TAX COURT OPINION

Case: Victor Dulay Cabradilla
Docket Number: 10154-14S
Judge: Goeke
Opinion Type: bench
Filed: 05/18/2015
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 VICTOR DULAY CABRADILLA, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 10154-14S. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is 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 in the above case before Judge Joseph Robert Goeke at San Francisco, California, on May 1, 2015, containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. May 18, 2015 SERVED MAY 2 0 2015 Capital Reporting Company 3 1 2 Bench Opinion by Judge Joseph Robert Goeke May 1, 2015 3 Victor Dulay Cabradilla v. Commissioner 4 5 Docket No. 10154-14S THE COURT: The Court has decided to render 6 Oral Findings of Fact and Opinion in this case, and 7 8 the following represents the Court's Oral Findings of Fact and Opinion. The Oral Findings of Fact and 9 Opinion shall not be relied upon as precedent in any 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other case. This case was heard pursuant to the provisions of section 7463 in effect when the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court. Section 7463 is in the Internal Revenue Code that was in effect at the time the petition was filed in this case. Hereinafter, section references are to the Internal Revenue Code related to the year in question. This opinion is rendered pursuant to Rule 152 of the Tax Court Rules of Practice & Procedure, and rule references hereinafter are to the Tax Court Rules of Practice & Procedure. This opinion is also authorized by section 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 7459(b). The Court has jurisdiction over the present case based upon a timely petition filed after Respondent issued a Notice of Deficiency for the year 2010 in which Respondent determined a deficiency in income tax and the additions to tax under section 6652(a). At the time the petition was filed in this case, the Petitioner resided in California. The parties have stipulated certain facts 10 and the Petitioner and his former spouse testified. 11 Petitioner was married to Imelda during 2010 but they 12 lived in separate residences. Before 2010, the 13 Petitioner and Imelda had three children; two of the 14 15 16 children were daughters and one was a son. Imelda testified credibly that because of economic issues, the children had to live in the 17 Philippines in a home that she and her husband 18 maintained for the children in the Philippines, where 19 they were cared for by her sister. 20 21 22 23 24 25 The children at issue in the present case are the daughters for whom the Petitioner claimed dependency exemption treatment and also, according to his assertion, that they were his dependents who lived with him throughout the year, he claimed head- of-household status and earned income credit related 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 to the two dependents. In addition to disallowing the dependents, Respondent has disallowed the head-of- household filing status and the earned income credit associated with the two daughters. Imelda testified credibly that she decided to allow her husband to have the dependency exemption for the daughters because he provided to her support sufficient, in her mind, to provide over half the support for those girls during the taxable year in question. She also testified credibly that the support received by the daughters in 2010 was provided 100 percent by her and the Petitioner. It is clear from the record that the daughters did not live in the United States in 2010. It is also clear that they were cared for as best as was possible under the circumstances by their parents through the arrangement previously described. Based on Imelda's testimony, we find this fact, that the Petitioner did provide over half the support for the girls in the taxable year in question. Hereinafter, the two daughters will be 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 referred to as "the girls." The first question is whether the 3 Petitioner's entitled to claim the daughters or "the 4 girls" as his dependents in 2010. We believe, 5 6 7 8 9 10 11 12 13 14 15 16 17 because the girls did not reside with the Petitioner in 2010, they would not qualify as qualifying children under section 152(c). So we now turn to whether the girls would be eligible as dependents to the Petitioner pursuant to the qualifying relative requirements in section 152(d). Clearly, the girls meet the requirements of section 152(d)(1)(A) regarding their relationship to the taxpayer. And there's no dispute that the girls did not have gross income such that they would be ineligible as dependents, pursuant to section 152(d)(1) (B). We previously found as fact that the 18 Petitioner provided over one half of their support, 19 20 21 22 23 which means that they qualify pursuant to section 152(d)(1)(C). They were not claimed as dependent by anyone else such that there's no other impediment in section 152(d)(1) to them being qualifying relatives of the Petitioner. And as previously stated, they 24 meet the relationship requirement. 25 Given these determinations, we find that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 the Petitioner is entitled to claim the girls as dependents in the taxable year 2010. We next turn to the question of whether the 4 Petitioner should be treated as a head of household 5 6 7 in 2010. Petitioner would have to qualify pursuant to sections 2(c) and 7703(b) to be entitled to head- of-household filing status in 2010. Because the 8 girls did not reside with the Petitioner, he fails 9 the test as provided by these sections and is not 10 11 entitled to head-of-household filing status. Finally, we turn to whether the 12 Petitioner's entitled to earned income credit 13 14 15 16 17 18 19 20 21 relative to the girls. Because the girls did not live in the United States for more than one half of the year, Petitioner's not entitled to earned income credit computed relative to the girls, pursuant to section 32. Regarding whether the Petitioner himself is entitled to earned income credit, we leave that to a Rule 155 computation to be done by Respondent. The final issue in the case is whether 22 Petitioner's subject to the addition to tax under 23 section 6662(a). Respondent asserts that 24 Petitioner's inaccurately reporting of the girls as 25 dependents and claiming exemptions and head-of- 866.488.DEPO www.Capita]ReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 household status supports the addition to tax. The Court finds that the Petitioner was entitled to the dependents, and the Court finds that regarding the other items, the Petitioner reasonably relied upon his return preparer. And given the awkward circumstances of the economic support provided to the girls in 2010, we think there was reasonable cause for the manner in which the 9 Petitioner reported his relationship with the girls 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in 2010, apart from the dependency exemptions which we have previously allowed. Therefore, given the fact that there is reasonable cause for the reporting and the fact that the Petitioner improperly claimed head-of-household and certain earned income credit, we believe the addition to tax is inapplicable, pursuant to section 6664(c)(1) and Treasury reg section 1.6664-4(a). As stated previously, a Rule 155 computation will be necessary to determine whether any earned income credit is allowable in 2010, and to also determine the impact of the dependency exemptions allowed herein. This concludes the Court's Oral Findings of Fact and Opinion in this case. (Whereupon, at 10:18 a.m., in the above- 866.488.DEPO www.CapitalReportingCompany.com 1 2 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Capital Reporting Company entitled matter was concluded.) 9 866.488.DEPO www.CapitalReportingCompany.com