TAX COURT OPINION

Case: Saul Hernandez Ramos
Docket Number: 25320-09S
Judge: Colvin
Opinion Type: bench
Filed: 11/08/2010
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 SAUL HERNANDEZ RAMOS, Petitioner; v. - Docket No. 25320-09S COMMISSIONER OF INTERNAL REVENUE Respondent O R D E R P rsuant to Rule 152 (b) , Tax Court Rules of Practice and Proced ire, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of transcript of the trial in the above case before Judge David Gustafaon at Philadelphia, Pennsylvania, on October 20, 2010, containing his oral -findings of fact and opinion rendered at conclusion of the pages of the trial. the the Ib accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. November 8, 2010 RVED NOV 1 0 2018 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bench Opinion by Judge David Gustafson Ramos v. Commissioner, No. 25320-09S. r The Court has decided to render oral Findings of 3 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 on as precedent in any other case. 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. By a statutory notice of deficiency dated July 20, 2009 [Ex. 2-J] , the IRS determined a deficiency in the Federal income tax of petitioner Saul Hernandez Ramos for the year 2008, in the amount of $6 , 8 55 . The is sues in dispute are Mr . Ramos ' s entitlement to: (1) dependency 7exemptions for his brother Noel, his sister Elizabeth, and Elizabeth's young daughter whom we refer to here by her initials J.H. to protect -her privacy; (2) a child tax credit and additional credit f or J. H . ; (3) head-of -household filing status; and (4) an earned income tax credit. For the reasons explained hereafter, we will hold against Mr. Ramos on some issues and in his favor on Heritage Reporting Corporation (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 4 others. This case was tried in Philadelphia, Pennsylvania, on October 18, 2010. Mr. Ramos was the only witness. The parties' Stipulation of Facts, with Exhibits 1-J through 4-J was admitted into evidence, as was Mr. Ramos's additional Exhibit 5-P. We find the following facts: Findings of Fact At the time he filed his petition, Mr. Ramos resided in New Jersey. [Stip. 1.] Mr. Ramos is from Puerto Rico. He moved to Camden, New Jersey, in 2006. He got a job that involved loading metal drums onto trucks. Shortly after his arrival he began renting a house on 3rd Street in Camden that was managed by Mr. Fernando de Jesus. He paid $650 per month for rent and utilities (including electric, gas, water, and trash removal), but sometimes his landlord excused part of the rent in return for Mr. Ramos's performing repair and maintenance work on the house. (It is unclear whether he paid $650 monthly for the entire time he lived in that house, or whether instead that was a peak amount incurred only when his relatives also lived there.) Sometime in 2007, relatives of Mr. Ramos left Heritage Reporting Corporation (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 5 Puerto Rico and moved to New Jersey to live with him-- Mr. Ramos's sister Elizabeth and her daughter J.H. (the t-wo of whom shared one bedroom), and Mr. Ramos's brother"Noel, Noel's girlfriend Beatrice Soto, and Beatrice Soto's minor son whose initials were M.S. (the three of whom shared another bedroom) . M.S. was not the son of Noel, but rather was the son of a man unrelated to Mr. Ramos. The 3rd Street house was a four bedroom house, but it appears that Mr. Ramos (and later his relatives) were not entitled to use the fourth bedroom. These five people lived with Mr. Ramos in the 3rd Street house for the remainder of 2007 and for the first 10 months of 2008, until they lef t in l\iovember 20 08 . Mr . Ramos was employed throughout the time his relatives lived with him in the 3rd Street house. Thirteen-year-old J.H. did not earn any income, but Mr. Ramos testified that other money came to the household, - in amounts that he did not know and that we cannot determine (that is, amounts that Mr. Ramos did not prove ) , from J. H . ' s f ather . We cannot de termine the amounts, if any, of income earned or other mon~ey received by the other three adults--Elizabeth, Noel, and Beatrice . The record does not, show whether Elizabeth filed a return for 2008; but the parties Heritage Reporting Corppration (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 6 stipulate that no one other than Mr. Ramos claimed J.H. as a dependent in 2008. [Stip. 8.] Mr. Ramos timely filed his 2008 Federal income tax return, reporting adjusted gross income (AGI) of $19,395. [Stip. 2.] On that i-eturn,. he claimed J.H. and M.S. as dependents, claimed child tax credit, claimed head-of household status, and claimed earned income tax credit, calculated on.the basis of J.H. and M.S. as his dependents. [Stip. 3; Ex. 1-J.] The IRS disallowed Mr. ;Ramos's claim of head-of- household status, dependency exemptions for J.H. and M.S., child t;ax credit, and earned income tax credit. It determined a tax deficiency of $6,855. [Ex. 2-J.] Mr. Ramos filed a timely petition in this Court challenging those disallowances . He eventually conceded that he is not entitled to a dependency êxemption for M.S. However, he amended his petition to claim that he is entitled to dependency exemptions for his brother Noel and his sister Elizabeth. Opinion The IR$' s determination is presumed correct, and generally the taxpayer bears the burden to prove his entitlement to the exemptions and credits he claimed. ule 142 (a) ; Welch v. Helverin<n 290 U.S. 111, 115 (1933) . Mr. Ramos has not contended that the burden Heritage Reporting Corporation (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 7 of proof has shifted under section 7491(a), and the record does not suggest any basis for such a contention. We therefore analyze the four issues in this case with the burden of proof on 102. Ramos. 1. Dependency exemptions. Section 151(a) of the Internal Revenue Code provides for a deduction for certain exemption amounts. Section 151(c) allows an exemption for "each individual who is a dependent (as defined in section 152)". Section 152(a) provides that "dependent" means either "a qualifying child" or "a qualifying relative". It appears that the parties, in their pretrial memoranda, may have consulted the statutes as currently in effect. We will look to the law as in effect in 2008. a. Elizabeth and Noel as "qualifying relatives". Mr. Ramos contends that his sister Elizabeth and his brother Noel are both "qualifying relative[s]". That term is defined in section 152(d) (1) by four characteristics, two of which disqualify Elizabeth and Noel here. Subparagraphs ()B) and (C) provide that the qualifying relative is an individual-- (B) whose gross income for the calendar year in which such taxable year begins is less than the exemption amount (as defined Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 l'7/ 18 19 20 21 22 23 24 25 8 in section 151(d)), [and] (C) with respect to whom the taxpayer provides over one-half of the individual's support for the calendar year in which such taxable year begins * * *. The "exemption amount" of section 151(d) is no greater than $2,000. Mr. Ramos did not prove that neither Elizabeth nor Noel had income of more than that amount; and he did not prove that, in the ten months they lived with him-in 2008, he (Mr. Ramos, rather than they or someone else) provided more than half of their annual support . Mr . Ramos' s testimony that they never left the house, never applied for or had any jobs, and never applied for or receivedepublic assistande of any kind (other than food from a nearby church) was not corroborated by any other evidence, whether documentary or testimonial, notwithstanding the relaxed evidentiary standards of Tax Court Rule 174(b).: The'amount of other admitted support coming into the household was not quantified. We cannot hold that Mr. Ramos carried his burden to prove that Elizabeth and Noel were qualifying relatives. b. J.H. as a "qualifying child". Mr. Ramos contends that J.H., the daughter of his sister Elizabeth (i.e. Mr. Ramos's niece) is a Heritage Reporting Corporation (202) 628-4888 1 2 3 4 $ 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 9 "qualifying child". That term is defined generally in section 152(c) (1) by four characteristics, all of which J.H. meets: She was a descendant of his sister (i.e., his niece); she lived with Mr. Ramos at the 3rd Street house for more than- one-half of 2008; she was 13 years old; and--as petitioner's counsel helpfully stressed in his closing argument--she did not provide over one-half of her own support. She was therefore Mr. Ramos's "qualifying child". However, respondent contends in his pretrial memorandum (at 4) that J.H. "must meet the special test for a qualifying child of more than one person. I.R.C. § 152(c)." Respondent does not quote this "special test"; but because the same paragraph of his memorandum refers to "five requirements" (as in current law) rather than four requirements (as :ba 2008), we infer that respondent has in mind the special test of current section 152(c) (4) ("Special rule relating to 2 or more who can claim the same qualifying child"). Current section 152(c) (4) might indeed have affected the analysis in a manner adverse to Mr. Ramos; but the amendment of section 152(c) (4) that respondent seems to presuppose was effective for years beginning after December 31, 2008. (See Fostering Connections to Success and Increasing Heritage Reporting Corporation (202) 628-4888 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Adoptions Act of 2008, P.L. 110-351, sec. 501(c) (2) (B) (i) (ii) ) . As in effect in 2008, sectión 152 (c) (4) simply provided: (4) Special rule relating to 2 or more claiming 10 qualifying child. (A) In general. -- * * * if (but for this paragraph) an individual may be and is claimed as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is-- (i) a parent of the individual, or (ii) if clause (i) does not apply, the taxpayer with the highest adjusted gross income for such taxable year. It appears that-J.H. could have béen claimed as a qualifying child for 2008 by Elizabeth, but -in fact nå parent claimed J.H. as a dependent in 2008 (see Stip. 8) . Sect-ion 152(c) (4) is therefore not applicable to Mr . Ramos' s claim of J. H . as a "quali fying child" . We therefore hold that Mr. Ramos is entitled to claim J.H.. as his "qualifying child" dependent 2. Child tax credit. Section 24 provides for a tax credit for "each qualifying child of the taxpayer"; and the statute looks to that same Heritage Reporting Corporation (202) 628-4888 11 definition. That is, section 24 (c) (1) provides that " [t]he term -'qualifying child' means a qualifying child of the taxpayer (as def ined in section 152 (c) ) " . Thus, the child tax credit depends on a child's qualifying under section 152 (c) . Since we find and hold that J.H. was the niece and "quálifying child" of Mr. Ramos, we hold that he is likewise entitled to the child credit and additional credit . 3 . Head-of -household status . Section 1 of the Code provides the various rates at which income tax is imposed, with more favorable rates for heads of households in section 1(b) . The Code -also provides a larger standard deduction for heads of households in section 63(c) (2) (b) . Sectioh 2(b) defines head of household; and as that definition is relevant here, it includes the requirement that the taxpayer "maintains as his home a household which constitutes for more than one half of such taxable year the principal place of abode, as a member of such household, of-- (i) a qualifying child of the individual (as defined in i 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 211 section 152 (c) * * *) * * * or (ii) any other person 22 23 24 25 who is a dependent of the taxpayer, if the taxpayer is entitled to a deduction for the taxable year for such person under section 151". This was the only qualification that respondent disputedf and since J.H. Heritage Reporting Corporation a (202) 628-4888 12 was Mr. Ramos's qualifying child, he is entitled to head-of-household status. 4. Earned income tax credit. Section 32(a) (1) allows an eligible individual an earned income tax credit (EITC) against that individual's income tax liability. The amount of the credit is determined according to percentages and limitations that vary, depending on whether the taxpayer has zero, one, or two "qualifying child[ren] " . Sec . 32 (b) . Under section 32(c) (3)-(A), a qualifying child is defined the same as a quélifying child in section 152(c). Respondent contends (at 4) that Mr. -Ramos must be denied the EITC "because he has not established [1] a [qualifying] relationship with and [2] support of the child claimed on his return. " We disagree. First, we have held that .J.H. .was the niece of Mr. Ramos, i.e., the descendant of his sister, which is a qualifying relationship. Second, the only support requirement in section 152(c) as.in effect in 2008, which is incorporated into the EITC allowance in section 32 (c) (3) (A) , is the -requirement that the child 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22e herself not provide more than half of her support, a 23 24 25 requirement that J.H. happens to meet but that is expressly not applicable in section 32(c) (3) (A) . We therefore see no basis for denying Mr. Ramos the EITC. Heritage Reporting Corporation (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 13 However, we have found that Mr. Ramos had only one qualifying child--his niece, J.H.- --whereas Mr. Ramos claimed a higher amount of credit based on claiming two qualifying children (J.H. and M.S.) . We hold, however, that he did not prove that M.S. is a qualifying child. The IRS disallowed the EITC in its entirety, and we uphold that determination in part, to the extent of credit attributable to the alleged second child. We hold that he is entitled to the EITC as computed by reference to one qualifying child. Mr. Ramos's AGI of $19,395 in 2008 entitled him to EITC of $2, 336 . See Instructions for IRS 2008 Form 1040A, p. 47. Decision will be entered under Rule 155. This concludes the Court' s oral Findings of Fact and Opinion in this case. (Whereupon, at 10:08 a.m., the bench opinion in the above-entitled matter was concluded.) // / // // // // // Heritage Reporting Corporation (202) 628-4888