TAX COURT OPINION

Case: Glenn David & Patricia E. McLernon
Docket Number: 21189-09S
Judge: Colvin
Opinion Type: bench
Filed: 07/16/2010
Pages: 13

UNITED STATES TAX COURT WASHINGTON, D .C . 2021 7 GLENN DAVID AND PATRICIA E . MCLERNON , Petitioners, ) Docket . No . 21189-09 S v . 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 petitioners 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 St . Louis, Missouri, on June 23, 2010, 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 for respondent with respect to the deficiency and for petitioners with respect to the . increased deficiency . (Signed) Lewis R . Carluzzo Special Trial Judg e Dated : Washington, D .C . July 16, 2010 3Ep 192010 M, 3 1 Bench Opinion by Special Trial Judge Lewis R . Carluzz o 2 McLernon v . Commissioner Docket No . 21189-09S 3 June 23, 201 0 4 THE COURT : The Court has decided to render ora l 5 findings of fact and opinion in this case, and the following 6 represents the . Court's oral findings of fact and opinion . 7 This proceeding for the redetermination of a 8 deficiency is a small tax case subject to the provisions of 9 Section 7463 of the Internal Revenue Code of 1986, a s 10 amended, and Rules 170 through 175 of the Tax Court Rules of 11 Practice and Procedure . 12 This bench opinion is made pursuant to th e 13 authority granted by Section 7459(b) of the Internal Revenue 14 Code of 1986, as amended, and Rule 152 of the Tax Cour t 15 Rules of Practice and Procedure . Unless otherwise noted , 16 subsequent section references contained in this bench 17 opinion are to sections of the Internal Revenue Code of 18 1986, as amended, in effect for 2007 . 19 Glenn David McLernon and Patricia E . McLernon 20 appeared pro se . Susan K . Bollman appeared on behalf of 21 respondent . 22 Some of the facts have been stipulated and are so 23 found . Petitioners are married to each other . At the time 24 the petition was filed they resided in Illinois . 25 In a notice of deficiency dated June 1, 2009, Heritage Reporting Corporatio n (202) 628-4888 4 1 respondent determined a $2,020 deficiency in petitioner's 2 2007 Federal income tax . By Amendment to Answer, file d 3 April 14, 2010, respondent seeks an increased deficiency . 4 The issue for decision is whether petitioners are entitled 5 to dependency exemption deductions for two of Glenn David 6 McClernon's (petitioner) children . The parties agree that 7 other issues identified in respondent's pretrial memo nee d 8 not be address as the resolution of those issues follow from 9 the resolution of the above-referenced issue . We concur, at 10 least as far as technical grounds are concerned, with th e 11 parties agreement . We note, however, that because two of 12 those issues arise from items referenced in respondent's 13 Amendment to Answer, the burden of proof on those issues 14 rests with respondent . See Rule 142(a) . 15 Petitioner was previously married to Michelle Y . 16 McLernon (petitioner's former spouse) . They have two 17 children, a son and a daughter, (petitioner's children) both 18 of whom were minors as of the close of 2007 . 19 The date that petitioner and his former spous e 20 were divorced cannot be determined with specificity from the 21 record . In July 1997, they entered into a Marita l 22 Settlement Agreement (the Agreement) which suggests that the 23 divorce was soon to follow . 24 As relevant here, the Agreement also provides that 25 petitioner and his former spouse "shall be granted joint Heritage Reporting Corporatio n (202) 628-4888 5 1 custody" of petitioner's children . The Agreement references 2 and incorporates a Joint Parenting Agreement, but tha t 3 document has not been made part of the record in this case . 4 Physical custody of petitioner's children is not addressed 5 in the agreement, although from the provisions dealing wit h 6 child support, is fair to assume that petitioner' s 7 children resided primarily with petitioner's spouse at least 8 as of the date that the agreement was entered into . It i s 9 also fair to assume that at as of the date of the Agreement 10 petitioner's former spouse was not employed, but anticipated 11 future employment at some point after the divorce . 12 Paragraph K of the Agreement, which obligates petitioner to 13 provide medical insurance for his children, goes on t o 14 provide "at such time (petitioner's former spouse) becomes 15 employed, the (petitioner and his former spouse) shal l 16 review (her) responsibility for contribution for the cost of 17 the children's insurance coverage ." The consequences of the 18 future employment likelihood of petitioner's former spouse 19 are also taken into account in Paragraph L of the agreement, 20 which because of it's particularly relevance here will b e 21 quoted almost in it's entirety . That paragraph states that 22 petitioner "shall have the right to claim both children as 23 his dependents for income tax purposes . Upon (his former 24 spouse's) becoming gainfully employed, where it could be of 25 benefit to her to have the right to have tax a exemption , Heritage Reporting Corporation (202) 628-4888 6 1 the parties agree to review the tax exemption allocation ." 2 The record does not disclose whether petitioner's 3 former spouse was employed during the year in issue . 4 Similarly, it is not known whether she filed a Federa l 5 income tax return for that year and, if she did, whether she 6 treated the children as her dependents on that return . 7 Nothing in the record suggests that the "review" 8 contemplated by Paragraph L of the Agreement took plac e 9 prior to the time that petitioner's timely filed, joint 2007 10 Federal income tax return was filed . As relevant here, on 11 that return petitioners claimed a dependency exemption 12 deduction for, and a child tax credit with respect to each 13 of petitioners children . Certain interest earned and 14 received by petitioner during 2007 is shown on the return, 15 but treated as excludable from their income . Petitioners 16 also claimed a deduction for tuition expenses relating to 17 one of petitioner's children . Petitioner's attached a copy 18 of portions of the Agreement, which portions include d 19 Paragraph L, to their 2007 return . 20 In the above- referenced notice of deficiency the 21 dependency exemption deductions and the child tax credi t 22 were disallowed . Petitioner's entitlement to the child tax 23 credit follows from their entitlement to the dependenc y 24 exemption deductions, and the burden of proof to establish 25 their entitlement to the dependency exemption deductions Heritage Reporting Corporatio n (202) 628-4888 7 1 rests with petitioners . Section 142(a) . 2 Because of its consequences to the other issues in 3 this case, we'll start with that issue . In general, a 4 taxpayer is entitled to an additional exemption deduction 5 for each individual who is a dependent of the taxpayer for 6 the taxable year . Section 151(a), (c) . In general, th e 7 term "dependent" as used in Section 151 and elsewhere in the 8 Internal Revenue Code, means a qualifying child or a 9 qualifying relative . Section 152(a) . However, because 10 petitioner and his former spouse were divorced as of, and 11 apparently long before, the close of 2007, special rules 12 apply . Those rules are embodied in Section 152(e) and its 13 corresponding regulation . 14 From the pretrial memoranda submitted by th e 15 parties, we are satisfied that the parties are well-informed 16 with respect to those special rules and see little point in 17 explaining in detail how those rules work . Instead, we'll 18 provide only enough explanation to allow focus on the points 19 that are in dispute, one of which involves the construction 20 of Subparagraph L of the'agreement . 21 If, as here, Section 152(e) applies to determine 22 which parent is entitled to a dependency exemption deduction 23 for the parents' .child or children, then, in general, th e 24 deduction is allowable to the "custodial parent" . Fo r 25 purposes of Section 152(e), the custodial parent means "the Heritage Reporting Corporatio n (202) 628-4888 8 1 parent having custody for the greater portion of th e 2 calendar year" . Section 152(e)(4)(A) . This definition is 3 further refined in the regulations, which provide that the 4 custodial parent is the parent "with whom the child resides 5 for the greater number of nights during the calendar year" . 6 Section 1 .152-4(d)(1), Income Tax Regs . The "noncustodial 7 (as-far as the Court can tell, a word that exists only i n 8 the Internal Revenue Code and the Commissioner' s 9 regulations) parent" is defined simply as "the parent who is 10 not the custodial parent" . Section 152(e)(4)(B) . 11 There are exceptions to this general rule, only 12 one of which is relevant here . The relevant exceptio n 13 provides that the noncustodial parent is entitled to a 14 dependency exemption deduction for the child only if the 15 custodial parent "signs a written declaration (in such 16 manner and form as the Secretary may by regulation s 17 proscribe) that such custodial parent will not claim such 18 child as a dependent for any taxable year", and that written 19 declaration is attached to the noncustodial parent's Federal 20 income tax return for the year in question . Section 21 152(e)(2)(A) . In apparent reliance upon informa l 22 instructions provided by the Commissioner,' petitioners take 23 the position that the Agreement, in and of itself, satisfies 24 the requirements of the exception because, as they argue , 25 the Agreement was entered into after 1984 and prior to 2009 . Heritage Reporting Corporatio n (202) 628-4888 9 1 They are mistaken, albeit understandably, on the point . 2 That time frame is referenced in the Commissioner' s 3 instructions, upon which they apparently rely but we have 4 described those instructions as "less than clear and may 5 even be misleading, regarding the effect of a State court 6 decree on the ability of the noncustodial parent to claim 7 the dependency exemption for his or her child" . Miller v . 8 Commissioner , 114 T .C . 184, 194 (2000) . Furthermore, we 9 note that authoritative tax law is contained in statutes , 10 regulations and judicial decisions, not in informa l 11 publications or instructions . Zimmerman v . Commissioner , 71 12 T .C . 367, 371 (1978) affirmed without published opinion, 614 13 F . 2d 1294 (2nd Circuit 1979) . 14 The first step in considering petitioner' s 15 entitlement to the dependency exemption deductions here in 16 dispute is to determine whether petitioner was the custodial 17 parent of the children, or either of them, during 2007 . If 18 petitioner is treated as the noncustodial parent of either 19 one of them during 2007, then petitioners are entitled t o 20 the dependency exemption deduction for that child only i f 21 the relevant portion of the Agreement satisfies the "written 22 declaration" referenced in the above-cited exception . I f 23 petitioner was the custodial parent of either or bot h 24 children during 2007, then petitioners are entitled to a 25 dependency exemption deduction for one, or as appropriate, Heritage Reporting Corporatio n (202) 628-4888 1 0 1 both of them regardless of the significance of the 2 Agreement . 3 As noted, for purposes of Section 152(e) and with 4 respect to any given year, the custodial parent is defined 5 as the parent with whom the child resides for the greate r 6 portion of the year, that is the greater number of nights 7 during the calendar year . In this case, that year is 2007 8 and the evidence is lacking on the point . The Agreemen t 9 simply provides that petitioner and his former spouse "shall 10 be granted joint custody" of the children . The Parenting 11 Agreement might have given us a clue as to where th e 12 children were supposed to be "residing" at any point during 13 any given year, but that agreement is not before us . During, 14 his trial testimony, petitioner made a passing reference to 15 the fact that the children were with him as much as the y 16 were with his former spouse during 2007, but his testimony 17 on the point is hardly sufficient to support a finding that 18 they resided with him for a greater portion of that year, 19 that is for a greater number of nights during that year . 20 Neither party called petitioner's former spouse as a witness 21 and as noted, whether she treated the children, or either of 22 them as her dependent for 2007 is unknown . 23 In short, the evidence is insufficient to support 24 a finding one way or another, and we make no such finding . 25 We resolve this first step by applying the respectiv e Heritage Reporting Corporation (202) 628-4888 11 1 burdens of proof placed upon the parties . Petitioners hav e 2 failed to establish that petitioner was the custodial parent 3 of either child during 2007, and petitioners are no t 4 entitled to the dependency exemption deductions here i n 5 dispute based exclusively upon that status . On the othe r 6 hand, respondent has not proven that petitioner was not the 7 custodial parent of the children, or either one of them , 8 during 2007, and respondent's claim for an increased 9 deficiency, which is dependent on such a finding, is 10 rejected . 11 Proceeding, without finding, as though petitioner 12 was not the custodial parent of either of his childre n 13 during 2007 and that petitioner's former spouse was, we next 14 consider whether the Agreement, specifically Paragraph L, is 15 the type of "written declaration" contemplated by Sectio n 16 152(e)(2)(A) . If'it is, there being no other disputes on 17 other requirements, then petitioners are entitled to the 18 dependency exemption deductions here in dispute . If it is 19 not, then they are not so entitled . 20 The regulations provide, and petitioners ar e 21 aware, that a taxpayer can satisfy the "written declaration" 22 requirement by obtaining a Form 8332, Release/Revocation of 23 Relief of Claim to Exemption for Child by Custodial Parent, 24 from the custodial parent . See Section 1 .152-4(e)(ii ) 25 income tax regs . That did not happen here with respect to Heritage Reporting Corporatio n (202) 628-4888 1 2 1 2007 . But it is also well established that the "writte n 2 declaration" requirement can be satisfied if the taxpaye r 3 submits a document that complies or conforms in substance to 4 a Form 8332 . Id . 5 According to petitioners, the Agreement s o 6 conforms ; according to respondent, it does not . Their 7 dispute on the point centers on whether the Agreement i s sufficiently unconditional with respect to demonstrating that petitioner's former spouse intended to waive her right . 10 to claim the children, or either of them, as her dependent 11 for 2007 . It is obvious that the portions of the Agreement 12 relied upon by petitioners does not make reference to any 13 specific year . The question becomes whether Paragraph L of 14 the Agreement supports a finding that petitioner's former 15 spouse unconditionally agreed to waive her right to claim 16 dependency exemption deductions for either of the children 17 for all future years after the year the agreement wa s 18 signed . Without knowing what she did, or what she intended 19 by signing the Agreement, we find that a fair reading of the 20 provisions establishes that she did not . Paragraph L of the 21 Agreement clearly allows for reconsideration under th e 22 circumstances indicated in the-agreement . This is hardly an 23 unconditional waiver . 24 Because the Agreement, although attached t o 25 petitioners' 2007 return, does not satisfy the requirement Heritage Reporting Corporatio n (202) 628-4888 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 1 3 of a "written declaration" as that term is used in Sectio n 152(e)(2)(A), the exception to the general rule allowing th e dependency exemption deduction to the children' s noncustodial parent does not apply . It follows tha t petitioners are not entitled to the dependency exemptio n deductions here in dispute and respondent's disallowances o f those deductions are sustained . It further follows tha t petitioners are not entitled to the child tax credit here i n dispute and that disallowance is sustained as well . That doesn't quite end the matter, however, as i t would not be unreasonable to assume that the misleadin g nature of the Commissioner's instructions suggested t o petitioners that they did not need to obtain a Form 8332, o r appropriate substitute, from petitioner's former spouse fo r 2007 . Perhaps the form was never requested . We have no idea whether petitioner's former spouse would or would no t have provided the required document if requested . We think it reasonable to assume that if she did not claim th e children, or either of them as a dependent on her 200 7 return, if she in fact filed a 2007 return, then she woul d have no reason not to have provided the form if requested . Taking the unknown into account, we would b e inclined to favorably view a motion to vacate our decisio n if it turns out that petitioners are, even at this lat e date, able to establish that petitioner's former spouse di d Heritage Reporting Corporation (202) 628-4888 14 1 not treat either of the children as her dependent for 2007 , 2 and can obtain a Form 8332 from her for that year . 3 Otherwise, to reflect the forgoing, decision will 4 be entered for respondent with respect to the deficiency and 5 for petitioners' with respect to the increased deficiency . 6 This concludes the Court's oral findings of fact 7 and opinion in this case . 8 (Whereupon, at 12 :20 p .m ., the bench opinion in 9 the above-entitled matter was concluded . ) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888