T.C. Summary Opinion 2001-19
UNITED STATES TAX COURT
LEONA PAYTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9035-99S. Filed February 27, 2001.
Leona Payton, pro se.
James A. Kutten, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined deficiencies in petitioner’s Federal
income taxes and accuracy-related penalties in the following
amounts for the following taxable years:
Penalty
Year Deficiency Sec. 6662(a)
1995 $1,830 $357.00
1996 2,051 410.20
1997 1,875 375.00
After concessions by petitioner,1 the issues for decision
are: (1) Whether petitioner is entitled to dependency exemption
deductions for several individuals for the years 1995, 1996, and
1997; (2) whether petitioner is entitled to head of household
status; (3) whether petitioner is entitled to an earned income
credit for 1996; and (4) whether petitioner is liable for
accuracy-related penalties for 1995, 1996, and 1997.
Some of the facts in this case have been stipulated and are
so found. The stipulation of facts and the exhibits received
into evidence at trial are incorporated herein by this reference.
At the time the petition was filed, petitioner lived in St.
Louis, Missouri.
Petitioner lived in a 2-bedroom apartment with a roommate
from 1995 through 1997. During these years, petitioner assisted,
1
Petitioner concedes that she received $309 wage income
from Incarnate Word Hospital and $42 interest income during 1995
which she failed to report on her 1995 Federal income tax return.
Petitioner further concedes that she did not provide more than
half of the total support for her mother, Mattie Barnes, during
1995, and stepfather, John Jones, during 1995 and 1996.
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as needed, a number of individuals, mostly family members, with
food, clothing, shelter, and on some occasions, with financial
aid. Petitioner is a licensed practical nurse and worked full-
time at South Point Hospital during the years in issue.
After the death of petitioner’s mother, Mattie Barnes (Ms.
Barnes), in January 1996, Areail Pruitt2 (Areail), petitioner’s
youngest sister, had difficulties coping with the loss of their
mother. Areail’s children, petitioner’s niece and nephew,
Racquelle Givens (Racquelle) and Rafael Givens (Rafael),
respectively, stayed with petitioner from the time of Ms. Barnes’
death until after completion of the school year in June 1996.
Both Racquelle and Rafael were minors during the years in issue.
Petitioner’s older brother, Preather Pruitt (Preather), age
41 in 1995, had undergone 2 heart surgeries prior to 1995 and was
disabled during the years in issue. He lived in his own
apartment but could not work due to his disability. He received
approximately $400 per month as disability payment from his
former employer. Preather’s monthly rent was approximately $300
per month which did not include utility expenses. Petitioner
frequently assisted Preather financially. In 1996, Preather
received Medicaid benefits in addition to the $400 monthly
2
The family name “Pruitt” is spelled “Preuitt” on
petitioner’s 1997 Federal income tax return. For consistency, we
shall use the “Pruitt” spelling for purposes of this opinion.
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disability payments. However, it is unclear from the record
whether Preather continued to receive Medicaid benefits in 1997.
Preather’s son, Jamal Pruitt (Jamal), age 15 in 1997, lived
with petitioner during 1997. Petitioner claimed Jamal as a
“fosterchild” on her 1997 Federal income tax return.
Petitioner’s younger brother, Johnnie Payton (Johnnie), age
31 in 1995, lived with petitioner or his mother, Ms. Barnes,
until her death in 1996. Johnnie did not have his own residence
until 1997, when, with the financial help of petitioner, he moved
into a cousin’s basement. Johnnie was not gainfully employed
during the years in issue and had no other sources of income.
Reginald Givens (Reginald), age 36 in 1997, is the brother
of petitioner’s brother-in-law, and the father of Racquelle and
Rafael. He is not related to petitioner by blood or marriage.
Reginald lived with petitioner for about 8 months in 1997 and was
not gainfully employed.
Petitioner reported wage income of $24,685, $26,563, and
$25,653 in 1995, 1996, and 1997, respectively. On her 1995
Federal income tax return, petitioner claimed dependency
exemption deductions for Mattie Barnes, John Jones, Preather
Pruitt, and Johnnie Payton. On petitioner’s 1996 Federal income
tax return, petitioner claimed dependency exemption deductions
for Racquelle Givens, Rafael Givens, Johnnie Payton, and John
Jones. On her 1997 Federal income tax return, petitioner claimed
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dependency exemption deductions for Reginald Givens, Jamal
Pruitt, Johnnie Payton, and Preather Pruitt. Petitioner also
filed as head of household on her 1995, 1996, and 1997 Federal
income tax returns and claimed an earned income credit on her
1996 Federal income tax return.
Respondent disallowed the dependency exemption deductions
because petitioner failed to establish that she was entitled to
the exemption for each individual claimed. As a result of the
disallowance, respondent further determined that petitioner’s
filing status was single, not head of household, disallowed the
earned income credit, and imposed accuracy-related penalties.
Dependency Exemption
Section 151(c) allows a taxpayer to deduct an annual
exemption amount for each dependent of the taxpayer. A
“dependent” is defined in section 152(a) as an individual “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 subsection (c) or (e) as received from the
taxpayer)”.
In order to prevail, petitioner must show by competent
evidence that the following requirements are satisfied: (1) The
dependent’s gross income must be less than the amount of the
exemption amount for the taxable year in which the deduction is
claimed (the gross income requirement); (2) the dependent must
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satisfy the definition of a “dependent” within the meaning of
section 152(a) (the relationship or member of household
requirement); and (3) petitioner must furnish more than half of
the dependent’s total support (the support requirement). See
secs. 151(c)(1)(A); 152(a). All requirements must be satisfied
for each individual claimed by petitioner.
Each claimed individual satisfies the definitional
requirement of “dependent” within the meaning of section 152(a)
under the relationship test (as nieces, nephews, or brothers) or
the principal place of abode requirement (i.e., Reginald for
1997). Therefore, the next issue is whether petitioner furnished
more than one-half of each dependent’s total support.
The term “support” includes food, shelter, clothing, medical
and dental care, education, etc. Sec. 1.152-1(a)(2)(i), Income
Tax Regs. The amount of total support may be reasonably inferred
from competent evidence. See Stafford v. Commissioner, 46 T.C.
515, 518 (1966). However, where the amount of total support of a
dependent during the taxable year is not shown and cannot be
reasonably inferred from competent evidence, then it is not
possible to conclude that the taxpayer has contributed more than
one-half. See Blanco v. Commissioner, 56 T.C. 512, 515 (1971);
Fitzner v. Commissioner, 31 T.C. 1252, 1255 (1959).
Although we find petitioner’s testimony credible that she
contributed to each claimed individual’s support, the record
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based solely on her testimony is incomplete. She has not kept
records of how much she spent on the claimed individuals.
Unfortunately, petitioner was unable to reconstruct the dollar
amount of the total support for Racquelle, Rafael, Jamal,
Reginald, and Preather. The claimed dependents did not testify
at trial and there is little information in the record as to
contributions, if any, they have made towards their own support
or gross income. In the cases of the minor dependents,
Racquelle, Rafael, and Jamal, petitioner testified that other
sources of income were available but failed to establish the
amounts.3 Also, as to Preather, the record reflects that he
received disability and Medicaid payments, but petitioner failed
to establish the amount of her contributions during the years in
issue.
Petitioner has made a valiant effort to help support, in any
way she was able, close individuals and family members who have
gone through difficult times. She was able to give sustenance to
these individuals, and herself, by working diligently as a
practical nurse, and, at times, taking cash advances on her
credit card or loans. Petitioner worked towards reducing her
3
Racquelle and Rafael’s mother, Areail, was employed
during 1996 as a claims adjuster for General American. Also, the
record is incomplete as to the income of Jamal’s mother, Patricia
Butler, and her contributions, if any, towards the total support
of her son.
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debt by “paying them back, yearly, yearly, yearly***” Although
we sympathize with petitioner and acknowledge that she clearly
provided some support to each individual claimed, we cannot find,
on the basis of the record, that petitioner provided over half of
the total support for most of the claimed dependents as required
by section 152. Because petitioner failed to establish the total
amount of support from all sources, we are unable to conclude
that petitioner provided more than one-half of the total support
for Racquelle, Rafael, Jamal, Reginald, and Preather. Therefore,
we hold that petitioner is not entitled to section 151 dependency
exemption deductions for the taxable years 1995, 1996, and 1997
as to Racquelle, Rafael, Jamal, Reginald, and Preather.
However, as to Johnnie, we believe petitioner’s testimony
regarding Johnnie’s inability to contribute to his own support
during a time when he was trying to “beat a habit”. We find that
petitioner did contribute more than half of his support, and,
therefore, petitioner is entitled to claim section 151 dependency
exemption deductions for Johnnie in 1995, 1996, and 1997.
Head of Household Status
According to the relevant part of section 2(b), an
individual shall be considered a head of household if such
individual (1) is not married at the close of the taxable year
and (2) maintains as her home a household which constitutes for
more than one-half of the taxable year the principal place of
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abode of a person who is a dependent of the taxpayer, if the
taxpayer is entitled to a deduction for the taxable year for such
person under section 151.
In this case, petitioner was not married at the close of
1995, 1996, or 1997. Petitioner is not entitled to dependency
exemption deductions for the years in issue as to Racquelle,
Rafael, Jamal, Reginald, and Preather as stated above. However,
she is entitled to dependency exemption deductions as to Johnnie
for 1995, 1996, and 1997. Johnnie lived with petitioner, and, at
times, with their mother during 1995. She further testified that
her home was “a place he knew he had*** to lay his head***” until
1997 when Johnnie moved into a relative’s basement. Johnnie
lived with petitioner more than one-half of the year during 1995
and 1996 to satisfy the requirement of section 2(b), but he did
not live with petitioner more than one-half of the year during
1997. Therefore, on the basis of the record, we hold that
petitioner is entitled to file her 1995 and 1996 Federal income
tax returns as head of household.
Earned Income Credit
Respondent made a computational adjustment disallowing
petitioner’s claimed earned income credit.
The relevant parts of section 32 provide that an individual
is eligible for the earned income credit if: (1) The individual’s
principal place of abode is in the United States for more than
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one-half of the taxable year; (2) the individual is between the
ages of 25 and 65 before the close of the taxable year; and (3)
the individual is not an allowable dependent claimed by another
taxpayer in the same calendar year. Petitioner has met all of
the above requirements. However, petitioner is subject to the
limitations of the earned income credit under section 32(a)(2).
Because petitioner’s income was greater than $9,230 in 1995,
$9,500 in 1996, and $9,770 in 1997, petitioner is not allowed to
claim the credits. See sec. 32(a)(2).
Accuracy-Related Penalty
The last issue for decision is whether petitioner is liable
for accuracy-related penalties pursuant to section 6662(a).
Section 6662(a) imposes a penalty of 20 percent of the portion of
the underpayment that is attributable to negligence or disregard
of rules or regulations. See sec. 6662(b)(1). Negligence is the
“‘lack of due care or failure to do what a reasonable and
ordinarily prudent person would do under the circumstances.’"
Neely v. Commissioner, 85 T.C. 934, 947 (1985)(quoting Marcello
v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. 43 T.C.
168 (1964) and T.C. Memo. 1964-299). Negligence also includes
any failure by the taxpayer to keep adequate books and records or
to substantiate items properly. See sec. 1.6662-3(b)(1), Income
Tax Regs. The term “disregard” includes any careless, reckless,
or intentional disregard. Sec. 6662(c). No penalty shall be
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imposed if it is shown that there was reasonable cause for the
underpayment and the taxpayer acted in good faith with respect to
the underpayment. See sec. 6664(c). The determination of
whether a taxpayer acted with reasonable cause and good faith
within the meaning of section 6662(c) is made on a case-by-case
basis, taking into account all the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
At trial, petitioner established that she acted in good
faith with respect to the 1995, 1996, and 1997 claimed dependency
exemption deductions. We find petitioner’s testimony to be
credible as to her support of certain individuals during
difficult periods in their lives. Petitioner’s lack of
compliance was not based upon bad faith, but rather on a
misunderstanding of the requirements of the dependency exemption
deduction. We also find petitioner credible in her intentions to
comply with complex Federal income tax requirements by seeking
out assistance from the Internal Revenue Service. On the basis
of the record, we hold that petitioner is not liable for
accuracy-related penalties under section 6662(a) for the years in
issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.