TAX COURT OPINION

Case: Savino Cruz
Docket Number: 16268-16
Judge: Nega
Opinion Type: bench
Filed: 05/28/2019
Pages: 15

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 SAVINO CRUZ, Petitioner, v. ) ) ) ) Docket No. 16268-16. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) 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 Milwaukee, Wisconsin, on March 25, 2019, 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 under Rule 155. (Signed) Joseph W. Nega Judge Dated: Washington, D.C. May 28, 2019 SERVED May 28 2019 RECEIVED 4/9/19 IN THE UNITED STATES TAX COURT RS In the Matter of: SAVINO CRUZ, Petitioner, ) ) ) ) Docket No. 16268-16 ) ) v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Pages: 1 through 13 Place: Milwaukee, Wisconsin Date: March 27, 2019 73)406-2250loperationseerribers.net|www.esaibers.net IN THE UNITED STATES TAX COURT 1 In the Matter of: ) SAVINO CRUZ, ) Docket No. 16268-16 Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Federal Building & U.S. Courthouse 517 E. Wisconsin Avenue Room 498, 4th Floor Milwaukee, Wisconsin 53202 March 27, 2019 The above-entitled matter came on for bench opinion, pursuant to notice at 9:16 a.m. BEFORE: HONORABLE JOSEPH W. NEGA Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 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 Cribers (9733406-2250}cperations@ercribetsnet|www-esenbermet · 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 P R O C E E D I N G S 2 (9:16 a.m.) THE CLERK: Docket number 16268-16, Savino Cruz. (Whereupon, a bench opinion was rendered.) (973)406-2250loperationseescribeAnet|www.escribersäet Bench Opinion by Judge Joseph W. Nega March 27, 2019 Savino Cruz v. Commissioner of Internal Revenue Docket No. 16268-16 3 THE COURT: 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 Á 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. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in 1 2 3 4 5 6 7 8 9 10 11 12 effect for the year at issue, and all Rule references are 13 14 15 to the Tax Court Rules of Practice and Procedure. By a notice of deficiency (notice) dated May 16, 2016, respondent determined a deficiency in petitioner's 16 Federal income tax for tax year 2014 (year at issue). The 17 primary issue in this case is whether petitioner is 18 entitled to six dependency exemptions for the year at 19 issue, with respect to four minor children residing in 20 Milwaukee, and two adult relatives living outside the 21 United States. The ancillary issues in this case are 22 whether petitioner qualified for head of household filing 23 24 25 status, and whether he is entitled to the child tax credit and the earned income tax credit (EITC) for the year at 1ssue. cribers t973) 406-2250| operations@escribers net t veww.escribersnet This case was tried on March 25, 201 in 4 Milwaukee, Wisconsin. Andrew Y. Belter appeared on behalf of petitioner. Richard C. Grosenick appeared on behalf of respondent. At Mr. Grosenick's request and pursuant to Rule 24(a)(5), the Court permitted Lisa Vang, a law student, to assist respondent in presenting this case at trial. FINDINGS OF FACT Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At all relevant times, petitioner resided in Milwaukee, 1 2 3 4 5 6 7 8 9 10 11 12 13 Wisconsin, where he earned wages as a laborer. 14 Petitioner is unmarried, and has one biological 15 child, S.C., who was a minor and resided with petitioner 16 at all relevant times. Petitioner's extended family--his 17 mother, father, two brothers, niece (M.C.) and nephew 18 19 20 21 22 (P.I.)--lived next-door to petitioner during the year at 1ssue. Petitioner's grandmother and aunt, however, resided in Mexico during the year at issue. For a duration of time not credibly established by the record, petitioner and S.C. shared their home with 23 petitioner's girlfriend and her biological son, R.C., 24 during the year at issue. 25 Petitioner would frequently provide cash to his cribers 7 406.2250|operattom@escribetsmet|www.esaibersnet extended family, his girlfriend and her son, for their 5 financial support. Similarly, petitioner would regularly wire money to his grandmother and aunt in Mexico. The record, however, fails to credibly establish the extent to which petitioner's contributions comprised the whole of the financial support necessary for his collected family. Petitioner timely filed a Federal income tax return (return) for the year at issue. On that return, petitioner elected head of household filing status, claimed a personal exemption and seven dependency exemptions, and additionally claimed the child tax credit and EITC. On that return, petitioner reported seven dependents: (1) his son, S.C.; (2) his niece, M.C.; (3) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 his nephew, P.I.; (4) his grandmother; (5) his aunt; (6) 16 his girlfriend's son, R.C.; and (7) an additional nephew, 17 whom petitioner has since conceded he was ineligible to 18 Claim as a dependent. Petitioner claimed that several of 19 these dependents constituted qualifying children for 20 Purposes of the child tax credit for the year at issue. 21 22 On the Schedule EIC, Earned Income Credit, attached to that return, petitioner reported that only S.C., P.I., and 23 M.C., constituted his qualifying children for purposes of 24 25 the EITC for the year at issue. In the notice, respondent determined that cribers (973)406-2250|opentions@escribets,net|www.escribersnet petitioner was not entitled to any of 6 the seven dependency exemptions he had claimed on his return. Further, respondent determined that petitioner was only eligible to file his return using the "single" filing status, and that petitioner was not entitled to the EITC and child tax credit for the year at issue. Petitioner filed a timely petition with this Court, disputing all of respondent's determinations. At trial, petitioner conceded that he is not entitled to one 1 2 3 4 5 6 7 8 9 10 of the seven dependency exemptions disallowed by 11 respondent. Petitioner argues, however, that he is 12 entitled to the remaining six dependent exemptions. First, 13 petitioner argues he is entitled to a dependent exemption 14 15 for S.C., because S.C. constitutes his qualifying child. Second, petitioner argues that he is entitled to a 16 dependent exemption for M.C., P.I., R.C., as well as his 17 aunt and grandmother, because each of them constitute 18 Petitioner's qualifying relative. Finally, petitioner 19 20 argues that resolution of those dependency issues will dispose of the filing status and tax credit issues in 21 dispute. 22 23 24 25 I. Burden of Proof OPINION Generally, the Commissioner's determinations set forth in a notice of deficiency are presumed correct, and crit ers t973) 406-2 250| operationseescribersae t j wwwascribersnet 7 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 legislative grace, and the taxpayer bears the burden of Proving entitlement to any deduction or credit claimed. Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must satisfy the specific requirements 1 2 3 4 5 6 7 8 9 10 for any deduction or credit claimed, and is required to 11 maintain records sufficient to substantiate those claims, 12 and calculate taxable income. INDOPCO, Inc. v. 13 Commissioner, 503 U.S. 79, 84 (1992); see sec. 6001; sec. 14 1.6001-1(a),(e), Income Tax Regs. 15 16 17 18 II. Dependency Exemption Section 151(c) permits a taxpayer to claim an exemption for each dependent. Generally, in order for a taxpayer to claim any individual as a dependent, that 19 individual must be a citizen or resident of the United 20 States. Sec. 152(b)(3) (A). The Code provides an 21 22 23 24 exception to this rule, however, in that an individual residing in a country contiguous to the United States (e.g., Mexico and Canada) may constitute a dependent should he or she otherwise satisfy the definition of a 25 dependent. Id. To this extent, section 152(a) requires Eilens (973)406.2250{operationsøescribersnetjwww.escribersnet 8 that a dependent must be either a "qualifying child" or a "qualifying relative" of the taxpayer. A. Qualifying Child A qualifying child is defined as a child who: (1) bears a specified relationship to the taxpayer (as relevant here, this includes a taxpayer's offspring); (2) lived with the taxpayer for more than one-half of the taxable year at issue; (3) did not provide more than one- half of his or her own support during that year; and (4) 1 2 3 4 5 6 7 8 9 10 did not file a joint return with his or her spouse for 11 12 13 14 15 that taxable year. Sec. 151(c)(1),(2). A qualifying child must be less than 19 years old, a student less than 24 years old, or "permanently and totally disabled" (as defined in section Sec. 22(e)(3)). Sec. 152(c) (3). Petitioner credibly testified that he and S.C. 16 lived together throughout the year at issue. As a minor, 17 S.C. did not work, was not married, and thus was dependent 18 entirely on petitioner, his father, for support during the 19 20 21 year at issue. Accordingly, petitioner has carried his burden of proof with respect to establishing that S.C. is his 22 qualifying minor child. For that reason, petitioner may 23 24 25 claim S.C. as a dependent for the year at issue. B. Qualifying Relative As defined by the Code and pertinent here, a (973)406-2250|operations®escribers.net]www.escribers.net 1 2 3 4 5 6 7 8 9 qualifying relative is an individual who: I bears a qualifying familial relationship to the taxpayer (as relevant here, this definition includes nieces, nephews, aunts and grandparents); (2) earned gross income less than the exemption amount; and (3) had more than one-half of his or her support (e.g., shelter, food, medical care, etc.) provided by the taxpayer, during the taxable year. sec. 151(d) (1); sec. 1.152-1(a) (2) (i), 1ncome Tax aegs. An individual lacking a familial relationship to the 10 taxpayer, but who shares the same principal place of abode 11 12 as the taxpayer and is a member of the taxpayer's household for the taxable year, may still be considered a 13 qualifying relative should he or she otherwise satisfy 14 15 16 17 18 19 20 21 22 23 24 25 that statutory definition. Sec. 152(d) (2) (H). Petitioner's testimony establishes that he bears a qualifying familial relationship to M.C., P.I., his aunt and grandmother. Further, petitioner's testimony also suggests that R.C. may also constitute his qualifying relative, pursuant to the rubric of section 152(d)(2) (H). We find petitioner's testimony lacked credibility, however, with respect to the extent of the financial support which he claims to have provided to these individuals. Petitioner offered no probative documentary evidence on this point, and, further, did not offer corroborating testimony from any member of his family or |||cribers (#3)406-2250}opentions@escribers.net|va,wescnbers.net other individuals. For these reasons, we hold that Petitioner has failed to bear his burden of proof with respect to establishing that he provided more than half of 10 the support for any of these individuals during the year at issue. Lerch v. Commissioner, 877 F.2d 624, 631-632 (1989), affig T.C. Memo. 1987-295; see Higbee v. Commissioner, 116 T.C. 438, 445-446 (2001). Accordingly, petitioner is not entitled to a dependency exemption deduction with respect to M.C., P.I., R.C., his aunt, or grandmother for the year at issue. III. Head of Household Filing Status Under section 2(b), a taxpayer qualifies for head of household filing status if the taxpayer: (1) is unmarried; (2) is not a surviving spouse; and (3) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 maintains as his or her home a household that constitutes 16 the principal place of abode for, as relevant here, a 17 qualifying child or qualifying relative for more than half 18 of the year. Sec. 2(b)(1); Rowe v. Commissioner, 128 T.C. 19 20 21 22 13, 16-17 (2007). Because petitioner is unmarried, and established that S.C. was his qualifying child with whom he resided for the duration of the year, we hold that petitioner 23 qualified for head of household filing status for the year 24 at issue. 25 IV. Child Tax Credit and EITC Cdbers 73y406-2250Foperationseescribers.netlwwwescribers.net Section 24(a) provides a credit to taxpayers 11 with respect to each qualifying child, under age 17, for whom that taxpayer is allowed a dependency exemption deduction. The amount of that credit is subject to certain limitations and thresholds based on the taxpayer's adjusted gross income. Sec. 24(b). Additionally, section 32(a)(1) provides an eligible taxpayer with an earned income credit against his or her income tax liability, subject to a phase out in section 32(a)(2). The amount of the EITC to which an eligible taxpayer may be entitled is determined by the amount of his or her "earned income" and 1 2 3 4 5 6 7 8 9 10 11 12 whether the taxpayer has any qualifying children. Sec. 13 32(b),(c),(f). 14 Petitioner established that S.C. is his 15 qualifying child, and that S.C. is a minor under the age 16 of 17. Accordingly, as a wage earner, petitioner may be 17 eligible for both the child tax credit and the EITC for 18 the year at issue. The extent to which petitioner may be 19 eligible for these credits must be recalculated pursuant 20 21 22 23 24 25 to this opinion, and will be subject to any limitations tied to his adjusted gross income. See secs. 24(b), 32(b). v. Conclusion Petitioner argues that he was a hardworking and generous relative. On this point, respondent offered no cribers 73)406-2250toperations@escribemnet[www.escribers.net argument in opposition. Similarly, the Court finds no occasion to doubt that petitioner was a hardworking and 12 generous with respect to his large extended family. This, however, does not negate the fact that petitioner failed to present this Court with probative documentary evidence, or supporting testimony from either his extended family or anyone else, that might corroborate his testimony and establish the facts necessary to establish petitioner's entitlement to the dependency exemptions and increased credits he claimed. For that reason, and with respect to those issues, the record before us does not support the 1 2 3 4 5 6 7 8 9 10 11 12 Court determining that petitioner has carried his burden 13 of proof in this case. 14 Accordingly, a decision will be entered under 15 Rule 155. This concludes the Court's oral findings of 16 fact and opinion in this case. In reaching our holdings 17 herein, we have considered all arguments made, and, to the 18 extent not mentioned above, we conclude they are moot, irrelevant, or without merit. (Whereupon, at 9:30 a.m., the above-entitled matter was concluded.) 19 20 21 22 23 24 25 9733406-2250loperations@escnters.netlwww.escribersnet CERTIFICATE OF TRANSCRIBER AND PROOFREADER 13 CASE NAME: Savino Cruz v. Commissioner DOCKET NO.: 16268-16 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Stephanie Novak on March 27, 2018 before the United States Tax Court at its session in Milwaukee, WI, in accordance with the 1 2 3 4 5 6 7 8 9 10 applicable provlslons of the current verbatim reporting 11 12 contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript 13 against the verbal recording. 14 15 16 17 18 19 20 22 23 24 25 Lori Rahtes, CDLT-108 Transcriber Stacey Post Proofreader 4/1/19 Date 4/8/19 Date cribers (973)406-2250|operationseescril:ersnet|www.escribersnet