T.C. Summary Opinion 2006-108
UNITED STATES TAX COURT
MICHAEL E. AND LAURA A. TAYLOR, Petitioners v. COMMISSIONER OF
INTERNAL REVENUE, Respondent
Docket No. 12423-04S. Filed July 17, 2006.
Ronald W. Blasi and Michael L.P. Jacobs (specially
recognized), for petitioners.
Brenda M. Fitzgerald, for respondent.
POWELL, Special Trial Judge: This case was heard pursuant
to section 74631 of the Internal Revenue Code in effect at the
time the petition was filed. The decision to be entered is not
1
Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
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reviewable by any other court, and this opinion should not be
cited as authority.
The term petitioner refers to Michael E. Taylor. Respondent
determined a deficiency of $1,296 in petitioners’ 2002 Federal
income tax and a penalty under section 6662 of $259.20. The
issues are: (1) Whether petitioners are entitled to a dependency
exemption deduction for petitioner’s minor child from a previous
marriage; (2) whether petitioners are entitled to a child tax
credit; (3) whether petitioners are entitled to an additional
child tax credit; (4) whether petitioners are entitled to the
earned income tax credit; and (5) whether petitioners are liable
for the section 6662 penalty.
Petitioners resided in Stockbridge, Georgia, at the time the
petition was filed.
Background
Petitioner and Laura F. Jenkins (Mrs. Jenkins) divorced on
September 11, 1998, and are the parents of two minor children.
They lived apart during all of 2002, with Mrs. Jenkins residing
in Henry County and petitioner residing in Clayton County.
Together they provided over one-half of their children’s support
for 2002.
In 2001, an order establishing joint legal and physical
custody (custody order) set forth a 1 week on/1 week off custody
schedule, starting with an exchange on Sunday at 6 p.m. The
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custody order left the details regarding custody on holidays and
school vacations up to petitioner and Mrs. Jenkins to work out on
their own.
The terms of the custody order provide that as long as Mrs.
Jenkins lives in Henry County, her home will be the children’s
primary residence. The custody order also provides that if Mrs.
Jenkins were to move into Clayton County from Henry County her
home would still be the children’s primary residence. If Mrs.
Jenkins were to move somewhere other than Henry County or Clayton
County, the custody order states that petitioner’s home in
Clayton County would become the children’s primary residence.
Mrs. Jenkins lived in Henry County during all of 2002.
There is no mention of dependency exemption deductions in
either the divorce decree or the custody order.
Petitioner claimed a dependency exemption deduction for one
of his children on his 2002 Federal income tax return.
Petitioner contends that this was done in accordance with an oral
agreement he had with Mrs. Jenkins. Mrs. Jenkins claimed
dependency exemption deductions for both children on her 2002
Federal income tax return.
Respondent issued a notice of deficiency to petitioners for
the year at issue on April 30, 2004.
Petitioner asserts that he had actual physical custody of
both children for a greater portion of 2002 than Mrs. Jenkins did
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and, therefore, he was the custodial parent for 2002. In this
regard, petitioner presents the testimony of a neighbor, his
mother, and petitioner Laura A. Taylor to support his claim that
he had physical custody of both children for 50 to 70 percent of
the year in issue. Petitioner asserts that Mrs. Jenkins’s home
was the children’s primary residence in 2002 only for purposes of
keeping the children enrolled in their current school district.
Discussion
Dependency Exemption Deduction
Sections 151 and 152 provide that an individual taxpayer is
entitled to deduct an exemption for a minor child if the taxpayer
provides over half of the support for the child. Under section
152(e)(1), in the case of a minor child whose parents are
divorced, separated under a written agreement, or who have lived
apart at all times during the last 6 months of the calendar year,
and together provide over half of the support for the minor
child, the parent having custody for a greater portion of the
calendar year (custodial parent) generally shall be treated as
providing over half of the support for the minor child.
Petitioner and Mrs. Jenkins lived apart at all times during 2002,
and together they provided over half of their children’s support.
Custody under section 152(e)(1) is determined by the terms
of the most recent decree of divorce, separate maintenance,
custody decree, or written separation agreement. Sec. 1.152-
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4(b), Income Tax Regs. If any such instrument is silent as to
custody, has its validity questioned, or awards “split” or joint
custody, then the parent who has custody for the greater portion
of the calendar year will be the custodial parent. Id.
A noncustodial parent may be entitled to the dependency
exemption deduction if one of three exceptions in section 152(e)
is satisfied. The only exception relevant to this case is
section 152(e)(2). Section 152(e)(2) provides that a child shall
be treated as having received over half of his or her support
from the noncustodial parent if:
(A) the custodial parent signs a written
declaration (in such manner and form as the Secretary
may by regulations prescribe) that such custodial
parent will not claim such child as a dependent for any
taxable year beginning in such calendar year, and
(B) the noncustodial parent attaches such written
declaration to the noncustodial parent's return for the
taxable year beginning during such calendar year.
Section 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., 49
Fed. Reg. 34459 (Aug. 31, 1984),2 further provides:
The written declaration may be made on a form to be
provided by the Service for this purpose. * * *
2
Temporary regulations are entitled to the same weight
as final regulations. See Peterson Marital Trust v.
Commissioner, 102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d
Cir. 1996); Truck & Equip. Corp. v. Commissioner, 98 T.C. 141,
149 (1992); see also LeCroy Research Sys. Corp. v. Commissioner,
751 F.2d 123, 127 (2d Cir. 1984), revg. on other grounds T.C.
Memo. 1984-145.
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Petitioner does not claim that he satisfies the requirements
of section 152(e)(2). However, he cites several cases where the
Court has looked to where the child resided in determining which
parent had physical custody for purposes of section 152(e)(1).
Otmishi v. Commissioner, T.C. Memo. 1980-472; Dumke v.
Commissioner, T.C. Memo. 1975-91, affd. without published opinion
524 F.2d 1230 (5th Cir. 1975). In those cases, even if the
custody decree granted legal custody to one parent, under
circumstances not present in this case, the Court held that the
parent was not entitled to a dependency exemption deduction.
As an initial matter, petitioner has not presented evidence
such as a detailed log or diary showing that he had actual care
and custody of the children for a greater portion of 2002 than
Mrs. Jenkins, and Mrs. Jenkins’s calendar of events seems
contrary to petitioner’s position. We cannot determine from this
record that the children resided with petitioner for a greater
portion of 2002.
More importantly, even if petitioner submitted evidence of a
detailed log or diary of the time spent with his children in
2002, we do not agree that petitioner was the custodial parent
for 2002 for purposes of section 152(e). The terms of the State
custody order clearly state that the primary residence of the
children is with Mrs. Jenkins, provided she resides in Henry
County, and during all of 2002 she did. Counting days of the
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physical whereabouts of children when the terms of the custody
order provides for the primary residence is not necessary. We
decline the invitation to count days and hours of physical
custody in the context of a functioning cooperative joint custody
arrangement. Petitioner was not the custodial parent for 2002
under section 152(e)(1). See Wooten v. Commissioner, T.C. Memo.
2000-54.
Child Tax Credits
Section 24(a) provides that a taxpayer may claim a credit
for “each qualifying child”. A qualifying child is defined as an
individual if “the taxpayer is allowed a deduction under section
151 with respect to such individual for the taxable year”. Sec.
24(c)(1)(A). Petitioners are not entitled to claim a dependency
exemption deduction under section 151; therefore, they are also
not entitled to the child tax credits. Respondent’s disallowance
of the child tax credits is sustained.
Earned Income Credit
Respondent disallowed the earned income credit claimed for
petitioner’s child.
Subject to limitations, an eligible individual is allowed a
credit which is calculated as a percentage of the individual’s
earned income. Sec. 32(a)(1). An eligible individual is an
individual who has a qualifying child for the taxable year. Sec.
32(c)(1)(A)(i). A qualifying child is one who has the same
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principal place of abode as the taxpayer for more than one-half
of the taxable year, and is a son or daughter of the taxpayer.
Sec. 32(c)(3)(A),(B).
Petitioner has not shown that his home was the child’s
principal place of abode for more than one-half of 2002.
Petitioner is not an eligible individual with a qualifying child.
Respondent’s disallowance of the earned income credit is
sustained.
Accuracy-Related Penalty
Section 6662 imposes an accuracy-related penalty “equal to
20 percent of the portion of the underpayment” of tax
attributable to “Any substantial understatement of income tax”.
Sec. 6662(a) and (b)(2). A substantial understatement of income
tax exists if the amount of the understatement for the taxable
year exceeds the greater of 10 percent of the tax required to be
shown on the return for the taxable year or $5,000. Sec.
6662(d)(1)(A). Respondent has met his burden of production with
respect to petitioners’ substantial understatement of income for
the year at issue. Sec. 7491(c).
Petitioner contends that he is not liable for the
accuracy-related penalty because he is the custodial parent under
section 152(e) for the year in issue and is entitled to the
dependency exemption deduction. Generally, a taxpayer may avoid
the imposition of the accuracy-related penalty if “there was a
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reasonable cause * * * and that the taxpayer acted in good
faith”. Sec. 6664(c)(1). Whether the taxpayer acted with
reasonable cause and in good faith is determined by the relevant
facts and circumstances and the extent to which the taxpayer
attempted to assess the proper tax liability. Sec.
1.6664-4(b)(1), Income Tax Regs.; see also Neely v. Commissioner,
85 T.C. 934 (1985); Stubblefield v. Commissioner, T.C. Memo.
1996-537.
We find petitioner’s claim of the dependency exemption
deduction was in good faith but based on a mistaken view of the
law. Petitioner consistently asserted that he had custody of
both of his children for the greater portion of the calendar
year. Respondent’s determination of the accuracy-related penalty
under section 6662 is not sustained.
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 under section 6662.