TAX COURT OPINION

Case: Cory Joseph & Martha Erin Hoeppner
Docket Number: 26589-11S
Judge: Holmes
Opinion Type: bench
Filed: 06/11/2013
Pages: 5

UNITED STATES TAX COURT WASHINGTON, DC 20217 Petitioners CORY JOSEPH & MARTHA ERIN HOEPPNER, ) ) ) ) ) ) ) ) ) COMMISSIONER OF INTERNAL REVENUE, Respondent v. Docket No. 26589-11S. O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith the to petitioners and to respondent a copy of transcript of Holmes at St. Paul, Minnesota, containing his oral fact and opinion rendered at was heard. in the above case before Judge Mark V. findings of the trial session at which the case the pages of the trial In accordance with the oral findings of fact and opinion, a decision for Respondent will be entered. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. June 11, 2013 CERVED LdON. 1 3 20d Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Bench Opinion by Judge Mark V. Holmes May 6, 2013 Cory Joseph & Martha Erin Hoeppner v. Commissioner Docket No. 26589-11S THE COURT: IN THE CASE OF CORY JOSEPH AND MARTHA ERIN HOEPPNER V. COMMISSIONER, DOCKET NUMBER 26589-11S, THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION, AND THE FOLLOWING REPRESENTS ITS ORAL FINDINGS OF FACT AND OPINION. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986 and Rule 152 of the Tax Court's Rules of Practice and Procedure. Mr. and Mrs. Hoeppner are Minnesota residents, and this case concerns their 2010 tax year. They admirably reached a stipulation before trial, and Mr. Hoeppner gave brief testimony, all of which was entirely credible. I find him to be completely truthful. The stipulation now constitutes the record in the case. This case is all about the adoption of their little girl, now a toddler, if I'm doing the 23 math right, who was born in Florida and adopted by 24 them from an agency -- or through an agency in 25 Hollywood, Florida. They agreed, when they moved to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 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 adopt her, that the finalization of the adoption would be in Florida and according to Florida law. They actually filed a petition for adoption in Florida, and it was clear to the Judge in Florida that they desired to adopt their minor child, both because they loved the child and desired to raise the child as their own, that they desired to provide for her physical, mental and spiritual well-being and upbringing, and that it would be in the best interest of her to be adopted by them. All this seems entirely true, and I believe Mr. Hoeppner when he says he has two other children that he got as well and that he and his wife are raising as their own. Unfortunately, again, and I believe entirely because of the holiday scheduling and backups in courts, the order for this adoption did not become final until the Florida Judge signed it and it was entered into the records of the Broward County Circuit Court down in Florida. So with those really undisputed facts, I have to apply the tax law as it's written. In section 36C of the Internal Revenue Code, as it applied to the 2010 and 2011 tax years, it says, "In the case of an individual, there shall be allowed, as a credit against the tax imposed by 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 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 this Chapter, the amount of the qualified adoption expenses paid or incurred by the taxpayer. The credit under paragraph 1 with respect to any expense shall be allowed in the case of any expense paid or incurred before the taxable year in which such adoption becomes final for the taxable year following the taxable year during which such expenses paid or incurred." This is the situation in which the Hoeppners unfortunately find themselves. They had a lot of up-front expenses in adopting their daughter that they actually paid out in 2010, and I note here that the government doesn't dispute that they paid these expenses and that they were a very considerable amount, exceeding by an order of magnitude the credit that's available to them in 2011. Unfortunately, the rule for parents in this situation is that until the adoption becomes final, those expenses don't generate a credit. Mr. Hoeppner is, again, completely right that this is contrary to the usual pattern in American tax law where you take your deductions in the year you actually pay them out if you're an individual. But for whatever reason, Congress decided to go with a more formal route here, and rather than allow people the deductions or credit 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 in the year in which they expended the money, Congress decided to give them only in the year in 3 which the adoption becomes final. This benefits 4 5 6 7 8 9 10 11 12 13 14 15 16 17 people, of course, whose income goes down in the next year or that remains steady in the next year. In the case of the Hoeppners, in this sense, unfortunately, their income went up and they were no longer eligible for their credit which they would have been entitled to if the Florida Judge had just signed the thing before taking his Christmas break. Unfortunately, in this particular area of tax law, the rules are very formal; it is form over substance in this particular area, so I have to rule against the Hoeppners, and in this case, I reluctantly do so. So for the tax year 2010, I find that there is a deficiency owed of $13,117. This concludes the 18 Court's Oral Finding of Fact and Opinion in this 19 20 21 22 23 24 25 case. Thank you for your adoption, Mr. Hoeppner. I hope you and your wife raise your family well, but the law is what it is. THE WITNESS: Yep. (Whereupon, at 12:07 p.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com