TAX COURT OPINION

Case: Carol J. McCracken
Docket Number: 7057-14S
Judge: Buch
Opinion Type: bench
Filed: 07/10/2015
Pages: 9

SYM UNITED STATES TAX COURT WASHINGTON, DC 20217 CAROL J. MCCRACKEN, Petitioner, v. ) ) ) ) Docket No. 7057-14S. 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 with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Billings, Montana, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. July 10, 2015 SERVED Jul 10 2015 Capital Reporting Company 3 1 2 Bench Opinion by Judge Ronald L. Buch June 1, 2015 3 Carol J. McCracken v. Commissioner 4 5 Docket No. 7057-14S THE COURT: THE FOLLOWING REPRESENTS THE 6 ' COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL 7 8 9 10 11 12 13 14 FINDINGS OF FACT AND OPINION MAY NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. The opinion is in conformity with the Internal Revenue Code Section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue, and Rule references are to the Tax 15 Court Rules of Practice and Procedure. 16 17 18 19 20 21 22 23 24 25 This case was heard pursuant to Section 7463. Under Section 7463(b), the decision to be entered in the case is not reviewable by any other court, and this opinion may not be treated as precedent for any other case. BACKGROUND Ms. McCracken should be commended for all that she has done for her great-niece, providing emotional support, looking out for her interests, and providing a home for part of 2011. The issue in this 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 case, however, is limited to the question of whether Ms. McCracken's great-niece is a "qualifying child" or "qualifying relative" under the Internal Revenue Code. We conclude that she is not. In 2010, the great-niece was enduring family difficulties. As a result, she moved in with her grandfather. In April 2011, the great-niece 8 moved in with Ms. McCracken. Ms. McCracken provided 9 10 11 12 13 14 15 16 support beyond merely putting a roof over her great- niece's head. She made sure that 4d a succeeded in school and got proper medical care. Simply stated, and in the broadest sense, Ms. McCracken cared for her. In August 2011, the great-niece's biological father was awarded custody. During 2011, the great-niece lived with her grandfather for three 17 months, her biological father for a little over four 18 months, and Ms. McCracken for over four months. 19 Although the great-niece lived with Ms. McCracken for 20 more days than anyone else during 2011, she did not 21 22 23 24 25 live with any one person for at least half of the year during 2011. The great-niece received financial support from various sources. The record does not establish how much financial support the child received from 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 her grandfather or father, other than a roof over her head and food on the table. Ms. McCracken provided a roof and food and other amenities (plus emotional support). The great-niece also received both 5 Medicaid health insurance and benefits, and while in 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Ms. McCracken's care, monthly payments through the Temporary Assistance for Needy Families program from the State of Montana. Ms. McCracken prepared her own tax return, researching whether she could treat the child as a dependent and receive the various tax benefits that often accompany a dependent. She timely filed her 2011 federal income tax return and, as is relevant here, claimed head of household filing status, a dependency exemption, the child tax credit, and the retirement savings credit. Respondent examined Ms. McCracken's 2011 return and disallowed the head of household filing status, dependency exemption deduction, and the child tax credit, and made a computational adjustment to Ms. McCracken's savings credit. On January 6, 2014, respondent issued a statutory notice of deficiency determining a $2,191 increase in Ms. McCracken's tax liability as a result of the disallowance, and a $438.20 penalty under Section 6662(a). At trial, 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 1 2 3 4 respondent conceded the penalty. Ms. McCracken resided in Montana when she timely filed a petition challenging respondent's determinations. Trial was held on June 1, 2015, in 5 Billings, Montana. 6 7 8 9 DISCUSSION As a general matter, the Commissioner's determinations in the notice of deficiency are presumed correct, and the taxpayer bears the burden 10 of proving an error. Rule 142(a); Welch v. 11 Helvering, 290 U.S. 111, 115 (1933). Ms. McCracken 12 13 14 did not argue that the burden should shift to respondent under Section 7491(a), and the record does not establish that the requirements of 7491(a) are 15 met. Therefore, Ms. McCracken bears the burden of 16 17 18 19 20 21 22 23 24 25 proof. Dependency Exemption The Code allows a deduction for dependency exemptions. Sec. 151(c). To be a dependent, a person must be either a qualifying child or a qualifying relative. Sec. 152(a). Because these are separate tests, we will address them in turn. For a child to be a "qualifying child", five requirements must be met. Sec. 152(c). One of those requirements is that the child must live with 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 1 2 the taxpayer for more than one-half of the taxable year. Sec. 152(c)(1)(B). The child did not live 3 with Ms. McCracken for one half of the year, so this 7 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 test is not met. Ms. McCracken argues that the tie-breaker 63 cat can<d rule in Djellà11 v. Commissioner, should apply here ALS because her great-niece did not live with any one person for more than one-half of the year. T.C. Memo 2009-297. The rule applied in that case only applies in the case of a dispute between a custodial and noncustodial parent under the special rules in Section 152(e), and thus that rule does not apply here. Accordingly, Ms. McCracken's great-niece is not her qualifying child. For a child to be a "qualifying relative", four requirements must be met. Sec. 152(d). One of those requirements is that the taxpayer provide more than one-half of the relative's support. Sec. 152(d)(1)(C). When determining whether the individual received more than one-half of their support from the taxpayer, we compare the amount of support received from the taxpayer to the entire amount of support the individual received for the calendar year, including self-provided support. Treas. Reg. 1.152-1(a)(2)(i). Support includes food, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 shelter, clothing, medical and dental care, education, and the like. Support also includes any social security payments the individual receives, as 4 well as state social services payments, which are 5 treated as self-support. Treas. Reg. 1.152- 6 1(a)(2)(ii); Rev. Rul. 74-153, 1974-1 C.B. 20; Rev. 7 Rul. 57-344, 1957-2 C.B. 112; see also Lutter v. 8 9 10 11 12 13 14 15 16 Commissioner, 61 T.C. 685 (1974), aff'd per curiam, 514 F.2d 1095 (7th Cir. 1975), cert. denied 423 U.S. 931 (1975); Leggett v. Commissioner, T.C. Memo 1976- 7. So, for example, the payments received from the State of Montana from the Temporary Assistance for Needy Families program are considered support that her great-niece provided for herself. Support does not include medical benefits paid on behalf of the individual by private insurance, Medicare, or state 17 Medicaid. Rev. Rul. 79-173, 1979-1 C.B. 86; Archer 18 19 20 21 22 23 24 25 v. Commissioner, 73 T.C. 963 (1980), and Turecamo v. Commissioner, 554 F.2d 564 (2d Cir. 1977). Ms. McCracken did not prove that she provided more than half of the support of her great- niece. Ms. McCracken noted that it would be hard to prove the amount of suppor.t provided by others, but she does not cross the 50% threshold even under her own estimates. Ms. McCracken estimated her financial 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 support of her great-niece as $5,021. She then provided the Court with an estimate taken from the Internet showing annual support costs to be $12,332. 4 Setting aside that these numbers are estimates, both 5 6 7 8 9 as to the financial support Ms. McCracken provided and the aggregate support her great-niece received, even under these estimates, Ms. McCracken provided less than 50%. Accordingly, this test is not met, and Ms. McCracken's great-niece is not a qualifying 10 relative. 11 Child Tax Credit 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Section 24 allows a credit against income tax for any qualifying child for whom the taxpayer was allowed a dependency exemption deduction under Section 151. Because the great-niece is not a qualifying child, Ms. McCracken is not eligible for this credit. Head of Household In this case, whether Ms. McCracken may claim head of household status turns on whether her great-niece is either a qualifying child under Section 152(c) or a qualifying relative under Section 152(d). Sec. 2(b). Because we have determined that the great-niece is neither a qualifying child nor a qualifying relative, Ms. McCracken is not a head of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 household for 2011. 2 Conclusion 3 4 5 6 7 8 9 We commend Ms. McCracken for providing both financial and emotional support for her great-niece; however, the tax law as written does not allow her the deductions and credits she claimed. The Court is bound by the laws as written and does not have general equitable powers. (Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Hays Corp. v. Commissioner, 40 10 T.C. 436, 442-443 (1963), aff'd 331 F.2d 422 (7th 11 Cir. 1964 ) . Respondent conceded the penalties at trial. The Court will enter decision for the respondent. (Whereupon, at 1:11 p.m., the above- entitled matter was concluded.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com