TAX COURT OPINION

Case: Keren Soto Madrid
Docket Number: 1947-17
Judge: Nega
Opinion Type: bench
Filed: 03/09/2018
Pages: 9

CT UNITED STATES TAX COURT WASHINGTON, DC 20217 KEREN SOTO MADRID, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 1947-17. ) ) ) ) ORDER Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge Joseph W. Nega at Los Angeles, California, on January 31, 2018, 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 for respondent. (Signed) Joseph W. Nega Judge Dated: Washington, D.C. March 9, 2018 SERVED Mar 12 2018 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Joseph W. Nega January 31, 2018 Keren Soto Madrid'v. Commissioner of Internal Revenue Docket No. 1 - The Court has decided to render oral Findings of Fact and Opinion in this case. The following represents the Court's oral Findings of Fact and Opinion. This bench opinion is made pursuant to section 7459(b) and Rule 152, and shall not be relied on as precedent in any other case. 10 Unless otherwise indicated, all section references are to 11 12 the Internal Revenue Code (Code) in effect for the year at issue, and all Rule references are to the Tax Court Rules 13 of Practice and Procedure. 14 Keren Soto Madrid appeared pro se. Casinova O. 15 Henderson appeared on behalf of respondent. 16 17 By a notice of deficiency dated November 14, 2016, respondent determined a deficiency in petitioner's 18 Federal income taxes for tax year 2015 (year at issue). 19 The issues for decision are whether petitioner is entitled 20 to: (1) the earned income tax credit; (2) two dependency 21 22 23 24 exemptions; and (3) a child tax credit for the year at issue. FINDINGS OF FACT Some of the facts are stipulated and are so 25 found. The stipulation of facts and the attached exhibits BEllEl 1973)406-2250|operationseescribemnet|www.escribers.net 1 2 3 are incorporated herein by this reference. This case was tried on January 29, 2018 in Los Angeles, California. At the time the petition was filed, petitioner resided in 4 California. Petitioner shared a residence with Mr. Eder 4 5 6 7 8 9 10 11 12 13 14 15 G. Sandoval, and was the custodial parent of two children: CHS and VHS. Petitioner timely filed a tax return for the year at issue. Petitioner's return included a Schedule C ("Profit or Loss from Business") stating that she operated a child care business, and reporting $15,777 of gross receipts with no associated expenses. Petitioner reported no income other than this business income, and proceeded to claim a $3,359 earned income tax credit for the year at issue. In the notice of deficiency, respondent 16 determined that petitioner had no business income. 17 Accordingly, respondent made corresponding downward 18 adjustments to petitioner's tax liabilities, disallowed 19 her claim of the additional child and earned income tax 20 21 22 23 24 credits, and "froze" petitioner's requested $2,093 refund. The frozen refund represents the deficiency in this case, as petitioner does not otherwise have any tax liability for the year at issue. At trial, petitioner testified on her own 25 behalf, but did not call any third-party witnesses. (973)406-2250|operations@erribersmetivmvi.esenbersnet 1. Petitioner testified that she earned exactly $15,777 in 5 2 3 4 5 6 7 8 9 business income for the year at issue. Petitioner described her Schedule C business as the exclusive provision of child care and housekeeping services to Ms. Ana Ovispo, by whom she was paid exactly $300 per week. We find petitioner's testimony unpersuasive, and lacking credibility. Petitioner attempted to corroborate her testimony through the use of her personal bank statements. 10 Petitioner's attempt to corroborate in this respect was 11 12 unconvincing. Petitioner was unable to identify any specific deposit reported on her bank statements that 13 matched her purported $300 weekly ,business income. 14 Petitioner similarly offered no credible explanation as to 15 why, from month to month, petitioners deposits failed to 16 17 total amounts that reflected a $300 weekly stream of income. Additionally, petitioner testified that she and 18 Mr. Sandoval regularly intermingled their funds. This 19 intermingling of funds presented an additional challenge 20 to the credibility of the d her records, as she A 21 was unable to identify or distinguish between the deposits 22 of her income, and that of Mr. Sandoval. 23 24 Petitioner testified that she earned additional income from other sources, as well, but did not attempt to 25 establish the source or amount of these claimed receipts. (973)406-2250|operationseescril:ersmet|vmtrascribers.net 6 Respondent objected to the admission of four exhibits offered by petitioner: Exhibits 4-P, 5-P, 6-P and 8-P. Respondent contends that these exhibits are inadmissible hearsay. During trial, we reserved ruling on respondent's objection. We now overrule respondent's objections, and admit into evidence Exhibits 4-P, 5-P, 6-P and 8-P. I. Burden of Proof OPINION Generally, the Commissioner's determinations set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of persuading the Court that respondent's determination is incorrect. Rule 142(a)(1); see Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions and credits are a matter of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 legislative grace, and the taxpayer bears the burden of 17 proving entitlement to any deduction or credit claimed. 18 Rule 142(a); Deputy v. du Pont, 308 U.S. 488,4 93 (1940); 19 New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 20 21 (1934). Taxpayers must satisfy the specific requirements for any deduction or credit claimed, and are required to 22 maintain records sufficient to substantiate those claims, 23 and calculate taxable income. INDOPCO, Inc. v. 24 Commissioner, 503 U.S. 79, 84 (1992); see sec. 6001; sec. 25 1.6001-1(a), (e), Income Tax Regs. (973)406-2250|operationseescribersmetlwww.esenbers.net 1 2 3 4 5 6 7 8 9 10 11 12 II. Earned Income Section 32 provides an eligible individual with an earned income credit against that individual's income tax liability. The amount of the EITC to which an eligible individual is entitled depends on the amount of his or her "earned income". Sec. 32(a)(1). The Code defines a taxpayer's earned income as the total of all A wages, salaries, tips and, as relevant here, net earnings from self-employment. Sec. 32(c)(2) (A). The entirety of petitioner's purported earned income is comprised of $15,777 of net earnings from self- A employment as a housekeeper and child care worker for Ms. 13 Ovispo. Petitioner relied heavily on her testimony and 14 bank statements to establish this specific amount of 15 income, and this income's status as "earned". Presumably 16 petitioner relied on these bank statements because she 17 would regularly deposit her business income, and that 18 19 these deposits would be readily identifiable and might at least establish a reasonable basis for determining her 20 Schedule C gross receipts for the taxable year at issue. 21 Petitioner's attempt, however, was unpersuasive. We find 22 neither petitioner's bank records, nor her explanation 23 thereof, reliable, as petitioner could not adequately 24 trace her bank statements for relevant deposits of earned 25 income, could not explain readily apparent (973)406-2250|operationsgesabers.net|www.escribers.net 8 1 2 3 4 5 6 7 8 9 inconsistencies, and was unable to distinguish her deposits from those of Mr. Sandoval. Petitioner offered no relevant books or financial information into the record that might otherwise operate as a reasonable basis for establishing her net earnings from self-employment. Under these circumstances, petitioner has failed to satisfy her burden of persuasion and we sustain respondent's determinations with respect to petitioner's Schedule C business income and her eligibility for an 10 EITC. 11 12 III. Dependency Exemption a )\Nbb Section 151(c) permits a taxpayer to claim as a 13 deduction an exemption for each dependent. Section 152(a) 14 provides that a dependent must be either a "qualifying 15 child" or a "qualifying relative" of the taxpayer. A 16 qualifying child is a child who bears a specified 17 relationship to the taxpayer (as relevant here, this 18 definition includes offspring), who lived with the 19 taxpayer for more than one-half of the taxable year at 20 issue, who did not provide. more than one-half of his or 21 her own support during the taxable year at issue, and who 22 did not file a joint return with the individual's spouse 23 under section 6013 for the taxable year beginning in the 24 calendar year in which the taxable year of the taxpayer 25 begins. Sec. 152(c)(1), (2). A qualifying child must be (973)406-2250|operations@escribers.net|www.escribers.net 9 1 2 3 4 5 6 7 8 9 either less than 19 years old, a student less than 24 years old, or "permanently. and totally disabled" (as defined in section 22(e)(3)). Sec. 152(c)(3). In light of our findings above, petitioner had no income for the year at issue and, accordingly, had no Federal income tax liability for the year at issue. Thus, it is irrelevant whether ta entitled to dependency exemptions for CHS and VHS, as such a determination has no bearing on our redetermination of 10 petitioner's tax for the year at issue. 11 IV. Child Tax Credit 12 13 14 15 Section 24(a) provides a credit with respect to each qualifying child of the taxpayer for whom the taxpayer is allowed a dependency exemption deduction. For purposes of subsection (a), section 24(c)(1) defines a 16 "qualifying child" as a "qualifying child of the taxpayer 17 18 (as defined in section 152(c)) who has not attained age 17." The child tax credit will not exceed the taxpayer's 19 regular tax liability. See sec. 26(a). 20 In light of our findings above, petitioner had 21 no income for the year at issue and, accordingly, had no 22 Federal income tax liability for the year at issue. Thus, 23 it is irrelevant whether petitioner is entitled to child 24 tax credits for the year at issue, as such a determination 25 has no bearing on our redetermination of petitioner's tax (973)406-2250|operations©escribers.netjwww.esenbersnet 10 for the year at issue. Conclusion This concludes the Court's oral findings of fact and opinion in this case. In reaching our holdings herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit. (Whereupon, at 2:00 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 1973)406-2250|operationseescribers.net[vmw.escribers.net