T.C. Summary Opinion 2004-167
UNITED STATES TAX COURT
JACOB R. AND JACKIE L. BOUCH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16318-02S. Filed December 6, 2004.
Jackie L. Bouch, pro se.
Fred E. Green, Jr., for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered in this case is not reviewable by any
other court, and this opinion should not be cited as authority.
1
Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
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Respondent determined a deficiency in petitioners' Federal
income tax for 1999 in the amount of $2,540 and the accuracy-
related penalty under section 6662(a) in the amount of $508.
At trial, respondent conceded the accuracy-related penalty
under section 6662(a). The issues for decision are: (1) Whether
petitioners are entitled to dependency exemption deductions under
section 151 for the two children of petitioner Jackie L. Bouch's
prior marriage, and (2) whether petitioners are entitled to the
child tax credit under section 24.
Some of the facts were stipulated. Those facts, with the
exhibits annexed thereto, are so found and are made part hereof.
Petitioners' legal residence at the time the petition was filed
was Reno, Nevada.
Jackie L. Bouch (petitioner) was previously married to John
R. Harris. Two children were born of that marriage, James Harris
and Jack Harris. Petitioner and Mr. Harris were divorced on May
25, 1988. Petitioner thereafter married petitioner Jacob R.
Bouch, and the two filed a joint Federal income tax return for
1999. On that return, petitioners claimed the two children of
petitioner's prior marriage as dependents and claimed the child
tax credit under section 24 with the two children as qualifying
children. In the notice of deficiency, respondent disallowed the
dependency exemption deductions and the child tax credit.
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The divorce decree of May 25, 1988, contained no provision
relating to custody of the two children, nor any provision for
child support. However, the divorce decree, by reference,
incorporated a marital and property settlement agreement between
petitioner and her former spouse. That agreement provided that
petitioner "shall take the minor children as dependents for tax
purposes". The marital and property settlement agreement was not
entered into evidence at trial, except for the one page of the
agreement relating to the dependency exemption deductions.
During 1999, petitioner's former spouse petitioned the divorce
court to compel petitioner (his former wife) to produce certain
financial information regarding her income and to decree that
petitioner's former spouse was entitled to the dependency
exemption deductions for the two children for tax years 1997 and
1998. The divorce court denied that latter request but granted
the request of the former spouse for the production, by
petitioner, of the financial information requested in the motion.
Following the production of this information by petitioner the
divorce court, by order dated May 16, 2000, concluded that
petitioner's two children had been living with their father since
January 1999; that petitioner had not paid or contributed any
support for them; that their father (petitioner's former spouse)
was their primary custodian; and that, therefore, petitioner's
former spouse was entitled to claim the two children as
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dependents for Federal income tax purposes. The court further
ordered petitioner to pay child support of $950 per month and
held that petitioner was additionally liable for $9,350 in
arrearages for past due child support.
Section 151(c) allows taxpayers to deduct an annual
exemption amount for each dependent as defined in section 152.
Under section 152(a), the term "dependent" means certain
individuals, such as a son, daughter, stepson, or stepdaughter,
"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 section (c) or (e) as received from
the taxpayer)".
The support test in section 152(e)(1) applies if: (1) A
child receives over half of his support during the calendar year
from his parents; (2) the parents are separated under a written
separation agreement or live apart at all times during the last 6
months of the calendar year; and (3) such child is in the custody
of one or both of his parents for more than one-half of the
calendar year. If these requirements are satisfied, the "child
shall be treated, for purposes of subsection (a), as receiving
over half of his support during the calendar year from the parent
having custody for a greater portion of the calendar year (* * *
referred to as the 'custodial parent')", sec. 152(e)(1)(B), thus
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allowing the dependency exemption deduction to be claimed by the
"custodial parent".
Section 1.152-4(b), Income Tax Regs., provides that custody
will be determined by the terms of the most recent decree of
divorce or separate maintenance, or subsequent custody decree,
or, if none, a written separation agreement. If neither a
divorce decree nor written separation agreement establishes who
has custody, custody will be deemed to be with the parent who has
physical custody of the child for the greater part of the
calendar year. In this case, the May 25, 1988, divorce decree
did not contain any provision regarding custody of the children.
Consequently, the custodial parent is the one who, between
petitioner and her former spouse, had physical custody for the
greater part of the year. In this respect, the court order of
May 16, 2000, establishes that petitioner's former spouse, John
Harris, had physical custody of the children from January 1999
and, therefore, was the custodial parent. Petitioner's former
spouse, therefore, is entitled to the dependency exemption
deduction for the two children under section 152(e)(1) unless one
of the exceptions of section 152(e)(2), (3), or (4) applies. The
only possible exception that conceivably could apply would be the
exception provided under section 152(e) relating to the release
of the claim to the exemption for the year by the custodial
parent. To satisfy the requirements of a release, the custodial
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parent must sign a written declaration that the custodial parent
will not claim the child as a dependent on his or her income tax
return, and the noncustodial parent attaches such written
declaration to the income tax return of the noncustodial parent
for the taxable year. Sec. 152(e)(2). Petitioner's former
spouse did not release his claim to the dependency exemption for
the two children, and petitioner, as the noncustodial parent, did
not attach any release of such claim to her 1999 joint Federal
income tax return. Petitioner, thus, does not satisfy the
requirements of section 152(e)(2). The Court, therefore,
sustains respondent's disallowance of the dependency exemptions
to petitioners for 1999.
The second issue is whether petitioners are entitled to the
child tax credit under section 24. For the year at issue,
section 24 allowed a credit against the tax of $500 for each
qualifying child under the age of 17. In general, a qualifying
child is an individual for whom the taxpayer can claim a
dependency exemption and is the son or daughter of the taxpayer.
Petitioners claimed the credit on their 1999 return for
petitioner's two sons as qualifying children. The credit was
disallowed in the notice of deficiency. Respondent is sustained
on this issue because petitioners were not entitled to the
dependency exemption deductions for the two sons for 1999.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered for
respondent as to the deficiency and
for petitioners as to the penalty.