Ada R. Santos v. Commissioner , 2011 T.C. Summary Opinion 108 ( 2011 )

T.C. Summary Opinion 2011-108UNITED STATES TAX COURT
ADA R. SANTOS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23737-10S. Filed September 12, 2011.
Ada R. Santos, pro se.
Mark H. Howard, for respondent.
SWIFT, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
All section references are to the Internal Revenue Code in
effect for the year in issue.
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this opinion shall not be treated as precedent for any other
case.
Respondent determined a deficiency of $2,389 in petitioner’s
2009 Federal income tax.
The issues for decision are: (1) Whether petitioner is
entitled to a dependency exemption deduction; (2) whether
petitioner may claim head of household filing status; and (3)
whether petitioner is entitled to an earned income credit of
$3,043. The trial of this case was held on April 4, 2011, in
Salt Lake City, Utah.
Background
Some of the facts have been stipulated and are so found.
In 2009 petitioner lived in North Salt Lake, Utah, with her
adult son Walter Garcia (Walter).
In 2009 Walter received $5,430 in Social Security benefits
and some Medicaid benefits from the Utah Department of Health.
The record does not indicate the amount of Medicaid benefits
Walter received.
During 2009 petitioner made monthly mortgage loan payments
on the home in which she and Walter lived, and she paid related
property taxes, a homeowner’s insurance premium, and food and
household item expenses. Petitioner also paid home utility
expenses for electricity and natural gas and other miscellaneous
items relating to the maintenance of the home.
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The following table reflects amounts billed to and paid by
petitioner in 2009 relating to the home:
Expense Amount Billed Amount Paid
Mortgage $19,654 $19,654
Property taxes 1,550 1,550
Home insurance 540 540
Food and
household items 3,220 3,220
Electricity 699 578
Natural gas 596 593
Other 524 476
Total 26,783 26,611
Walter was born in 1969 and during 2009 qualified as
permanently and totally disabled. See secs. 22(e)(3),
152(c)(3)(B).
On her 2009 Federal income tax return filed with respondent,
petitioner reported $9,804 of income, and she claimed a
dependency exemption deduction with respect to Walter, head of
household filing status, and an earned income tax credit of
$3,043. On audit, respondent disallowed the claimed dependency
exemption deduction, head of household filing status, and earned
income tax credit.
Discussion
Dependency Exemption Deduction
Legislative changes enacted in 20042 relaxed the rules
applicable to dependency exemptions relating to a “qualifying
2
See Working Families Tax Relief Act of 2004, Pub. L. 108-
311, sec. 201, 118 Stat. 1169.
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child” of a taxpayer. See sec. 152(c). Respondent’s arguments
and brief do not take into account this less restrictive
dependency exemption applicable to a qualifying child.3
A qualifying child means an individual who: (1) Bears a
qualifying relationship to the taxpayer (e.g., a child of the
taxpayer); (2) has the same principal place of abode as the
taxpayer for more than one-half of the taxable year; (3) meets
the age requirement of section 152(c)(3);4 (4) has not provided
over one-half of his or her own support for the taxable year; and
(5) has not filed a joint return with his or her spouse, if any.
Sec. 152(c)(1). There is no longer a requirement that a parent
claiming a dependency exemption for a qualifying child have
provided over one-half of the total support for the child.
Generally, in determining the total cost of support, all
sources of support are included. Sec. 1.152-1(a)(2)(i), Income
Tax Regs. The term “support” includes items such as “food,
shelter, clothing, medical and dental care, education, and the
like.” Id. The value of government benefits normally excludable
3
Respondent argues that petitioner must show that she
furnished over half of her son’s total support for the year.
That rule, however, is applicable only to years before 2005 and,
beginning in 2005, only to claimed dependency exemptions that
relate to “qualifying relatives” other than a qualifying child.
See sec. 152(b), (d).
4
Walter meets the special rule for disabled persons under
sec. 152(c)(3)(B) and thus satisfies the age requirement for a
qualifying child.
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from income (e.g., Social Security benefits) may be included in
the term “support”. See Turecamo v. Commissioner, 554 F.2d 564,
569 (2d Cir. 1977), affg. 64 T.C. 720 (1975); sec. 1.152-
1(a)(2)(ii), Income Tax Regs.
At trial petitioner credibly testified, and we so find, that
the $26,611 in household-related expenses petitioner paid in 2009
represented expenses of both petitioner and Walter; i.e., that a
portion of petitioner’s 2009 expenses is allocable to or
benefited Walter and, accordingly, represents support petitioner
provided to Walter in 2009.
Respondent argues that the Medicaid benefits Walter received
also need to be included in the computation of Walter’s total
support, and because petitioner has not established that amount,
respondent argues that petitioner has not established the total
amount of Walter’s support.
We, however, have acknowledged that payments received under
Medicaid are not necessarily included in determining the support
of a claimed dependent. In Archer v. Commissioner, 73 T.C. 963(1980), Medicaid payments received were held not to involve
ordinary support for the mother of the taxpayer. The Court
noted:
To require that Medicaid payments be included in
the support equation * * * means that those individuals
whose parents are the neediest will be the least likely
to get a dependency exemption for supporting * * *
[their parents]. This * * * seems exceedingly unfair
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and contrary to the basic thrust of the Medicaid
program itself.
Id. at 971.
On the limited record before us, we find it appropriate to
exclude Medicaid benefits Walter received in calculating the
total amount of Walter’s 2009 support.
Respondent argues that the proper measure of the housing,
food, and clothing petitioner provided to Walter is the “value”
thereof, which is not necessarily the same as what petitioner
paid therefor. Respondent thus argues that we cannot calculate
the total amount of Walter’s support.5
In determining whether a qualifying child has provided more
than half of his or her own support, the amount of support
provided by the child is compared to the total amount of support
available to the child. However, we have explained that “a
taxpayer is not precluded from being entitled to a dependency
exemption simply because he is not able to prove conclusively the
total cost of the child’s support”. Stafford v. Commissioner, 46
T.C. 515, 517 (1966).
5
Respondent notes that petitioner reported only $9,804 in
adjusted gross income on her 2009 Federal income tax return and
questions how petitioner could actually have paid the expenses
she claims. There are a number of possible explanations for the
source from which petitioner paid the expenses (e.g., savings).
Whatever the source, we accept petitioner’s testimony that she
paid $26,611 in household-related expenses in 2009.
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On the bases of the record before us and petitioner’s
credible testimony, we find that in 2009 petitioner paid $26,611
in household expenses, that these expenses supported both herself
and Walter, and that one-half of these expenses is properly
treated as support petitioner provided to Walter. Only
petitioner and Walter lived in petitioner’s home, and it is
reasonable to treat these expenses as providing support to
petitioner and also to Walter.
For purposes of the claimed dependency exemption deduction
at issue and on the record before us, we conclude that petitioner
provided $13,305 to support Walter (one-half of $26,611) and
Walter provided either zero or $5,430 (depending on whether the
$5,430 in Social Security benefits Walter received is to be
treated as provided by Walter). In either case, Walter provided
less than one-half of his own support.
Petitioner is entitled to the claimed dependency exemption
deduction for Walter.
Head of Household Filing Status
Under section 1(b), a special tax rate applies to a taxpayer
who qualifies as a head of household. Section 2(b)(1)(A)(i)
provides that a taxpayer qualifies as a head of household if she
maintains a home that constitutes the principal place of abode of
a qualifying child (as defined in section 152(c)) for more than
one-half of the year. A taxpayer is considered as maintaining a
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household only if she pays over half of the expenses for the
household during the year. Sec. 2(b).
In light of our findings that during 2009 Walter was a
qualifying child and that petitioner paid all of the household
expenses, petitioner qualifies for head of household filing
status.
Earned Income Credit
Under section 32(a), a taxpayer may be entitled to an earned
income credit if she has a qualifying child or if the taxpayer
has, among other things, earned income for the year of $13,440 or
less. See Rev. Proc. 2009-21, sec. 3.06, 2009-16 I.R.B. 860.
As we have held, petitioner had a qualifying child, and she
therefore is entitled to the earned income credit for 2009.
To reflect the foregoing,
Decision will be entered
for petitioner.