1

REPORTS 

OF THE

UNITED STATES TAX COURT 

LEAH M. CARLEBACH AND URIEL FRIED, PETITIONERS

v. COMMISSIONER OF INTERNAL REVENUE, 

RESPONDENT

Docket No. 19291–10. Filed July 19, 2012. 

Ps, calendar year taxpayers, and their children resided in 

Israel during the years in issue. R determined that Ps’ children may not be claimed as dependents until they meet the 

citizenship test specified in I.R.C. sec. 152, as elaborated in 

sec. 1.152–2(a)(1), Income Tax Regs. Ps argue that the regulation, requiring that children be citizens at some time during 

the calendar year for which the child is claimed as a 

dependent, is invalid and that the children qualify as dependents for both dependency exemption deductions and accompanying credits because, at the time the returns were filed, 

they were citizens. Alternatively, Ps argue that the children 

possessed derivative citizenship during the calendar years in 

issue and thus qualified. R disagrees. R disallowed a child 

care credit claimed by P–W for one year because she did not 

meet the requirement of filing a joint return. R imposed on Ps 

accuracy-related penalties and additions to tax for late filing. 

1. Held: Sec. 1.152–2(a)(1), Income Tax Regs., is valid. Ps 

could not claim a child as a dependent for calendar years 

before that child obtained his or her certificate of citizenship. 

2. Held, further, P–W is not eligible for a child care credit 

for 2008 because she did not file a joint return. 

3. Held, further, penalties and additions to tax are sustained. 

2 139 UNITED STATES TAX COURT REPORTS (1) 

Elissa F. Borges, Saul B. Abrams, and Stuart M. Schabes, 

for petitioners. 

Stephen C. Huggs and Jeffrey E. Gold, for respondent. 

HALPERN, Judge: This case involves two notices of deficiency (together, notices). By the first notice, respondent 

determined deficiencies, additions to tax, and penalties with 

respect to petitioners’ joint Federal income tax, as follows: 

Year Deficiency 

Addition to tax 

sec. 6651(a)(1) 

Penalty 

sec. 6662(a) 

2004 $4,696 $424 $939

2005 6,296 595 1,259

2006 5,811 527 1,162

By the second notice, respondent determined deficiencies, 

additions to tax, and penalties with respect to petitioner 

Carlebach’s individual Federal income tax, as follows: 

Year Deficiency 

Addition to tax 

sec. 6651(a)(1) 

Penalty 

sec. 6662(a) 

2007 $5,168 $523 $1,034

2008 9,062 -0- 1,812

The issues for decision with respect to petitioners for 2004 

through 2006 are whether, on account of their children, they 

are entitled to dependency exemption deductions, child care 

credits, a child tax credit (for 2005), and additional child tax 

credits; also whether they are liable for additions to tax for 

late filing and accuracy-related penalties. 

After concessions, the issues remaining for decision with 

respect to petitioner Carlebach for 2007 and 2008 are 

whether, for 2007, on account of two of her children, she is 

entitled to dependency exemption deductions and an additional child tax credit; also, for 2007, whether she is liable 

for an addition to tax for late filing and an accuracy-related 

penalty and, for 2008, whether she is entitled to a child care 

credit. 

Simplifying somewhat, the denominator common to the 

deduction and credit issues is whether a child, to qualify as 

a dependent for a parent’s taxable (calendar) year, must be 

a U.S. citizen or a resident at some time during that year. 

The answer is ‘‘yes’’. 

(1) CARLEBACH v. COMMISSIONER 3

1Secs. 21, 24, 151, and 152, sections important to this case, were different as applicable to 

2004 and as applicable to 2005 through 2008. The differences are not important to resolution 

of the issues here presented, and we shall refer only to the provisions of those sections applicable to the latter years. 

2The burden of proof plays little role in our analysis. Nevertheless, petitioners have not raised 

the issue of sec. 7491(a), which shifts the burden of proof to the Commissioner in certain situations. We conclude that sec. 7491(a) does not apply because petitioners have not produced any 

evidence that they have satisfied the preconditions for its application. See sec. 7491(a)(2). 

Unless otherwise indicated, all section references are to the 

Internal Revenue Code in effect for the years in issue, and 

all Rule references are to the Tax Court Rules of Practice 

and Procedure. 1 We round all dollar amounts to the nearest 

dollar. 

Petitioners bear the burden of proof. See Rule 142(a)(1). 2

FINDINGS OF FACT 

Some of the facts have been stipulated and are so found. 

The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference. Petitioners resided in Israel 

at the time they filed the petition. 

Petitioners’ Family 

Petitioners have been married since 1990. Petitioner 

Carlebach was born in 1968 in the United States and is a 

U.S. citizen. She has resided in the United States for less 

than two years since age 14 and has resided in the United 

States for less than five years in total. Her parents were also 

born in the United States and are U.S. citizens. Her mother 

has resided in the United States for more than five years in 

total and, since reaching the age of 14, has resided in the 

United States for more than two years in total. Petitioner 

Fried was born in Israel in 1968 and is not a citizen of the 

United States, nor has he ever resided in the United States. 

Petitioners have six children—by initials, C.B.F., R.F., 

S.F., E.A.F., Y.F., and N.F. (collectively, children)—all of 

whom were born in Israel. During the years in issue, petitioners and the children resided in Israel. The children have 

never resided in the United States. The oldest of the children, C.B.F., was born in 1993. In June 2007, the Director 

of the United States Citizen and Immigration Services, 

Department of Homeland Security (Director), granted certificates of citizenship to four of the children, R.F., E.A.F., Y.F., 

and N.F., who were then in the United States and who 

4 139 UNITED STATES TAX COURT REPORTS (1) 

3The stipulation of facts erroneously states that the child tax credit was claimed for 2006; 

it is contradicted by the 2005 and 2006 Forms 1040A. 

applied for, and were issued, Social Security cards. In April 

2008, the Director granted certificates of citizenship to the 

remaining two children, C.B.F. and S.F., who were then in 

the United States and who applied for, and were issued, 

Social Security cards. 

Petitioners’ Joint Federal Income Tax Returns 

In December 2007, petitioners filed three Forms 1040A, 

U.S. Individual Income Tax Return, one each for 2004, 2005, 

and 2006, showing on each their filing status to be ‘‘married 

filing jointly’’. On each, they claimed dependency exemption 

deductions—three for 2004 (for R.F., E.A.F., and Y.F.) and 

four for 2005 and 2006 (adding N.F.)—a child care credit and 

an additional child tax credit. They also claimed a child tax 

credit for 2005. 3 On each return, they reported an overpayment of tax and claimed a refund. 

Petitioner Carlebach’s Federal Income Tax Returns 

In October 2008, petitioner Carlebach filed a Form 1040A 

for 2007, showing her filing status to be ‘‘single’’. On that 

return, she claimed six dependency exemption deductions 

and an additional child tax credit of $2,555. She also 

reported an overpayment of tax and claimed a refund. 

In June 2009, petitioner Carlebach filed a Form 1040A for 

2008, showing her filing status to be ‘‘married filing separately’’. On that return, she claimed six dependency exemption deductions, a child care credit, an additional child tax 

credit, and a recovery rebate credit. She also reported an 

overpayment of tax and claimed a refund. 

Refunds 

In January 2008, the Internal Revenue Service (IRS) made 

refunds to petitioners for 2004, 2005, and 2006. In March 

2009, the IRS made a refund to petitioner Carlebach for 2007. 

Because of this litigation, the IRS has made no refund to her 

for 2008. 

(1) CARLEBACH v. COMMISSIONER 5

Notices 

In each notice, respondent disallowed the claimed dependency exemption deductions and credits described above on 

the basis that none of the children met the definition of 

‘‘qualifying child’’ under section 152. Respondent also determined section 6651(a)(1) additions to tax and section 6662(a) 

penalties with respect to petitioners for 2004–06 and with 

respect to petitioner Carlebach for 2007 and 2008 (since conceding the addition to tax and penalty for 2008). 

OPINION 

I. Dependency Exemption Deductions 

A. Applicable Law 

Section 151(a) and (c) allows a taxpayer an exemption 

deduction for each ‘‘dependent’’ as defined in section 152. 

‘‘The term ‘dependent’ does not include an individual who is 

not a citizen or national of the United States unless such 

individual is a resident of the United States or a country 

contiguous to the United States.’’ Sec. 152(b)(3)(A) (citizenship test). In pertinent part, section 1.152–2(a)(1), Income 

Tax Regs., provides: ‘‘to qualify as a dependent an individual 

must be a citizen or resident of the United States * * * at 

some time during the calendar year in which the taxable 

year of the taxpayer begins.’’ The parties dispute only when 

the citizenship test must be satisfied in order that petitioners 

may claim the children as dependents. 

B. Respondent’s Position 

Respondent argues that petitioners are not entitled to the 

dependency exemption deductions claimed for 2004–07, 

because some or all of the children were not U.S. citizens in 

the tax (calendar) years for which they were claimed as 

dependents. More specifically, he asserts that none of the 

children met the citizenship test for 2004, 2005, or 2006, and 

only four of the six met the citizenship test for 2007, because 

the children did not become citizens until they received their 

certificates of citizenship. He contends that, without the children’s having satisfied the citizenship test, petitioners are 

not entitled to the dependency exemption deductions, nor are 

6 139 UNITED STATES TAX COURT REPORTS (1) 

4 Unless otherwise noted, we use the term ‘‘petitioners’’ collectively to refer to both petitioners 

to the notice issued to both of them (for 2004–06) and to petitioner Carlebach, the sole petitioner 

to the notice issued to her alone (for 2007 and 2008). 5The Immigration and Nationality Act elaborates the rules for at-birth citizenship, 8 U.S.C. 

secs. 1401–1409 (2012), and naturalization, id. secs. 1421–1458. 

they allowed the child-related credits, which require that the 

children satisfy the same statutory test. 

C. Petitioners’ Position 4

Petitioners argue that they are entitled to the dependency 

exemption deductions for 2004–07 because the children were 

citizens at the time petitioners filed tax returns for those 

years. They claim that section 1.152–2(a)(1), Income Tax 

Regs., which requires that an individual be a citizen at some 

time during the calendar year in which begins the taxable 

year of the taxpayer claiming the individual as a dependent, 

is invalid. Employing the analysis set out in Chevron U.S.A., 

Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) 

(Chevron), petitioners claim that section 152(b)(3)(A) is 

unambiguous and that Congress specifically addressed the 

temporal requirement of citizenship by declining to require 

that an individual be a citizen ‘‘at some time during the calendar year in which the taxable year of the taxpayer begins 

in order to be a dependent.’’ 

Alternatively, petitioners argue that the children satisfied 

the citizenship test for 2004–07 because each child ‘‘had 

derivative citizenship ‘at some time’ during the tax years in 

which he or she was claimed as a dependent.’’ Thus, petitioners assert that the children ‘‘satisfied the citizenship test 

for each of the tax years in question except for the formality 

of traveling to the United States to receive their certificates 

of citizenship.’’ We address their last argument first. 

D. Discussion 

1. Derivative Citizenship Claim 

There are ‘‘two sources of citizenship, and two only: birth 

and naturalization.’’ United States v. Wong Kim Ark, 169 

U.S. 649, 702 (1898). 5 Under the Fourteenth Amendment to 

the Constitution, ‘‘[e]very person born in the United States, 

and subject to the jurisdiction thereof, becomes at once a citizen of the United States, and needs no naturalization.’’ Id. 

Individuals born outside the United States may ‘‘only become 

(1) CARLEBACH v. COMMISSIONER 7

6The Child Citizenship Act of 2000 (CCA), Pub. L. No. 106–395, secs. 101 and 102, 114 Stat. 

at 1631, amended secs. 320 and 322 of the Immigration and Nationalization Act (8 U.S.C. secs. 

1431 and 1433), governing the acquisition of citizenship by certain children born outside the 

United States. See H.R. Rept. No. 106–852, at 3 (2000), 2000 U.S.C.C.A.N. 1499, 1502. 

7Since the children, although born outside the United States, have not resided permanently 

in the United States, we are concerned only with the provisions of 8 U.S.C. sec. 1433 and not 

with the provisions of 8 U.S.C. sec. 1431. 

a citizen by being naturalized, either by treaty * * * or by 

authority of Congress’’. Id. at 702–703. Congress’ authority to 

‘‘establish a uniform Rule of Naturalization’’ is found under 

Article I, Section 8, Clause 4 of the Constitution. 

U.S. citizenship obtained by virtue of the status of one’s 

parent or grandparent as a U.S. citizen is sometimes referred 

to as derivative citizenship. See, e.g., Guzman v. U.S. Dept. 

of Homeland Sec., 679 F.3d 425, 430 (6th Cir. 2012) (‘‘The 

Child Citizenship Act[6] allows a child to achieve derivative 

citizenship where only one parent is a U.S. citizen[.]’’ 

(internal quotation marks omitted)). 

A child of a U.S. citizen (1) born outside the United States 

and (2) residing permanently in the United States becomes 

a citizen automatically when certain additional conditions 

are fulfilled. 8 U.S.C. sec. 1431 (2012). Children who regularly reside outside the United States may qualify for naturalization under 8 U.S.C. sec. 1433 (2012). 7 In pertinent 

part, 8 U.S.C. sec. 1433 provides: 

SEC. 1433. CHILDREN BORN AND RESIDING OUTSIDE THE 

UNITED STATES; CONDITIONS FOR ACQUIRING 

CERTIFICATE OF CITIZENSHIP. 

(a) Application by citizen parents; requirements. 

A parent who is a citizen of the United States (or, if the citizen parent 

has died during the preceding 5 years, a citizen grandparent or citizen 

legal guardian) may apply for naturalization on behalf of a child born outside of the United States who has not acquired citizenship automatically 

under section 1431 of this title. The Attorney General shall issue a certificate of citizenship to such applicant upon proof, to the satisfaction of the 

Attorney General, that the following conditions have been fulfilled: 

(1) At least one parent (or, at the time of his or her death, was) is[1] a 

citizen of the United States, whether by birth or naturalization. 

(2) The United States citizen parent— 

(A) has (or, at the time of his or her death, had) been physically present 

in the United States or its outlying possessions for a period or periods 

totaling not less than five years, at least two of which were after attaining 

the age of fourteen years; or 

(B) has (or, at the time of his or her death, had) a citizen parent who 

has been physically present in the United States or its outlying possesVerDate Nov 24 2008 09:39 Jun 05, 2014 Jkt 372897 PO 20012 Frm 00007 Fmt 2847 Sfmt 2847 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.139\CARLE.JUL JAMIE
8 139 UNITED STATES TAX COURT REPORTS (1) 

sions for a period or periods totaling not less than five years, at least two 

of which were after attaining the age of fourteen years. 

(3) The child is under the age of eighteen years. 

(4) The child is residing outside of the United States in the legal and 

physical custody of the applicant (or, if the citizen parent is deceased, an 

individual who does not object to the application). 

(5) The child is temporarily present in the United States pursuant to a 

lawful admission, and is maintaining such lawful status. 

(b) Attainment of citizenship status; receipt of certificate. 

Upon approval of the application (which may be filed from abroad) and, 

except as provided in the last sentence of section 1448(a) of this title, upon 

taking and subscribing before an officer of the Service within the United 

States to the oath of allegiance required by this chapter of an applicant 

for naturalization, the child shall become a citizen of the United States 

and shall be furnished by the Attorney General with a certificate of citizenship. 

1So in the original. 

As is apparent from the statute, citizenship acquired 

pursuant to 8 U.S.C. sec. 1433 is not acquired automatically, 

but pursuant to application. See H.R. Rept. No. 106–852, at 

5 (2000), 2000 U.S.C.C.A.N. 1499, 1502 (‘‘The bill [which 

became the CCA] further provides that foreign-born children 

of U.S. parents who are temporarily present in the United 

States but intend to reside abroad will continue to be eligible 

to apply for citizenship as they do under current law.’’). An 

application for citizenship made under 8 U.S.C. sec. 1433 

must be approved by the Attorney General, and the applicant 

must appear in the United States and, unless the requirement is waived (e.g., because of the age of the child), take an 

oath of allegiance before the certificate of citizenship may be 

conferred. 8 U.S.C. secs. 1433(b), 1448. Despite petitioner 

Carlebach’s having pursuant to 8 U.S.C. sec. 1433(a) made 

application on behalf of her children for naturalization, and 

the children’s having fulfilled all of the conditions set forth 

in 8 U.S.C. sec. 1433(a)(1) through (5), the children could not 

receive their certificates of citizenship until they personally 

appeared before the Attorney General (or his duly appointed 

representative) in the United States in 2007 and 2008. Other 

courts have recognized that the conferral of a certificate of 

citizenship is ‘‘ministerial rather than discretionary.’’ 

Harriott v. Ashcroft, 277 F. Supp. 2d 538, 543 (E.D. Pa. 

2003). However, no matter how insignificant the appearance 

and subsequent oath may seem, those elements are manVerDate Nov 24 2008 09:39 Jun 05, 2014 Jkt 372897 PO 20012 Frm 00008 Fmt 2847 Sfmt 2847 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.139\CARLE.JUL JAMIE
(1) CARLEBACH v. COMMISSIONER 9

8While petitioners appear to restrict themselves to arguing that the children can be claimed 

as dependents if they are citizens at the time petitioners filed their returns, their logic (based 

on the absence of a time constraint on citizenship in sec. 152(b)(3)(A)) is not so restricted, and 

it would seem to allow the retroactive qualification of a dependent (as a citizen) at any time 

within the period of limitations (to file an amended return). 

dated by Congress, which, except in cases governed by treaty, 

has the sole authority to govern the process by which those 

born abroad may become naturalized citizens. See Wong Kim 

Ark, 169 U.S. at 702–703. Finally, as illustrated by the children’s certificates, which are in evidence, the actual certificate itself recognizes that citizenship is conferred only at the 

time the certificate is bestowed. Thus, while the children 

may have derived their citizenship from the status of their 

mother and grandparents as citizens, they did not become 

citizens until they were in the United States in 2007 and 

2008 and fulfilled all of the conditions of 8 U.S.C. sec. 1433. 

2. Chevron Analysis 

Petitioners principally argue that section 1.152–2(a)(1), 

Income Tax Regs., is invalid. They contend that section 

152(b)(3)(A) simply provides that a dependent ‘‘does not 

include an individual who is not a citizen or national of the 

United States’’ and that it includes no requirement that a 

child be a citizen at some time during the calendar year in 

which begins the taxable year of the taxpayer claiming the 

individual as a dependent. They argue, therefore, that, 

because the children were citizens at the time petitioners 

filed their returns, they are entitled to the claimed dependency exemption deductions, and that any additional requirement imposed by the regulations is invalid. 8

Last year, the U.S. Supreme Court confirmed that courts 

apply Chevron deference to Treasury regulations. See Mayo 

Found. for Med. Educ. and Research v. United States, 562 

U.S. ll, ll, 131 S. Ct. 704, 711–713 (2011). Determining 

whether a Treasury regulation merits Chevron deference 

often involves a two-step process: We first determine whether 

Congress has directly spoken to the precise question at issue. 

Chevron, 467 U.S. at 842. If the answer is yes, we must give 

effect to congressional intent. Id. at 842–843. We make the 

determination as to whether Congress has directly spoken 

‘‘employing traditional tools of statutory construction’’. 

United States v. Home Concrete & Supply, LLC, 566 U.S. 

10 139 UNITED STATES TAX COURT REPORTS (1) 

ll, ll, 132 S. Ct. 1836, 1844 (2012) (citing Chevron, 467 

U.S. at 843 n.9). If, employing those tools, we determine that 

Congress has not directly spoken to the precise question at 

issue, we proceed to the second Chevron step, to determine 

whether the agency’s chosen interpretation is a ‘‘reasonable 

interpretation’’ of the enacted statutory text. Chevron, 467 

U.S. at 843–844. If it is a reasonable interpretation, the 

regulation will stand. It will be ruled invalid only if it is 

found to be ‘‘ ‘arbitrary or capricious in substance, or manifestly contrary to the statute.’ ’’ Mayo Found., 562 U.S. at 

ll, 131 S. Ct. at 711 (quoting Household Credit Servs., Inc. 

v. Pfennig, 541 U.S. 232, 242 (2004)). 

Petitioners claim that section 152(b)(3)(A) unambiguously 

does not require that an individual be a citizen at some time 

during the calendar year in which begins the taxable year of 

the taxpayer claiming the individual as a dependent. They 

cite as dispositive the omission from section 152(b)(3)(A) of 

that requirement by pointing out that Congress expressly 

required that many other elements of section 152 be fulfilled 

within the taxable year (e.g., the principal place of abode, 

age, and support tests) but did not similarly extend that 

requirement to the citizenship test. In support of their 

contention, petitioners cite Russello v. United States, 464 

U.S. 16, 23 (1983), in which the U.S. Supreme Court stated: 

‘‘[W]here Congress includes particular language in one section of a statute but omits it in another section of the same 

Act, it is generally presumed that Congress acts intentionally 

and purposely in the disparate inclusion or exclusion.’’ Therefore, they claim that section 1.152–2(a)(1), Income Tax Regs., 

which imposes that similar temporal requirement on section 

152(b)(3)(A), is an invalid agency interpretation of the 

statute. 

Arguably, section 152(b)(3)(A) is, as petitioners claim, 

unambiguous. In our view, however, the statute can only be 

read as being consistent with, not contrary to, section 1.152– 

2(a)(1), Income Tax Regs. Petitioners’ argument is based on 

context (the omission of a temporal requirement with respect 

to citizenship is significant because Congress included the 

requirement in other elements of section 152). Indeed, context is critical. In determining statutory meaning, the U.S. 

Supreme Court has cautioned against confining the examination to the particular language in isolation. FDA v. Brown & 

(1) CARLEBACH v. COMMISSIONER 11

9See also sec. 11 (imposing a tax ‘‘for each taxable year on the taxable income of every corporation’’); sec. 162 (allowing ‘‘as a deduction all the ordinary and necessary expenses paid or 

incurred during the taxable year in carrying on any trade or business’’). 

Williamson Tobacco Corp., 529 U.S. 120, 132 (2000). It 

explained: ‘‘The meaning—or ambiguity—of certain words or 

phrases may only become evident when placed in context.’’ 

Id. It added: ‘‘ ‘It is a fundamental canon of statutory 

construction that the words of a statute must be read in their 

context and with a view to their place in the overall statutory 

scheme.’ ’’ Id. at 133 (quoting Davis v. Mich. Dept. of 

Treasury, 489 U.S. 803, 809 (1989)). Applying a contextual 

analysis, we think it plain that Congress did not intend section 152(b)(3)(A) to be read in a manner inconsistent with 

section 1.152–2(a)(1), Income Tax Regs. 

We must interpret section 152(b)(3)(A) in the context of 

subtitle A of the Internal Revenue Code, which deals with 

income taxes, and in which the concept of an annual 

accounting system is deeply embedded. See secs. 441(a), 

451(a), 461(a). 9 The U.S. Supreme Court has emphasized the 

role of an annual accounting system in Federal income tax: 

Congress has enacted an annual accounting system under which income is 

counted up at the end of each year. It would be disruptive of an orderly 

collection of the revenue to rule that the accounting must be done over 

again to reflect events occurring after the year for which the accounting 

is made, and would violate the spirit of the annual accounting system. This 

basic principle cannot be changed simply because it is of advantage to a 

taxpayer or to the Government in a particular case that a different rule 

be followed. [Healy v. Commissioner, 345 U.S. 278, 284–285 (1953).] 

In the narrower context of section 152 and its immediate 

environs (part V, subchapter B, chapter 1, subtitle A of the 

Internal Revenue Code), the allowance as deductions of additional exemptions for dependents (including qualified children) is cast in terms of an additional exemption ‘‘for each 

individual who is a dependent * * * of the taxpayer for the 

taxable year.’’ Sec. 151(c) (emphasis added). Likewise, the 

qualification ‘‘taxable year’’ appears over 30 times in section 

152 (2008), and it is anomalous to think that the determination of whether a qualifying child or relative is, on account 

of the citizenship test, a dependent of a taxpayer for a taxable year of that individual could be unknown for, at least 

12 139 UNITED STATES TAX COURT REPORTS (1) 

10See supra note 8. 

11See also Burnet v. Sanford & Brooks Co., 282 U.S. 359, 363–366 (1931) (confirming that 

the income tax acts enacted by Congress imposed annual, rather than transactional, accounting 

for income). When the strict application of the annual accounting system results in what may 

be perceived as an inequitable result, Congress can act to remedy any inequity, as evidenced 

by the net operating loss carryback and carryover rules found in sec. 172 and the capital loss 

carryback and carryover rules found in sec. 1212. 

in theory, an indefinite period. 10 Generally, a Federal income 

tax return reflects the events that affect income during the 

taxable year for which it is filed. 11 Four of petitioners’ children were naturalized and became U.S. citizens in 2007, and 

yet petitioners claimed them as dependents on their 2004 

through 2006 income tax returns, despite the fact that those 

children had not yet become citizens. The other two children 

became citizens in 2008 and yet were claimed as dependents 

in 2007. Allowing petitioners dependency exemption deductions with accompanying credits for children failing to meet 

the citizenship test—as construed in section 1.152–2(a)(1), 

Income Tax Regs.—would be violative of Congress’ expressed 

preference in the income tax provisions of the Internal Revenue Code for a system of annual accounting. 

Even if we concede that section 152(b)(3)(A) is ambiguous 

regarding the time at which the alleged dependent must 

achieve citizenship, we reach the same result under Chevron 

step 2. In the light of the Federal income tax law’s embodiment of a system of annual accounting, it is beyond dispute 

that section 1.152–2(a)(1), Income Tax Regs., is reasonable 

and ‘‘based on a permissible construction of the statute.’’ 

Chevron, 467 U.S. at 843. And while ‘‘ ‘neither antiquity nor 

contemporaneity with [a] statute is a condition of [a regulation’s] validity’ ’’, Mayo Found., 562 U.S. at ll, 131 S. Ct. 

at 712 (quoting Smiley v. Citibank (South Dakota), N.A., 517 

U.S. 735, 740 (1996)), ‘‘To be sure, agency interpretations 

that are of long standing come before us with a certain 

credential of reasonableness, since it is rare that error would 

long persist’’, Smiley, 517 U.S. at 740. Section 1.152–2(a)(1), 

Income Tax Regs., gains legitimacy from the fact that the 

temporal requirement contained therein is longstanding, 

having been in the regulations since 1944. See sec. 29.25– 

3(b), Regs. 111 (1944). In 1949, following notice and comment 

procedures, the Secretary amended section 29.25–3, Regs. 

111, to restate much of the language from the 1944 regulations, including the temporal requirement contained therein. 

(1) CARLEBACH v. COMMISSIONER 13

12We today decide another citizenship test case consistently. Stern v. Commissioner, T.C. 

Memo. 2012–204. 

13Petitioners apparently concede that, in determining whether the children were qualifying 

children and, thus, dependents under sec. 152(a)(1), we take into account the citizenship test 

in sec. 152(b)(3)(A). 

Income Tax; Taxable Years Beginning After Dec. 31, 1947, 13 

Fed. Reg. 6289 (proposed Oct. 27, 1948); T.D. 5687, 1949–1 

C.B. 9, 21. 

We hold that section 1.152–2(a)(1), Income Tax Regs., is 

valid. 

3. Conclusion 

We find that, for failure to satisfy the citizenship test, none 

of the children qualified as petitioners’ dependents for 2004– 

06, and two of the six children did not qualify as petitioner 

Carlebach’s dependents for 2007. The remaining four children qualified as petitioner Carlebach’s dependents for 2007. 

Therefore, petitioners are entitled to no dependency exemption deductions for 2004–06, and petitioner Carlebach is entitled to four dependency exemption deductions for 2007. 12

II. Child Care Credit, Child Tax Credit, and Additional 

Child Tax Credit 

In order for a taxpayer to claim a section 21 credit for 

expenses for household and dependent care services necessary for gainful employment (child care credit), a taxpayer 

must incur employment-related expenses on behalf of, as 

pertinent to this case, a dependent of the taxpayer as defined 

in section 152(a)(1). 13 Sec. 21(b)(1)(A). Additionally, married 

taxpayers must file a joint return. Sec. 21(e)(2). 

In order to claim the child tax credit and additional child 

tax credits, section 24, in relevant part, requires that a child 

be a ‘‘qualifying child’’, applying a modified version of the 

citizenship test. See sec. 24(a), (c). 

Because we have determined that the children only met 

the citizenship test for the year in which they received their 

certificates of citizenship (2007 for R.F., E.A.F., Y.F., and 

N.F., and 2008 for C.B.F. and S.F.), we sustain respondent’s 

disallowance of those credits relating to R.F., E.A.F., Y.F., 

and N.F. for 2004, 2005, and 2006 and the disallowance of 

those credits relating to C.B.F. and S.F. for 2007. 

14 139 UNITED STATES TAX COURT REPORTS (1) 

For 2008, respondent concedes that each child satisfied the 

citizenship test but argues that petitioner Carlebach is not 

entitled to the child care credit because, although married at 

the time, she did not file a joint return. See sec. 21(e). Petitioner Carlebach claims that she is so entitled. She argues 

that, in contravention of section 7522, which requires that a 

notice of deficiency ‘‘describe the basis for, and identify the 

amounts (if any) of, the tax due, interest’’ and other items 

included in the notice, respondent changed the basis for the 

disallowance of the 2008 child care credit from a section 152 

violation in the second notice to a section 21(e) violation in 

his posttrial brief. She further argues that respondent’s reliance on section 21(e) as an alternative basis for the disallowance is forbidden as ‘‘late-in-the-day maneuvering.’’ 

While the first sentence of section 7522(a) does indeed 

require that a notice of deficiency give notice as described by 

petitioner Carlebach, the second sentence of that section 

adds: ‘‘An inadequate description under the preceding sentence shall not invalidate such notice.’’ Moreover, we have 

held that section 7522(a) does not require the Commissioner 

to identify the specific statutory provision supporting each 

adjustment in the notice of deficiency, nor is he required to 

lay out the factual basis for his determination in that notice. 

E.g., Cadwell v. Commissioner, 136 T.C. 38, 49 (2011), aff ’d, 

483 Fed. Appx. 847 (4th Cir. 2012). 

In pertinent part, Rule 142(a)(1) provides that, in respect 

to any new matter pleaded in the answer, the burden of proof 

shall be on respondent. Even if we were to consider respondent’s argument a new matter (which we do not), the burden 

of proof would not be determinative, since petitioner 

Carlebach’s 2008 Form 1040A, showing her filing status as 

married filing separately, is stipulated. 

At worst, respondent has a new theory, and ‘‘A ‘new theory’ 

is just a new argument about the existing evidence and is 

thus allowed.’’ Hurst v. Commissioner, 124 T.C. 16, 29 (2005). 

Although respondent’s new theory was first advanced on 

brief, petitioner Carlebach has had (and indeed took advantage of) the opportunity to address it in her answering brief. 

We see no disadvantage to petitioners requiring any remedy. 

Because petitioner Carlebach did not file a joint return 

with her husband for 2008, she is not entitled to a child care 

(1) CARLEBACH v. COMMISSIONER 15

credit for that year. See sec. 21(e)(2). Accordingly, we sustain 

respondent’s disallowance of that credit for 2008. 

III. Additions to Tax and Penalties 

A. Accuracy-Related Penalties 

1. Applicable Law 

Section 6662(a) and (b) provides for the imposition of an 

accuracy-related penalty equal to 20% of any portion of an 

underpayment attributable to, among other things, negligence or disregard of rules or regulations (without distinction, negligence), or any substantial understatement of 

income tax. 

In general, an understatement is the excess of the amount 

of the tax required to be shown on the return for the taxable 

year over the amount of the tax imposed that is shown on 

the return reduced by any rebate. Sec. 6662(d)(2)(A). For an 

individual, such an understatement is ‘‘substantial’’ when it 

exceeds the greater of (1) 10% of the tax required to be 

shown or (2) $5,000. Sec. 6662(d)(1)(A). ‘‘The term ‘negligence’ includes any failure to make a reasonable attempt to 

comply with the provisions of * * * [the Internal Revenue 

Code], and the term ‘disregard’ includes any careless, reckless, or intentional disregard.’’ Sec. 6662(c). Negligence has 

been generally defined as lack of due care or failure to do 

what a reasonably prudent person would do under like circumstances. See, e.g., Hofstetter v. Commissioner, 98 T.C. 

695, 704 (1992). 

Section 6664(c)(1) provides that the accuracy-related penalty shall not be imposed with respect to any portion of an 

underpayment if it is shown that there was reasonable cause 

for that portion and the taxpayer acted in good faith with 

respect to that portion. 

The determination of whether a taxpayer acted with reasonable cause and 

in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. * * * Circumstances that may indicate 

reasonable cause and good faith include an honest misunderstanding of 

* * * law that is reasonable in light of all of the facts and circumstances, 

including the experience, knowledge, and education of the taxpayer. * * * 

[Sec. 1.6664–4(b)(1), Income Tax Regs.] 

16 139 UNITED STATES TAX COURT REPORTS (1) 

Respondent determined that petitioners are liable for 

accuracy-related penalties on the basis of negligence for 2004 

and on the basis of negligence and substantial understatement for 2005 and 2006. He also determined that petitioner 

Carlebach is liable for accuracy-related penalties on the basis 

of negligence for 2007 and 2008 but subsequently conceded 

the penalty for 2008. 

Only one accuracy-related penalty may be applied with 

respect to any given portion of an underpayment, even if that 

portion is subject to the penalty on more than one of the 

grounds set out in section 6662(b). Sec. 1.6662–2(c), Income 

Tax Regs. 

Under section 7491(c), the Commissioner bears the burden 

of production with regard to penalties, additions to tax, or 

additional amounts and must come forward with sufficient 

evidence indicating that it is proper to impose the penalty or 

addition. Kaufman v. Commissioner, 136 T.C. 294, 323 

(2011). However, once the Commissioner has met the burden 

of production, the burden of proof remains with the taxpayer, 

including the burden of proving that the penalties or additions are inappropriate because of reasonable cause. Id. 

2. Analysis 

a. Evidence of Negligence 

Respondent has met his burden with respect to the ground 

of negligence for 2004–07 by establishing that petitioners, in 

claiming exemption deductions and credits for children who 

did not meet the citizenship test, were negligent and disregarded the applicable regulation. Accordingly, petitioners 

are liable for the section 6662(a) penalty on the ground of 

negligence for tax years 2004–07 unless they meet the section 6664(c) exception for reasonable cause and good faith. 

Because of section 1.6662–2(c), Income Tax Regs., we need 

not address the applicability of the penalty based upon the 

ground of substantial understatement of income tax for 2005 

and 2006. 

b. Reasonable Cause and Good Faith Defense 

Petitioners failed to prove that they acted with reasonable 

cause and good faith in claiming the deductions and credits 

at issue herein. They claim that they ‘‘were acting in good 

(1) CARLEBACH v. COMMISSIONER 17

faith. * * * [They] had no familiarity with United States 

Income Tax and acted in accordance with what they believed 

the law to be.’’ However, petitioners claimed deductions in 

violation of a valid regulation. Petitioners have offered no 

evidence to demonstrate reasonable cause for their position. 

Their argument regarding the invalidity of the regulation did 

not surface until litigation commenced, and they presented 

no evidence of reliance on a tax professional for the decision 

to claim those dependency exemption deductions and accompanying credits. A taxpayer’s ignorance of the law is no 

excuse for failure to comply with it. E.g., McGehee Family 

Clinic, P.A. v. Commissioner, T.C. Memo. 2010–202; see also 

United States v. Int’l Minerals & Chem. Corp., 402 U.S. 558, 

563 (1971) (‘‘The principle that ignorance of the law is no 

defense applies whether the law be a statute or a duly 

promulgated and published regulation.’’); Barlow v. United 

States, 32 U.S. 404, 411 (1833) (ignorance of the law is no 

excuse in either civil or criminal cases). 

3. Conclusion 

We find no credible evidence that petitioners acted in good 

faith in claiming dependency exemption deductions and 

accompanying credits for children who had yet to meet the 

citizenship test. We therefore (1) find petitioners liable for 

accuracy-related penalties for 2004–06 and (2) find petitioner 

Carlebach liable for an accuracy-related penalty for 2007. 

Subject to adjustments to reflect certain concessions, 

respondent’s determinations of penalties under section 

6662(a) are sustained. 

B. Additions to Tax 

1. Applicable Law 

Section 6651(a)(1) provides that, in the case of a failure to 

file an income tax return by the due date, there shall be 

imposed an addition to tax for such failure of 5% of the 

amount of tax required to be shown on the return, reduced 

by timely payments and credits under section 6651(b)(1), for 

each month or portion thereof during which the failure continues, not exceeding 25% in the aggregate, unless such 

failure is due to reasonable cause and not due to willful 

neglect. 

18 139 UNITED STATES TAX COURT REPORTS (1) 

In the notices, respondent determined a section 6651(a)(1) 

addition to tax for 2004–07. The parties have stipulated that 

petitioners’ 2004, 2005, and 2006 Forms 1040A were all filed 

in December 2007. They have also stipulated that petitioner 

Carlebach’s 2007 Form 1040A was filed in October 2008. 

2. Analysis 

Petitioners were calendar year taxpayers during the years 

in issue. Accordingly, unless extensions of time to file had 

been granted, petitioners’ 2004–07 returns were due on April 

15 of the following year. See secs. 6072(a), 6081(a). There is 

no evidence of any such extensions. Petitioners’ 2004–07 

returns were, therefore, late. 

Petitioners claim that their returns were not filed late 

because they were ‘‘filed within the allowed time period for 

claiming a refund.’’ We acknowledge that there is no penalty 

for late filing when a refund is due. However, as discussed 

supra, petitioners’ children did not satisfy the citizenship test 

for 2004–06 and thus were not eligible to be claimed as 

dependents. Additionally, two of the children did not satisfy 

the citizenship test in 2007. As a result, petitioners had no 

valid claim for refund for those years. Their mistaken claims 

for refund do not establish reasonable cause and the absence 

of willful neglect. See Calloway v. Commissioner, 135 T.C. 26, 

45 (2010) (‘‘Petitioners’ explanation [that, if deficiency had 

not been sustained, they would have been entitled to a 

refund] establishes neither reasonable cause nor the absence 

of willful neglect.’’). 

3. Conclusion 

Petitioners failed to timely file their 2004–07 Forms 

1040A, and they have not shown that those failures were due 

to reasonable cause and lack of willful neglect. Respondent’s 

determinations of additions to tax under section 6651(a)(1) 

are sustained. 

(1) CARLEBACH v. COMMISSIONER 19

IV. Conclusion 

Decision will be entered under Rule 155. 

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