TAX COURT OPINION

Case: John David Pugh, III & Kristy Pugh
Docket Number: 20323-16S
Judge: Morrison
Opinion Type: bench
Filed: 06/12/2017
Pages: 7

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 JOHN DAVID PUGH, III & KRISTY PUGH, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) Docket No. 20323-16S. ) ) ) ) ) ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, there is transmitted herewith to petitioners and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Richard T. Morrison, at Mobile, Alabama, on April 28, 2017, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. June 12, 2017 SERVED Jun 13 2017 Capital Reporting Company 3 1 2 3 Bench Opinion by Judge Richard T. Morrison Pugh v. commissioner Docket No. 20323-163 4 April 28, 2017 5 6 7 8 THE COURT: The Court has decided to render al indings of act and pinion in this case and the following represents the Court' s dral ½ndings of act and ppinion. The gral ndings of act and ETN\ 9- pinion shall not be relied on as precedent in any MT) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other·,case. This ench opinion is made pursuant to the authority granted by pection 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. This deficiency proceeding was heard as a small tax case pursuant to the provisions of section 7463 and Rules 170 through 174. References to sections are to the Internal Revenue Code in effect for the year 2014. References to Rules are to the Tax Court Rules of Practice and Procedure. The espondent, who we refer to as the IRS, determined a deficiency of $3,185 for the 2014 taxable year of John David Pugh and his wife Kristy Pugh. The deficiency results in part from the IRS's determination that two of Mr. Pugh's children by his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 ex-wife are not his qualifying children and that therefore the Pughs are not entitled to dependency- exemption deductions or child tax credits for those children. There are no other noncomputational issues 5 still present in the case. The Pughs deducted $1,500 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 of educational expenses on their return, but at trial the IRS conceded that they were entitled to a deduction in that amount. We hold that the two children are not qualifying children of the Pughs.. The findings of fact in this Bench Opinion .. are based on the preponderance of the evidence; therefore it is unnecessary to determine who bears the burden of proof. Martin Ice Cream v. Commissioner, 110 T.C. 189,210 n.16(1998). 7(TA4 FINDINGS OF FACT The stipulation of facts is incorporated by this reference. The Pughs resided in Florida at the time the petition was filed. Mr. Pugh had three children with his ex- 21 wife. We refer to two of these children as C and B. 22 23 24 25 In 2010, Mr. Pugh and his ex-wife executed two parenting plans that were granted by Elbert County District Court. The parenting plans gave Mr. Pugh the authority to claim C and B as dependents on 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 his income taxes as long as he paid all of his court- ordered child support. In 2014, C and B lived with Mr. Pugh's ex- 4 wife. For the 2014 tax year, Mr. Pugh's ex-wife did 5 5 6 7 8 9 10 11 12 13 14 15 16 17 not complete a Form 8332, Release of Claim to Exemption for Child by Custodial Parent, for C and B. On their 2014 return, Mr. Pugh and Ms. Pugh claimed C and B as dependents. The.-notice of deficiency determined that C and B were not dependents of the Pughs. DISCUSSION A taxpayer may claim a dependency-exemption deduction for any individual who is a dependent of the taxpayer for the taxable year. Sec. 151(c). A dependent includes a taxpayer's "qualifying child" TM Section 152 (a) . Under ection 152 ( c) (1) (B) for an individual to be the taxpayer's qualified child, A 4 the 73Y 18 - individual must live with the taxpayer more than one- 19 20 21 22 23 24 25 half of the tax year. The two children in question did not live with Mr. Pugh for more than one-half of the 2014 tax year. Section 152(e)(1) provides that notwithstanding section 152(c)(1) (B), if a child's parents are divorced, the child is treated as the "qualifying child" of the noncustodial parent if the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 requirements of section 152(e)(2) or 152(e)(3) are 2 met. The custodial parent is the parent having 3 4 5 6 7 8 custody for the greater portion of the calendar year. Sec. 152(e)(4)(A). Therefore, the custodial parent of C and B for tax year 2014 is Mr. Pugh's ex-wife. The noncustodial parent is the parent who is not the custodial parent. Sec. 152(e) (4)(B). Therefore, the noncustodial parent of C and B for tax year 2014 is 9 Mr. Pugh. 10 The requirement of section 152(e)(2) is met 11 with respect to any calendar year if (a) "the 12 custodial parent signs a written declaration (in such 13 manner and form as the Secretary may by regulations 14 15 16 17 18 19 20 21 22 23 24 25 prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year", and (b) "the noncustodial parent attaches such written declaration to the noncustodial parent'-s return for the taxable year beginning during such calendar year." Sec. 152(e)(2)(A),(B). Section 1.152-4(e)(1)(i), Income Tax Regs., requires that a declaration to be effective must unconditionally release the custodial parent's claim to the child as a dependent and must specify the year or years for which the declaration is effective. Section 1.152-4(e)(1)(ii), Income Tax 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Regs, provides that "[a] court order or decree or a separation agreement may not serve as a written declaration". A court order/decree/agreement may qualify as a written declaration if it was executed in a taxable year beginning on or before July 2, 2008. See Swint v. Commissioner, 142 T.C. 131, 136- 137 (2014); Sec. 1.152-4(e)(5), Income Tax Regs. Even if the Pughs had attached the parenting plans to their 2014 return, the parenting plans were entered into after July 2, 2008, and therefore do not qualify as a written declaration under section 1.152- 4(e)(1)(ii), Income Tax Regs. Furthermore, even if the parenting plans could qualify as a written declaration, the parenting plans are conditional upon 15 Mr. Pugh keeping up with his child support. Sec. 16 ¾152-4(e) (1) (i), Income Tax Regs.; Armstrong v. TW\ A Commissioner, 139 T.C. 468,473(2012), aff'd. 745 F.3d 890 (8th Cir. 2014). Therefore section 152(e) (2) is not satisfied. The requirement of section 152(e)(3) is met 17 18 19 20 21 with respect to the calendar year if (a) "a qualified 22 23 24 25 pre-1985 instrument between the parents applicable to the taxable year beginning in such calendar year provides that the noncustodial parent shall be entitled to any deduction allowable under section 151 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 for such child", and (b) "the noncustodial parent provides at least $600 for the support of such child during such calendar year." The term qualified pre- 1985 instrument generally means any decree of divorce or separate maintenance or written agreement (1) 6 which is executed before January 1, 1985, and (2) 7 which on the date of execution contains a provision described in (a) above. The parenting plans were not executed before January 1, 1985. Therefore they do not constitute a qualified pre-1985 instrument. Section 153(e)(3) is not met. Children B and C are not qualifying children of Mr. Pugh (or Ms. Pugh). A decision will be entered under Rule 155. This concludes the Court' s oral indings of act and pinion in this case. (Whereupon, at 8:13 a.m., the above- entitled matter was concluded.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com