TAX COURT OPINION

Case: Mamoon Majdalawi
Docket Number: 18013-16S
Judge: Leyden
Opinion Type: bench
Filed: 06/26/2017
Pages: 14

ALS UNITED STATES TAX COURT WASHINGTON, DC 20217 MAMOON MAJDALAWI, Petitioner, v. ) ) ) ) Docket No. 18013-16S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) 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 Special Trial Judge Diana L. Leyden at Miami, Florida, on May 15, 2017, containing her oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Diana L. Leyden Special Trial Judge Dated: Washington, D.C. June 26, 2017 SERVED Jun 26 2017 Capital Reporting Company 3 Bench Opinion by Judge Diana L. Leyden May 16, 2017 Mamoon Majdalawi v. Commissioner Docket No. 18013-16S I. 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. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. See Rule 152(c), Tax ourt Rules of Practice and Procedure. 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 Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, all section references are to the Internal Revenue Code, as amended and in effect for the relevant times, and 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 1 all Rule references are to the Tax Court Rules of 4 2 3 4 5 6 Practice and Procedure. III. The trial of this case was conducted on May 16, 2017, in Miami, Florida. Petitioner appeared on his own behalf. Kimberly Daigle appeared on behalf ' 7 of Ñespondent. 8 , 9 IV. In a tice of eficiency dated May 18, 10 2016, the Internal Revenue Service (IRS) determined a dl deficiency ingfetitioner's 2014 Federal income tax of $3,749. 12 13 The issues for decision are (1) whether 14 Petitioner is entitled to a dependency exemption 15 16 17 18 1-9 20 21 22 23 deduction for his daughter; (2) whether petitioner is entitled to claim the filing status of head of household; (3) whether fyetitioner is entitled to claim the earned income credit with a qualifying child; and (4) whether etitioner is entitled to claim the American Opportunity Credit. Respondent conceded that if p#etitioner is not entitled to claim the filing status of head of household, his filing status should be single, not 24 married filing separately as indicated in the Kotice / 25 of geficiency. Respondent also conceded that ip 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company etitioner is not entitled to claim the earned income credit as an individual who has a qualifying child, he is entitled to claim the earned income credit as an individual who does not have a qualifying child 5 under section 32(c)(1)(ii). V. Some of the facts are stipulated and are so found. The parties' Stipulation of Facts was admitted into evidence along with the attached exhibits. The Stipulation of Facts and the attached exhibits are incorporated herein by this reference. Petitioner resided in Florida when he timely filed his petition. Petitioner was married to Abeer Khalfa 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Majdalawi in 1991, but the two divorced on December 16 17 18 19 20 21 22 23 24 25 19 , 2014. Petitioner, Ms. Majdalawi, and their three children, including his daughter, Razan, resided together for all of 2014. Razan was age 19 as of December 31, 2014. During 2014p/etitioner was self-employed as a handyman. Ms. Majdalawi was employed by the Palm Beach County School District in 2014. Razan was a full-time university student during 2014 but also worked and earned wages totaling $11,265 during that year. Petitioner applied for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company financial aid for Razan ß8r Razarn could pay for her 90 6 education. Petitioner timely filed his 2014 tax return. On his tax return {#etitioner claimed the filing status of head of household, a dependency exemption deduction for Razan, the earned income credit computed by treating Razan as a qualifying child, and the American Opportunity Credit computed by treating Razan as a qualifying child. Petitioner reported adjusted gross income of $9,014 for 2014. However, Ms. Majdalawi also claimed a dependency exemption deduction for Razan on her 2014 tax return. On her tax return, Ms. Majdalawi reported adjusted gross income of $40,869 for 2014. VI. We now turn to the substantive law. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Generally, the Commissioner' s determination of a 18 19 20 21 22 23 24 25 deficiency is presumed correct, and the taxpayer bears the burden of proving it incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section 7491(a), the burden of proof may shift to the Commissioner if the taxpayer produceg( credible evidence with respect to any relevant factual issues and meets other requirements. Petitioner does not argue, and the evidence does not establish, that the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 burden of proof shifts to Ñespondent under section 7491(a) as to any issue of fact. The burden of proof remains with etitioner. A. Dependency Exemption Deduction Because of its impact on the other three issues, we begin our discussion withpp'etitioner' s entitlement to the dependency exemption deduction claimed for his daughter. Generally, a taxpayer is entitled to an exemption deduction for each individual who is a dependent of the taxpayer for the taxable year. Sec. 151(a), (c). In order to claim a dependent as a qualifying child, as defined in section 152(c), or a qualifying relative, as defined in section 152(d), an individual must first meet certain requirements. Section 152,®(1) defines a qualifying child as a child who: (1) bears a specified relationship to the taxpayer, (2) lived with the taxpayer for more than one-half of the tax year at issue, (3) has not attained the age of 19 or i is a student who has not attained the age of 24, and (4) did not provide more than one-half of his or her own support during the year. These requirements can be loosely stated as the relationship test, the residency test, the age 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 8 test, and the support test. A daughter of the taxpayer satisfies the relationship test. Sec. 152(c)(2). The requirements are in the conjunctive and all must be satisfied. Respondent does not dispute that as to Razan etitioner meets the relationship test, residency test, age test and support test. f espondent contends that because Razan was the Instead, qualifying child of both pétitioner and Ms. Majdalawi for 2014, the parent with the higher adjusted gross income, Ms. Majdalawi, is entitled to claim the dependency exemption deduction for Razan. The Court agrees with Kespondent. Section 152(c)(4) provides special rules when two or more taxpayers can claim the same qualifying child. These special rules are sometimes referred to as the "tie-breaker" rules. As relevant in this case, section 152 (c) (4) (B) provides when two parents do not file a joint tax return together; but both individually meet the requirements of section 152(c)(1), the child is treated as the qualifying child of*, (1) the parent with whom the child resided 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 3 for the longest period of Y time during the tax year of 24 25 (2) if the child resides with both parents for the same amount of time during the year, the parent with 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 the highest adjusted gross income. Both etitioner and Ms. Majdalawi satisfy the qualifying child test as to Razan because she is the child of both parents, lived with both parents for more than one-half of 2014, was a full-time student and under the age of 24 at the end of 2014, and did not provide more than one-half of her own support during 2014. Becauseggetitioner and Ms. 9 Majdalawi could both claim Razan as their qualifying 10 11 12 13 14 15 child and indeed claimed her as a depende# on their separate tax returns, the Court must apply the tie- breaker rules to determine which parent is entitled to claim the dependency exemption deduction as to Razan. Razan lived with both Petitioner and Ms. 16 Majdalawi the same length of time. Therefore, the 17 Court must look to the second tie-breaker rule to 18 19 20 21 22 23 24 25 determine ifpfetitioner is entitled to claim Razan as a dependent for 2014. Ms. Majdalawi's adjusted gross income of $40,869 was higher thangFetitioner's adjusted gross income of $9,014 for 2014. Therefore, Razan is a qualifying child of Ms. Majdalawi for 2014 under section 152(c) (4) (B) (ii). Notwithstanding section 152(c)(4) and as relevant here, section 152(e) has a special rule for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 divorced parents to determine which parent is entitled to a dependency exemption. Section 152 provides that the custodial parent is entitled to the dependency exemption deduction unless the custodial parent releases the claim to the exemption for that year to the non-custodial parent. Sec. 152(e)(1) and (2). The custodial parent is the parent who has custody of the child for the greater portion of the calendar year. Sec. 152(e)(4)(A). The non-custodial parent is the parent who is not the custodial parent. Sec. 152(e)(4) (B). If a child is in the custody of both parent for more than one-half of the year and resides with each parent an equal number of nights during the year, the custodial parent is the parent 15 with the higher adjusted gross income for the year. 16 17 18 19 20 Treas. Re . 1.152-4(d)(4), Income Tax Regs. In order for the non-custodial parent to claim the exemption the custodial parent must sign a written declaration that the custodial parent will not claim the dependent for that taxable year and that declaration 21 must be attached to the non-custodial parent's tax 22 return. Sec. 152(e)(2). The required declaration 23 must be made either on a completed Form 8332 or on a 24 statement conforming to the substance of Form 8332. 25 Miller v. Commissioner, 114 T.C. 184, 189 (2000). 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Under the special rule of section 152(e) for divorced parents, Ms. Majdalawi was the custodial parent in 2014 because she had the higher adjusted gross income and Razan resided with her for all of 2014. Petitioner conceded that Ms. Majdalawi did not sign a written declaration allowing hi to claim Razan as his qualifying child for 2014. Therefore, Razan is not etitioner's qualifying child under the special rule of section 152(e) for divorced parents. If a child is not a qualifying child, then a taxpayer may be entitled to claim a dependency exemption deduction on the basis that the child is a qualifying relative. However, if the child is a qualifying child of another taxpayer, then a taxpayer may not claim the child as a qualifying relative even is all the other requirements for being a qualifying relative are met. Sec. 152(d)(1)(D). Because Razan iß a qualifying child of Ms. Majdalawi, she cannot be claimed as a qualifying relative dependent by 20 Fetitioner. 21 22 23 24 25 Accordingly, the Court concludes that petitioner is not entitled to a dependent exemption deduction for Razan in 2014. Respondent's disallowance of that dependency exemption deduction is sustained. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 B. Head of Household Filing Status In order to qualify for head of household filing status under section 2(b), a taxpayer must 4 maintain a home that is the principal place of abode 5 for a qualifying child or for a mother or father. 6 Petitioner has not asserted that he has maintained a 7 home that is the principal place of abode for his 8 mother or father. Petitioner testified that he paid 9 for all the expenses to maintain the home he, Ms. 10 Majdalawi, and their three children lived in during 11 12 13 14 15 16 17 18 19 20 21 2014. The Court does not need to determine whether etitioner maintained the home in 2014 because the court has determined that Razan /s not his qualifying child. Therefore, fetitioner may not claim head of household filing status. Petitioner and Ms. Majdalawi were divorced as of December 31, 2014. Respondent has conceded that if petitioner cannot claim the filing status of head of household, he is entitled to the filing status of single rather than married filing separately, as was determined by the IRS in the 22 Notice of ,Beficiency. The Court leaves this to the 23 24 25 Rule 155 computation. C. Earned Income Credit Section 32 permits taxpayers with low 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 /1 earned income who qualiffee as an eligible 2 3 4 5 individual" to claim the earned income credit. An eligible individual is (a) a person who has a "qualifying child" or (b) a person between the ages of 25 and 65 who resided in the United States for 6 more than one-half of the taxable year and who was 7 8 9 10 11 12 not a dependent on another taxpayer's tax return. Sec. 32(c)(1)(A). The term "qualifying child" means a qualifying child of the taxpayer as defined in section 152(c). Sec. 32(c)(3). As previously discussed, the Court concluded that Razan was the qualifying child of Ms. . 13 Majdalawi for 2014 under section 152(c). 14 Accordingly, the Court sustains (espondent's 15 16 17 determination disallowing etitioner the earned income credit with respect to Razan for 2104. However, -Respondent conceded that f 18 Petitioner is entitled to the earned income credit as 19 20 21 22 23 24 25 an eligible individual under section 32(c) (1) (A) (ii) based on his earned income for 2014. The Court leaves this to the Rule 155 computation. D. American Opportunity Credit The Code allows for a variety of education credits, including the American Opportunity Credit (AOC), a modified version of the Hope Scholarship 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 Credit that was in effect for the tax year 2014. See 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sec. 25AÇy). The AOC provides for a credit against tax equal to 100 percent of qualified tuition and related expenses paid by a taxpayer during the taxable year up to $2,000, plus 25 percent of such expenses paid that exceed $2,000 but do not exceed $4,000, allowing for a maximum credit of $2,500. Sec. 25A(i)(1). Up to 40 percent of the AOC may be refundable. Sec. 25A(i) (5). The term "qualified tuition and related expenses" means tuition and fees required for the enrollment or attendance of "any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 152." Sec. 25A(f) (1) (A) (iii). As previously discussed, the Court 16 concluded that Razan was the qualifying child of Ms. 17 Majdalawi for 2014 under section 152(c). 18 Accordingly, becausegFetitioner is not allowed a 19 20 21 22 23 24 25 dependency exemption deduction for Razan, the Court sustains Respondent's determination disallowing etitioner the AOC with respect to Razan for 2014. VII. In order to give effect to our disposition of the disputed issues, decision will be entered under Rule 155. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company VIII. 15 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 3:04 p.m., the above- entitled matter was concluded.) 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.Capita1ReportingCompany.com