T.C. Summary Opinion 2001-86
UNITED STATES TAX COURT
PRINCESS STEPHAN OBRIOT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5531-99S. Filed June 13, 2001.
Princess S. Obriot, pro se.
Ross Greenberg, for respondent.
PAJAK, 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
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effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined deficiencies of $1,692 and $2,152 in
petitioner's Federal income tax for the years 1995 and 1996,
respectively. Respondent conceded that petitioner would be
entitled to the earned income credit for the years in issue based
solely on her income level. Respondent also conceded that
petitioner is entitled to a dependency exemption deduction in
1995 for her daughter Ayla Olsen (Ayla).
We must decide whether petitioner is entitled to the earned
income credit based on being an individual with a qualifying
child in 1995 and 1996. We must also decide whether petitioner
is entitled to head of household filing status in 1996, rather
than single status as respondent determined.
Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Jonesboro, Georgia, at the time
she filed her petition.
Petitioner gave birth to her daughter, Ayla, on July 15,
1994. To set the stage, in petitioner’s words, she found herself
“shocked with being by myself and a single parent all of a
sudden.” She also said that “To adjust to that was very
difficult” so she turned to her parents.
During 1995 and 1996, petitioner and her infant daughter
shared a home with petitioner's parents, Peter and Katherine
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Stephan (parents/grandparents). Petitioner resided in the
basement, which had a separate entrance. When she moved into her
parents' household in January 1995, petitioner signed an
agreement to pay rent to her parents in the amount of $200 per
month for herself and Ayla, as well as to pay one-third of the
utility bills.
Petitioner was not always able to make the rent payments,
but the parties shared the household expenses. During the years
in issue, petitioner and her parents shared the expenses for
taxes and insurance for the home, utilities, and food.
Petitioner contributed at least 50 percent towards the
maintenance and upkeep of the household. She paid all the
expenses relating to her daughter. When respondent questioned
petitioner as to how she paid for her and her daughter's expenses
petitioner explained as follows:
I'm also quite capable of getting a loan, which I
did, * * *. I'm a poor person. I don't deny that.
I'm still poor. But I am capable of buying things. It
just means I have nothing left over. * * * I'm not the
only person in this country that lives hand-to-mouth.
Petitioner had adjusted gross income (in rounded off
numbers) of $4,984 in 1995 and $8,680 in 1996. Ayla’s
grandparents reported adjusted gross income of $51,902 in 1995
and $60,002 in 1996. The grandparents did not claim Ayla as a
dependent, nor did they claim her as a qualifying child in either
of the years at issue.
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Petitioner claimed the earned income credit in 1995 and 1996
based on having a qualifying child, her daughter Ayla.
Petitioner claimed head of household filing status in 1996.
Respondent does not contend that Ayla is not a qualifying child
with respect to petitioner. Respondent disallowed the earned
income credit because respondent contends that Ayla is a
qualifying child with respect to the grandparents, who have a
higher modified adjusted gross income than petitioner.
Respondent also determined that petitioner's filing status was
single.
Section 32 provides that an eligible individual is allowed a
credit calculated as a percentage of the individual’s earned
income. An eligible individual includes an individual with a
qualifying child. Sec. 32(c)(1). However, if two or more
individuals would be treated as eligible individuals with respect
to the same qualifying child for taxable years beginning in the
same calendar year, only the individual with the highest modified
adjusted gross income for such taxable years shall be treated as
an eligible individual with respect to such qualifying child.
Sec. 32(c)(1)(C).
In 1995 and 1996, the years in issue, the definition of
"qualifying child" under section 32(c)(3) was the same definition
originally enacted on November 5, 1990, in the Omnibus Budget
Reconciliation Act of 1990 (1990 Act), Pub. L. 101-508, sec.
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11111(a), 104 Stat. 1388-408. Under this definition, a
"qualifying child" is one who satisfies a relationship test, a
residency test, and an age test, and for whom the taxpayer
satisfies an identification requirement. Sec. 32(c)(3)(A).
However, in 1998, in the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,
sec. 6021, 112 Stat. 823, Congress struck the identification
requirement from the definition of "qualifying child" under
section 32(c)(3)(A). Pursuant to this amendment, the definition
of "qualifying child" now includes only the relationship test,
the residency test, and the age test. Section 6021(c)(2) of RRA
1998 states that amendments to section 32(c)(3) are effective as
if included in the amendments made by section 11111 of the 1990
Act, which is effective for tax years beginning after December
31, 1990. 1990 Act, sec. 11111(f), 104 Stat. 1388-413.
With respect to Ayla, the relationship, residency, and age
tests are satisfied for petitioner and the grandparents. Ayla is
petitioner’s daughter and the grandparents’ granddaughter. Sec.
32(c)(3)(B)(i). Ayla had the same principal place of abode in
the United States as petitioner and the grandparents for more
than one-half of each taxable year. Sec. 32(c)(3)(A)(ii), (E).
Ayla had not attained the age of 19 by the close of either of the
years in issue. Sec. 32(c)(3)(C)(i). However, the grandparents
did not meet the identification requirement with respect to Ayla
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because they did not include Ayla’s name, age, and taxpayer
identification number on their return. Sec. 32(c)(3)(D).
Petitioner satisfied this requirement.
Petitioner contends that she is entitled to the claimed
earned income credit because she complied with the tax laws as
they were in effect when she filed her income tax returns for the
years in issue. However, because the RRA 1998 amendment to
section 32(c)(3) applies retroactively, Ayla, who satisfied the
relationship test, the residency test, and the age test with
respect to the grandparents, is a qualifying child of the
grandparents for tax years 1995 and 1996 under the statute as
amended. Both petitioner and the grandparents could be treated
as eligible individuals with respect to Ayla. Under section
32(c)(1)(C), the grandparents, whose modified adjusted gross
income in 1995 and 1996 was higher than petitioner's modified
adjusted gross income for the same years, would be treated as the
eligible individuals with respect to Ayla in 1995 and 1996.
Therefore, petitioner is not eligible for the earned income
credit based on a qualifying child. Because of the
identification requirement which remains in section 32(c)(3)(D),
the grandparents would not receive the credit either.
It is a well-established constitutional rule that Congress
may provide for the retroactive operation of income tax
legislation which it enacts, subject to various qualifications.
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Rose v. Commissioner, 55 T.C. 28, 31 (1970). Such retroactive
application violates the Due Process Clause of the Fifth
Amendment when "'retroactive application is so harsh and
oppressive as to transgress the constitutional limitation.'"
United States v. Carlton, 512 U.S. 26, 30 (1994) (quoting Welch
v. Henry, 305 U.S. 134, 147 (1938)). According to the Supreme
Court in Carlton the “harsh and oppressive” standard is the same
as the “‘prohibition against arbitrary and irrational
legislation’ that applies generally to enactments in the sphere
of economic policy.” Id. (quoting Pension Benefit Guar. Corp. v.
R.A. Gray & Co., 467 U.S. 717, 733 (1984)). Therefore,
retroactive tax provisions will be upheld if they are supported
by a “legitimate legislative purpose furthered by rational
means”. Id. at 30-31.
We understand petitioner’s frustration because she complied
with the requirements of section 32(c)(3) as they existed when
she filed her Federal income tax returns for 1995 and 1996, and
we are particularly sympathetic to her position. However, we are
compelled to follow our recent opinion in Sutherland v.
Commissioner, T.C. Memo. 2001-8. In that case, this Court
concluded that the 1998 retroactive amendment of section 32(c)(3)
was a clarification of existing law and upheld it as
constitutional. Accordingly, for the reasons set forth in
Sutherland, we sustain respondent’s determination. If
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petitioner, in view of her low income, is faced with financial
hardship in paying the taxes and interest assessed on the
deficiencies for 1995 and 1996, she should consider submitting to
respondent an offer in compromise based on inability to pay and
requesting the abatement of interest on the deficiencies.
Respondent also contends that petitioner was not eligible to
claim head of household filing status in 1996. Section 2(b), in
relevant part, defines a head of household as an unmarried
taxpayer who maintains as her home a household which constitutes
for more than one-half of the taxable year the principal place of
abode of her daughter. Sec. 2(b)(1)(A)(i). The taxpayer is
considered as maintaining a household only if over half of the
cost of maintaining the household is furnished by the taxpayer.
Sec. 2(b)(1). "The expenses of maintaining a household include
property taxes, mortgage interest, rent, utility charges, upkeep
and repairs, property insurance, and food consumed on the
premises." Sec. 1.2-2(d), Income Tax Regs. Based on the
evidence, we find that petitioner paid more than one-half of the
above expenses. Accordingly, we hold that petitioner is entitled
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to file as head of household in 1996.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.