TAX COURT OPINION

Case: Timothy R. Wallace
Docket Number: 16860-16S
Judge: Buch
Opinion Type: bench
Filed: 11/22/2017
Pages: 7

JRN UNITED STATES TAX COURT WASHINGTON, DC 20217 TIMOTHY R. WALLACE, Petitioner, v. ) ) ) ) Docket No. 16860-16S. 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 Indianapolis, Indiana 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. November 22, 2017 SERVED Nov 22 2017 ,4 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Ronald L. Buch November 2nd, 2017 Timothy R. Wallace v. Commissioner Docket No. 16860-16S THE COURT: The following represents the Court's oral findings of fact and opinion. These oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of 10 the Tax Court Rules of Practice and Procedure. Any 11 12 13 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 Court Rules of 14 Practice and Procedure. 15 16 17 18 19 20 This case was heard pursuant to section 7463. Under section 7463(b), the decision to be entered in this case is not reviewable by any other court, and this opinion may not be treated as precedent for any other case. The items at issue in this case are Mr. 21 Wallace's (1) cancellation of indebtedness income, (2) 22 23 24 filing status, (3) dependency exemptions, (4) earned income tax credit, (5) itemized deductions, and (6) education credits. Cancellation of indebtedness income 25 was redetermined in Mr. Wallace's June 6, 2016, notice of (Ó73)406-2250|operations@escribers.'net jwwynesaibers.net deficiency. The Commissioner raised the remaining items in the December 23, 2016, answer to amended petition and 4 at trial. Background Mr. Wallace failed to appear at trial and failed to provide any evidence on the issue of cancellation of indebtedness income or any other issue. Mr. Wallace filed his 2014 return claiming head of household status and reporting various itemized 1 2 3 4 5 6 7 8 9 10 deductions and tax credits. For that same year, Mrs. 11 Wallace filed a return showing her marital status as 12 single and claiming the standard deduction. In 2014, the 13 Wallaces filed a petition in bankruptcy showing that they 14 were married to each other. And on their 2015 return, the 15 Wallaces reported that they were married to each 16 other. The Wallaces have a son, who in 2014 was age 25 17 18 19 20 21 22 23 and did not reside with them. He earned in excess of $8,000 of income from various jobs. There is no evidence that he was disabled. Mr. Wallace claimed education credits on his return, but the Commissioner did not receive any information reporting of payment of educational expenses. Mr. Wallace claimed tax preparation fees, but 24 his return does not indicate that he used a paid 25 preparer. And Mr. Wallace claimed substantial medical } B11111|||||I 73)406-2250 ] operations@escribersnet j www.escribersmet expenses, but those expenses were not paid; they were 5 discharged in bankruptcy. Discussion I. Cancellation of Indebtedness Income In general, the Commissioner's determinations in a notice of deficiency are presumed correct and taxpayers bear the burden of proving those determinations incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Because Mr. Wallace's notice of deficiency 1 2 3 4 5 6 7 8 9 10 determined that he had cancellation of indebtedness 11 income, he bears the burden of proving that the 12 Commissioner's determination is incorrect. Mr. Wallace 13 provided no evidence, and we decide that issue in favor of 14 15 the Commissioner. The Commissioner bears the burden as to any 16 issues relating to any "new matter, increases in 17 deficiency, and affirmative defenses, pleaded in the 18 answer". Rule 142(a)(1); see also Wayne Bolt & Nut Co., 19 . v. Commissioner, 93 T.C. 500, 507 (1989); Shea v. 20 Commissioner, 112 T.C. 183, 191 (1999). The Commissioner 21 22 raised issues in his answer to the amended petition and at trial that are.new matters and that increase Mr. Wallace's 23 deficiency. These new matters require the submission of 24 . new evidence, and the Commissioner bears the burden of 25 proof. (973)406-2250|operations@escriberssiet|www.escribers.net II. Filing Status/Dependency Exemption/Earned Income Tax 6 Credit The issue of whether Mr. Wallace can claim the earned income tax credit potentially turns on issues of his filing status and whether he can claim his son as a dependent, so we address these issues together. Mr. Wallace is ineligible for head of household in 2014 for various reasons. Filing as head of household requires a taxpayer, among other requirements, to not be 1 2 3 4 5 6 7 8 9 10 married and to maintain as his home a household that is 11 12 the principal place of abode of a qualifying child or dependent for more than one-half of the taxable year. Sec. 13 2(b)(1). 14 15 16 Mr. Wallace was married, which made him ineligible for head of household filing status. Mr. Wallace's son was not a qualifying child. A 17 Qualifying child is defined under 152(c). Sec. 18 2(b)(1) (A)(i). Dependent means an individual who "the 19 taxpayer is entitled to a deduction for the taxable year 20 for such person under section 151". Sec. 21 22 23 24 25 2(b)(1) (A)(ii). As stated above, dependents under section 151 may be qua'lifying children or qualifying relatives. See section 151(c); sec. 152(a). A qualifying child must live with the taxpayer for more than one-half of the taxable year. Sec. 152(c)(1) (B). Evidence in the record cribers (973)406-2250|operations@escribersmet|wwnescribers.net 7 1 2 3 4 5 6 7 8 9 10 11 shows that Mr. Wallace's son did not live with him during the year at issue. A qualifying child must be under age 19 or a student under age 24 at the end of the year. Sec. 152(c) (1) (C). There is no evidence that Mr. Wallace's son was a student, and even if he was, he was over 24 at the end of the year. For several reasons, Mr. Wallace's son was not a qualifying child. Mr. Wallace's son also was not a qualifying relative. Section 152(d) provides various requirements for the individual to be a qualifying relative. One of those requirements is that the individual's gross income 12 must be less than the exemption amount defined in section 13 14 151(d). Sec. 152(d)(1) (B). In 2014, the exemption amount was $3,950; Mr. Wallace's son had gross income in excess 15 of $8,000. 16 Finally, Mr. Wallace's marital status and lack 17 of a dependency exemption disqualify him from the earned 18 19 income tax credit. Eligible individuals are entitled to an earned income credit against their income tax liability 20 within certain limits. Sec. 32(a). For married taxpayers 21 22 23 the earned income tax credit is permissible only for joint returns. Sec. 32(d). Mr. and Mrs. Wallace did not file a joint return, and thus are ineligible for the earned 24 income tax credit. Also, for 2014 eligible individuals 25 without a qualifying child must have adjusted gross income ) cribers (973)406-2250|operations@escriberssiet|www.escribers.net below $14,590. Mr. Wallace's adjusted gross income was in 8 excess of that amount. III. Itemized Deductions Evidence introduced at trial shows that Mr. 1 2 - 3 4 5 Wallace did not incur many of the expenses for which he claimed itemized deductions. After taking into account those items that he cannot deduct, the allowable itemized deductions fall below the standard deduction. Accordingly, we will allow him the standard deduction. IV. Education Credits Taxpayers are allowed to deduct qualified tuition and related expenses that they paid, subject to c.ertain limits. Sec. 222(a) and 222(b). Additionally, taxpayers may be eligible for the Lifetime Learning Credit and American Opportunity Credit for amounts paid during the taxable year. Sec 25(A). The Commissioner did not receive any information reporting showing that Mr. Wallace paid educational expenses in 2014. Mr. Wallace may not claim education credits. Decision will be entered for respondent. (Whereupon, at 10:05 a.m., the above-entitled matter was concluded.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ) cribers $73) 4D6-2250 | operations@escribersmet | www.escribersmet