T.C. Summary Opinion 2004-52
UNITED STATES TAX COURT
MANUELLA CANTRELL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4209-03S. Filed May 10, 2004.
Manuella Cantrell, pro se.
Elaine T. Fuller, for respondent.
PANUTHOS, Chief 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 year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in Federal income tax of
$4,253 for the 2001 taxable year. The issues for decision are:
(1) Whether petitioner is entitled to dependency exemption
deductions for Brandon Anthony Cantrell (Brandon) and James
Edward Cantrell (James) for 2001; (2) whether petitioner is
entitled to child tax credits for Brandon and James for 2001; (3)
whether petitioner is entitled to the credit for child and
dependent care expenses of $363 for 2001; (4) whether petitioner
is entitled to a head-of-household filing status for 2001; (5)
whether petitioner is entitled to a rate reduction credit of $500
for 2001; and (6) whether petitioner is entitled to an earned
income credit of $1,305 for 2001.
Background
While no stipulation of facts was filed in this case, the
record consists of exhibits admitted at trial and the testimony
of petitioner. At the time the petition was filed herein,
petitioner resided in Pasadena, California.
Petitioner was previously married to John Claude Cantrell,
Jr. (Mr. Cantrell). They have three children: (1) TeraLynn
Ashley Cantrell (TeraLynn), born December 10, 1990; (2) Brandon,
born October 18, 1993; and (3) James, born July 11, 1995.
Petitioner and Mr. Cantrell were divorced February 11, 1999.
During the year in issue, petitioner had sole physical
custody of TeraLynn, Brandon, and James. Mr. Cantrell was
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required to pay child support of $676 per month for Brandon and
James, commencing April 1, 1999.1 Petitioner received assistance
payments of $825 per month on her monthly rent of $985 in 2001
under the Section 8 housing program.2 Petitioner also received a
rent reduction of $100 per month from her landlord because, as
petitioner testified: “I helped them around the property.”
Petitioner filed a Form 1040A, U.S. Individual Income Tax
Return, for the 2001 taxable year. Petitioner filed as a “head
of household” and claimed dependency exemption deductions for
Brandon and James,3 a rate reduction credit of $500, an earned
income credit of $1,305, child tax credits for Brandon and James,
and a credit for child and dependent care expenses of $363.
Mr. Cantrell filed a separate return for the 2001 taxable
year in which he claimed dependency exemption deductions for
petitioner and the two children, the earned income credit, and
1
Petitioner testified that she received $370 every 2 weeks
or $740 per month during 2001. The $64 per month discrepancy
between what Mr. Cantrell was required to pay and what petitioner
testified to receiving is immaterial to the outcome of this case.
2
The Section 8 housing program under the United States
Housing Act of 1937 authorizes a private landlord who rents to a
low-income tenant to receive assistance payments from the
Department of Housing and Urban Development (HUD) in an amount
calculated to make up the difference between the tenant’s rental
payments and a contract rent agreed upon by the landlord and HUD.
See Cisneros v. Alpine Ridge Group, 508 U.S. 10, 12 (1993).
3
Petitioner did not claim a dependency exemption deduction
with respect to TeraLynn for the 2001 taxable year.
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child tax credits. For convenience we combine our remaining
findings of fact and conclusions.
Discussion
Section 7491(a) provides that in a court proceeding, the
burden of proof with respect to any factual issue shifts to
respondent under certain prescribed conditions. We conclude that
the burden of proof remains with petitioner, since she has not
met the criteria of section 7491(a)(2)(A) and (B).
1. Dependency Exemption Deductions
A taxpayer may be entitled to a deduction of the exemption
amount for each dependent. Sec. 151(a), (c). The term
“dependent” includes a son of the taxpayer “over half of whose
support, for the calendar year in which the taxable year of the
taxpayer begins, was received from the taxpayer”. Sec. 152(a).
Upon an examination of the record, we conclude that Brandon
and James did not receive over half of their support from
petitioner.4 We find that, based upon petitioner’s testimony,
the total amount expended in 2001 to support Brandon and James
was $18,410. However, over half of this amount is attributable
to child support from Mr. Cantrell and a pro rata share of the
Section 8 housing subsidy for Brandon and James. Thus, even
accepting petitioner’s assertions as fact, we cannot conclude
4
The record does not indicate that petitioner and Mr.
Cantrell provided over half the children’s support, and thus sec.
152(e)(1) does not apply.
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that petitioner is entitled to dependency exemption deductions
for Brandon and James for 2001. We sustain respondent on this
issue.
2. Child Tax Credits
Section 24(a)(1) provides for a “credit against the tax * *
* for the taxable year with respect to each qualifying child of
the taxpayer”. The term “qualifying child” means any individual
if three tests are satisfied. Sec. 24(c)(1).
In the present case, the only relevant test is whether the
taxpayer is allowed a deduction under section 151 with respect to
such individual for the taxable year. Sec. 24(c)(1)(A). We have
concluded, however, that petitioner is not entitled to dependency
exemption deductions for Brandon and James for 2001.
Accordingly, they are not qualifying children, and petitioner is
not entitled to the child tax credits for 2001. We sustain
respondent’s determination on this issue.
3. Credit for Child and Dependent Care Expenses
Section 21(a)(1) provides for a credit against tax in the
case of “an individual who maintains a household which includes
as a member one or more qualifying individuals”. The term
“qualifying individual” means, among other things, a dependent of
the taxpayer who is under the age of 13 and with respect to whom
the taxpayer is entitled to a deduction under section 151(c).
Sec. 21(b)(1)(A).
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In the present case, petitioner claimed the credit under
section 21(a) with respect to Brandon and James. We have
concluded, however, that they were not petitioner’s dependents
within the meaning of section 151(c) for the 2001 taxable year.
Accordingly, Brandon and James are not qualifying individuals,
and petitioner is not entitled to the credit for child and
dependent care expenses for 2001. We sustain respondent’s
determination on this issue.
4. Head-of-Household Filing Status
Petitioner filed as a “head of household” for 2001. In
general, section 2(b)(1)(A)(i) provides that a taxpayer shall be
considered a head of a household if, and only if, such taxpayer
is not married at the close of his or her taxable year, is not a
surviving spouse, and maintains as his or her home a household
which constitutes for more than one-half of such taxable year the
principal place of abode, as a member of such household, of a son
or daughter of the taxpayer. If the son or daughter is not
married at the close of the taxable year of the taxpayer, “the
taxpayer may qualify as the head of a household by reason of such
person even though the taxpayer may not claim a deduction for
such person under section 151, for example, because the taxpayer
does not furnish more than half of the support of such person.”
Sec. 1.2-2(b)(3)(i), Income Tax Regs. A taxpayer shall be
considered as maintaining a household only if over half of the
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cost of maintaining the household during the taxable year is
furnished by such taxpayer. Sec. 2(b)(1). “The cost of
maintaining a household shall be the expenses incurred for the
mutual benefit of the occupants thereof by reason of its
operation as the principal place of abode of such occupants for
such taxable year.” Sec. 1.2-2(d), Income Tax Regs. The
expenses of maintaining a household include rent and food
consumed on the premises, but does not include the cost of
clothing, education, medical treatment, vacations, life
insurance, transportation, or any amount which represents the
value of services rendered in the household by the taxpayer. Id.
During the year in issue, petitioner was not married to Mr.
Cantrell and was not a surviving spouse. Petitioner also
maintained a household within the meaning of section 2(b)(1).
During 2001, there were four sources of funds to maintain
petitioner’s household: (1) Petitioner’s wages of $25,661 for
the year; (2) Section 8 housing subsidy of $825 per month or
$9,900 for the year; (3) child support from Mr. Cantrell of $370
every 2 weeks or $9,620 for the year; and (4) rent reduction of
$100 per month or $1,200 for the year because of her watching the
property on behalf of the landlord.
From a review of the entire record, we are satisfied that
petitioner furnished over half of the cost of maintaining a
household in 2001. Petitioner’s wages alone exceeded all other
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sources of funds used for expenses incurred for the mutual
benefit of TeraLynn, Brandon, James, and herself during that
taxable year. Accordingly, we conclude that petitioner is
entitled to head-of-household filing status, and we hold for
petitioner on this issue.
5. Rate Reduction Credit
The Economic Growth and Tax Relief Reconciliation Act of
2001, Pub. L. 107-16, 115 Stat. 38, created a new regular income
tax bracket of 10 percent for taxable years beginning after
December 31, 2000. See sec. 1(i). Congress decided to implement
the 10-percent rate bracket for 2001 via a rate reduction credit
for that taxable year. See secs. 1(i)(1)(D), 6428; H. Conf.
Rept. 107-84, at 5-6 (2001). The maximum amount of the rate
reduction credit depends upon a taxpayer’s filing status for
2001. See sec. 1(i)(1)(B). Petitioner claimed a rate reduction
credit of $500 for 2001 based upon her having claimed head-of-
household filing status. Respondent disallowed the credit to the
extent that respondent determined her filing status to be single.
Having concluded that petitioner is entitled to the head-of-
household filing status, we further conclude that petitioner is
entitled to the rate reduction credit of $500 for 2001.
Accordingly, we do not sustain respondent’s determination on this
issue.
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6. Earned Income Credit
Section 32(a) provides for an earned income credit in the
case of an eligible individual. Section 32(c)(1)(A)(i), in
pertinent part, defines an “eligible individual” as any
individual who has a qualifying child for the taxable year. A
qualifying child is one who satisfies a relationship test, a
residency test, and an age test. Sec. 32(c)(3). For the
residency test, a qualifying child is an individual who has the
same principal place of abode as the taxpayer for more than one-
half of the taxable year. Sec. 32(c)(3)(A)(ii).
Brandon and James satisfy all three tests with respect to
petitioner, who had sole physical custody of them during 2001.
Accordingly, Brandon and James are qualifying children with
respect to petitioner for 2001, and she is an eligible individual
under section 32(a). We thus conclude that petitioner is
entitled to the earned income credit for 2001, and we hold for
petitioner on this issue.5
5
Respondent argues that Mr. Cantrell also claimed, in a
separate return, the earned income credit with respect to Brandon
and James during the 2001 taxable year. His claiming of the
credit alone does not defeat petitioner’s entitlement to it as an
eligible individual. See sec. 32(c)(1)(C).
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Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.