T.C. Summary Opinion 2003-20
UNITED STATES TAX COURT
MARIA G. PELAYO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
JORGE PELAYO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 7282-01S, 7283-01S. Filed March 14, 2003.
Maria G. Pelayo, pro se in docket No. 7282-01S.
Jorge Pelayo, pro se in docket No. 7283-01S.
Karen Nicholson Sommers, for respondent.
POWELL, Special Trial Judge: These consolidated cases1
were heard pursuant to the provisions of section 74632 of the
1
These cases were consolidated for purposes of trial,
briefing, and opinion because they involve common questions of
fact and law arising from the alleged marital separation of
petitioners.
2
Unless otherwise indicated, subsequent section references are
to the Internal Revenue Code in effect for the year in issue.
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Internal Revenue Code in effect at the time the petitions were
filed. The decisions to be entered are not reviewable by any
other court, and this opinion should not be cited as authority.
Respondent determined a deficiency of $2,970 in the 1998
Federal income tax of petitioner Maria G. Pelayo (Mrs. Pelayo) at
docket No. 7282-01S and a deficiency of $1,987 in the 1998
Federal income tax of petitioner Jorge Pelayo (Mr. Pelayo) at
docket No. 7283-01S. The issues are (1) whether either
petitioner is entitled to file an individual 1998 Federal income
tax return using head of household filing status, and (2) whether
either petitioner is entitled to an earned income credit.
Petitioners resided in Calexico, California, at the time the
petitions were filed.
Background
The facts may be summarized as follows. Throughout 1998,
petitioners were legally married. In May of that year,
petitioners allegedly separated. Petitioners did not enter into
a formal separation agreement. Mrs. Pelayo and petitioners’ two
youngest minor children, Jorge (born 1987) and Jacqueline (born
1984), remained at a residence at 947 Fifth Street, Calexico,
California (Fifth Street residence).
For approximately 2 to 3 weeks after the separation, Mr.
Pelayo lived at his sister’s residence in Calexico. Mr. Pelayo
then moved to a motel in Los Banos, California, where he
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temporarily worked as an agricultural laborer. Mr. Pelayo’s
employer, The Growers Co., Inc. (Growers), paid all the expenses
he incurred at the motel. Mr. Pelayo resided at the motel until
July or August of 1998, when he returned to his sister’s
residence. Mr. Pelayo resided with his sister until December of
1998. He then rented a home on Second Street in Calexico (Second
Street residence). Petitioners reunited in January of 1999, and
Mrs. Pelayo, Jorge, and Jaqueline moved into the Second Street
residence.
Petitioners’ oldest daughter, Maria (born September 1980),
stayed with Mr. Pelayo from May or June of 1998 until September
of that year when she returned to high school in Calexico. At
least during part of this time she was also working for Growers.
Maria resided with Mrs. Pelayo at the Fifth Street residence for
the first 5 or 6 months of 1998 and the last 3 months of 1998.
While Mr. Pelayo was working in Los Banos, he gave Mrs.
Pelayo approximately $70-80 weekly for her household expenses.
Additionally, Mr. Pelayo paid the $400 monthly rent for the Fifth
Street residence.
Mr. and Mrs. Pelayo filed separate 1998 Federal income tax
returns, each claiming head of household filing status. Mrs.
Pelayo claimed dependency exemption deductions for Jorge and
Jacqueline. Mr. Pelayo claimed a dependency exemption deduction
for Maria. Each petitioner claimed an earned income credit based
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on the children.
In the notices of deficiency, respondent adjusted each
petitioner’s filing status to married filing separately. As a
result, respondent disallowed the earned income credits claimed
by petitioners.
Discussion
As relevant herein, a taxpayer qualifies for head of
household filing status if he or she is (1) not married at the
close of the taxable year, and (2) maintains as his or her home
“a household which constitutes for more than one-half of such
taxable year the principal place of abode” of a son or daughter.
Sec. 2(b)(1)(A).3
A married taxpayer qualifies as unmarried for head of
household filing purposes if (1) the taxpayer files a separate
tax return, (2) the household is, for more than one-half of the
taxable year, the principal place of abode of the taxpayer’s
child for whom the taxpayer would be entitled to claim a
dependency exemption, (3) the taxpayer “furnishes over one-half
of the cost of maintaining such household during the taxable
year,” and (4) the taxpayer’s spouse is not a member of the
household during the last 6 months of the taxable year. Sec.
3
The analysis of sec. 2(b) can be addressed via the marital
status of petitioners under sec. 7703(b) or the requirement to
maintain a household under sec. 2(b). The result of either
analysis is the same; however, the parties addressed the marital
status of petitioners at trial, and we do the same here.
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7703(b).
The costs of maintaining a household are the expenses
incurred for the mutual benefit of the occupants, such as
“property taxes, mortgage interest, rent, utility charges, upkeep
and repairs, property insurance, and food”. Sec. 1.7703-1(b)(4),
Income Tax Regs. Specifically, if a taxpayer does not own or pay
the rent for a house, he or she is not maintaining a household.
Keegan v. Commissioner, T.C. Memo. 1997-511.4
Mrs. Pelayo did not substantiate that she paid more than
half of the costs of the Fifth Street residence.5 Mrs. Pelayo
submitted copies of utility bills she paid; Mr. Pelayo, however,
paid the monthly rent and advanced money every week to her for
household expenses. Based on the evidence before us, we conclude
that Mrs. Pelayo did not provide more than half of the cost of
maintaining the household. As a result, under section 7703(b)
Mrs. Pelayo was married in 1998 and is not entitled to head of
household filing status. Respondent’s determination that Mrs.
Pelayo’s proper filing status for 1998 is married filing separate
4
In Keegan v. Commissioner, T.C. Memo. 1997-511, this Court
considered the taxpayer’s qualification to file under the head of
household status. Section 2(b) provides that “an individual
shall be considered as maintaining a household only if over half
of the cost of maintaining the household during the taxable year
is furnished by such individual.” Due to the similar language in
secs. 2(b) and 7703(b)(2), we find this case applicable here.
5
Sec. 7491(a), concerning burden of proof, has no bearing on
the underlying issue.
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is sustained.
Turning next to Mr. Pelayo, we find that, for purposes of
section 7703(b), he was married in 1998 because Maria resided
with him only for approximately 4 months during 1998, and,
therefore, he did not maintain “as his home a household which
constitutes for more than one-half of the taxable year the
principal place of abode of a child” as required by section
7703(b)(1).6 See also sec. 2(b)(1)(A). Mr. Pelayo, therefore,
is not entitled to head of household filing status for 1998, and
respondent is sustained in determining that Mr. Pelayo’s proper
filing status is married filing separate.
Section 32(a) provides for an earned income credit in the
case of an eligible individual. Section 32(d) provides that “In
the case of an individual who is married (within the meaning of
section 7703), this section shall apply only if a joint return is
filed for the taxable year under section 6013.” We have
concluded that petitioners were married in 1998, and no joint
return was filed for that year. As a result, petitioners are not
entitled to the claimed earned income credits.
We recognize that petitioners may feel that they have been
caught in somewhat of a “Catch 22” situation. But, this arises
from their own structuring of their living arrangements. While
6
We also point out that it is highly questionable whether Mr.
Pelayo maintained any household during 1998.
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it is not totally clear, we suspect that this structuring was
prompted by an attempt to obtain greater earned income credits by
a connived separation. This is the choice that petitioners made,
and it is the choice that they must live with.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decisions will be entered
for respondent.