*765 During the taxable years petitioner was chief support of his sons' families. Held, this does not in the circumstances entitle him to statutory credit for dependents on the ground the petitioner was the chief support of his four grandchildren.
*1180 The Commissioner made three separate determinations for the calendar years 1937, 1938, and 1939 in which he found deficiencies in income taxes in the respective amounts of $603.43, $689, and $614.66. Petitioner claims an overpayment for the year 1937 in the amount of $40.56. The sole issue is the right of petitioner to the statutory credit for dependents on the ground that petitioner was the chief support of his four grandchildren. The several proceedings were consolidated for hearing and opinion.
FINDINGS OF FACT.
Petitioner is a lawyer and during the taxable years resided in Englewood, New Jersey. His income tax returns were filed with the collector of internal revenue for the fifth district of New Jersey.
Petitioner has two sons, John B. Kerr and Clarence D. Kerr, Jr. During the*766 taxable years both sons were married and living with their families. John had three children. Clarence had one child and a second one was born in Nevember 1939. All five of these children were living on December 31, 1939, and all were under 18 years of age on that date.
John was married in 1931 and his first child was born within a year thereafter. During the interval between his marriage and the beginning of 1937, John's earnings were less than his family expenses and he incurred substantial debts. During the entire year 1937 and up to *1181 April 1, 1938, John was engaged in the real estate business in New Jersey. His gross income from all sources in 1937 was $1,035.51. On April 1, 1938, John secured a position as an evaluator with the Federal Housing Authority and continued in that position throughout the balance of 1938 and all of 1939. His gross income from all sources in 1938 was $2,155 and in 1939 was $2,600.
Clarence was married in 1934 and his first child was born within a year thereafter. During all of 1937, 1938, and 1939 Clarence was employed by the Prudential Insurance Co. of Newark, New Jersey, in its Woolworth Building office in New York City. His*767 gross income from all sources in 1937 was $1,200, in 1938 was $1,300, and in 1939 was $1,420.
During the three-year period here involved petitioner made substantial contributions to the families of John and Clarence. To John's family he contributed $4,734.54 in 1937, $2,770.95 in 1938, and $2,736.87 in 1939. To Clarence's family he contributed $2,766.44 in 1937, $2,736.06 in 1938, and $2,372.77 in 1939.
During the same three-year period petitioner's wife contributed to John's family $632 in 1937, $615 in 1938, and $60 in 1939. Petitioner's wife contributed to Clarence's family $228.50 in 1937, $250 in 1938, and $249 in 1939.
On January 1, 1937, Mrs. John Kerr, who had given birth to a third child a few days prior, was seriously ill with septic poisoning and in February of that year underwent an operation for the removal of a kidney. In the same year John was in a sanitarium for about two and a half months, and the children were ill with colds, grippe, and ear trouble. Over $2,000 was expended in 1937 for doctors, nurses, and hospitalization; approximately $1,700 was spent for food, $600 for rent, $150 for clothes, and the remainder of John's earnings and his father's*768 contributions were expended for other necessary living expenses. During 1938 and 1939, the expenses of John's family were less than in 1937. During this period he rented a house for which he paid a rental of $600 a year.
The social activities of John's family consisted of an occasional motion picture show or a game of bridge. He belonged to no clubs, and the family did no traveling except for a brief vacation at petitioner's summer place. He made during those years no purchases of jewelry, furs, silverware, or other luxuries. He drove a Ford car which was devoted to business usage.
During the years 1937 and 1938 Clarence and his family paid an average rental of $55 per month, and during 1939 they occupied an apartment which rented for $75 a month, including heat and water. Clarence's family also encountered medical expenses, hospitalization, and nurses' fees during 1937, 1938, and 1939. He owned no automobile and he belonged to no clubs. The social activities of his family consisted *1182 of motion picture shows and an occasional game of bridge. The family did no traveling, except one trip to the Thousand Islands and summer vacations. Food bills averaged about*769 $1,000 per year, and Mrs. Kerr's clothing and general bills, including the child, amounted to about $300 a year.
Due to the emergencies in the case of John's family and the modest income in the case of Clarence's family, petitioner supplemented the income of both sons with the amounts which he believed necessary to properly maintain their families. Contributions were made to maintain the families and to support the grandchildren. The contributions made by petitioner were actually paid to a number of different people. In some instances payments were made directly to his sons, but they were also made directly to individuals who rendered services or delivered merchandise, and included doctors, nurses, hospitals, and landlords.
The contributions made by petitioner to the families of his two sons in 1937, 1938, and 1939, together with the earnings of the two sons during said years, were fully expended in each of the years when received for necessary family living expenses.
OPINION.
ARUNDELL: Section 25(b)(2) of the Revenue Acts of 1936 and 1938 provides for credit for dependents in the amount of $400 for each person dependent upon and receiving his chief support from the*770 taxpayer, if such person is under 18 years of age or is incapable of self-support because mentally or physically defective. This provision of the law, which has appeared in substantially the same form for years, has been implemented by regulations of the Commissioner. 1 The allowance of a credit of $400 for dependents under 18 years of age is primarily a recognition of the obligations of parenthood, although the statute does not limit the allowance to dependent children. The fact that the credit stops at 18 years of age except in the case of physical or mental disability is no doubt due to the fact that in the average American family a child after reaching 18 years of age is regarded as capable of self-support.
*771 In order that the credit be allowed it is necessary that the support be given to one who is in fact dependent upon the giver and the *1183 financial assistance given must constitute the chief support of the dependent. Each family constitutes a unit and, except in extraordinary circumstances, the dependents of one family are not to be credited as dependents of another. That petitioner's two sons, John and Clarence, were both legally and morally required to care for their own children seems clear and that those childen were the dependents of their own parents and not of their grandparents we believe to be equally clear.
Petitioner is a well-to-do man. During the years in question he found his two married sons in financial difficulties due to the fact that their earnings were modest, sickness was present, and children had arrived rapidly. Petitioner came to their aid in a liberal way. The earnings of John, who apparently was in most need of funds, while limited in 1937, were more substantial during the years 1938 and 1939 and in fact were greater in amount than the income of the average American family, even though his income did not permit him and his family to live*772 in the manner in which John had been accustomed. Clarence's income was less, but his obligations were less, and apparently he did not suffer the same degree of hard luck as seems to have followed his brother.
The contributions made by petitioner during the several years were to his two sons and their families as a whole and were not made specifically to or for the benefit of his grandchildren. It is true that petitioner's grnerosity permitted the grandchildren to be cared for in a manner that would not have been possible but for his assistance, but this does not, in our opinion, make them dependents of their grandfather, either legally or otherwise. See L. B. Hirsch,42 B.T.A. 566">42 B.T.A. 566, 579; affd., 124 Fed.(2d) 24. During all of these years the grandchildren continued to live with their own parents and during the whold period their fathers were gainfully employed. Even though a person may furnish the chief support of a minor, it does not necessarily follow that he is entitled to a dependency credit. It must also appear that the support given is to one who is in fact dependent upon him.
There are no doubt many instances where grandchildren are dependent*773 upon and receive their chief support from their grandparents (I.T. 3226, C.B. 1938-2, p. 148), but it seems to us that in the instant proceedings the gifts were essentially to John and Clarence for the family as a whole and not to the grandchildren as such. As Congress limits the deduction for dependents to instances where the dependent is under 18 years of age, one may not secure the coveted credit by attempting an entrance by way of the back door when the front door is barred.
Decision will be entered for the respondent.
Footnotes
1. ART. 25-6. [Regulations 94 and 101.] Credit for Dependents. - A taxpayer * * * receives a credit of $400 for each person (other than husband or wife), whether related to him or not and whether living with him or not, dependent upon and receiving his chief support from the taxpayer, provided the dependent is either (a) under 18, or (b) incapable of self-support because defective.
The credit is based upon actual financial dependency and not mere legal dependency. It may accrue to a taxpayer who is not the head of a family. But a father whose children receive half or more of their support from a trust fund or other separate source is not entitled to the credit. ↩