T.C. Summary Opinion 2007-88
UNITED STATES TAX COURT
MANUEL R. CHAVEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20682-04S. Filed May 31, 2007.
Manuel R. Chavez, pro se.
Daniel Price, for respondent.
WHERRY, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as 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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this opinion shall not be treated as precedent for any other
case.
This case is before the Court on a petition for judicial
review of a notice of deficiency. Respondent determined a $5,116
deficiency for petitioner’s 2003 taxable year. The issues for
decision are whether petitioner is entitled to the following:
(1) Two dependency exemption deductions; (2) head of household
filing status; (3) a child tax credit; and (4) the earned income
credit.
Background
Some of the facts have been stipulated by the parties. The
stipulations, with accompanying exhibits, are incorporated herein
by this reference. At the time the petition was filed petitioner
resided in El Paso, Texas.
Petitioner lived with his mother, Juana Martinez, in 2003.
Petitioner’s sister, Patricia Chavez, and her two daughters, RJM
and CGM,2 also resided with petitioner’s mother. Petitioner’s
mother was listed as the responsible party on the lease and all
household bills.
During 2003, petitioner’s sister received State aid,
including food stamps, for herself and RJM and CGM. RJM and CGM
did not receive any support from their father.
2
The Court will refer to the minor children by their
initials.
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Petitioner worked for the Department of Defense and received
wages totaling $14,010 in 2003. On his 2003 Form 1040A, U.S.
Individual Income Tax Return, which was prepared by H&R Block,
petitioner listed RJM and CGM, his nieces, as dependents.
Petitioner filed his Federal tax return as head of household and
claimed a standard deduction in the amount of $7,000.3
Petitioner claimed three exemptions, one for himself and
dependency exemptions for RJM and CGM, totaling $9,150.
Petitioner also claimed an earned income credit in the amount of
$4,142, and a child tax credit in the amount of $351. According
to petitioner and H&R Block’s calculations, petitioner was
entitled to a $4,790 refund.
The notice of deficiency was sent to petitioner on August
30, 2004. In the notice of deficiency, respondent:
(1) Disallowed the dependency exemptions for petitioner’s nieces;
(2) changed petitioner’s filing status from head of household to
single and adjusted the standard deduction accordingly;
(3) disallowed the child tax credit; and (4) disallowed the
earned income credit. As a result, respondent determined a
deficiency of $5,116. Petitioner timely petitioned this Court,
and a trial was held on February 6, 2006, in El Paso, Texas.
3
The standard deduction for single or married filing
separately for the taxable year 2003 was $4,750.
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Discussion
Deductions are a matter of legislative grace, and the
taxpayer 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. As a general rule, the
Commissioner’s determination of a taxpayer’s liability in the
notice of deficiency is presumed correct, and the taxpayer bears
the burden of proving that the determination is improper. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
However, pursuant to section 7491(a)(1), the burden of proof on
factual issues that affect the taxpayer’s tax liability may be
shifted to the Commissioner where the “taxpayer introduces
credible evidence with respect to * * * such issue”. The burden
will shift only if the taxpayer has, inter alia, complied with
substantiation requirements pursuant to the Internal Revenue Code
and “cooperated with reasonable requests by the Secretary for
witnesses, information, documents, meetings, and interviews”.
Sec. 7491(a)(2). In the instant case, petitioner did not comply
with the substantiation requirements, and failed to introduce
credible evidence at trial. Accordingly, the burden remains on
petitioner.
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I. Dependency Exemption Deductions
Section 151 allows a taxpayer to deduct a personal
exemption, as well as dependency exemptions for the taxpayer’s
dependents. See sec. 151(a), (c). Section 152(a) defines
“dependent”, in pertinent part, to include “A son or daughter of
a brother or sister of the taxpayer”. Sec. 152(a)(6). The
claimed individuals, RJM and CGM, satisfy the definitional
requirement of “dependent” within the meaning of section
152(a)(6) because they are the daughters of petitioner’s sister.
To qualify as a dependent under section 152(a), the
individual must have received over half of his or her support for
the taxable year from the taxpayer. For this purpose, “support”
is defined as including “food, shelter, clothing, medical and
dental care, education, and the like.” Sec. 1.152-1(a)(2)(i),
Income Tax Regs. Section 1.152-1(a)(2)(i), Income Tax Regs.,
further provides:
For purposes of determining whether or not an
individual received, for a given calendar year, over
half of his support from the taxpayer, there shall be
taken into account the amount of support received from
the taxpayer as compared to the entire amount of
support which the individual received from all sources,
including support which the individual himself
supplied. * * *
In other words, the support test requires the taxpayer to
establish the total support costs for the claimed individual and
that the taxpayer provided over half of that amount. Archer v.
Commissioner, 73 T.C. 963, 967 (1980); see Cotton v.
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Commissioner, T.C. Memo. 2000-333. Thus, a taxpayer who cannot
establish the total amount of support costs for the claimed
individual generally may not claim that individual as a
dependent. Blanco v. Commissioner, 56 T.C. 512, 514-515 (1971);
Cotton v. Commissioner, supra.
Petitioner, petitioner’s sister, and petitioner’s nieces all
lived with petitioner’s mother in 2003. Petitioner testified
that he was responsible for paying the rent and all household
bills even though the lease and bills were in his mother’s name.
Petitioner explained that he gave his mother cash so that she
could pay the rent and bills. However, petitioner did not
present any evidence regarding the dollar amount of money he
contributed to the household.
RJM and CGM received State aid, which included food stamps,
during 2003. With respect to amounts petitioner provided for RJM
and CGM’s support, petitioner testified that he gave his sister
cash on a regular basis. Specifically, petitioner testified that
he gave his sister at least $100 per month, and that if his
financial situation permitted, he contributed up to $400 or $500
a month. Petitioner did not present any independent evidence to
corroborate his testimony.
The Court finds petitioner’s testimony to be credible as to
the fact that he provided some support for his nieces and
contributed towards household bills. However, the record is
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devoid of any reference to the dollar amount of total support
that RJM and CGM received in State aid, and the dollar amount of
support that petitioner provided for his nieces. Thus,
petitioner has failed to provide the Court with any evidence
establishing the total amount of support that his nieces
received, or that he provided over half of his nieces’ support
during the 2003 tax year. Accordingly, the Court is constrained
to conclude that petitioner is not entitled to dependency
exemptions for his nieces.
II. Head of Household Filing Status
Section 1(b) imposes a special tax rate on an individual
filing his Federal tax return as head of household. Section 2(b)
defines a “head of household” as an individual taxpayer who is:
(1) Unmarried at the close of the taxable year; and (2) maintains
as his home a household which constitutes for more than one-half
of the taxable year the principal place of abode of a dependent
of the taxpayer with respect to whom the taxpayer is allowed a
deduction under section 151. Sec. 2(b)(1)(A)(i) and (ii). This
Court has already concluded that petitioner is not entitled to
dependency exemptions under section 151 for RJM and CGM.
Accordingly, a fortiori, petitioner is not entitled to head of
household filing status.
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III. Child Tax Credits
Section 24(a) authorizes a child tax credit with respect to
each “qualifying child” of the taxpayer. As relevant to these
particular facts, a “qualifying child” means, among other things,
an individual with respect to whom the taxpayer is allowed a
deduction under section 151. Sec. 24(c)(1)(A). This Court has
already concluded that petitioner is not entitled to dependency
exemptions under section 151 for RJM and CGM. Accordingly, RJM
and CGM do not fit within the meaning of “qualifying child” as
defined by section 24(c). The Court concludes that petitioner is
not entitled to a child tax credit for his nieces.
IV. Earned Income Credit
Section 32(a)(1) allows an eligible individual an earned
income credit against the individual’s income tax liability.
Section 32(a)(2) limits the credit allowed through a phaseout,
and section 32(b) prescribes different percentages and amounts
used to calculate the credit. The limitation amount is based on
the amount of the taxpayer’s earned income and whether the
taxpayer has no children, one qualifying child, or two or more
qualifying children.
To be eligible to claim an earned income credit with respect
to a child, the taxpayer must establish that the child satisfies
a relationship test, a residency test, and an age test.
Sec. 32(c)(3). In order for a niece to meet the relationship
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requirement under section 32(c)(3)(B), the taxpayer must show
that he cared for the niece as his own child.
Sec. 32(c)(3)(B)(i)(II). Petitioner has not claimed or offered
any evidence to show that he cared for RJM and CGM as if they
were his own daughters. Although petitioner did provide
financial support for his nieces, that fact is insufficient to
show that he cared for his nieces as his own children for 2003.
See Mares v. Commissioner, T.C. Memo. 2001-216.
Although petitioner is not eligible to claim an earned
income credit under section 32(c)(1)(A)(i) for one or more
qualifying children, he may be an “eligible individual” under
section 32(c)(1)(A)(ii). For 2003, a taxpayer is eligible under
this subsection only if his adjusted gross income was less than
$11,230. Rev. Proc. 2002-70, 2002-2 C.B. 845. Petitioner’s
adjusted gross income for 2003 was $14,036. Accordingly,
petitioner is not eligible for an earned income credit.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
Decision will be entered
for respondent.