $8,799; however, this
apparent mathematical error is not relevant to the Court's
holdings herein.
 - 15 -

consisting of $790 for car and truck expenses, $1,256 for

telephone expenses, and $23 for storage expenses.

Petitioner presented no documentary evidence to show he

actually incurred any of the aforementioned expenses disallowed

by respondent. See Niedringhaus v. Commissioner, supra; Tokarski

v. Commissioner, supra. Moreover, the Court is not convinced

that petitioner incurred any trade or business expenses in excess

of those allowed by respondent. Consequently, on this record,

the Court holds that petitioner is not entitled to any trade or

business expense deductions for 1994 in excess of those allowed

by respondent. Respondent, therefore, is sustained on this

issue.

Decision will be entered

under Rule 155.