TAX COURT OPINION

Case: Don Koch
Docket Number: 6423-13
Judge: Gustafson
Opinion Type: bench
Filed: 10/09/2014
Pages: 7

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 DONKOCH, Petitioner, v. ) ) ) ) Docket No. 6423-13. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Winston-Salem, North Carolina, on September 23, 2014, containing his oral findings of fact and opinion, 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 Judge Gustafson at Winston-Salem, North Carolina, containing his oral fmdings 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 under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. October 9, 2014 SERVED Oct 09 2014 Capital Reporting Company 3 1 2 3 4 5 6 Bench Opinion by Judge David Gustafson September 23, 2014 Don Koch v. Commissioner Docket No. 6423-13 THE COURT: The Court has decided to render the following as its oral Findings of Fact and 7 Opinion in this case. This Bench Opinion is made 8 9 10 11 12 13 14 15 pursuant to the authority granted by section 7459(b) of the Internal Revehue Code, and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a notic of deficiency dated January 7, 2013 (Ex. 2-J), the Internal Revenue Service (IRS) determined a deficiency in Petitioner Don Koch's 2011 Federal income tax, plus an accuracy-related penalty. 16 After Respondent's concession of dependency 17 18 19 20 21 22 23 24 exemptions and the penalty, the issues remaining for decision are whether Mr. Koch is entitled to claim his now-step-daughter and step-grandchildren as "qualifying children' (for purposes for the earned income credit, the child credit and additional child credit, and head-of-household status). We hold that he is not. The case was tried in Winston-Salem, North 25 Carolina, on September 23, 2014. Mr. Koch 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company represented himself and Respondent was represented by 4 Andrew J. Davis. FINDINGS OF FACT Sometime in the 1980's, Mr. Koch began to live with Melody Delicate (now Melody Koch). Though not legally married,{ they held themselves out as husband and wife. Ms. Delicate's now-adult daughter Jennifer had serious problems, and Mr. Koch supported her as if she were his own daughter. She had three minor children, and he supported them as if they were his grandchildren. In 2011 (as in other years) Jennifer and her minor children shared Mr. Koch's abode and were members of his household, and he provided their support. On his Form 1040 tax return for 2011 (Ex. 1-J), Mr. Koch declared Jennifer and her children as his dependents, call ng Jennifer his "daughter" and each of her children his "grandchild". He also claimed them as such on Schedule EIC (on which he claimed earned income credit) and claimed them as "qualifying children" on Form 8812 (on which he claimed additional child tax credit). He claimed child credit on line ;33 and claimed "head of household" filing status. (Stip. 13-15.) No other 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 I 5 1 2 3 taxpayer claimed Jennifer or her children as dependents. Mr. Koch and Ms. Delicate were legally 4 married in May 2013. At that time, Jennifer became 5 Mr. Koch's step-daughter and her children became his 1 6 7 8 9 step-grandchildren. The IRS examined Mr. Koch's 2011 return and issued a notice of deficiency on January 7, 2013, disallowing the depehdency exemptions, the credits, 10 and the head-of-household status. On March 18, 2013, 11 Mr. Koch timely filed his petition in this Court. At 12 13 14 15 16 17 18 19 20 21 22 23 24 that time he resided in North Carolina. OPINION Mr. Koch's entitlement to the disputed items at issue turns on whether his now-step-daughter and step-grandchildren were his "qualifying child[ren]" in 2011. They were not, for reasons we now explain. One can claim someone as a dependent, for purposes of the dependency exemption deduction under section 151, if that person is either a "qualifying child", sec. 152(a)(1), or a "qualifying relative", sec. 152 (a)(2). The IRS has conceded Mr. Koch's entitlement to claim Jennifer and her three children 25 as his dependents because they are his "qualifying 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 relative[s]". The definition of that term does not require any particular relation by blood or marriage but rather can be satisfied if the person simply "has the same principal place of abode as the taxpayer and is a member of the taxpayer's household". Sec. 152(d)(2) (H). The tax behefits that the IRS has not conceded--i.e., the harned income credit, the child credit, the additional child credit, and head-of- 10 household status--all require that the person claimed 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to be a "qualifying child", under section 152(a) (1). The IRS admits that Jennifer and her children meet some of the requirements of a "qualifying child"; but the IRS points out--correctly, we hold--that in 2011 they did not have the "relationship" required in section 152(c)(2). Mr. Koch claimed Jennifer as his child and her children as his grandchildren; and if that claim had been true in 2011, he would have been entitled to the credit, since the "relationship" requirement is satisfied "if such individual is *** a child of the taxpayer or a descendant of such a child". However, that claim was not true in 2011. Jennifer and her children were members of his household and shared his abode, but they were not his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 child and grandchildren. He was not their biological father, and he was not married to Jennifer's mother, 3 Melody Delicate. (If Mr. Koch had at that time been 4 married to Ms. Delicate, then Jennifer would have 5 6 7 8 9 10 11 12 13 been his step-daughter, and that relationship would have sufficed. See sec. 152(f) (1) (A) (i).) Therefore, none of Mr. Koch's dependents was a "qualifying child" in 2011. Eligibility for the earned income credit requires a "qualifying child". See sec. 32(c)(1)(A)(i). Eligibility for the child credit (sec. 24(a)) and the additional child credit (sec. 24(d)) requires a "qualifying child". See sec. 24(a). 14 Eligibility for head of-household status requires a 15 "qualifying child". See sec. 2(b)(1)(A) (i). Because 16 Mr. Koch's dependents were not his children, step- 17 18 19 20 children, grandchildren, or step-grandchildren, none was a "qualifying child", and he is not eligible for these disputed benefits. Mr. Koch asserts that in 2011 Melody 21 Delicate was his "common law" wife and that Jennifer 22 23 24 25 therefore was his step-daughter. However, for purposes of tax benefits, "the marital status of the two individuals is to be determined under the laws of the State of their residence." Von Tersch v. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 Commissioner, 47 T.C. 415, 419(1967). North 2 Carolina--the state of Mr. Koch's and Ms. Delicate's 8 residence--does not recognize common-law marriage. See Garrett v. Burris, 735 S.E.2d 414,416 (N.C. App 2012). North Carolina will recognize a marriage valid as a common-law marriage that took place where such marriage is recognized, see id.; and Mr. Koch evidently argued to the IRS that he and Melody had been common-law spouses in their prior State, Nevada; but the IRS correctly observes that Nevada does not recognize common-law marriage. See Nevada Rev. Stat. sec. 122.010(1)(marÉiage requires "solemnization as authorized and provided by this chapter"). As a result, in 2011 Mr. Koch's dependents lacked the relationship to him that was required for them to be "qualifying child[ren]", and he cannot obtain the disputed tax benefits. I So that Mr. Koch's tax liability can be recomputed to take ccount of the IRS's concessions, decision will be entered under Rule 155. This concludes the Court's oral findings of Fact and Opinion in this case. (Whereupon, at 11:25 a.m., the above-entitled matter was concluded.) 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