T.C. Summary Opinion 2004-6
UNITED STATES TAX COURT
APRIL LENNETT WEBB-REED, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15406-02S. Filed January 22, 2004.
April Lennett Webb-Reed, pro se.
Daniel N. Price, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed. Unless otherwise
indicated, subsequent 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.
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
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Respondent determined for 1999 a deficiency in petitioner’s
Federal income tax of $2,987.
The issues for decision are: (1) Whether petitioner is
entitled to dependency exemption deductions; (2) whether
petitioner is entitled to earned income credits; (3) whether
petitioner is entitled to head of household filing status; (4)
whether petitioner is entitled to child tax credits; and, (5)
whether petitioner is entitled to child care credits.
Background
Some of the facts have been stipulated and are so found.
The stipulations of facts and exhibits received into evidence are
incorporated herein by reference. At the time the petition was
filed, petitioner resided in Austin, Texas.
Ms. Yolanda Hardeman is the mother of Eric Walker, Jr.
(Eric), and Cassandra Hardeman (Cassandra). Petitioner is Ms.
Hardeman’s godmother and neighbor. There is no other
relationship by birth or marriage between petitioner and Ms.
Hardeman and her children.
Petitioner timely filed her electronic 1999 Federal income
tax return as head of household and reported income of $26,358.
Petitioner claimed dependency exemption deductions for Eric and
Cassandra as well as several credits relating to the children.
The return states that the children are petitioner’s foster
children.
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Ms. Hardeman provided respondent with a written statement
that petitioner was the guardian of the children. In that same
statement, Ms. Hardeman admitted that the children’s school
records indicate that Ms. Hardeman is their mother and show her
address as the children’s address. Petitioner does not have any
legal documents showing that she had legal guardianship of the
children.
Petitioner, who resided in the home of her former husband’s
grandmother, did not provide any testimony or evidence regarding
sums she may have spent to care for Eric and Cassandra.
Additionally, petitioner was not employed from October 1999
through the end of the year because she had been injured.
Respondent issued a notice of deficiency determining that
petitioner is not entitled to claim head of household filing
status, the dependency exemption deductions, or any of the
credits applicable to the children for 1999 because she failed to
substantiate her claims.
Discussion
Deductions are a matter of legislative grace, and taxpayers
must maintain adequate records to substantiate the amounts of any
deductions or credits claimed. Sec. 6001; INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income
Tax Regs. Taxpayers generally bear the burden of proving that
the Commissioner’s determinations are incorrect. Rule 142(a);
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Welch v. Helvering, 290 U.S. 111 (1933). The Court decides this
case without regard to the burden of proof. Accordingly, the
Court need not decide whether section 7491(a)(1) is applicable in
this case. See Higbee v. Commissioner, 116 T.C. 438 (2001).
1. Dependency Exemption Deductions
Section 151(c) allows a taxpayer to deduct an exemption
amount for each “dependent” as defined in section 152. Section
152(a) defines a dependent to include an individual, other than a
spouse, whose principal place of abode is the home of the
taxpayer and who is a member of the taxpayer’s household “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)”.
For the purposes of section 152(a)(9), it is not necessary
that the dependent be related to the taxpayer, but it is
necessary that the taxpayer both maintain and occupy the
household. Sec. 1.152-1(b), Income Tax Regs.
To qualify for a dependency exemption deduction, a taxpayer
must establish the total support cost expended on behalf of a
claimed dependent from all sources for the year and demonstrate
that she provided over half of this amount. See Archer v.
Commissioner, 73 T.C. 963, 967 (1980); Blanco v. Commissioner, 56
T.C. 512, 514-515 (1971); sec. 1.152-1(a)(2)(i), Income Tax Regs.
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The term “support” includes food, shelter, clothing, medical
and dental care, education, and the like. Sec. 1.152-1(a)(2)(i),
Income Tax Regs. The total amount of support for each claimed
dependent furnished by all sources during the year in issue must
be established by competent evidence. Blanco v. Commissioner,
supra at 514; sec. 1.152-1(a)(1), Income Tax Regs. The amount of
support that the claimed dependent received from the taxpayer is
compared to the total amount of support the claimed dependent
received from all sources. Sec. 1.152-1(a)(2)(i), Income Tax
Regs.
Petitioner claims that Eric lived with her for the entire
year and Cassandra lived with her for 8 months during 1999.
Petitioner also claims that she provided for their every need,
including food, clothing, and shelter. She also stated that she
paid a babysitter to care for Eric all day and to provide after-
school care for Cassandra. Petitioner said she paid the
babysitter in cash and did not receive any receipts documenting
the payments. Petitioner has provided no evidence at all
regarding any amounts she may have expended to care for Eric or
Cassandra.
The Court sustains respondent’s determination that
petitioner is not entitled to dependency exemption deductions for
Eric and Cassandra in 1999.
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2. Earned Income Credit
Section 32(a)(1) allows an eligible individual an earned
income credit against the individual’s income tax liability. The
credit is calculated as a percentage of the individual’s earned
income. Sec. 32(a)(1). Section 32(a)(2) and (b) limits the
credit allowed based on whether the eligible individual has no
qualifying children, one qualifying child, or two or more
qualifying children.
Petitioner claimed an earned income credit based on Eric and
Cassandra as qualifying foster children. As relevant herein,
section 32(c)(3)(B)(iii) defines an “eligible foster child” as an
individual who is placed with the taxpayer by an authorized
placement agency; whom the taxpayer cares for as the taxpayer’s
own child; and, who has the same principal place of abode as the
taxpayer for the taxpayer’s entire taxable year.
Neither Eric nor Cassandra was placed with petitioner by an
authorized placement agency. Additionally, the record indicates
that Cassandra did not have the same principal place of abode as
petitioner for petitioner’s entire taxable year. Petitioner is
therefore not entitled to claim earned income credits for the
children.
3. Head of Household Filing Status
Section 1(b) imposes a special tax rate on individuals
filing as head of household. As relevant herein, section 2(b)
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defines a “head of household” as an unmarried individual who
maintains as her home a household that for more than one-half of
the taxable year constitutes the principal place of abode of a
person who is a dependent of the taxpayer, if the taxpayer is
entitled to a deduction for the taxable year for that dependent
under section 151.
Respondent determined that petitioner is not entitled to
section 151 dependency exemption deductions for Eric and
Cassandra in 1999. The Court has sustained respondent’s
determination regarding the section 151 deductions. That holding
is dispositive of this issue, and, as a result, the Court
sustains respondent’s determination that petitioner is not
entitled to claim head of household filing status for 1999.
4. Child Tax Credit
For the taxable year 1999, taxpayers are allowed to claim a
tax credit of $500 for each qualifying child. Sec. 24(a). The
plain language of section 24 establishes a three-pronged test to
determine whether a taxpayer has a qualifying child. If one of
the qualifications is not met, the claimed child tax credit must
be disallowed. The first element of the three-pronged test
requires that a taxpayer must have been allowed a deduction for
that child under section 151. Sec. 24(c)(1)(A).
As stated supra, the Court has sustained respondent’s
determination that petitioner is not entitled to dependency
exemption deductions for the children. Thus, petitioner fails
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the first prong of the test of section 24. The Court sustains
respondent’s determination regarding the section 24 child tax
credits.
5. Child Care Credit
Section 21(a) generally provides for what is sometimes
referred to as the child care credit. The allowable credit
generally is based upon employment-related expenses that are
incurred to enable the taxpayer to be gainfully employed,
including expenses incurred for the care of a qualifying
individual. Sec. 21(b)(2). A “qualifying individual” must be
someone for whom the taxpayer is entitled to a dependency
deduction under section 151(c). Sec. 21(b)(1). Petitioner is
not entitled to dependency exemptions for Eric and Cassandra,
and, thus, she is not entitled to the child care credit.
Respondent’s determination on this issue is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.