T.C. Summary Opinion 2014-9
UNITED STATES TAX COURT
CURTIS JAY RICHARDSON AND VICTORIA J. RICHARDSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4280-12S. Filed January 30, 2014.
Curtis Jay Richardson and Victoria J. Richardson, pro sese.
Jenny R. Casey, for respondent.
SUMMARY OPINION
DEAN, Special Trial Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when the petition was filed.
Pursuant to section 7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent for any other case.
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Unless otherwise indicated, subsequent section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency of $5,418 in petitioners’ Federal
income tax and a section 6662(a) accuracy-related penalty of $1,083.60 for 2008.
Respondent also determined a deficiency of $5,190 in petitioners’ Federal income
tax and a section 6662(a) accuracy-related penalty of $1,038 for 2009. The issues
for decision are whether petitioners are: (1) entitled to dependency exemption
deductions for any of their four children; (2) entitled to the child tax credit for any
of their four children; and (3) liable for the section 6662(a) accuracy-related
penalty.
Background
Some of the facts have been stipulated and are so found. The stipulation of
facts and the attached exhibits are incorporated herein by reference. Petitioners
resided in California when the petition was filed.
Petitioners timely filed their 2008 joint Federal income tax return. On the
2008 return petitioners claimed dependency exemption deductions for four
children, a child tax credit, and an additional child tax credit.
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Petitioners timely filed their 2009 joint Federal income tax return. On the
2009 return petitioners claimed dependency exemption deductions for four
children and a child tax credit.
The State of California removed petitioners’ four children from their home
in 2006, and the children did not live with petitioners at any time during 2008 or
2009.
Petitioners’ 2008 and 2009 returns were selected for examination.
Respondent issued to petitioners a notice of deficiency for 2008, disallowing the
claimed dependency exemption deductions, the child tax credit and the additional
child tax credit and determining a deficiency and an accuracy-related penalty.
Respondent issued to petitioners a notice of deficiency for 2009, disallowing the
claimed dependency exemption deductions and the child tax credit and
determining a deficiency and an accuracy-related penalty. Petitioners timely filed
a petition disputing the notices of deficiency.
Discussion
Generally, the Commissioner’s determinations are presumed correct, and the
taxpayer bears the burden of proving that those determinations are erroneous.
Rule 142(a); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch
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v. Helvering, 290 U.S. 111, 115 (1933). Deductions and credits are a matter of
legislative grace, and the taxpayer bears the burden of proving that he or she is
entitled to any deduction or credit claimed. Rule 142(a); Deputy v. du Pont, 308
U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). Pursuant to section 7491(a), the burden of proof as to factual matters
shifts to the Commissioner under certain circumstances. Petitioners did not allege
that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore,
petitioners bear the burden of proof. See Rule 142(a).
I. Dependency Exemption Deduction
A taxpayer is entitled to a dependency exemption deduction under section
151(c) only if the claimed dependent is a “qualifying child” or a “qualifying
relative” as defined under section 152(c) and (d). Sec. 152(a). A qualifying child
includes the taxpayer’s child, brother, sister, stepbrother, stepsister, or a
descendant of any of them. See sec. 152(c)(1) and (2). In addition, section 152(c)
provides in pertinent part that an individual is a qualifying child of the taxpayer
only if: (1) the child had the same principal place of abode as the taxpayer for
more than one-half of the taxable year; (2) the child meets specified age
requirements; and (3) the child did not provide over one-half of his or her own
support for the taxable year.
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All four of the dependency exemption deductions were claimed with respect
to petitioners’ biological children. Petitioners, however, have not shown that any
of the children resided with them during any part of 2008 or 2009. Similarly,
petitioners have not made any showing with respect to support of the children.
The Court concludes that none of petitioners’ children is a “qualifying
child” as defined by section 152(c) and as a result, petitioners are not entitled to
dependency exemption deductions for any of their children for 2008 or 2009.
II. Child Tax Credit
Subject to limitations, section 24(a) provides a credit with respect to each
qualifying child of a taxpayer. A portion of the credit may be refundable. Sec.
24(d). The refundable portion of the credit is commonly referred to as the
additional child tax credit. Section 24(c)(1) defines the term “qualifying child” as
a “qualifying child of the taxpayer (as defined in section 152(c)) who has not
attained age 17.”
As previously mentioned, we have determined that petitioners have no
qualifying child within the meaning of section 152(c). Therefore, petitioners are
not entitled to a child tax credit for 2008 or 2009 or an additional child tax credit
for 2008.
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III. Section 6662(a) Accuracy-Related Penalty
Section 6662(a) and (b)(1) and (2) authorizes the Commissioner to impose a
penalty equal to 20% of the portion of an underpayment of tax that is attributable
to negligence or disregard of rules or regulations or any substantial understatement
of income tax. The Commissioner bears the initial burden of production with
respect to the taxpayer’s liability for the section 6662(a) penalty. Sec. 7491(c). At
trial the Commissioner must introduce sufficient evidence “indicating that it is
appropriate to impose the relevant penalty.” Higbee v. Commissioner, 116 T.C.
438, 446 (2001). If the Commissioner satisfies his initial burden of production,
the burden of producing evidence to refute the Commissioner’s evidence shifts to
the taxpayer, and the taxpayer must prove that the penalty does not apply. Id. at
447.
Respondent determined that petitioners were liable for the section 6662(a)
accuracy-related penalty due to negligence or disregard of rules or regulations or
for a substantial understatement of income tax for 2008 and 2009.1
For purposes of section 6662, negligence is any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue Code, and disregard
1
The Court need not decide whether petitioners are liable for a sec. 6662(a)
penalty for a substantial understatement of income tax.
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includes any careless, reckless, or intentional disregard. Sec. 6662(c); see also
Neely v. Commissioner, 85 T.C. 934, 947 (1985) (‘“Negligence is lack of due care
or failure to do what a reasonable and ordinarily prudent person would do under
the circumstances.’” (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th
Cir. 1967), aff’g in part, remanding in part 43 T.C. 168 (1964), and T.C. Memo.
1964-299)); sec. 1.6662-3, Income Tax Regs. Negligence also includes any
failure to exercise ordinary and reasonable care in the preparation of a tax return or
any failure to keep adequate books and records and to properly substantiate items.
Sec. 1.6662-3(b)(1), Income Tax Regs.
Respondent has met his burden of production under section 7491(c) because
petitioners claimed dependency exemption deductions and child tax credits in
2008 and 2009 for children who had been removed from their home in 2006.
A taxpayer may avoid liability for the section 6662 penalty by
demonstrating that he or she had reasonable cause for the underpayment and that
he or she acted in good faith with respect to the underpayment. Sec. 6664(c)(1);
sec. 1.6664-4(a), Income Tax Regs. Reasonable cause and good faith are
determined on a case-by-case basis, taking into account all pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most important factor
in determining reasonable cause and good faith is the extent of the taxpayer’s
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effort to assess his or her proper income tax liability. Id.; see also Woodsum v.
Commissioner, 136 T.C. 585, 591 (2011).
Petitioners made no showing regarding their attempts to assess their proper
income tax liability. The Court, therefore, concludes that petitioners are liable for
section 6662(a) accuracy-related penalties for negligence for 2008 and 2009.
The term “underpayment” in section 6662(a) means, in this case, the amount
by which the proper tax due exceeds the amount shown on the return. Petitioners
reported a zero tax liability on their return for 2008 after applying the child tax
credit, and they claimed a refundable additional child tax credit of $1,409. The
Court has sustained respondent’s determination that petitioners’ correct tax
liability is $4,009. But respondent computed the accuracy-related penalty on the
basis of an underpayment of $5,418 ($4,009 + $1,409), in effect treating
petitioners’ disallowed $1,409 of claimed additional child tax credit as a negative
amount of tax. Refundable credits must be taken into account when determining
the amount of tax shown on the return; however, the Commissioner may not use
the refundable additional child tax credit to reduce the amount of tax shown on a
return below zero. Rand v. Commissioner, 141 T.C. , (slip op. at 16) (Nov.
18, 2013). Therefore, the accuracy-related penalty for 2008 may be computed
only on the basis of an underpayment of $4,009.
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We have considered all of petitioners’ arguments, and, to the extent not
addressed herein, we conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.