TAX COURT OPINION

Case: Tito F. Ezpeleta
Docket Number: 12882-07S
Judge: Colvin
Opinion Type: bench
Filed: 05/16/2008
Pages: 11

UNITED STATES TAX COURT Washington , D .C . 2021 7 TITO F . EZPELETA, Petitioner , v . Docket No . 12882-07 S COMMISSIONER OF INTERNAL REVENUE , Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Special Trial Judge Lewis R . Carluzzo at Miami, Florida, on April 9, 2008, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be under Rule 155 . (Signed) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . May 16, 2008 S ERA : , MAY 2 0 2008 2 1 Bench Opinion by Special Trial Judge Lewis R . Carluzzo 2 April 9, 200 8 3 Ezpeleta v . Commissioner Docket No . 12882-07S 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case and the 6 following represents the Court's oral findings of fact 7 and opinion . The oral findings of fact and opinio n 8 shall not be relied upon as precedent in any other 9 case . 10 This proceeding for the redetermination of a 11 deficiency is a Small Tax Case conducted pursuant to 12 the provisions of Section 7463 of the Internal Revenue 13 Code of 1986, as amended, and Rules 170 through 175 of 14 the Tax Court Rules of Practice and Procedure . 15 This bench opinion is made pursuant to the 16 authority granted by Section 7459(b) of the Internal 17 Revenue Code of 1986, as amended, and Rule 152 of the 18 Tax Court Rules of Practice and Procedure . 19 Hereinafter in this bench opinion section 20 references are to the Internal Revenue Code of 1986, 21 as amended, in effect for 2005 . Rule references are 22 to the Tax Court Rules of Practice and Procedure . 23 Tito F . Ezpeleta appeared pro se . Timothy 24 Sloane appeared on behalf of Respondent . 25 In a notice of deficiency dated March 2, Heritage Reporting Corporatio n (202) 628-4888 3 1 2007, Respondent determined a $3,950 deficiency in 2 Petitioner's 2005 federal income tax and imposed a 3 $374 .50 Section 6651(a)(1) addition to tax . 4 The issues to be decided are : 1) whether 5 Petitioner is entitled to an earned income credit , 6 and, if so, in what amount ; and 2) whether Petitioner 7 had reasonable cause for his failure to file his 2005 8 federal income tax return when due . 9 Some of the facts have been stipulated and 10 are so found . At the time the petition was filed, 11 Petitioner resided in Florida . 12 Petitioner was employed as an independen t 13 contractor by a construction company during 2005 . The 14 earnings that he received from that employment during 15 that year should have been reported on a Form 109 9 16 issued by his employer, but apparently that never 17 happened . 18 Petitioner is the father of at least one 19 child, a son, M .E ., born in 1986 . M .E ., who was 19 20 years old as of the close of 2005, was enrolled as a 21 student in the Miami-Dade County public school system 22 for at least a part of that year . He dropped out of 23 school prior to graduating . 24 During 2005, Petitioner lived with hi s 25 fiancee in her rented apartment . She has at least two Heritage Reporting Corporation (202) 628-4888 4 1 children, M .S . and C .S . (the children) . Neither o f 2 the children are related to Petitioner . M .E . lived in 3 the same apartment with Petitioner and his fiancee for 4 at least a portion, if not all, of 2005 . 5 Petitioner's 2005 federal income tax return 6 was prepared by VITA Miami Acorn . As relevant here , 7 on that return Petitioner : 1) reported adjusted gross 8 income of $9,851 ; 2) claimed a dependency exemptio n 9 deduction for each of the children and for his son ; 10 and 3) claimed a $3,950 earned income credit computed 11 by treating each of the children as a qualifying child 12 for purposes of that credit . a(V ' 13 He was advised to compte the earned incom e 14 credit as shown on his return by the VITA Miami Acorn 15 representative who prepared his 2005 return . Tha t 16 return was filed on October 2, 2006 . 17 In the notice of deficiency that forms the 18 basis for this case, Respondent : 1) disallowed th e 19 dependency exemption deduction claimed for each of the 20 children ; and 2) disallowed the earned income credit 21 claimed on Petitioner's 2005 return . Respondent also 22 imposed a Section 66551(a)(1) addition to tax because 23 Petitioner's 2005 return was not timely filed . 24 It should be noted that the dependency 25 exemption deduction claimed for M .E . has not been Heritage Reporting Corporation (202) 628-4888 5 1 disallowed . Because of Petitioner ' s income, the 2 disallowances of the dependency exemption deductions 3 claimed for the children have no tax consequences and 4 need not be addressed in this bench opinion . 5 In general , and subject to variou s 6 conditions and limitations, an eligible individual is 7 entitled to an earned income credit . Section 32(a) . 8 For purposes of the earned income credit an, "eligible 9 individual", is defined to include an individual who 10 has a qualifying child . Section 32(c)(1)(i) . 11 For purposes of the earned income credit the 12 term, "qualifying child", means, with exceptions not 13 relevant here, the qualifying child of the taxpayer, 14 as defined in Section 152(c) . 15 Subject to special rules not relevant here, 16 that section defines the term, "qualifying child", to 17 include an individual who : 1) is related to the 18 taxpayer in a designated way ; 2) has the sam e 19 principal place of abode as the taxpayer for more than 20 one half of the year ; 3) meets certain ag e 21 requirements ; and 4) has not provided over one half of 22 his or return own support for the taxable year . 23 Section 152(c) . 24 These requirements can be loosely stated as 25 the relationship test, the residency test, the age Heritage Reporting Corporation (202) 628-4888 6 1 test and the support test . 2 The relationship test is satisfied only if 3 the individual is : 1) a child of the taxpayer or a 4 descendant of such child ; or 2) a brother, sister, 5 stepbrother, or stepsister of the taxpayer or a 6 descendant of any such relative . See Section 7 152(c) (1) (A) and (2) . In this case, neither of the 8 children is related to Petitioner in a manner just 9 described . 10 Consequently, neither of the children may be 11 treated as Petitioner's qualifying child for purposes 12 of the earned income credit, and Petitioner is no t 13 entitled to the earned income credit claimed on his 14 return that has been computed as though each of the 15 children was Petitioner's qualifying child fo r 16 purposes of that credit . That is not to say, however, 17 that Petitioner is not entitled to an earned income 18 credit . 19 Respondent now agrees that for purposes of 20 the earned income credit Petitioner is an eligibl e 21 individual who does not have a qualifying child . See 22 Section 32(c)(1)(A)(ii) . We expect the parties t o 23 compute the appropriate amount of the earned income 24 credit and take that amount into account in the 25 computations for entry of decision . Heritage Reporting Corporation (202) 628-4888 7 1 This would end our discussion on this issue 2 except Petitioner now claims that he is entitled t o 3 treat M .E . as a qualifying child for purposes of the 4 earned income credit . 5 There is some question whether M .E . 6 satisfies the residency test referenced above, but we 7 need not address the disagreement between the parties 8 on the point . Because of his age, M .E . can only be 9 treated as Petitioner's qualifying child if he was a 10 full-time student during five months of 2005 . Se e 11 Section 152(f)(2) . There is insufficient evidence in 12 the record to establish that he was . 13 M .E . was enrolled in school as of th e 14 beginning of 2005, but he dropped out of school before 15 graduating . M .E .'s recollection of events during 2005 16 is less than compelling . He testified that he dropped 17 out of school when he turned 18 years old, but hi s 18 18th birthday was in 2004, not 2005 . 19 BecauseM .E .'s status as a student durin g 20 2005 cannot be determined with any degree of certaint y 21 he cannot be treated as Petitioner's qualifying child 22 for purposes of the earned income credit for tha t 23 year . 24 Before ending our discussion on this issue, 25 we note that we have not lost sight of the fact that Heritage Reporting Corporatio n (202) 628-4888 8 1 Petitioner claimed and was allowed a dependency 2 exemption deduction for M .E . for 2005 . 3 A taxpayer's entitlement to a dependenc y 4 exemption deduction for an individual in and of itself 5 is instructive but not necessarily determinative with 6 respect to the individual' s status as the taxpayer' s 7 qualifying child for purposes of the earned income 8 credit . 9 This is so because the dependency exemption 10 deduction is also available not only with respect to 11 an individual who fits within the definition of the 12 taxpayer's qualifying child but with respect to a n 13 individual who fits within the definition of th e 14 taxpayer's qualifying relative as well . See Section 15 152(a)(2) . 16 Petitioner is entitled to an earned income 17 credit for 2005, but the amount of that credit must be 18 computed as though Petitioner had no qualifying child . 19 Petitioner's 2005 return was due to be filed 20 on or before April 17, 2006, but it was not file d 21 until October 2, 2006 . Sections 6072(a), 7503 . 22 Nothing in the record suggests that Petitione r 23 requested or received an extension to file his 2005 24 return . Consequently, Respondent imposed a Section 25 6651(a)(1) addition to tax for that year . Heritage Reporting Corporation (202) 628-4888 9 1 That section provides for an addition to tax 2 of five percent of the amount of the tax required t o 3 have been shown op the return if the failure to file 4 is for not more than one month, with an additiona l 5 five percent for each month in which the failure t o 6 file continues, to a maximum of 25 percent of the ta x 7 in the aggregate . 8 The addition to tax is applicable unless it 9 is shown that the failure to file is due to reasonable 10 cause and not due to willful neglect . The amount of 11 the addition to tax is calculated on the net amoun t 12 due . Section 6651(b) . 13 Respondent bears the burden of production to 14 establish that the imposition of the Sectio n 15 6651(a)(1) addition to tax is appropriate . Section 16 7491(c) . The record establishes that Petitioner's 17 2005 return was, in fact, not timely filed, an d 18 Respondent's burden of production has been satisfied 19 in that regard . 20 Respondent need not demonstrate that 21 Petitioner did not have reasonable cause for hi s 22 failure timely to file his 2005 return . Petitioner 23 must show that the failure was due to reasonable cause 24 and not willful neglect . Higbee v . Commissioner , 116 25 T .C . 438, 447 (2001) . Heritage Reporting Corporation (202) 628-4888 10 1 According to Petitioner, he did not file hi s 2 2005 return on time because he did not receive a Form 3 1099 from his employer . Petitioner's explanation does 4 not rise to the level of reasonable cause . He 5 obviously knew that he was employed during 2005, and 6 he knew that he earned and received income from that 7 employment . 8 His return is relatively straightforward, 9 and the level cf his income suggests that his income 10 could have been, as it apparently was, estimated with 11 reasonable certainty, even in the absence of a Form 12 1099 on which his income would have been shown . 13 Petitioner's 2005 return was filed more than 14 four months late which allows for the imposition o f 15 the maximum amount of the addition to tax . 16 Petitioner's explanation for his failure to file a 17 timely return for that year does not establis h 18 reasonable grounds for that failure . 19 Otherwise, Petitioner does not challenge the 20 amount of the 6651(a)(1) addition to tax imposed in 21 the notice of deficiency, and nothing in the recor d 22 suggests that the amount has not been properl y 23 computed . We note that the amount of the addition to 24 tax here in dispute has not been computed on the 25 deficiency, but, consistent with the statute, the Heritage Reporting Corporatio n (202) 628-4888 1 1 1 amount is computed on the net tax due . 2 Respondent ' s imposition of the Section 3 6651(a)(1) addition to tax is sustained . 4 To reflect the foregoing and the allowance 5 of an appropriate earned income credit, decision will 6 be entered under Rule 155 . 7 This concludes the Court's oral findings of 8 fact and opinion in this case . 9 (Whereupon, at 9 :35 a .m ., the bench opinion 10 in the above-entitled matter was concluded . ) 11 12 13 14 15 / / 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888