The opinion
T.C. Summary Opinion 2010-11
UNITED STATES TAX COURT
RUBEN ROBERTO FLORES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7507-08S. Filed January 27, 2010.
Ruben Roberto Flores, pro se.
Deborah Mackay, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
section references are to the Internal Revenue Code in
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effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency of $5,046 in petitioner’s
2005 Federal income tax. The issues for decision are whether
petitioner is entitled to: (1) Dependency exemption deductions
for two of his children; (2) head of household filing status; (3)
the refundable portion of the child tax credit; and (4) an earned
income credit.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time petitioner
filed his petition, he resided in Illinois.
Petitioner has a son, R.F.,1 from a relationship with Lisa
Cervantes (Ms. Cervantes). R.F. reached age 4 in 2005.
Petitioner also has a daughter, Dulce Flores (Ms. Flores), from a
relationship with Rosa Gonzalez (Ms. Gonzalez). Ms. Flores
reached age 18 in 2005. In the fall of 2005 Ms. Flores entered
her senior year of high school. Petitioner did not marry Ms.
Gonzales or Ms. Cervantes.
From January 2005 through March 2005 petitioner and his two
children, Ms. Flores and R.F., lived with petitioner’s sister in
1
The Court redacts the names of minor children. See Rule
27(a)(3).
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her residence. During these 3 months petitioner was unemployed
and had full-time custody of R.F. and Ms. Flores. Petitioner was
receiving unemployment benefits and used the benefits to support
his children and himself.
Upon securing employment with a contract landscaper for the
City of Chicago, petitioner entered into a lease agreement
effective April 1, 2005, for a one-bedroom apartment. The
agreement listed petitioner, Ms. Flores, and R.F. as occupants,
required a security deposit of $475, and provided for monthly
rent of $475.
In April 2005, because petitioner was working during the
weekdays, R.F. began living with Ms. Cervantes. At that time Ms.
Cervantes was unemployed and was receiving welfare benefits and
government-subsidized housing. In addition, Ms. Cervantes
received child support payments of approximately $50 per week
from petitioner, which were automatically withheld from his
unemployment benefits and from his salary when employed. Even
though Ms. Cervantes had physical custody of R.F. during the
weekdays, R.F. would stay with petitioner during the weekends.
Once petitioner’s employment ended in October, R.F. resumed
living with petitioner full time.
In contrast, Ms. Flores lived with petitioner throughout the
year. Petitioner paid for Ms. Flores’ housing, food, clothing,
transportation to and from school, and other necessities. The
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Court received into evidence a notarized statement from Ms.
Gonzalez stating that Ms. Flores lived with petitioner throughout
2005. Respondent conceded that petitioner had primary custody of
Ms. Flores for 2005. On occasion Ms. Gonzalez would take Ms.
Flores shopping and would give her nominal spending money.
During the summer Ms. Flores secured a job working part time
as a teller or teller-in-training at a local bank. In the fall
she continued working at the bank on an even more abbreviated
schedule after classes. Ms. Flores’ earnings were not large, and
petitioner encouraged her to save what she earned. Ms. Flores
used her savings to help pay for college, which she began in
2006, studying to become a nurse.
Petitioner did not keep records of the actual expenses he
paid to maintain his household. During the preparation of the
case for trial, in response to respondent’s request, petitioner
submitted a “Worksheet to Determine Support and Cost of
Maintaining a Household 2005” dated September 17, 2008, detailing
his household expenses for 2005. Respondent did not challenge
the accuracy of the worksheet, which showed the following
household expenses:
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Rent $4,975
Utilities 540
Telephone 590
Food 1,400
Clothing 1,200
Entertainment 600
Transportation 1,200
Other 360
Total 10,865
Petitioner calculated on the worksheet that the above
expenses totaled $11,535. Nothing in the record explains the
difference of $670 ($11,535 - $10,865). Petitioner also wrote on
the worksheet that other persons paid $300 of the $360 in other
household expenses. Thus, petitioner paid total expenses of
$10,565 ($10,865 - $300) during 2005 to maintain a household for
himself and his two children.
Petitioner has another, older, daughter, Vanessa Rivera,
living independently and not involved here, who prepared
petitioner’s 2005 Federal income tax return. Petitioner filed
his 2005 return as head of household, reported total income of
$12,735, and claimed two dependency exemption deductions, an
earned income credit, and an additional child tax credit, which
is the refundable portion of the child tax credit. The result
was an overpayment of $4,146, for which petitioner requested
direct deposit of the refund into his checking account.
Petitioner reported two items of income on his 2005 Federal
income tax return: Wages of $8,735 and business income of
$4,000. The wages are not at issue. However, with respect to
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the business income, petitioner attached to the return a Schedule
C-EZ, Net Profit From Business, reporting that his business was
daycare and listing his sister’s address as his business address.
Petitioner reported receipts of $4,000, no expenses, and self-
employment tax of $565 related to the business. Nothing in the
record shows that petitioner was in the daycare business. We
infer that the $4,000 is actually petitioner’s unemployment
income that he did not report elsewhere on the return.
Respondent issued a notice of deficiency changing
petitioner’s filing status to single and disallowing the
dependency exemption deductions, the earned income credit, and
the additional child tax credit.
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct, and the taxpayer bears
the burden of showing that the determination is in error. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Pursuant to section 7491(a), the burden of proof as to factual
matters shifts to the Commissioner under certain circumstances.
Petitioner has neither alleged that section 7491(a) applies nor
established his compliance with its requirements. Therefore,
petitioner bears the burden of proof.
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving his entitlement to a
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deduction. Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934). A taxpayer is required to maintain records
sufficient to establish the amounts of his or her income and
deductions. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
With respect to support, the law does not require a taxpayer
to provide precise amounts, but the taxpayer must provide
competent, convincing, or credible evidence to prove the total
amount of support for each dependent. Blanco v. Commissioner, 56
T.C. 512, 514 (1971); Seraydar v. Commissioner, 50 T.C. 756, 760
(1968). Credible evidence means evidence that a court would find
sufficient to make a decision if the record did not contain
contrary evidence and if the evidence did not include implausible
factual assertions or frivolous claims; thus, the evidence must
be worthy of the Court’s belief. Higbee v. Commissioner, 116
T.C. 438, 442 (2001).
I. Dependency Exemption Deductions
A taxpayer may be entitled to a dependency exemption
deduction for each of his or her dependents. Sec. 151(a), (c).
A dependent includes a “qualifying child” of the taxpayer. Sec.
152(a). In relevant part a qualifying child is an individual:
(1) Who bears a relationship to the taxpayer as described in
section 152(c)(2); (2) who has the same principal place of abode
as the taxpayer for more than one-half of the year; (3) who meets
the age requirements described in section 152(c)(3) specifying an
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individual under the age of 19; and (4) who has not provided over
one-half of his or her own support for the year. Sec. 152(c)(1).
We now apply the law to the facts to decide whether R.F. and Ms.
Flores are petitioner’s qualifying children for 2005.
A. Whether R.F. Is a Qualifying Child
R.F. is petitioner’s son, he reached age 4 in 2005, and
because of his age, he clearly did not provide more than one-half
(or any) of his own support. Therefore, the sole remaining
question with respect to R.F. is whether he shared the same
principal place of abode as petitioner for more than one-half of
2005.
Regarding this matter, we find petitioner’s testimony highly
credible. He offered to have his son testify (which the Court
declined because of the boy’s young age) that for 6 months of
2005 (the first 3 months and the final 3 months), while
petitioner was at home and unemployed, R.F. lived with
petitioner. During the other 6 months, April through October
2005, while petitioner was working as a landscaper, R.F. lived
with Ms. Cervantes during the weekdays and with petitioner during
the weekends. Thus, in aggregate, R.F. resided with petitioner
full time for 6 months, and for 2 days of every week during the
other 6 months. Hence, R.F. resided with petitioner for more
than one-half of the year.
For the foregoing reasons, R.F. satisfies the requirements
of section 152(c) to be petitioner’s qualifying child for 2005,
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and therefore petitioner is entitled to a dependency exemption
deduction for R.F.
B. Whether Ms. Flores Is a Qualifying Child
Ms. Flores is petitioner’s daughter, she became age 18 in
2005 and was therefore under age 19 at the close of the year, and
she resided with petitioner for more than one-half (namely all)
of 2005 as confirmed by the notarized letter from her mother, Ms.
Gonzalez, and as conceded by respondent. The sole remaining
issue then is whether because of her alleged earnings from her
job at the bank Ms. Flores provided more than one-half of her own
support. See sec. 152(c)(1)(D). We will now therefore apply the
support test to Ms. Flores’ situation.
With respect to the amount that Ms. Flores spent for her own
support in 2005, we begin by noting that the record does not
establish the amount Ms. Flores earned from her job at the bank
or the amount she spent for her own support in 2005. Petitioner
acknowledged that Ms. Flores worked for the bank; however, he
also testified that he provided almost all of Ms. Flores’ support
for 2005 and that he encouraged her to save her earnings. We
find petitioner’s testimony credible.
Ms. Flores’ situation bolsters petitioner’s testimony. Ms.
Flores was a senior in high school and needed to save money for
college, which she began in 2006. She worked for a bank, making
it convenient for her to save her wages. Petitioner paid for Ms.
Flores’ main needs: Housing, utilities, food, clothing,
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entertainment, and transportation to and from school. Ms.
Gonzalez also provided her some minimal support, occasionally
taking her shopping and giving her some spending money.
Respondent has not offered any evidence to refute
petitioner’s testimony. Respondent in his pretrial memorandum
stated that Ms. Flores filed a 2005 Federal income tax return
reporting wages of $4,374. Respondent later at trial conceded
that Ms. Flores did not file a 2005 Federal income tax return.
Respondent did not provide a transcript of account for Ms. Flores
and did not produce a copy of a 2005 Form W-2, Wage and Tax
Statement, for Ms. Flores from the bank where she worked during
2005.
Therefore, petitioner has met his burden, and respondent has
not proved or even attempted to prove otherwise. Accordingly,
the weight of the evidence clearly favors petitioner’s contention
that Ms. Flores did not provide over one-half of her own support
for 2005.
Consequently, because Ms. Flores meets all of the relevant
requirements of a qualifying child under section 152(c),
petitioner is entitled to claim her as a dependent for 2005.
II. Filing Status
As pertinent here, head of household filing status requires
that the taxpayer maintain a home that was the principal place of
abode of a qualifying child for more than one-half of the year.
Sec. 2(b)(1)(A). Additionally, head of household filing status
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is available only if the taxpayer furnished more than one-half of
the cost of maintaining that residence. Sec. 2(b).
Applying these requirements, we have already found that Ms.
Flores was petitioner’s qualifying child for 2005, she lived in
petitioner’s apartment for 9 months (April through December
2005), and petitioner furnished far more than one-half of the
cost of maintaining his household. Therefore, petitioner is
entitled to head of household filing status for 2005.
III. Refundable Child Tax Credit
Subject to adjusted gross income ceilings, not at issue
here, a taxpayer is entitled to a $1,000 credit against tax for
each qualifying child of the taxpayer. Sec. 24(a). For purposes
of this section, a qualifying child means an individual under age
17 who is a qualifying child of the taxpayer as defined in
section 152(c). Sec. 24(c)(1). The age restriction disqualifies
Ms. Flores. However, R.F. was age 4 in 2005 and satisfies the
other requirements of a qualifying child under section 152(c).
Generally, a taxpayer may not claim the child tax credit if
the taxpayer does not have a “regular tax liability”. Sec.
24(b)(3)(A); Richmond v. Commissioner, T.C. Memo. 2009-207.
Petitioner’s regular tax liability for 2005 was zero because his
income was less than the combination of his standard deduction
plus his deduction for three exemptions (himself and his two
qualifying children).
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Despite the above restriction, a separate provision allows a
taxpayer to receive a refund of a portion of the child tax credit
equaling 15 percent of the taxpayer’s earned income that exceeds
a certain floor. Sec. 24(d) (referring to section 32 for the
definition of earned income). For 2005, the inflation adjusted
floor was $11,000. Rev. Proc. 2004-71, sec. 3.04, 2004-2 C.B.
970, 972.
Petitioner’s earned income in 2005 was solely from his wages
of $8,735 because unemployment compensation, $4,000 in this case,
is not earned income. See sec. 1.32-2(c)(2), Income Tax Regs.
Accordingly, although petitioner did have one qualifying child,
R.F., that satisfied the requirements of the child tax credit,
petitioner did not have a regular tax liability to make him
eligible for the credit and he did not have sufficient earned
income to make him eligible for any part of the refundable
portion of the child care tax credit. We sustain respondent on
this issue.
IV. Earned Income Credit
Individuals may be eligible for an earned income credit,
calculated as a percentage of earned income, if they meet certain
criteria. Sec. 32(a)(1). For purposes of qualifying for the
earned income credit, an “eligible individual” is an individual
who has a “qualifying child” for the taxable year. Sec.
32(c)(1)(A). In pertinent part, a “qualifying child” is a child
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of the taxpayer that satisfies the requirements of section
152(c). Sec. 32(c)(3). As discussed above, Ms. Flores and R.F.
are petitioner’s qualifying children for 2005 under section
152(c). Therefore, petitioner is entitled to an earned income
credit for 2005 calculated with two qualifying children.
However, for purposes of the earned income credit, petitioner’s
earned income for 2005 was $8,735, not the $12,735 he reported,
because $4,000 of petitioner’s income was from unemployment
compensation, which is not earned income. See Jones v.
Commissioner, T.C. Memo. 1993-358; sec. 1.32-2(c)(2), Income Tax
Regs.
To reflect our disposition of the issues,
Decision will be entered
under Rule 155.