TAX COURT OPINION

Case: Nicole L. Noland
Docket Number: 16572-11
Judge: Morrison
Opinion Type: bench
Filed: 07/11/2012
Pages: 11

Submitted J. MorriSon JMP UNITED STATES TAX COURT WASHINGTON, DC 20217 NICOLE L. NOLAND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 16572-11. ) ) ) ) ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice of Procedure, there is transmitted herewith to petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Richard T. Morrison, at Detroit, Michigan, on May 16, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for petitioner. (Signed) Richard T. Morrison Judge Judge Dated: Washington, D.C. July 11, 2012 1.1 2012 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 BENUH UF1N1UN BY UUUUE K1UHARD T. MURKlöUN NICOLE L. NOLAND v. COMMISSIONER DOCKET NO.: 16572-11 DATE: MAY 16, 2012 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, which shall be not be relied on as precedent in any other case. This bench opinion is made pursuant to the authority granted in section 7459(b) and Rule 152. All section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. The Internal Revenue Service (the IRS) determined a $3,470 deficiency in petitioner Nicole L. Noland's 2009 federal income tax and determined that she is liable for the section-6662(a) addition to tax. The issues for decision are: (i) whether Noland is entitled to file as a head of household under section 2(b); and (ii) whether Noland is entitled to an earned-income credit under section 32(a) (1). The record shows that Noland is entitled to these tax benefits. It is unnecessary to reach the question of whether she is liable for the addition to tax. Heritage Reporting Corporation (202) 628-4888 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 Findings of Fact 4 Some of the facts have been stipulated and are so found. The stipulation of facts, the supplemental stipulation of facts, and the attached exhibits are incorporated here by this reference. Nicole L. Noland (Noland) was a resident of Michigan when she filed her Tax Court petition. Noland married Anthony Noland in 2002. They have never divorced. Before their marriage, Noland lived in a home that she owned on Tacoma Street in Detroit. Anthony Noland lived in a rental unit located at 19386 McCorm ck Street. When the couple married, Anthony Noland moved into Noland's house on Tacoma Street. He resided there for only 2 or 3 months. He moved out after he had impregnated another woman. In 2002, the Nolands' first child was born. The child lived with Noland. Anthony Noland lived apart, but had regular contact with the child. In 2005, the Nolands tried to reconcile their marriage. As part of this attempted reconciliation, they bought a house on Greenleaf Street in Roseville, Michigan, as joint owners. They moved into the house together, but Anthony Noland moved out after 1-1/2 months. Estranged once more and Heritage Reporting Corporation (202) 628-4888 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 living in separate residences, they had a second child, born in 2006. After Anthony Noland moved out of the Greenleaf house, he moved to a house on Dresden Street in Detroit that he had purchased on his own. Noland continued to live at the Greenleaf house with the couple's two children. In 2006, Noland lost her job at Standard Federal Bank. In 2007, both Noland and her husband filed for bankruptcy. Noland believed that the bankruptcy filing had to be a joint filing because the Greenleaf house was jointly owned. As a result of the bankruptcy, Noland lost her ownership interest in the Tacoma house, the Nolands lost ownership of the Greenleaf house, and Anthony Noland lost ownership of the Dresden house. In 2007, after the bankruptcy, Anthony Noland purchased a property on Nevada Avenue. He moved to this property, which also housed his business, Tony's Automotive Services. Around November 2008, Noland had to move out of the Greenleaf house. She and the two children moved into a rental property located at 19378 McCormick Street. This house was next door to the McCormick Street property that Anthony Noland had rented at one time (but in which he was no longer Heritage Reporting Corporation (202) 628-4888 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 6 living). Her rent was only a few hundred dollars a month. On December 1, 2009, the Nolands jointly purchased a house on Hartill Avenue in Warren, Michigan. Noland could not buy the Hartill house on her own because the seller would finance the transaction only if Anthony Noland was the co- purchaser. Noland paid the $10,000 downpayment on the house herself. She made the monthly paymentsy-t of $932 per mont --7herself. On December 18, 2009, the Nolands submitted an affidavit to the City of Warren, Michigan, attesting that they both personally resided at the Hartill house. They stated that the property became their personal residence as of December 1, 2009. During the first eleven months of 2009, Noland lived at 19378 McCormick Street with the Nolands' two sons. Noland herself paid most of the expenses of living in the rental unit, including rent, utilities, and food consumed on the premises. During December 2009, Noland and the Nolands' two children lived in the Hartill house. By special arrangement, Noland agreed to house Anthony Noland's oldest son from a previous relationship at the Hartill house. Noland paid for most of the expenses of the household, Heritage Reporting Corporation (202) 628-4888 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 7 including the monthly mortgage payment, property taxes, utility charges, upkeep, repairs, and food consumed on the premises. Noland filed a timely Form 1040, U.S. Individual Income Tax Return7for the tax year ended December 31, 2009. On this return, Noland claimed a head-of-household filing status and, in addition to her personal exemption, claimed a dependency exemption for the Nolands' two children. She also claimed the earned-income credit pursuant to section 32. On April 8, 2011, the IRS issued a notice of deficiency determining that Noland had an income-tax deficiency of $3,470 for 2009 and that she was liable for a section-6662(a) addition to tax of $694. The notice of deficiency reflected the IRS's determination that Noland was not entitled to head-of-household filing status or the earned-income credit. In response to this notice of deficiency, Noland petitioned this Court, pursuant to section 6213(a), to redetermine the deficiency. Opinion and Ultimate Findings of Fact Generally, the IRS's determinations are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Heritage Reporting Corporation (202) 628-4888 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 8 Under section 7491(a) (1), the burden of proof may shift from the taxpayer to the IRS if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability. Our findings are based upon the preponderance of the evidence. See Estate of Gilford v. Commissioner, 88 T.C. 38, 51 (1987). Therefore it is unnecessary to determine whether the burden of proof has shifted to the IRS. See Martin Ice Cream Co. v. Commissioner, 110 T.C. 189, 210 n.16 (1998). As is relevant here, a taxpayer is entitled to head-of-household filing status only if the taxpayer is not married at the close of his or her taxable year. Section 2(b) (1). A taxpayer who is married at the end of the year is entitled to an earned-income credit only if a joint return is filed for the taxable year. Sections 32(d)., 7703(a) (1). Thus, because Noland did not file a joint return with her husband, her entitlement to head-of-household filing status and the earned-income credit depends upon whether she is considered to have been married at the end of 2009. Both parties agree that Noland and her husband were married to each other during 2009. However, for purposes of filing status and the earned- Heritage Reporting Corporation (202) 628-4888 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 9 income credit, certain married individuals who live in separate households from their spouses may be treated as not being married at the end of the taxable year. See sections 2(c), 32(d), 7703(b). ·For an individual to qualify for this treatment, the three requirements of section 7703 (b) must be met. The parties agree that Noland meets the first requirement that the taxpayer maintains as his or her home a household that constitutes for more than one-half of the year the principal place of abode of a child for which the taxpayer can generally claim a dependency exemption. See section 7703 (b) (1). The parties disagree as to whether Noland meets the second requirement, which requires that the taxpayer furnish over one-half of the cost of maintaining the household during the year. Section 7703 (b) (2). The parties also disagree as to whether Noland meets the third requirement, which requires that "during the last 6 months of the taxable year, such individual's spouse is not a member of * * * [the individual's] household". Sec. 7703 (b) (3). The IRS contends that Noland did not provide more than one-half of the support for her household during 2009. During 2009, Noland lived with the Nolands' two children. During the first eleven months Heritage Reporting Corporation (202) 628-4888 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 of the year, Noland and the children lived in a rental property located at 19378 McCormick Street. During the last month of.the year, Noland and the children 'lived in the jointly owned Hartill house. Although we 10 cannot be confident we know the exact cost of maintaining the household, or the exact amount of household expenses paid by Noland as opposed to Noland's husband, there is enough.information in the record that we believe that she paid more than.one- half of this cost at both locations. We find that Noland paid over one-half of the cost of maintaining her household, comprising her and the two children, during 2009. The IRS also contends that Noland and her husband were members of the same household during the last six months of 2009. The IRS suggests that the Nolands were living under the same roof and points to several facts as proof: two purchased the Greenleaf house as joint owners in 2005; they filed a joint bankruptcy petition in 2007; they purchased the Hartill house as joint owners in December 2009; and they filed an affidavit with the city claiming that the Hartill house was the residence of.both Nolands. Whether a taxpayer shares a household with a spouse for purposes of section 7703 (b) (3) is a question of Heritage Reporting Corporation (202) 628-4888 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 11 fact. See Sharer v. Commissioner, T.C. Memo. 1994- 453, 1994 WL 483902, at *3. Based on Noland's extensive testimony about her relationship with her husband and their separate living arrangements, we believe that the Nolands did not live under the same roof during 2009. Their joint purchase of the Greenleaf house occurred during a temporary reconcilation in 2005. That they filed a joint bankruptcy petition was a result of the co-ownership of this house. By 2009, the couple had long been estranged. They purchased the Hartill house as joint owners only to get a loan from the seller. That they submitted an affidavit to the city representing that they both resided at the Hartill house in December 2009 has been taken into consideration by the Court but is not dispositive. Noland and her husband were involved in each other's lives in 2009, but they did not belong to the same household. We find that Noland's husband was not a member of her household during the last six months of 2009. Accordingly, Noland is considered unmarried under section 7703 (b). Her filing status is head of household. She is entitled to the earned-income credit. To reflect the foregoing, a decision will be Heritage Reporting Corporation (202) 628-4888 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 12 entered for the petitioner. This concludes the Court's Oral Findings of Fact and Opinion in this case. (Whereupon, at 3:55 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // // // // . Heritage Reporting Corporation (202) 628-4888