TAX COURT OPINION

Case: Marion Lucille Kennedy
Docket Number: 2735-14S
Judge: Buch
Opinion Type: bench
Filed: 12/15/2014
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 MARION LUCILLE KENNEDY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 2735-14S. ) ) ) ) ) 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 both petitioner and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Washington, D.C. In accordance with the oral findings of fact and opinion, decision will be entered for petitioner. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. December 15, 2014 SERVED DEC 16 2014 Capital Reporting Company 3 1 2 Bench Opinion by Judge Ronald L. Buch November 3, 2014 3 Marion Lucille Kennedy 4 5 6 Docket No. 2735-14S FINDINGS OF FACT AND OPINION THE COURT: The following represents The 7 Court's oral findings of fact and opinion. The oral 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Section 7459(b) and Rule 152(a). This case was heard pursuant to Section 7463 of the Internal Revenue Code in effect when the petition was filed. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue and all rule references are to the Tax Court Rules of Practice and Procedure. 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 issue in this case is whether Ms. Kennedy can claim dependency exemptions and child tax credits for her two grandchildren for 2011. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company In order for her to be entitled to these exemptions and credits, Section 152(c) requires that the children be qualifying children. 4 1 We hold that Ms. Kennedy is entitled to the exemptions and credits because her grandchildren were qualifying children. Background Ms. Marion Lucille Kennedy provided housing for her daughter, Ms. Lakcichtr Battle, and her daughter's two minor children. During 2011, these two grandchildren lived with Ms. Kennedy for more than half of the year at her home in Alexandria, 1 2 3 4 5 6 7 8 9 10 11 12 13 Virginia. 14 15 16 17 18 19 Because the physical custody arrangement changed on July 1, 2011, the breakdown of where the children resided was different before and after that date. From January until July 1, the grandchildren lived the majority of the time with Ms. 20 Kennedy. Although the grandchildren's father, Mr. 21 Charles Williams, had visitation rights for every 22 23 24 25 other weekend, the evidence presented at trial showed that he did not keep the children for at least six of these visits. Beginning on July 1, 2011, Ms. Williams was 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 awarded primary physical custody by the Circuit Court for Prince George's County, Maryland; however, after July 1, 2011, the children stayed with Ms. Kennedy for one month before school started and the children stayed with Ms. Kennedy every other weekend from Friday until Monday morning from July 1 until December 31, 2011. These weekends were extended 8 until Tuesday morning if the Monday in question fell 9 on a Federal holiday. 10 11 12 13 14 15 16 17 18 19 20 21 22 In addition to providing shelter for her grandchildren, Ms. Kennedy supported them by paying for the rent and a portion of the groceries, clothing, and extracurricular activities. Ms. Kennedy timely filed her 2011 Form 1040 U.S. Individual Income Tax Return and claimed her two grandchildren as dependents and took a child tax credit for each child. On November 18, 2013, the Commissioner issued a notice of deficiency for the tax year 2011 that disallowed the dependency exemptions and child tax credits. Ms. Kennedy, while residing in Alexandria, 23 Virginia, timely petitioned to challenge the 24 Commissioner's determination. Trial was held on 25 October 31st, 2014. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 Discussion 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 As a general matter, the Commissioner' s determinations in the notice of deficiency are presumed correct and the taxpayer bears the burden of proving an error, Rule 142(a), Welch v. Helvering, 290 U.S. 111, 115 (1933). Further, income tax deductions are considered a matter of legislative grace and the taxpayer bears the burden of proving an entitlement to any claimed deduction of credit, Rule 142(a), Indopco, Inc. , v. Commissioner, 503 U .S . 19 , 8 4 (1992) . Ms. Kennedy does not argue that the burden should shift to Respondent under Section 7491(a) and the record does not illustrate that the requirements of Section 7491(a) are met; therefore, Ms. Kennedy bears the burden of proof. 1. Dependency exemptions. Section 151(c) allows the taxpayer additional exemption deductions for dependents if the child qualifies as a dependent under Section 152. Section 152(a) provides that the dependent is either a qualifying child or a qualifying relative. Here we determined that Ms. Kennedy's two grandchildren are qualifying children under Section 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 152 (c) . Section 152(c)(1) outlines the five requirements that must be met in order for an individual to be a qualifying child. First, the child in question must bear a specific relationship to that taxpayer, Section 152 (c) (1) (A) . That is, the child must be a child of the taxpayer, a descendant of a child of the taxpayer, a brother, sister, stepbrother, or stepsister of the taxpayer, or a decedent of a brother, sister, stepbrother, or stepsister of the taxpayer, Section 152 (c) (2) . Here the grandchildren are descendants of a child of the taxpayer, so this element is met. Second, the chi·ld must live with the taxpayer for more than one-half of the taxable year, Section 152(c)(1)(B). The facts establish that this element is 20 met. 21 22 23 24 25 Third, the child must meet certain age requirements, Section 152(c)(1)(C). Specifically, the child must be younger than the taxpayer who is claiming the child as a qualifying child. Further, the child must be under 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 age 19 or a student under age 24 at the end of the year, Section 152(c)(1)(C). The children were minors at the time, so this element is met. Fourth, the child must not have provided over one-half of his or her own support for the taxable year at issue, Section 1.52 (c) (1) (D) . The children provided none of their own support, so this element is met. Finally, the child must not have filed a joint tax return with a spouse for the taxable year at issue, Section 152(c)(1)(B). The minor children were not married and did not file joint returns with spouses, so this element is met. All five of the requirements under Section 152(c) are met and the two grandchildren are qualifying children of Ms. Kennedy under Section 152 (c) . As a result, she was entitled to claim the dependency exemptions for them under Section 151(c). Although Respondent argues that 152(e) should apply to preclude Ms. Kennedy from claiming the children as dependents, we do not agree. Section 152(e) is a special rule that 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 9 1 modifies the general rules under Section 152(c) if 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 the person claiming the exemption is either a custodial or non-custodial parent. Here Ms. Kennedy is cithcr a custodial parent nor a non-custodial parent; therefore, Section 152(e) does not apply. 2. Child Tax Credits. Taxpayers are allowed a credit against their income tax for any qualifying child for whom the taxpayer was allowed a deduction under Section 151, the dependency exemption deduction, Section 24(a). A qualifying child is defined by the requirements in Section 152(c), Section 24(c)(1). Because the two grandchildren are qualifying children of Ms. Kennedy for 2011, she's entitled to the child tax credits for 2011 that she claimed. 18 Conclusion 19 20 21 22 23 24 25 Because Ms. Kennedy's two grandchildren are qualifying children under Section 152(c), she's entitled to the dependency exemptions and child tax credits she claimed for 2011. We find the Commissioner's determination in the notice of deficiency to be erroneous and we commend Ms. Kennedy for supporting and caring for her 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 grandchildren. An appropriate order will be forthcoming. With that, we'll go off the record. (Whereupon, at 12:00 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 25 866.488.DEPO www.CapitalReportingCompany.com