T.C. Sum m ary Opi ni on 20 14 -5 7

UNITED STAT ES TAX COURT FRANK BAKER, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 54 29 -1 3S . Fi le d J un e 2 3, 2 01 4.

Fran k B ak er, p ro se. Halv orR. Mel om , for

res po nd en t.

SUMM ARY OPINION GUY, Spec ia l Tri al Ju dg e: Thi s ca se was h eardpu rs uantto th e p ro vi si on s of sec ti on 74 63 of t he Int ern al Rev enue Co de ineffe ctwhenth e p et it io n was-2
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fil ed . Pur su an t t o s ect io n 7 46 3( b) , th e d eci si on to be en te redis no t re vi ewab le by 1
an y ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y ot he r cas e. Res po nd en t d et erm in eda de fic ie nc y of $ 8,3 39 inpe ti ti on er’s Fed eral in co m e ta x fo r 20 11 an d a n a ccu racy-rela te d p en al ty of $1 ,66 8 p ur su an t t o s ect io n 66 62 (a). Pet it io ne r fi le d ati m el y pe ti ti on forred et erm in at io n wi th th e Co urt pu rs ua ntto sec ti on 62 13 (a). Pet it io ne r co nc ed es th athe is no t en ti tl edto educ at io n c red it s (i nc lu di ng th e Am eri canOpp ortu ni ty Credi t) tha t h e cl ai m edfor20 11 . Res po nd en t co nc ed es th atpe ti ti on er i s en ti tl edto de pe nd en cy ex em pt io n d educ ti on s fo r two m in or ch il dr en , D.T.R. andZ.D.C., becau se th ey are h is qu al ifyin g re la ti ve s wi th inth e m ean in g o f se ct io n 1 52 (d ). 2 The is su es rem ai ni ng forde ci si on are wh ethe r pe ti ti on er i s: (1) eli gi bl e fo r he adof h ou se ho ldfil in g s ta tu s; (2) en ti tl edto a ch il d t ax cred itan d an a dd it io na l ch il d t ax cred it ; (3 ) en ti tl edto anearn edin co m e ta x c red it(EIC); (4) subjec t t o t he Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 Co de , as a m en de d a ndineffe ctfor20 11 (th e y ear i n i ss ue ), an d a ll Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. All m on et ary am ou nt s ar e ro un de d t o the ne ares t d ol la r. It i s the Co urt’s p ol ic y

to refe r to m in or s o nl y

by the ir i ni ti al s. See Ru le 2 27 (a)( 3) .-3
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res tri ct io ns pre sc rib edinsec ti on32 (k )(1 )(B) (ii ) fo r th e ta xabl e y ears 20 12 an d 20 13 ; an d (5 ) li ab le foranaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a). Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d t he acco m

pa nyin g e xh ib it s ar e in co rp or at edhe rei n b y th is refe ren ce. Pet it io ne r res id edinCal ifo rn iawhen th e p et it io n was fil ed . Dur in g 2 01 1 p et it io ne r was em pl oyed fo r pa rt o f th e y ear a t BJ ’s Fas hi on App arel an d a t Pa ci fic Mari ti m e Ass oc ia ti on wher e h e earne d wag es of $ 8,7 41 an d $8 ,65 6, re sp ect iv el y . He als o re cei ve d u ne m pl oym en t co m

pe ns at io n o f $5 ,02 7. Thro ug ho ut20 11 pe ti ti on er re si de d wi th an d s up po rte d h is fia nc e, St arca ni a Fo rd , andhe r two m in or

ch il dr en , D.T.R. andZ.D.C. Peti ti on er i s n otth e bi ol og ic al fathe r of

eit he r D.T.R. or Z.D.C., andhe ha s n otad op te d t he ch il dr en . At the ti m e o f tr ia l p et it io ne r an d M s. Fo rdha d n ev er b een m arri ed . Dur in g 2 01 1 p et it io ne r pa idap pr ox im at el y $1 ,50 0 p er m on th inho us eh ol d ex pe ns es . Ms. Fo rdtes ti fie d t ha t p et it io ne r pr ov id edm or e th anon e-h al f of D.T.R.’ s an d Z.D.C.’s supp ort dur in g 2 01 1. Sh e st at edth at , othe r th ana rel at iv el y sm al l am ou ntof p ub li c as si st an ce tha t s he an d the ch il dr enrece iv eddu rin g 2 01 1, pe ti ti on er p ro vi de d fo r th em by pay in g t he ren t, u ti li ty charg es , andfoo d a nd-4
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cl ot hi ng ex pe ns es . Ms. Fo rddi d n otworkdu rin g 2 01 1, an d s he di d n otfil e a Fed eral in co m e ta x re tu rnfor th aty ear. Pet it io ne r pa ida ta x re tu rnpre pa rer t o p rep are h is Fed eral in co m e ta x re tu rn fo r 20 11 . He m etwith t he pre pa rer a ndde sc rib edhi s re la ti on sh ip an d l iv in g arra ng em en ts with M s. Fo rd , D.T.R., an d Z.D.C. Inacco rd an ce wi thhi s re tu rn pr ep arer ’s adv ic e, pe ti ti on er fi le d aFo rm 10 40 A, U.S. Ind iv idua l In co m e Tax Return, cl ai m in g h eadof h ou se ho ldfil in g s ta tu s, d ep en de nc y ex em pt io n de du ct io ns forD.T.R. andZ.D.C., an EIC (cl ai m in g D.T.R. an d Z.D.C. as qu al ifyin g c hi ldren ), an d t he ch il d t ax cred itan d a dd it io na l ch il d t ax cred it (cl ai m in g o nl y

Z.D.C. as a qua li fy in g c hi ld ). The p rep arer co m pl et edth e return, an d p et it io ne r au th or iz edhi m to fil e itele ctro ni cal ly w it h t he Int ern al Rev enue Serv ic e. Res po nd en t s ub se qu en tl y is su eda no ti ce o f de fic ie nc y to pe ti ti on er fo r th e y ear i n i ss ue di sa ll owi ng (1) th e d educ ti on s an d c red it s m en ti on edab ov e an d (2 ) he adof h ou se ho ldfil in g s ta tu s. Re sp on de ntfurth er d et erm in edth atin acco rd an ce wi th th e p ro vi si on s o f se ct io n 3 2( k) (1 )(B) (ii ) pe ti ti on er i s b arre d fr om cl ai min g t he EIC fo r 20 12 an d 2 01 3 a ndis li ab le for th e acc ur acy-rela te d p en al ty un de r se ct io n 6 66 2( a).-5 - Dis cu ss io n I. Burd enof P ro of Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns are p res um edco rrec t, an d t he ta xp ay er b ears th e b ur de n o f pr ov in g t ha t tho se de te rm in at io ns are erro ne ou s. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). Dedu ct io ns an d cred it s ar e a m at te r of

leg is la ti ve gra ce, an d t he tax pay er b ears th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti onor c red itcla im ed . Rul e 1 42 (a); Depu ty v. duPo nt , 30 8 U.S. 4 88 , 49 3 (1 94 0) ; New Co lo ni al Ice Co . v. Hel ve rin g, 29 2 U.S. 4 35 , 44 0 (1 93 4) . Peti ti on er d oe s n otco nt en d t ha t the bu rd enof p ro of sh ou ldsh iftto res po nd en t i n a cco rd an ce wi th th e p ro vi si on s o f se ct io n 7 49 1( a)(1 ). II. Headof Ho us eh ol d F il in g S ta tu s Sect io n 1 (b ) pr ov id es a sp eci al tax rat e fo r anin di vi du al who qu al ifi es for he adof h ou se ho ldfil in g s ta tu s. Sec ti on2(b )(1 ) ge ne ral ly defi ne s a h eadof ho us eh ol d a s an in di vi du al tax pay er wh o: (1) is un m arri edas o f th e cl os e o f th e ta xabl e y ear a ndis no t a s urvi vi ng sp ou se an d (2 ) m ai nt ai ns as h is ho m e a ho us eh ol d t ha t co ns ti tu te s fo r m or e th anon e-h al f of th e ta xabl e y ear the pri nc ip al pl ace o f ab od e, as a m em be r of su chho us eh ol d, o f (a) aqu al ifyin g c hi ldof t he in di vi du al (as de fin edinsec ti on 15 2( c), d et erm in edwitho utreg ardto sec ti on 15 2( e)), o r (b ) an y

othe r pe rs on who is a de pe nd en t o f th e ta xp ay er, i f th e ta xp ay er-6
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is en ti tl edto a de du ct io n fo r th e ta xabl e y ear f or su chpe rs on un de r se ct io n 1 51 . See R owe v. Co m

m is si on er, 1 28 T.C. 13 , 16 -1 7 (2 00 7) . As pe rti ne nthe re, ho wev er, s ect io n 2 (b )(3 )(B) (i) pro vi de s tha t “ a ta xp ay er s ha ll no t b e co ns id eredto be a he adof aho us eh ol d * * * by reaso n o f anin di vi du al who wou ldno t b e a de pe nd en t fo r th e ta xabl e y ear b utfor* * * s ub pa rag rap h (H) of s ect io n 15 2( d) (2 )”. 3 Sect io n 1 52 (c) d efi ne s the term “ qu al ifyin g c hi ld ” an d i nc lu de s a num be r of sp eci fic co nju nc ti ve requi rem en ts . Am on g t ho se requi rem en ts is th e rel at io ns hi p requi rem en t, p res cri be d i n s ect io n 1 52 (c)( 2) , whi chis sat is fie d i f th e in di vi du al is ei th er a ch il d o f th e ta xp ay er o r a d es cen da ntof s uc h ach il d, o r a b ro th er, s is te r, st ep br ot he r, st ep si st er, o r a d es cen da ntof s uc h arel at iv e. Sect io n 1 52 (f)(1 )(A)(i ) de fin es th e te rm

“ ch il d” to m ean eit he r “ a so n, d au gh te r, st ep so n, o r st ep daug ht er of th e ta xp ay er”. Pet it io ne r was no t m arri edto Ms . For d dur in g t he y ear i n i ss ue , is no t the bi ol og ic al fathe r of

D.T.R. or Z.D.C., anddi d n otad op t the m as h is ch il dr en . It fo ll ows th atne it he r D.T.R. no r Z.D.C. was a ch il d o f pe ti ti on er as de fin edin Sec. 1 52 (d )(2 )(H) p ro vi de s tha t an in di vi du al m ay sat is fy th e rel at io ns hi p 3 te stan d b e tr eat edas a“ qu al ifi edrel at iv e” o f th e ta xp ay er, al th ou ghun rel at edby bl oo d o r m arri ag e to th e ta xp ay er, i f th e in di vi du al ha s the same pri nc ip al pl ace o f ab od e as th e ta xp ay er an d i s a m em be r of th e ta xp ay er’s h ou se ho ldforth e ta xabl e y ear.-7 -

se ct io n 1 52 (f)(1 ) ora qu al ifyin g c hi ldof p et it io ne r as de fin edinsec ti on 15 2( c) du rin g 2 01 1. Se e Will ou ghby v. Co m m is si on er, T.C. Mem o. 2 00 9- 58 . Altho ug h re sp on de ntco nc ed es th atD.T.R. andZ.D.C. were pe ti ti on er’s qu al ifyin g re la ti ve s an d d ep en de nt s dur in g 2 01 1, the reco rdsh ows th atres po nd en t co nc ed edth atis su e b ecau se D.T.R. andZ.D.C., in ad di ti on to m eet in g o th er requi rem en ts , sat is fie d t he rel at io ns hi p t es t p res cri be d i n s ect io n 1 52 (d )(2 )(H), i .e., th ey ha d t he same pri nc ip al pl ace o f ab od e an d wer e m em be rs of p et it io ne r’s ho us eh ol d dur in g 2 01 1. Co ns is te ntwith t he ex cep ti on setforth insec ti on 2( b) (3 )(B) (i) , we su st ai n re sp on de nt ’s det erm in at io n t ha t p et it io ne r is no t en ti tl ed to he adof h ou se ho ldfil in g s ta tu s b utrathe r is ass ig ne d s in gl e fi li ng st atus for 20 11 . See Will ou gh by v. Co m m is si on er, T.C. Mem o. 2 00 9- 58 . III. Earn edInc om e Tax Cred it Sect io n 3 2( a)(1 ) al lo ws an eli gi bl e in di vi du al anEIC. Sect io n 32 (c)( 1) (A)(i ) de fin es an“ el ig ib le in di vi du al ” as anin di vi du al who ha s a qu al ifyin g c hi ldforth e ta xabl e y ear. The t erm “ qu al ifyin g c hi ld ” is de fin edin 4
se ct io n 3 2( c)(3 )(A) t o m ean a qu al ifyin g c hi ldof t he tax pa y er (a s d efi ne d i n se ct io n 1 52 (c), d et erm in edwitho utreg ardto pa rag rap h (1 )(D) the reo f an d s ect io n
Pet it io ne r do es no t co nt en d t ha t h e wou ldbe eli gi bl e fo r anEIC witho uta 4 qu al ifyin g c hi ldun de r th e p ro vi si on s o f se c. 32 (c)( 1) (A)(i i).-8
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15 2( e)). Pet it io ne r id en ti fie d D.T.R. an d Z.D.C. as qu al ifyin g c hi ldrenfor pu rp os es of t he EIC cl ai m edon hi s re tu rn . As pr ev io us ly dis cu ss ed , D.T.R. and Z.D.C. were no t p et it io ne r’s qu al ifyin g c hi ldrenas d efi ne d i n s ect io n 1 52 (c). As a m at te r of law, p et it io ne r is no t en ti tl edto anEIC fo r 20 11 . IV. Chi ldTax C red itan d Ad di ti on al Ch il d Tax Cred it Sect io n 2 4( a) an d (c )(1 ) pr ov id es th ata ta xp ay er i s en ti tl edto a ch il d t ax cred itwith re sp ectto “ each qu al ifyin g c hi ld ”, as de fin edinsec ti on15 2( c), wh o ha s n otatt ai ne d a ge 17 an d fo r who m th e ta xp ay er i s al lo weda de du ct io n u nd er se ct io n 1 51 . Sect io n 2 4( d) pro vi de s tha t a p orti onof t he ch il d t ax cred it , co m m on ly referre d t o a s the ad di ti on al ch il d t ax cred it , m ay be refu nd ab le . Pet it io ne r cl ai m edZ.D.C. as a qua li fy in g c hi ldonhi s t ax return fo r pu rp os es of t he ch il d t ax cred itan d a dd it io na l ch il d t ax cred it . Z.D. C. was no t pe ti ti on er’s qua li fy in g c hi ldas d efi ne d i n s ect io n 1 52 (c). Itfol lo ws tha t, as a m at te r of law, p et it io ne r is no t en ti tl edto a ch il d t ax cred itor a n a dd it io na l ch il d ta x c red itfor20 11 . V. Sect io n 3 2( k) Sect io n 3 2( k) (1 )(B) (ii ) di sa ll ows th e EIC fo r “ th e p eri odof 2 tax ab le y ears aft er the m os t re cen t t ax ab le y ear f orwhi chth ere was a fi na l d et erm in at io n t ha t th e ta xp ay er’s cl ai m

of c red itun de r th is sec ti on was due to reck le ss or i nt en ti on al-9
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di sr eg ardof rul es an d re gu la ti on s (b utno t due to frau d) .” Res po nd en t d et erm in ed th atth e res tri ct io ns im

po se d b y sec ti on 32 (k )(1 )(B) (ii ) are ap pl ic ab le to pe ti ti on er. Altho ug h we h av e co nc lu de d t ha t p et it io ne r is no t en ti tl edto anEIC fo r 20 11 , he t es ti fie d c red ib ly tha t h e rel ie d upo n a ndfol lo wedth e ad vi ce o f hi s p ai d ta x re turnpre pa rer. Onth is reco rd , we con cl ud e th atpe ti ti on er d idno t ac t reck le ss ly or with i nt en ti on al di sr eg ardof rul es an d re gu la ti on s. Thus , pet it io ne r is no t s ub ject t o the res tri ct io ns im po se d b y sec ti on 32 (k )(1 )(B) (ii ). VI. Accuracy-Rel at edPen al ty Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s an accu racy-rela te d p en al ty equa l t o 2 0% o f th e am ou ntof a ny un de rp aym en t o f ta x t ha t i s due to th e ta xp ay er’s n eg li ge nc e o r di sr eg ardof rul es or r eg ul at io ns or t ha t i s at tri bu tabl e to an y subs tant ia l und ers ta te m en t o f in co m e ta x. Th e te rm “ ne gl ig en ce” i nc lu de s an y fai lu re t o m ak e a rea so nabl e at te m ptto co m pl y with t he tax laws , and“ di sr eg ard ” in cl ud es an y

care le ss , reck le ss , or i nt en ti on al di sr eg ardof rul es or r eg ul at io ns . Sec. 6 66 2( c). By

de fin it io n, an un de rs ta te m en t i s the ex ces s o f th e ta x re qu ire d t o be sh ownon th e ta x re tu rnov er the tax actua ll y sh ownon th e return. Se c. 66 62 (d )(2 )(A). An u nd ers ta te m en t o f in co m e ta x i s “ subs ta nt ia l” if i t ex ceed s the gr eat er o f $5 ,00 0 o r 10 % of t he tax requi redto be sh own onth e return. Se c. 66 62 (d )(1 )(A).-1 0-

W it h re sp ectto a ta xp ay er’s l iabi li ty for an y pe na lt y , sec ti on 74 91 (c) p la ces on th e Co m

m is si on er the bu rd enof p ro du ct io n, the reb y requi rin g t he Co m m is si on er t o c om e fo rwardwith s uf fic ie ntev id en ce i nd ic at in g t ha t i t i s ap pr op ria te to im

po se th e p en al ty. Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46
- 44 7 (2 00 1) . Once t he Co m m is si on er m eet s h is bu rd enof p ro du ct io n, the tax pa y er m us t co m e fo rwardwith p ers ua si ve ev id en ce tha t the Co m mis si on er’s de te rm in at io n i s i nc orrect . See Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. at 1 15 . Sect io n 6 66 4( c)(1 ) pr ov id es anex cep ti onto th e im po si ti onof t he accu racy-rela te d p en al ty w it h re sp ectto an y po rti on of a n u nd erp aym en t i f th e ta xp ay er es tabl is he s tha t the re was reas on ab le cau se forsu chpo rti on an d the ta xp ay er ac te d i n g oo d fa it h wi th res pe ctto su chpo rti on . The d eci si on as t o whe th er the tax pa y er ac te d wi th reas on ab le cau se an d i n g oo d fa it h i s m ad e o n a cas e-b y -cas e b as is , tak in g i nt o a cco un t the pe rti ne ntfact s an d c irc um st an ces , in cl ud in g t he tax pa y er’s kno wled ge , edu cat io n, an d e xp eri en ce, as well as t he ta xp ay er’s rel ianc e o n p ro fes si on al advi ce. Tho m as v. Co m m is si on er, T.C. Mem o. 20 13 -6 0; see Neon at ol og y Ass oc s., P.A. v. C omm is si on er, 1 15 T.C. 43 , 99 (20 00 ) (p ro vi di ng a th ree- pr on g t es t t o e st ab li sh reas on ab le rel ia nc e o n p ro fes si on al advi ce), af

f’d, 29 9 F .3d22 1 (3 d C ir. 2 00 2) ; s ec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Gen eral ly, th e m os t i m

po rta ntfact oris th e ex te ntof t he tax pa y er’s eff ort t o a ss es s-1 1-

hi s o r he r pr op er t ax li ab il it y . Hum ph rey, Farri ng to n & McC la in , P.C. v. Co m m is si on er, T.C. Mem o. 2 01 3- 23 ; s ec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Ass um in g t ha t re sp on de ntha s m ethi s b ur de n o f pr oduc ti on , we 5
ne ve rth el es s co nc lu de th atpe ti ti on er h as carr ie d h is bu rd enwith re sp ectto reas on ab le cau se an d g oo d fa it h. Itis cle ar fro m th e rec or d t ha t p et it io ne r is no t a ta x e xp ertor e xp eri en cedintax m at te rs . W e are sat is fie d tha t p et it io ne r m etwith hi s re tu rnpre pa rer a ndful ly dis cl os edth e fac ts ne ces sa ry to co m pu te hi s co rrec t ta x l iabi li ty. Afte r co ns id eri ng th e to ta li ty of th e fac ts an d c irc um st an ces , we co nc lu de th atpe ti ti on er ac te d i n g oo d fa it h a ndco m es withi n t he reas on ab le cau se ex cep ti on of s ect io n 6 66 4( c)(1 ). See s ec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. The refo re, we h ol d t ha t p et it io ne r is no t l iabl e fo r th e acc ur acy-rela te d p en al ty un de r se ct io n 6 66 2( a). VII. Co nc lu si on W e co m m en d p et it io ne r fo r supp orti ng hi s fi an ce’s ch il dr en . W e are bo un d, ho wev er, b y

th e ap pl ic ab le st atut es as wri tt en . See J ib ril v. Co m m is si on er, T.C. Mem o. 2 01 3- 26 7, at*8 . For t he reas on s s ta te d abo ve , pet it io ne r is en ti tl edto de pe nd en cy

ex em pt io n d educ ti on s fo r D.T.R. andZ.D.C., buthe is in el ig ib le to Res po nd en t wi ll ha ve m ethi s b ur de n o f pr oduc ti on if R ul e 1 55 5 co m pu ta ti on s s ho w th atpe ti ti on er h ada subs tant ia l und ers ta te m en t o f in co m e ta x. See, e.g ., Jarm anv. Co m

m is si on er, T.C. Mem o. 2 01 0- 28 5.-1 2-

cl ai m he adof h ou se ho ldfil in g s ta tu s, the ch il d t ax cred itan d t he ad di ti on al ch il d ta x c red it , andth e EIC. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red un de r Ru le 15 5.