T.C. Summary Opinion 2005-142
UNITED STATES TAX COURT
PACITA PALERMO REYES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9659-04S. Filed September 29, 2005.
Pacita Palermo Reyes, pro se.
Aaron D. Gregory, for respondent.
GOLDBERG, 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 petitioner’s Federal
income tax of $3,778 for the taxable year 2002.
The issues for decision are: (1) Whether petitioner is
entitled to dependency exemption deductions for her
grandchildren, CME and CJE;1 (2) whether petitioner is entitled
to head-of-household filing status; (3) whether petitioner is
entitled to an earned income credit; and (4) whether petitioner
is entitled to child tax credits of $923 for taxable year 2002.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Newport News, Virginia, on the date the petition was filed in
this case.
Background
Both CME and CJE are petitioner’s grandchildren. Maria
Embry (Ms. Embry) is petitioner’s daughter and the mother of both
CME, born in 1987, and CJE, born in 1994. Michael Embry, Sr.
(Mr. Embry) is the father of CJE. CME’s father was not
identified in the record. In addition to CJE, Ms. Embry and Mr.
Embry have three other children. Ms. Embry and Mr. Embry were
legally separated in 2001 and remained legally separated during
the 2002 tax year.
1
The Court uses only the minor children’s initials.
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For the year in issue, petitioner earned $25,237 in taxable
wages. Petitioner resided, by herself, in a three-bedroom house
with an attached garage, which was converted into a fourth
bedroom and a bathroom.
Ms. Embry lived in a three-bedroom house with her five
children. Ms. Embry did not own a car. She was unemployed, and
she received $900 per month in child support from Mr. Embry. Ms.
Embry’s children were covered by Mr. Embry’s medical insurance
program through the U.S. Navy. Ms. Embry paid $540 per month for
rent, during taxable year 2002, and received approximately $300
per month in food stamp assistance, along with free school
lunches for some of her children, including CME and CJE.
In the year at issue, petitioner provided financial
assistance to Ms. Embry and petitioner’s grandchildren.
Petitioner paid for the telephone service in Ms. Embry’s house,
which was registered in petitioner’s name. At various times
throughout 2002, petitioner bought clothing, shoes, and dinners
for all of her grandchildren. Further, petitioner paid for and
accompanied her grandchildren when they traveled to Busch
Gardens. Petitioner provided rides to stores and to recreational
events because Ms. Embry did not own a car. Periodically,
petitioner bought laundry detergent, dishwashing liquid,
toothpaste, paper towels, toilet paper, and many other household
necessities for Ms. Embry and petitioner’s grandchildren. During
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taxable year 2002, petitioner opened guardian savings accounts
for CME and CJE. As of December 31, 2002, the balances of these
accounts were $722.40 and $206.23 for CME and CJE, respectively.
Further, petitioner gives her grandchildren monthly cash
allowances. Petitioner not only provides Ms. Embry and
petitioner’s grandchildren with monetary and material items but
also provides “love, care, and understanding to help them live a
normal and happy life with complete confidence in themselves and
high regard and respect for their well being.”
On March 2, 2003, petitioner went to the Internal Revenue
Service office in Hampton, Virginia, to receive assistance in
preparing her 2002 Federal income tax return. In fact,
petitioner’s return was prepared by an Internal Revenue Service
employee. Petitioner voluntarily signed the 2002 Federal income
tax return and timely filed said return on or about March 21,
2003.
On her return, petitioner claimed CME and CJE as dependents
and claimed the resulting dependency exemption deductions, as
well as child tax credits of $923 and an earned income credit.
Further, petitioner claimed head-of-household filing status on
her 2002 Federal income tax return.
During the 2002 taxable year, although CME and CJE often
visited petitioner’s home on weekends and holidays, both CME and
CJE lived with Ms. Embry in her home.
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Respondent issued a notice of deficiency to petitioner in
which respondent disallowed the dependency exemption deductions,
child tax credit, and earned income credit, and changed
petitioner’s filing status to single.
On November 24, 2004, respondent’s counsel sent petitioner a
letter requesting that she provide respondent with information
relevant to respondent’s determination with respect to her
liabilities in this case. The information respondent requested
from petitioner was as follows: (a) Any and all documentation
substantiating that petitioner is entitled to head-of-household
filing status for 2002; particularly any information supporting
that a “qualifying person” lived with her in her home for more
than half of the 2002 tax year; (b) any and all documentation
substantiating that petitioner is entitled to either or both of
the two dependent exemption deductions claimed on her 2002 tax
return, particularly any information supporting that she provided
more than half of each claimed dependent’s total support for the
2002 tax year; (c) any and all documentation substantiating that
petitioner is entitled to claim the earned income credit as shown
on her 2002 tax return, particularly any information supporting
that a “qualifying child” or children lived with her in her home
for more than half of the 2002 tax year; (d) any and all
documentation substantiating that petitioner is entitled to the
child tax credit for the 2002 tax year; (e) any and all
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documentation substantiating that petitioner is entitled to the
additional child tax credit for the 2002 tax year; and (f) any
other additional documentation that may be relevant.
Petitioner did not respond to respondent’s counsel’s letter
and did not provide any additional information. However,
petitioner contends that documentation already in the record of
this case substantiates her claims on her 2002 income tax return.
The documentation, to which petitioner refers, consists of: (1)
Notarized Certification from her daughter, Ms. Embry, that
petitioner is the only person entitled to claim CJE as a
dependent; (2) two pages of what appears to be a separation
agreement between Mr. Embry and Ms. Embry; however, these pages
are not signed by Ms. Embry; and (3) copies of Langly Federal
Credit Union statements for the period October 1 through December
31, 2002, establishing that she funded a guardian account for
CJE.
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct. Welch v. Helvering,
290 U.S. 111, 115 (1933). In pertinent part, Rule 142(a)(1)
provides the general rule that “The burden of proof shall be upon
the petitioner”. In certain circumstances, however, if the
taxpayer introduces credible evidence with respect to any factual
issue relevant to ascertaining the proper tax liability, section
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7491 places the burden of proof on the Commissioner. Sec.
7491(a)(1); Rule 142(a)(2). Credible evidence is “the quality of
evidence which, after critical analysis, * * * [a] court would
find sufficient * * * to base a decision on the issue if no
contrary evidence were submitted.”2 Baker v. Commissioner, 122
T.C. 143, 168 (2004); Higbee v. Commissioner, 116 T.C. 438, 442
(2001). Section 7491(a)(1) applies only if the taxpayer complies
with substantiation requirements, maintains all required records,
and cooperates with the Commissioner for witnesses, information,
documents, meetings, and interviews. Sec. 7491(a)(2). Although
neither party alleges the applicability of section 7491(a), we
conclude that the burden of proof has not shifted to respondent
with respect to any of the issues in the case at bar because
petitioner has not complied with the requirements to substantiate
the items in dispute. Therefore, petitioner bears the burden of
showing that she is entitled to claim dependency exemption
deductions for CME and CJE, that she is entitled to head-of-
household filing status, that she is entitled to an earned income
credit for taxable year 2002, and that she is entitled to claim
child tax credits for CME and CJE for taxable year 2002.
2
We interpret the quoted language as requiring the
taxpayer’s evidence pertaining to any factual issue to be
evidence the Court would find sufficient upon which to base a
decision on the issue in favor of the taxpayer. See Bernardo v.
Commissioner, T.C. Memo. 2004-199.
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Moreover, deductions are a matter of legislative grace and
are allowed only as specifically provided by statute. INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice
Co. v. Helvering, 292 U.S. 435, 440 (1934).
A. Dependency Exemption Deductions
A taxpayer may be entitled to claim as a deduction an
exemption amount for each of his or her dependents, over half of
whose support is provided by the taxpayer. Secs. 151(c)(1),
152(a). A dependent includes a grandchild. Sec. 152(a)(1).
As to the support test, a taxpayer generally must provide
more than one-half of a claimed dependent’s support for the
calendar year in which the taxable year of the taxpayer begins.
Sec. 152(a), (c). In order to satisfy this test, a taxpayer must
establish the total support expended on behalf of the claimed
dependents from all sources for the year and demonstrate that she
provided more than half of this amount. See Archer v.
Commissioner, 73 T.C. 963, 967 (1980); Blanco v. Commissioner, 56
T.C. 512, 514-515 (1971).
In the present case, there is an absence of evidence
relating to the total amount of support as well as petitioner’s
share of support. While the record is replete with evidence of
petitioner being a loving and caring grandmother and her
purchases of numerous household necessities, we cannot conclude
on this record the amount of the total support for CME and CJE
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nor the amount of support provided by petitioner. Therefore,
respondent is sustained on this issue.
2. Head of Household
Section 1(b) imposes an income tax rate on individuals
filing as head of household. As relevant herein, section 2(b)
defines “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.
The Court has sustained respondent’s determination
disallowing the claimed dependency exemption deductions, and, as
a result, petitioner is not entitled to head-of-household filing
status for 2002. Further, the record shows that CME and CJE did
not live with petitioner for more than one-half of the taxable
year 2002. Thus, respondent’s determination that petitioner is
not entitled to head-of-household filing status is sustained.
3. 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
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residency test, and an age test. Sec. 32(c)(3). For the tax
year in issue, the residency test required a qualifying child to
have “the same principal place of abode as the taxpayer for more
than one-half of such taxable year”. Sec. 32(c)(3)(A)(ii). As
previously stated, the record shows that CME and CJE did not live
with petitioner for more than one-half of the taxable year 2002.
We find that CME and CJE fail the residency test of section
32(c)(3)(A)(ii); therefore, we need not, and do not, decide
whether they satisfy the relationship test or age test under
section 32(c)(3). Thus, respondent is sustained on this issue.
4. Child Tax Credits
Finally, we consider the child tax credits. A taxpayer may
be entitled to a credit against tax with respect to each
“qualifying child”. Sec. 24(a) The plain language of section 24
established 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 previously stated, the Court has sustained respondent’s
determination that petitioner is not entitled to dependency
exemption deductions for CME and CJE. Thus, petitioner fails the
first prong of the test of section 24. The Court sustains
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respondent’s determination regarding the child tax credits under
section 24.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.