T.C. Summary Opinion 2001-40
UNITED STATES TAX COURT
RUTHA M. CORLEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 727-99S, 728-99S, Filed March 26, 2001.
16618-99S.
Rutha M. Corley, pro se.
Ross M. Greenberg, for respondent.
ARMEN, Special Trial Judge: These consolidated cases were
heard pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect at the times the petitions were filed.1
The decisions to be entered are not reviewable by any other
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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court, and this opinion should not be cited as authority.
Respondent determined deficiencies in petitioner's Federal
income taxes as follows:
Docket
No. Year Deficiency
727-99S 1995 $3,699
728-99S 1996 4,265
16618-99S 1997 4,317
16618-99S 1998 2,380
The issues for decision are as follows:
(1) Whether petitioner’s filing status is head-of-household
as claimed on petitioner’s income tax returns for the years in
issue. We hold that it is.
(2) Whether petitioner is entitled to dependency exemptions
for her son, daughter, and grandmother as claimed on her income
tax returns for the years in issue. We hold that she is.
(3) Whether petitioner is entitled to earned income credits
as claimed on her income tax returns for the years in issue. We
hold that she is.
Background
Some of the facts have been stipulated, and they are so
found. Petitioner resided in Deland, Florida, at the time that
her petitions were filed with the Court.
Petitioner has two children, a son Henry Earl Corley
(Henry), who was born on December 9, 1978, and a daughter Ceola
Jean Corley (Ceola), who was born on July 2, 1981.
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Petitioner married Willie Corley (Mr. Corley) on July 4,
1985. Thereafter, Mr. Corley adopted petitioner’s two children,
Henry and Ceola.
During most, if not all, of their married life, petitioner
and Mr. Corley resided in a rented house located at 229 West
Euclid Avenue, Deland, Florida (the West Euclid Avenue
residence). Petitioner also used the West Euclid Avenue
residence as the business premises for her day care business,
which she operated as a sole proprietor.
In May 1994, petitioner filed a petition for dissolution of
marriage with the circuit court for Volusia County, Florida.
Thereafter, Mr. Corley vacated the West Euclid Avenue residence.
Petitioner, together with Henry and Ceola, continued to live in
the West Euclid Avenue residence for the balance of that year.
During virtually all of 1995, petitioner, together with
Henry and Ceola, lived in the West Euclid Avenue residence.
During some portion of 1995, petitioner’s grandmother Lillie
Lucas also lived at the West Euclid Avenue residence while she
was recuperating from abdominal surgery.
At the end of 1995, petitioner terminated her day care
business and, together with Henry and Ceola, moved in with her
grandmother at her grandmother’s house located at 628 South
Parsons Avenue, Deland, Florida (the South Parsons Avenue
residence). Petitioner and Ceola continued to live in the South
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Parsons Avenue residence with Lillie Lucas through 1998; Henry
continued to live there until he enlisted in the U.S. Army on
November 4, 1997, after graduating from high school earlier in
the year.
In November 1997, the circuit court for Volusia County,
Florida, entered a final default judgment of dissolution of
marriage. In the judgment, the court (inter alia) awarded
custody of Ceola to petitioner and ordered Mr. Corley to pay
child support for his daughter in the amount of $97.50 twice per
month through the registry of court.2
In 1995, petitioner had total income in the amount of
$10,791, consisting of net profits from her day care business in
the amount of $6,274 and wages in the amount of $4,517. In 1996,
1997, and 1998, petitioner had total income in the amounts of
$12,400, $13,725, and $18,527, respectively, consisting solely of
wages. Petitioner expended her total income to support herself,
her children, and her grandmother, and to maintain the West
Euclid Avenue residence (in 1995) and the South Parsons Avenue
residence (in 1996 through 1998).
During the years in issue, Mr. Corley was employed by the
City of Deland, Florida, and received wages in amounts not
specifically disclosed in the record. After he separated from
2
By the time the circuit court entered its judgment, Henry
had attained the age of majority.
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petitioner, Mr. Corley did not provide any financial assistance
to petitioner for her benefit, nor did he provide any child
support to petitioner until ordered to do so by the circuit court
in the final default judgment of dissolution of marriage.
During the years in issue, petitioner’s grandmother was an
elderly woman who had no source of income other than Social
Security benefits. Petitioner’s grandmother received Social
Security benefits in the gross amounts (i.e., before the
withholding of Medicare premiums) of $8,028 in 1995, $8,236 in
1996, $8,473 in 1997, and $8,651 in 1998. Petitioner’s
grandmother expended some portion of her Social Security benefits
to help support herself, to help maintain the South Parsons
Avenue residence, and to help support petitioner and her
children.
Petitioner filed Federal income tax returns for the years in
issue. On each of those returns, petitioner reported her filing
status as head-of-household. On her returns for 1995 through
1997, petitioner claimed dependency exemptions for Henry, Ceola,
and her grandmother; on her return for 1998, petitioner claimed
dependency exemptions for only Ceola and her grandmother. Also
on her returns for 1995 through 1997, petitioner claimed the
earned income credit based on two qualifying children (Henry and
Ceola); on her return for 1998, petitioner claimed the earned
income credit based on only one qualifying child (Ceola).
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In separate notices, respondent determined deficiencies in
petitioner’s income taxes based on the following adjustments for
each of the years in issue: (1) Respondent changed petitioner’s
filing status from head-of-household to single; (2) respondent
disallowed the dependency exemptions claimed by petitioner; and
(3) respondent disallowed the earned income credit claimed by
petitioner.
Discussion
Before deciding the substantive issues before us, we think
that a preliminary comment is in order.
At trial, petitioner testified in her own behalf.
Respondent’s counsel cross-examined petitioner and also called
two third-party witnesses. We found petitioner to be a credible
witness, and we have relied heavily on her testimony in making
our findings.
We turn now to the substantive issues before us.
A. Filing Status
As relevant herein, an individual qualifies as a head of a
household if such individual is not married at the close of her
taxable year3 and maintains as her home a household that
constitutes for more than one-half of such taxable year the
3
Respondent, by determining petitioner’s filing status to
be single for each of the years in issue, has implicitly conceded
that petitioner was not married at the close of any of those
years. See sec. 1(c); see also secs. 2(c); 7703(b).
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principal place of abode, as a member of such household, of
either (1) a son or a daughter or (2) any other person who is a
dependent of the taxpayer, if the taxpayer is entitled to a
dependency exemption for the taxable year for such person under
section 151. See sec. 2(b).
The cost of maintaining a household is the sum of the
expenses incurred for the mutual benefit of the occupants of the
household by reason of its operation as the principal place of
abode of such occupants for the taxable year. See sec. 1.2-2(d),
Income Tax Regs. Such expenses include property taxes, mortgage
interest, rent, utility charges, upkeep and repairs, property
insurance, and food consumed on the premises; however, such
expenses do not include the cost of clothing, education, medical
treatment, vacations, life insurance, and transportation. See
id.
During virtually all of 1995, petitioner maintained as her
home a household at the West Euclid Avenue address that
constituted for more than one-half of that year the principal
place of abode of her children Henry and Ceola. During this
period, petitioner received no financial assistance from Mr.
Corley. Although petitioner received some financial assistance
from her grandmother, petitioner was the person principally
responsible for maintaining the household at the West Euclid
Avenue address.
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During 1996, 1997, and 1998, petitioner maintained as her
home a household at the South Parsons Avenue address. This home
was owned by petitioner’s grandmother, who contributed to the
cost of maintaining the household. However, petitioner had
greater financial resources than her grandmother, and it was
petitioner who paid most of the cost of maintaining the
household. Further, during these years, petitioner received no
financial assistance from Mr. Corley.
During 1996 and 1997, the household at the South Parsons
Avenue address constituted for more than one-half of each of
those years the principal place of abode of petitioner’s son
Henry. During 1996, 1997, and 1998, the household at the South
Parsons Avenue address constituted for more than one-half of each
of those years the principal place of abode, as a member of such
household, of petitioner’s daughter Ceola and her grandmother
Lillie.
In view of the foregoing, we hold that petitioner’s filing
status for the years in issue was head-of-household.
Respondent’s determination to the contrary is therefore not
sustained.
B. Dependency Exemptions
As relevant herein, a taxpayer is entitled to a dependency
exemption for a son, daughter, or grandmother if more than half
of such individuals’ support is furnished by the taxpayer. See
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secs. 151(c) and 152(a)(1), (4). In the case of a child whose
parents are either divorced or live apart at all times during the
last 6 months of the calendar year, section 152(e)(1) provides
that the custodial parent is deemed to provide more than half of
the child’s support for such year.4 For purposes of this rule,
and as relevant herein, “custody” is determined by the terms of
the most recent decree of divorce; however, in the absence of
such a decree, “custody” is 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. Sec. 1.152-4(b),
Income Tax Regs.
Insofar as Ceola is concerned, petitioner had physical
custody of her daughter throughout the years in issue, and she
also had legal custody of Ceola from November 5, 1997, the date
of the circuit court’s final default judgment of dissolution of
marriage, through 1998.
Insofar as Henry is concerned, petitioner had physical
custody of her son until December 9, 1996, the date on which
Henry attained the age of majority. See Fla. Stat. Ann. sec.
743.07 (West 1997). Thereafter, Henry lived with petitioner
until he enlisted in the U.S. Army on November 4, 1997, after
graduating from high school earlier in the year. The record
4
Exceptions to the general rule of sec. 152(e)(1) are not
applicable in the present cases. See sec. 152(e)(2), (3), and
(4).
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demonstrates that petitioner provided more than half of Henry’s
support in 1997.5
Insofar as Lillie Lucas, petitioner’s grandmother, is
concerned, the record demonstrates that she received Social
Security benefits for the years in issue and expended some
portion of those benefits for her own support.6 However,
petitioner had greater financial resources than her grandmother,
and the record demonstrates that petitioner expended her total
income to support the family and to maintain the West Euclid
Avenue residence (in 1995) and the South Parsons Avenue residence
(in 1996 through 1998). Overall, we are satisfied that the
record establishes that petitioner paid more than half of her
grandmother’s support for the years in issue.
In view of the foregoing, we hold that petitioner is
entitled to dependency exemptions for Ceola, Henry, and her
grandmother as claimed by her on her tax returns for the years in
issue. Respondent’s determination to the contrary is therefore
not sustained.
C. Earned Income Credit
In the case of an eligible individual, section 32(a) allows
an earned income credit. As relevant herein, the term “eligible
5
It should be recalled that petitioner did not claim a
dependency exemption for Henry for 1998.
6
Ms. Lucas also expended some portion of her Social
Security benefits to help support petitioner and her children.
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individual” means any individual who has a qualifying child for
the taxable year. Sec. 32(c)(1)(A)(i). Also as relevant herein,
the term “qualifying child” means a son or daughter of the
taxpayer who has the same principal place of abode as the
taxpayer for more than one-half of the taxable year and who
either has not attained the age of 19 as of the close of the
calendar year in which the taxable year of the taxpayer begins or
is a student who has not attained the age of 24 as of the close
of such taxable year. See sec. 32(c)(3)(A).
In the present cases, Ceola, petitioner’s daughter, had the
same principal place of abode as petitioner for more than one-
half of each of the years in issue; moreover, she had not
attained the age of 19 as of the close of 1998, the last of the
years in issue. Henry, petitioner’s son, had the same principal
place of abode as petitioner for more than one-half of 1995,
1996, and 1997; moreover, as of the close of 1997, Henry, who had
then attained the age of 19, qualified as a student for that
year, having graduated from high school earlier in the year. See
sec. 151(c)(4).
In view of the foregoing, petitioner is entitled to earned
income credits as claimed by her on her tax returns for the years
in issue. Respondent’s determination to the contrary is
therefore not sustained.
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Conclusion
Reviewed and adopted as the report of the Small Tax Case
Division.
In order to give effect to our disposition of the disputed
issues,
Decisions will be entered
for petitioner.