Leonard v. Comm'r

T.C. Summary Opinion 2008-141
UNITED STATES TAX COURT
DANITA J. LEONARD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12719-07S. Filed November 4, 2008.
Danita J. Leonard, pro se.
Veena Luthra, for respondent.
DAWSON, 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
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended and in effect for the
year at issue, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case.
Respondent determined a $5,953 deficiency in petitioner’s
Federal income tax for 2005. After a concession by respondent,2
the issues for decision are whether petitioner is entitled to the
following: (1) Dependency exemption deductions for a friend,
Belinda Pearson, and Ms. Pearsons’ two minor grandchildren, A.P.
and J.P.;3 (2) a child care credit for J.P.; (3) a child tax
credit and an additional child tax credit for A.P. and J.P.; (4)
an earned income credit; and (5) an education credit.
Background
Some of the facts have been stipulated. The stipulation and
accompanying exhibits are incorporated herein by this reference.
Petitioner resided in Virginia when the petition was filed.
In 2005 petitioner was unmarried. She was employed as a
correctional officer. On her Federal income tax return for 2005,
which was prepared by H&R Block Eastern Enterprises I, petitioner
filed as a head of household, reported adjusted gross income of
$29,507, and claimed dependency exemption deductions of $3,200
2
Respondent concedes that petitioner is entitled to head of
household filing status, thus resulting in an increase in
petitioner’s standard deduction to $7,300 from $5,000.
3
The Court uses initials when referring to minor children.
See Rule 27(a)(3).
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each for Belinda Pearson (Ms. Pearson) and for A.P. and J.P., who
were listed as petitioner’s foster children; a child care credit
of $810 for J.P.; a child tax credit of $89 and an additional
child tax credit of $1,911; an earned income credit of $1,208;
and an education credit of $44.
Ms. Pearson is petitioner’s friend. A.P. and J.P., who were
6 and 3 years of age in 2005, are the children of Sheniqua Lee
Pearson and Jason P. Pearson. A.P. and J.P. are Ms. Pearson’s
grandchildren. A.P. and J.P. are not petitioner’s foster
children.
On March 10, 2004, the Juvenile and Domestic Relations
District Court of Williamsburg granted temporary legal and
physical custody of A.P. and J.P. to Ms. Pearson, which continued
until October 13, 2005, when a final order was entered giving
legal and physical custody of the grandchildren to her without
any visitation rights by their parents.
During the entire year 2005 Ms. Pearson, A.P., and J.P.
lived in petitioner’s rented apartment. The rent was $750 per
month. Ms. Pearson, who is disabled, has lived in petitioner’s
household for about 11 years. In 2005 her only source of income
was Social Security disability benefits of $7,908, which was used
in part to support herself and A.P. and J.P.
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J.P. attended child care at La Petite Academy in 2005 at a
total cost of $4,186. Most payments for his care were made by
check by petitioner, but some were made by Ms. Pearson.
Petitioner and Ms. Pearson pooled their financial resources
in 2005 to provide support for themselves and the two children,
A.P. and J.P. Petitioner had adjusted gross income of $29,507
and Ms. Pearson had $7,908 from Social Security disability
benefits, for a total of $37,415. Divided equally, the total
support for each occupant of the household was $9,354. Neither
petitioner nor Ms. Pearson had any other sources of income to
support themselves and the children. They received no support
from any Federal, State, or social service agencies. Petitioner
and Ms. Pearson received no food stamps or rent subsidies. The
father and mother of A.P. and J.P. provided nothing for the
children’s support.
The arrangement for supporting members of the household was
that petitioner would pay the apartment rent and Ms. Pearson
would pay other expenses until her Social Security benefits were
consumed, and then petitioner’s salary would be used to pay for
all other expenses. Thus, out of the total funds ($37,415)
available for the support of all household members, Ms. Pearson
provided 21 percent and petitioner provided 79 percent.
Therefore, petitioner provided more than 50 percent for the
support of Ms. Pearson, A.P., and J.P. in 2005.
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Ms. Pearson was not required to file a Federal income tax
return for 2005 and did not file one.
Petitioner’s employer, Virginia Peninsula Regional Jail,
required her to take a college course once every 2 years in order
to maintain her position as a corporal. She complied with the
job requirement by taking a college course in 2005 at a cost of
$218. She claimed a lifetime learning credit of $44 on Form
8863, Education Credits (Hope and Lifetime Learning Credits), on
her 2005 income tax return.
In the notice of deficiency respondent determined
petitioner’s filing status to be single rather than head of
household and reduced the standard deduction by $2,300; and
respondent disallowed the claimed dependency exemption deductions
for Ms. Pearson, A.P., and J.P., the child care credit for J.P.,
the child tax credit and additional child tax credit, the earned
income credit, and the education credit.
Discussion
Petitioner has the burden of proving that she is entitled to
the claimed dependency exemption deductions and other tax
benefits at issue in this case. See Rule 142(a).4
4
Petitioner has not claimed or shown that she meets the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue relating to her liability for
tax.
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1. Dependency Exemption Deductions
A taxpayer is entitled to claim a dependency exemption only
if the claimed dependent is a “qualifying child” or a “qualifying
relative” as defined under section 152(c) and (d). Sec. 152(a).
A qualifying child is defined as the taxpayer’s child,
brother, sister, stepbrother, or stepsister, or a descendant of
any of them. Sec. 152(c)(1) and (2). The term “child” includes
a legally adopted individual and a foster child placed in the
care of the taxpayer by an authorized placement agency or court
order. Sec. 152(f)(1). Neither A.P. nor J.P. is a qualifying
child because neither is related to petitioner and neither is her
adopted or foster child. Thus, to be petitioner’s dependents
they must be qualifying relatives. Likewise, Ms. Pearson must be
a qualifying relative to qualify as petitioner’s dependent.
An individual who is not a qualifying child may still, under
certain conditions, qualify as a dependent if he or she is a
qualifying relative. Sec. 152(a). Under section 152(d)(1), a
qualifying relative is an individual: (A) Who bears a qualifying
relationship to the taxpayer; (B) whose gross income for the year
is less than the section 151(d) exemption amount; (C) who
receives over one-half of his or her support from the taxpayer
for the taxable year; and (D) who is not a qualifying child of
the taxpayer or of any other taxpayer for the taxable year.
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Section 152(d)(2)(A)-(G) lists eight types of qualifying
relationships, seven of which involve various familial
relationships that do not cover petitioner’s claimed dependents.
The eighth type of qualifying relationship applies to an
individual, other than the taxpayer’s spouse, who has the same
principal place of abode as the taxpayer and is a member of the
taxpayer’s household for the taxable year. Sec. 152(d)(2)(H).
In order for an individual to be considered a member of a
taxpayer’s household, the taxpayer must maintain the household,
and both the taxpayer and the individual must occupy the
household for the entire taxable year. Sec. 1.152-1(b), Income
Tax Regs. A taxpayer maintains a household when he or she
furnishes more than one-half of the expenses for the household.
See sec. 2(b); Rev. Rul. 64-41, 1964-1 C.B. (Part 1) 84.
Respondent has conceded that petitioner qualifies for head
of household status and thereby has effectively conceded that
petitioner maintained the household for 2005. Clearly, Ms.
Pearson, A.P., and J.P. occupied the household for all of 2005,
and petitioner furnished more than one-half of the expenses for
the household. Accordingly, each of them satisfies the
qualifying relationship test pursuant to section 152(d)(2)(H).
In addition, we conclude on this record that petitioner
provided over one-half of the support for Ms. Pearson, A.P., and
J.P. for 2005. Furthermore, as members of the household, Ms.
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Pearson, A.P., and J.P. are considered to have received equal
parts of petitioner’s contributions as their support. See De La
Garza v. Commissioner, 46 T.C. 446 (1966), affd. per curiam 378
F.2d 32 (5th Cir. 1967). Just to make ends meet and provide for
the financial survival of their household, petitioner paid most
of their personal living expenses.
Respondent does not contend and the record does not show
that the gross income test is disputed. However, respondent
points out that it is likely that the children petitioner claimed
as her dependents are the qualifying children of Ms. Pearson and
therefore are not petitioner’s qualifying relatives under section
152(d)(1)(D). We disagree.
Section 152(d) defines a qualifying relative for whom the
taxpayer may claim a dependency exemption deduction under section
151(c). Section 152(d)(1)(D) provides that an individual is not
a qualifying relative of the taxpayer if the individual is a
qualifying child of any other taxpayer. We conclude, as the
Commissioner has recently done in Notice 2008-5, 2008-2 I.R.B.
256, that a taxpayer otherwise eligible to claim a dependency
exemption deduction for an unrelated child is not prohibited by
section 152(d)(1)(D) from claiming the deduction if the child’s
parent (or other person with respect to whom the child is defined
as a qualifying child) is not required by section 6012 to file an
income tax return and does not file an income tax return or files
an income tax return solely to obtain a refund of withheld income
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taxes. Ms. Pearson, who as the grandmother of A.P. and J.P.
could have claimed them as her qualifying children, was not
required to file, and did not file, an income tax return for
2005. See sec. 6012(a)(1)(A)(i). One-half of her Social
Security disability benefits of $7,908 for that year was less
than the base amount provided by section 86(c)(1)(A), so none of
her benefits were includable in gross income pursuant to section
86(a)(1). Thus, petitioner, not Ms. Pearson, was eligible to
claim and was entitled to the dependency exemption deductions for
A.P. and J.P. for 2005.5
2. Child Care Credit
Section 21(a) and (b)(2) generally provides for a child care
credit with respect to employment-related expenses that are
incurred to enable the taxpayer to be gainfully employed,
including expenses to care for a “qualifying individual”. With
exceptions not relevant here, a qualifying individual is
generally defined as an individual who is either a qualifying
child of the taxpayer (within the meaning of section 152(a)(1))
who has not turned 13 or a dependent of the taxpayer who is
physically or mentally incapable of caring for himself or herself
and shares the same place of abode with the taxpayer for more
than one-half of the taxable year. Sec. 21(b)(1).
5
We note that respondent does not contend that A.P. and
J.P. were the qualifying children of their parents, who abandoned
them and provided nothing for their support.
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As previously discussed, J.P. was not a qualifying child of
petitioner within the meaning of section 152(a)(1), but only a
qualifying relative under section 152(a)(2). Moreover,
petitioner does not allege and the record does not indicate that
either child is physically or mentally incapable of caring for
herself or himself. Although petitioner did pay most of the
employment-related expenses for the care of J.P. at La Petite
Academy, which enabled her to be employed, the claimed credit
must be disallowed because he was not her qualifying child under
the law. Accordingly, respondent’s determination on this issue
is sustained.
3. Child Tax Credit and Additional Child Tax Credit
Section 24(a) authorizes a child tax credit with respect to
each qualifying child of the taxpayer. A qualifying child means
an individual who meets the requirements of section 152(c) and
who has not attained the age of 17. Sec. 24(c)(1). Section
152(c) provides in pertinent part:
(1) In general.--The term “qualifying child”
means, with respect to any taxpayer for any taxable
year, an individual--
(A) who bears a relationship to the taxpayer
described in paragraph (2),
(B) who has the same principal place of abode
as the taxpayer for more than one-half of such
taxable year,
(C) who meets the age requirements of
paragraph (3), and
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(D) who has not provided over one-half of
such individual’s own support for the calendar
year in which the taxable year of the taxpayer
begins.
(2) Relationship.--For purposes of paragraph
(1)(A), an individual bears a relationship to the
taxpayer described in this paragraph if such individual
is--
(A) a child of the taxpayer or a descendant
of such a child, or
(B) a brother, sister, stepbrother, or
stepsister of the taxpayer or a descendant of any
such relative.
Neither A.P. nor J.P. satisfies the section 152(c)(2)
relationship test. Accordingly, they do not fit within the
meaning of qualifying child as defined by section 24(c).
Therefore, petitioner is not entitled to a child tax credit for
either A.P. or J.P. for 2005.
Petitioner claimed an additional child tax credit on the
basis of A.P. and J.P. as qualifying children for taxable year
2005. Subject to limitations on the basis of adjusted gross
income, a taxpayer is allowed for the year a child tax credit
with regard to each qualifying child of the taxpayer. Sec.
24(a). A portion of the child tax credit may be refundable as an
additional child tax credit if the taxpayer has an unused child
tax credit. Sec. 24(d).
Therefore, since there is no unused child tax credit,
petitioner is also not entitled to an additional child tax credit
for 2005 because A.P. and J.P. are not her qualifying children.
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4. Earned Income Credit
Section 32(a)(1) allows an “eligible individual” an earned
income credit against the individual’s income tax liability.
Section 32(a)(2) limits the credit allowed through a phaseout,
and section 32(b) prescribes different percentages and amounts
used to calculate the credit. The limitation amount is based on
the amount of the taxpayer’s earned income whether the taxpayer
has no children, one qualifying child, or two or more qualifying
children.
To be eligible to claim an earned income credit with respect
to a child, the taxpayer must establish that the child is a
qualifying child of the taxpayer as defined in section 152(c).
Sec. 32(c)(3)(A). Neither A.P. nor J.P. is a qualifying child
under section 152(c), as previously discussed.
Although petitioner is not eligible to claim an earned
income credit under section 32(c)(1)(A)(i) for one or more
qualifying children, she may be an eligible individual under
section 32(c)(1)(A)(ii). For 2005 a taxpayer is eligible under
this subsection only if his or her adjusted gross income was less
than $11,750. Rev. Proc. 2004-71, sec. 3.06, 2004-2 C.B. 970,
973. Petitioner’s adjusted gross income for 2005 was $29,507.
Therefore, she is not eligible for an earned income credit for
2005.
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5. Education Credit
Section 25A(c) provides in part:
SEC. 25A(c). Lifetime Learning Credit.--
(1) Per taxpayer credit.--The Lifetime Learning
Credit for any taxpayer for any taxable year is an
amount equal to 20 percent of so much of the
qualified tuition and related expenses paid by the
taxpayer during the taxable year (for education
furnished during any academic period beginning in
such taxable year) as does not exceed $10,000
($5,000 in the case of taxable years beginning
before January 1, 2003).
(2) Special rules for determining expenses.--
* * * * * * *
(B) Expenses eligible for lifetime learning
credit.--For purposes of paragraph (1),
qualified tuition and related expenses shall
include expenses described in
subsection(f)(1) with respect to any course
of instruction at an eligible educational
institution to acquire or improve job skills
of the individual.
Section 25A(f) provides in part:
SEC. 25A(f). Definitions.--For purposes of this
section--
(1) Qualified tuition and related expenses.--
(A) In general.--The term “qualified tuition
and related expenses” means tuition and fees
required for the enrollment or attendance
of--
(i) the taxpayer,
(ii) the taxpayer’s spouse, or
(iii) any dependent of the taxpayer with
respect to whom the taxpayer is allowed
a deduction under section 151,
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at an eligible educational institution for
courses of instruction of such individual at
such institution.
* * * * * * *
(2) Eligible educational institution.--The term
“eligible education institution” means an
institution--
(A) which is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the
enactment of this section, and
(B) which is eligible to participate in a
program under title IV of such Act.
In order to improve her job skills and maintain her position
as a corporal with the Virginia Peninsula Regional Jail,
petitioner took a college course at a qualified educational
institution in 2005 and paid the tuition expense of $218 as an
eligible student. She had adjusted gross income of less than
$50,000 for that year and claimed an exemption for herself. She
also reported a tax of $943 on line 28 of her Form 1040A, U.S.
Individual Income Tax Return. She claimed a $44 education credit
on her return using the lifetime learning credit. Respondent
disallowed the credit in the notice of deficiency on the ground
that “one or more dependent exemptions claimed on your return
have been disallowed.” This obviously was referring to the
dependency exemption deductions claimed for the children, A.P.
and J.P. That was incorrect. Petitioner claimed the credit for
the college course she had taken.
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We conclude on these facts that petitioner has met the
requirements for the lifetime learning credit. See sec. 1.25A-
4(c)(2), Example (1), Income Tax Regs. Therefore, respondent’s
determination on this issue is not sustained.
To reflect our disposition of the disputed issues and
respondent’s concession,
Decision will be entered
under Rule 155.