TAX COURT OPINION

Case: Marcus Andre McKnight
Docket Number: 11083-15
Judge: Gustafson
Opinion Type: bench
Filed: 05/13/2016
Pages: 9

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 MARCUS ANDRE MCKNIGHT, Petitioner, v. ) ) ) ) Docket No. 11083-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceeding at Washington, D.C., on May 4, 2016, 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 the undersigned judge at Washington, D.C., 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) David Gustafson Judge Dated: Washington, D.C. May 13, 2016 SERVED May 13 2016 Capital Reporting Ccmpany 3 Bench Opinion by Judge David Gustafson May 4, 2016 I 1 2 3 Marcus Andre McKnight v. Commissioner 4 5 6 7 8 9 10 11 12 13 Docket No. 11083-15 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Tax Court Rule 152; and it shall not be relied on as precedeht in any other case. By a notice of deficiency dated January 30, 2015 (Ex. 2-J), the Internal Revenue Service ("IRS") determined a deficiency in petitioner Marcus Andre 14 McKnight's 2013 Federal income tax, plus an accuracy- 15 16 17 18 related penalty. After Mr. McKnight's concession that he received income from Griffith Energy Services (Stip. 14-15) but did not report it on his return, the issues remaining for decision are (1) whether Mr. 19 McKnight is entitled to claim his three sons as 20 21 22 23 24 25 "qualifying children" (for purposes of the dependency exemption deduction, the earned income credit, the child credit and additional child credit, and "head of household" filing status), and (2) whether and to what extent he is liable for penalty. The case was tried in Washington, D.C., on May 866.488.DEPO www.CapitalReportingCcmpany.com Capital Reporting Company 4 1 2 3 4 5 6 3, 2016. Mr. McKnight represented himself, and respondent was represented by Deborah Aloof. FINDINGS OF FACT After Mr. McKnight graduatec from high school, he became the father of three sors. By 2013 he and their mother lived apart. He then lived with another 7 girlfriend in a house owned by his father. In that 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 year Mr. McKnight earned $24,688 of wage income from WM Resources, Inc. (Stip. 4) and $25,116 of wage income from Griffith Energy Services (Stip. 15). By 2013 there was a court order as to the custody of his sons. The order is not in our record, but Mr. McKnight testified that he and his girlfriend had joint custody and that the court told them to work out a living arrangement that was in the best interest of the children. Mr. McKnight was required to pay child support to his ex-girlfriend. (Stip. 13. ) The boys lived mostly with their mother during the school year. They lived with their father during the summers, weekends during the school year, and holidays. Mr. McKnight testified that the boys' time 23 with him constituted six months, but in view of Mr. 24 McKnight' s burden of proof, we do not find that their 25 time with him reached that level. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 On his 2013 Federal income tax return, Mr. 2 McKnight reported his three sons as dependents, and 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 based on them he claimed earned income credit, child credit, and "head of household" filing status. (Stip. 5.) Mr. McKnight reportec on his return his $24,688 of wage income from WM Resources, Inc. (Stip. 4); but by mistake, he failed to report his $25,116 of wage income from Griffith Energy Services. His only explanation for this mistake was that the amounts of the two.totals were similar, and he may have overlooked the Form W-2 fror Griffith Energy or may have mistaken it as a duplicate for the WM Resources Form W-2. The IRS examined his return and issued a notice of deficiency on January 30, 2015, adjusting his income and disallowing the dependency deductions, credits, and filing status. (Stip. 6; Ex. 2-J.) On 18 April 28, 2015, Mr. McKnight timely filed his 19 petition in this Court. At that time he resided in 20 Washington, D.C. (Stip. 9.) 21 22 23 24 25 I. Burden of proof OPINION As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 determined. See Rule 142(a). II. Child-related tax benefits A. Dependency exemption deduction One can claim someone as a cependent, 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). 1. Qualifying child. The term "qualifying child" is defined in section 152(c)(1), and that definition has five requirements, in subparagraphs (A) through (E). Mr. 13 McKnight meets four of those requirements: (A) they 14 15 16 17 18 19 have the required "relationship" with him because they are his sons (Stip. 10), (C) they were under age 19 (Stip. 10), (D) they did not support themselves (Stip. 11), and (E) they did not file joint returns (Stip. 12). However, Mr. McKnight did not prove that he 20 meets the requirement of section 152(c) (1)(B), i.e., 21 22 23 24 that his sons had "the same principle place of abode as the taxpayer for more than one-half of such taxable year". His very brief testimony on the point, construed in his favor, is that the boys lived 25 with him for all three months of the summer (i.e., 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 20 21 June, July, and August, or 92 days), all. the month of December (31 days) because of Christmas, and the 2 weeks of Spring break (14 days)--totaling 137 days-- plus the alternate .weekends throtghout the rest of the year, which we construe to mean 4 days in each of January through May and September through November, totaling 32 days. His testimony thus accounts for his sons' living with him for a grand total of 169 days, which is not the 183-day minimum that would constitute "more than one half of" a 365-day year. Moreover, Mr. McKnight's testimony was not persuasive. He testified in less detail than our extrapolations here. He did not explain why the boys would live with him all of December and not just the holidays; and he did not explain why the boys would never spend weekends with their nother during the summer. Mr. McKnight presented no cc!rroboration of his testimony that his sons lived with him for more than 6 months of the year. He did not call as witnesses either the boys' mother or the girlfriend who lived 22 with him in 2013. The only docurentation he offered 23 24 25 showing his address associated with his sons' identities was a medical record evidently printed in 2015 that apparently shows only their then-current 866.488.DEPO www.CapitalReportingCcmpany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 address (or perhaps just a billing address), not their residential address in 2013. 2. Qualifying relative. Mr. McKnight could claim the dependency exemption deduction for his 3 sons, even though they are not "qualifying child[ren]", if he could show that they are his "qualifying reJative[s]", under section 152(a)(2) and (d). Howe er, that definition includes a requirement that he did not prove--i.e., that the child "is not a qualifying child * * * of any other taxpayer". Rather, Mr. McKnight's sons are the "qualifying child[ren]" of tPeir mother; and therefore they cannot be "qualifying relatives" of 14 Mr. McKnight. 15 16 17 18 19 20 21 22 23 24 25 B. Other benefits Mr. McKnight's entitlement to the remaining disputed tax benefits is defeated by the conclusion that his sons were not his "qualifying child[ren]" in 2013. 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). "Head of household" filing status depends on having a "qualifying child". See sec. 1(b) (1) (A) (i). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting C mpany 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Because Mr. McKnight's dependents were not his "qualifying child[ren]", he is nct eligible for any of these disputed benefits. III. Penalty Section 6662(a) and (b) (1) imposes an "accuracy-related penalty" of 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or disregard of rules or regulations. "The term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax return." 26 C.F.R. sec. 1.6662-3(b)(1). The IRS has the burden of production to show liability for the penalty. As for the tax attributable to the unreported 17 Griffith Energy wages, the record in this case makes 18 19 20 21 22 23 24 25 that showing. The return that Mr. McKnight filed reported less than half of his earnings. Overlooking a few dollars might not be negligent; but overlooking half of one's income is not consistent with a "reasonable attempt to comply wita the provisions of the internal revenue laws" and doas not reflect an "exercise [of] ordinary and reaso able care in the preparation of a tax return". 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 However, given the complexity of section 152, we are persuaded that Mr. Knight's nistaken claim of tax benefits for his three sons was attributable to "reasonable cause" and "good faith" under section 6664(d) (1), so that he is not liable for penalty on the portion of his underpayment that is attributable to thóse child-related issues. So that Mr. McKnight's penalty liability can be recomputed, decision will be entered under Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 1:09 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