TAX COURT OPINION

Case: Richard D. Ming
Docket Number: 6800-12S
Judge: Whalen
Opinion Type: bench
Filed: 02/19/2013
Pages: 15

UNITED STATES TAX COURT WASHINGTON, DC 20217 RICHARD D. MING, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ) ORDER Docket Nos. 25982-11S 6800-12S 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 proceedings in the above-case before the undersigned at Denver, Colorado, containing the oral findings of fact and opinion rendered on January 31, 2013. In accordance with the oral findings of fact and opinion, an appropriate order and decision will be entered. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. February 19, 2013 SERVED FEB 2 0 2013 Capital Reporting Company 3 1 2 Bench Opinion by Judge Laurence J. Whalen January 31, 2013 3 Richard D. Ming v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 Docket Nos. 25982-11S, 6800-12S I. THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. II. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules of 15 Practice and Procedure. Hereinafter in this bench 16 17 18 19 20 21 22 23 24 25 opinion, all section references are to the Internal Revenue Code, as amended and in effect for 2008 and 2009, the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to section 7463(b), the decision to be entered in this case cannot be reviewed in any other court, and this bench opinion shall not be treated as precedent for any other case. III. This bench opinion is made pursuant to the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company authority granted by section 7459(b) and Rule 152. 4 IV. Richard D. Ming appeared in these proceedings on his own behalf, and Michael J. Lloyd, Esquire, appeared on behalf of respondent. V. Respondent issued a notice of deficiency to petitioner in which he determined a deficiency in petitioner's Federal income tax for taxable year 2008 in the amount of $3,488, and further determined that petitioner is liable for an accuracy-related penalty under section 6662(a) of $697.60. In a later, separate notice of deficiency, respondent determined a deficiency in petitioner's Federal income tax for taxable year 2009 in the amount of $5,113, and further determined that petitioner is liable for an addition to tax under section 6651(a) (1) of $264.60, and an accuracy- related penalty under section 6662(a) of $1,022.60. VI. For 2008, the issues for decision by the Court are as follows: (1) Whether petitioner is allowed deductions for dependency exemptions for two of his nieces, K.D. and S.D. 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 5 1 2 3 4 (2) Whether petitioner is liable for the accuracy-related penalty under section 6662(a), as determined by respondent. For 2009, the issues for decision by the 5 Court are as follows: 6 7 8 (1) Whether petitioner is allowed deduc,tions for dependency exemptions: (a) for his t u pcphciia, K.C. and K.D., and (b) for their mother, 9 petitioner's sister, Ms. Leota Brixen, and (c) for 10 11 12 13 14 15 16 17 18 19 petitioner's mother, Ms. Marilyn Ming. (2) Whether petitioner is liable for the accuracy-related penalty under section 6662(a), for both 2008 and 2009, as determined by respondent. (3) Whether petitioner is liable for the addition to tax under section 6651(a) (1) for 2009, as determined by respondent. We note that respondent had determined in the notice of deficiency for each year that petitioner is not allowed the child tax credit. 20 Petitioner concedes those adjustments, and they are 21 22 23 24 25 no longer at issue in this case. VII. Some of the facts have been stipulated by the parties, and are so found. Petitioner resided in 1 Fountain, Colorado, when he filed the petitions in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 these consolidated cases. Petitioner's returns describe his occupation as electronics technician. For the taxable years in issue he reported total income of $71,234 and $71,854, respectively. For each year, he claimed a personal exemption for himself and four dependency exemptions. For 2008, he claimed dependency exemptions for his mother, Ms. Marilyn 9 Ming, for his sister, Ms. Leota Brixen, and for two 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 of his sister's children, K.D. and S.D. In the notice of deficiency for that year, respondent disallowed the dependency exemptions claimed for K.D. and S.D., but respondent made no adjustment to the dependency exemptions claimed for petitioner's mother and his sister. For 2009, petitioner also claimed four dependency exemptions. He again claimed exemptions for his mother and his sister, and he claimed exemptions for two of his sister's children, K.D. and K.C. In the notice of deficiency for that year, respondent disallowed all of the dependency exemptions claimed by petitioner. Ms. Marilyn Ming: Petitioner's mother was born in 1940. During 2008, she received Social 25 Security benefits of not less than $6,036. During 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 2009, she received Social Security benefits of not less than $7,884. During both years, she did not live in the same residence with petitioner. Ms. Leota Brixen: Petitioner's sister lived in a five-bedroom house located on Shady Lane in Colorado Springs from August 1, 2008, through the end of November of. that year. She lived there with four of her children, K.D., S.D., A.S., and K.C., along with Mr. Daniel Spear, A.S.'s father. 10 Petitioner paid rent of $525 per month for the four 11 months that Ms. Brixen lived there. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 During 2009, Ms. Brixen lived in an apartment at the Audubon Place Apartments in Colorado Springs beginning August 3, 2009. Petitioner made a deposit on the apartment in the amount of $350, and he made three rent payments of $668.45, $732.72, and $753.32. The record does not disclose who lived in the apartment at Audubon Place with Ms. Brixen. During 2008, petitioner paid automobile insurance on cars driven by Ms. Brixen. He paid two premiums totaling $568.40 and $693. During 2009, petitioner also paid $631.60 to a dentist for work on Ms. Brixen's teeth. Minor children referred to as K.D. and S.D.: These children were born to Ms. Leota Brixen 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 and Mr. Larry Dulkoski in 1997 and 1999, respectively. Ms. Brixen and Mr. Dulkoski were 3 married on August 15, 1996, and they divorced on 4 5 6 7 8 9 10 11 January 23, 2001. The Final Orders entered by the divorce court on March 7, 2001, gave primary residential custody of K.D. and S.D. to Ms. Brixen. The court orde Mr. Dulkoski to pay child support to Ms. Brixen in the amount of $524 per month. The Final Orders entered by the court did not address any tax matters, such as which parent could claim dependency exemptions. In 2006, Mr. Dulkoski's 12 monthly child support payment to Ms. Brixen was 13 14 15 reduced to $454, payable without reduction during anytime K.D. and S.D. resided with Mr. Dulkoski. The parties have stipulated that Mr. 16 Dulkoski paid child support to Ms. Brixen for K.D. 17 18 and S.D. during 2008 in an amount not less than $5,497.08, and that he paid child support to Ms. 19 Brixen for those children during 2009 in an amount 20 21 22 23 24 25 not less than $5,398.92. According to records of the Family Support Registry, Automated Child Support Enforcement System, Ms. Brixen received child support totaling $5,294.62 during 2008 and $5,147.38 during 2009. Mr. Dulkoski claimed dependency exemptions for K.D. and S.D. on his 2008 and 2009 income tax 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 returns. Neither K.D. nor S.D. resided with petitioner during 2008 or 2009. During both years, the children resided with their biological parents. 5 During both 2008 and 2009, K.D. and S.D. resided with 6 Mr. Dulkoski in Ohio during the summer, June through 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 August, and during the winter holiday in December for approximately two weeks. At other times, the children lived with Ms. Brixen in Colorado. During 2008 and 2009, K.D. and S.D. qualified for, and received, free lunches at school. Minor child referred to as K.C.: K.C. was born to Ms. Brixen and Roy Caplinger, Jr., in 1994. By law, Mr. Caplinger is obligated to provide child support for K.C. until K.C. reaches age 18. During 2008 and 2009, Mr. Caplinger paid child support to Ms. Brixen of at least $3,881 in each year for K.C. During 2008, K.C. did not reside with petitioner. For at least six months during that year, K.C. resided with Ms. Brixen. During 2009, K.C. lived with Ms. Brixen from January through June, 22 with Ms. Marilyn Ming from June through September, 23 24 25 and with petitioner from October through December. During both 2008 and 2009, K.C. qualified for, and received, free lunches at school. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Dependency Exemption Deduction VIII. In computing taxable income, the Internal Revenue Code allows a deduction in the amount of an exemption for each dependent of a taxpayer. Sec. 151(c). Section 152(a) defines a dependent as a "qualifying child" or a "qualifying relative" of the taxpayer. In general, among other requirements, an individual is a "qualifying child" with respect to the taxpayer, if he or she shares the same principal place of abode as the taxpayer for more than one-half of the taxable year. Sec. 152(c). In this case, the parties have stipulated that K.D. and S.D. did not reside with petitioner during the year 2008. Thus, it is evident that neither K.D. nor S.D. can be a qualifying child with respect to petitioner for 2008. Similarly, the parties have stipulated that 19 Ms. Marilyn Ming, Ms. Brixen, and K.D. did not reside 20 with petitioner during 2009. They have also 21 22 23 24 25 stipulated that K.C. lived with petitioner for only three months of 2009, from October through December. Therefore, it is evident that none of those four individuals can be a qualifying child with respect to petitioner for 2009. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 An individual is a "qualifying relative" 2 with respect to the taxpayer, if the individual meets 11 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 four tests: The relationship test, the gross income test, the support test, and the not-a-qualifying- child test. See sec. 152(d) (1) (A)-(D). Respondent concedes that the two individuals whom petitioner claimed as dependents for 2008, K.D. and S.D., and the four individuals whom petitioner claimed as dependents for 2009, Ms. Marilyn Ming and Ms. Brixen, K.D. and K.C., meet the relationship test of section 152(d) (2). Therefore, the decision in this case turns on the application of the remaining three tests of section 152(d), vis. the gross income test, the support test, and the not-a-qualifying-child test, to the two individuals claimed as dependents for 2008 and the four individuals claimed as dependents for 2009. Sec. 152 (d) (1) (B)-(D). If any of those individuals does not meet each of the remaining three tests of section 152(d), then that individual is not a qualifying relative and petitioner may not deduct an exemption with respect to such individual. Respondent asserts that petitioner has not established that he provided more than one-half of the support for each individual as required by section 152(d) (1) (C). In order for petitioner to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 establish that he provided more than one-half of an individual's support during a particular year, he 3 must establish the total amount of the individual's 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 support from all sources for the year. See Archer v. Commissioner, 73 T.C. 963; Blanco v. Commissioner, 56 T.C. 512; Philemond v. Commissioner, T.C. Memo. 2012- 29; sec. 1.152-1(a) (2) (i), Income Tax Regs. "The term 'support' includes food, shelter, clothing, medical and dental care, education, and the like." Sec. 1.152-1(a) (2) (i), Income Tax Regs. The total amount of support for each claimed dependent provided by all sources during the year must be shown by competent evidence. Blanco v. Commissioner, supra at 514. If the amount of total support for the year cannot be reasonably inferred from competent evidence, then it is not possible to conclude that the taxpayer furnished more than one-half of the total amount of support. Id. at 514-515; Stafford v. Commissioner, 46 T.C. 515, 518 (1966). In this case, petitioner did not present sufficient competent evidence to show the total amount expended for support for any of the individuals. His flawed approach was to ask one or 24 more witnesses whether, in their opinion, he had 25 provided more than one-half of the total support for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 a particular individual. Petitioner did not attempt to show the total amount expended for support in any other way. Therefore, petitioner has not established that he provided more than one-half the support of the individuals for 2008 or 2009. E.g., Blanco v. Commissioner, supra at 514-15 (1972). As a result, none of the individuals as to whom petitioner claimed an exemption is a qualifying relative with respect to petitioner for taxable year 2008 or 2009, and petitioner is therefore not entitled to a dependency exemption for any of those individuals. Respondent's determination on this issue, therefore, is sustained. IX. 14 Addition to tax under section 6651(a) (1) for 2009 15 16 17 Respondent established that petitioner's individual income tax return for 2009 was filed on June 1, 2010, after the due date for the return, 18 April 15, 2010. In so doing, respondent satisfied 19 20 21 22 23 24 25 the burden of production imposed on him by section 7491(c). Petitioner has not shown that his failure to file a timely return was due to reasonable cause and not willful neglect. Accordingly, we sustain respondent's determination that petitioner is liable for the addition to tax under section 6651(a) (1). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 X. 2 Accuracy-related penalty under section 6662(a) for 3 4 5 6 7 8 9 2008 and 2009 Pursuant to section 6662 (a) and (b) (1) and (2), a taxpayer may be liable for a penalty of 20 percent on the portion of an underpayment of tax that is attributable to negligence or disregard of rules or regulations, or to a substantial understatement of income tax. For this purpose, negligence includes 10 any failure to make a reasonable attempt to comply 11 with the provisions of the Internal Revenue Code, and 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the term disregard includes any careless, reckless, or intentional disregard. Sec. 6662(b). The term "understatement" means the excess of the amount of the tax required to be shown on the return over the amount of the tax imposed which is shown on the return, reduced by any rebate. Sec. 6662 (d) (2) (A). A "substantial understatement" of income tax is defined as an understatement of tax that exceeds the greater of 10 percent of the tax required to be shown on the tax return or $5,000. Sec. 6662 (d) (1) (A). The understatement is reduced to the extent that the taxpayer has: (1) Adequately disclosed his or her position and has a reasonable basis for such position, or (2) has substantial 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 authority for the tax treatment of the item. Sec. 6662(d) (2) (B). With regard to the accuracy-related penalty, respondent bears the burden of production, pursuant to section 7491(c), and petitioner bears the burden of proof. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The accuracy-related penalty is not imposed 8 with respect to any portion of the underpayment as to 9 which the taxpayer acted with reasonable cause and in 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 good faith. Sec. 6664 (c) (1). The decision as to whether the taxpayer acted with reasonable cause and in good faith depends upon all of the pertinent facts and circumstances. Sec. 1.6664-4 (b) (1), Income Tax Regs. Relevant factors include the taxpayer's efforts to assess his proper tax liability, including the taxpayer's reasonable and good faith reliance on the advice of a professional such as an accountant. Id. Furthermore, an honest misunderstanding of fact or law that is reasonable in the light of the experience, knowledge, and education of the taxpayer may indicate reasonable cause and good faith. Sec. 1.6664-4 (b) (1), Income Tax Regs. On the basis of the record in this case, we conclude that respondent has met his burden of production regarding the accuracy-related penalty 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 pursuant to section 6662(a). As to petitioner, we conclude, with respect to the entire underpayment for both years, that petitioner made an honest mistake of fact and law as to the application of section 152 that is reasonable in the light of his experience, knowledge, and education. The rules under section 152 are 8 difficult. Petitioner made a good faith effort to 9 research the law as it applied to his desire to provide financial assistance to his mother, his sister and her children. We find the petitioner acted with reasonable cause and in good faith. Sec. 1.6664-4 (b) (1), Income Tax Regs. Accordingly, we do not sustain respondent's determination that petitioner is liable for the accuracy-related penalty under section 6662(a) for 2008 and 2009. XI. This concludes the Court's oral findings of fact and opinion in this case. (whereupon, at 9:56 a.m., the above- entitled matter was concluded.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com