T.C. Memo. 2000-238
UNITED STATES TAX COURT
J. ERIK AND CARRIS J. KOCHER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4938-99. Filed August 4, 2000.
J. Erik Kocher and Carris J. Kocher, pro sese.
Carol-Lynn E. Moran, for respondent.
MEMORANDUM OPINION
DEAN, Special Trial Judge: Respondent issued a notice of
deficiency to petitioners for taxable year 1997. In the notice,
respondent determined a deficiency of $1,688 in Federal income
tax and an accuracy-related penalty of $338 under section
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6662(a).1 Respondent later raised a new issue and asserted an
increased deficiency of $6,520 and an accuracy-related penalty of
$1,304.
The issues for decision are: (1) Whether petitioners are
entitled to 10 dependency exemption deductions for their
children; (2) if petitioners are entitled to the deductions,
whether they are liable for the alternative minimum tax; and (3)
whether petitioners were negligent, disregarded rules or
regulations, or substantially understated their income tax.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by reference. Petitioners resided in Glen
Mills, Pennsylvania, at the time their petition was filed.
Petitioners claimed dependency exemption deductions for
their 10 children on their joint 1997 Form 1040, U.S. Individual
Income Tax Return. Petitioners wrote “NA” in the section
provided for listing the Social Security numbers (SSN’s) of
claimed dependents. Petitioners’ children are all U.S. citizens
under the age of 18 and do not have SSN’s.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
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Respondent issued a notice of deficiency determining that
petitioners were subject to the alternative minimum tax
prescribed by section 55 on account of the number of dependency
exemptions claimed for their children. Petitioners filed a
timely petition for redetermination of the deficiency and later
amended their petition.2 In respondent’s answer to petitioners’
amendment to their petition, respondent challenged petitioners’
entitlement to dependency exemption deductions for their children
because of petitioners’ failure to provide SSN’s for their
children, and respondent asserted an increased deficiency and an
increased addition to tax under section 6662(a). Resolution of
the dependency exemption issue in favor of respondent will
resolve the alternative minimum tax issue; if petitioners are not
entitled to the dependency exemptions, they are not subject to
the alternative minimum tax.
Discussion
Taxpayers are entitled to claim an exemption for each child
who qualifies as a dependent under sections 151 and 152. Section
151(e) provides: “No exemption shall be allowed under this
section with respect to any individual unless the TIN of such
2
By order dated August 4, 1999, the Court construed
petitioners’ amendment to make a claim for an overpayment of tax
for tax year 1997.
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individual is included on the return claiming the exemption.”3
A “TIN” is “the identifying number assigned to a person
under section 6109.” Sec. 7701(a)(41). Section 6109(d) provides
that the SSN issued to an individual is the identifying number of
the individual, except as otherwise specified under applicable
regulations. The regulations specify that individuals required
to furnish a TIN must use an SSN unless the individual is not
eligible to obtain an SSN or unless the individual is required to
use an employer identification number. See sec. 301.6109-
1(a)(1)(ii)(A), (B), and (C), Proced. & Admin. Regs. “Any
individual who is duly assigned a social security number or who
is entitled to a social security number will not be issued an IRS
individual taxpayer identification number.” Sec. 301.6109-
1(d)(4), Proced. & Admin. Regs. All U.S. citizens are eligible
to receive SSN’s. See 20 C.F.R. sec. 422.104 (2000).
Respondent bears the burden of proof with respect to new
matters not raised in the notice of deficiency; thus, respondent
must establish that petitioners are not entitled to the
exemptions they claimed for their children. See Rule 142(a).
The parties have stipulated that petitioners’ children are U.S.
citizens, and petitioners do not contend that their children are
3
Sec. 151(e), which was added to the Code by the Small
Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1615(a)(1), 110 Stat. 1853, generally applies to returns due on
or after Sept. 19, 1996.
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ineligible for SSN’s. Thus, under section 151(e) and the
applicable regulations, petitioners cannot properly claim
dependency exemption deductions for their children unless they
provide SSN’s for them. Deductions are strictly a matter of
legislative grace, and taxpayers must satisfy the specific
requirements for any deduction claimed. See INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Petitioners, however, ask the Court to find that section
151(e) is “invalid because of its obvious coercive and irrelevant
nature” or to require the IRS to issue individual taxpayer
identification numbers for their children. They are opposed to
having SSN’s assigned to their children because they
conscientiously object to obligating their children “to an
irrevocable contract” and “believe it is not right to indenture
minors for life.”
We recently held that the SSN requirement is the least
restrictive means of achieving the Government’s compelling
interests in implementing the Federal tax system in a uniform,
mandatory way and in detecting fraudulent claims to dependency
exemptions. See Miller v. Commissioner, 114 T.C. __ (2000);
Davis v. Commissioner, T.C. Memo. 2000-210. In Miller and in
Davis, the taxpayers raised religious objections to the use of
SSN’s. We explicitly rejected the taxpayers’ suggestion that the
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Commissioner could accommodate their religious beliefs by issuing
individual taxpayer identification numbers for their children
because it would be a less effective means of detecting fraud
than requiring SSN’s. See Miller v. Commissioner, supra; Davis
v. Commissioner, supra.
We do not question the sincerity of petitioners’ objections
to obtaining SSN’s for their children. Petitioners, however, are
not entitled to the benefit of dependency exemption deductions
afforded by section 151 unless they obtain the SSN’s clearly
required by section 151(e). See Miller v. Commissioner, supra;
Davis v. Commissioner, supra. Accordingly, we uphold
respondent’s determination that petitioners are not entitled to
dependency exemption deductions for their 10 children.
Respondent has conceded that if petitioners are not entitled
to dependency exemption deductions, they are not liable for the
alternative minimum tax. We therefore turn our attention to
petitioners’ liability for an addition to tax under section
6662(a).
Section 6662(a) imposes a penalty of 20 percent of the
portion of an underpayment attributable to negligence or
disregard of rules or regulations or attributable to any
substantial understatement of income tax. See sec. 6662(b)(1)
and (2). “Negligence” is defined as any failure to make a
reasonable attempt to comply with the provisions of the Internal
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Revenue Code, and “disregard” is defined as any careless,
reckless, or intentional disregard. Sec. 6662(c). An
understatement of income tax is substantial if it exceeds the
greater of 10 percent of the tax required to be shown on the
return for the taxable year or $5,000. See sec. 6662(d). For
purposes of this computation, the amount of the understatement is
reduced to the extent: (1) There is or was substantial authority
for the taxpayers’ treatment of an item; or (2) the relevant
facts affecting an items’ tax treatment were adequately disclosed
in the taxpayers’ return or in an attached statement, and there
is a reasonable basis for the tax treatment of such item. See
sec. 6662(d)(2)(B).
The accuracy-related penalty does not apply if petitioners
had reasonable cause for the underpayment and acted in good faith
with respect to the underpayment. See sec. 6664(c). Whether a
taxpayer acted with reasonable cause and in good faith is
determined case by case, taking into account all pertinent facts
and circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
The most important factor generally is the extent of the
taxpayers’ effort to assess their proper tax liability. See id.
An honest misunderstanding of fact or law that is reasonable in
light of all the facts and circumstances may indicate reasonable
cause. See id.
As respondent has the burden of proving new matters pleaded
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in his answer, respondent must prove petitioners are liable for
the addition to tax under section 6662(a). See Rule 142(a). At
trial, Carris Kocher testified she was aware they were required
to include SSN’s for their children in order to obtain dependency
exemptions when she and her husband filed their 1997 Federal
income tax return. In claiming exemptions for their children but
failing to provide SSN’s, petitioners intentionally disregarded
rules and regulations.
Moreover, they substantially understated their income tax.
Petitioners reported tax due of $5,141 on their return. A
deficiency of $6,520 resulted from the denial of dependency
exemptions. There is no substantial authority for petitioners’
omission of their children’s SSN’s on their return, nor did
petitioners make adequate disclosure of the relevant facts
regarding their omission. See sec. 1.6662-4(f)(2), Income Tax
Regs.; Rev. Proc. 97-56, 1997-2 C.B. 582. The deficiency thus
exceeds the greater of 10 percent of the tax required to be shown
on their return for the taxable year or $5,000.
Petitioners do not qualify for the reasonable cause
exception of section 6664(c). They had no reasonable cause to
to claim exemptions for their children because they had no
intention of including SSN’s for the children and were aware of
the SSN requirement. Petitioners are not excused from satisfying
the specific statutory requirements for any deduction they claim.
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We, therefore, hold that petitioners are liable for the accuracy-
related penalty of section 6662(a).
To reflect the foregoing,
Decision will be entered
for respondent.