IRS Income Tax Credit – IRS Tax Court Case Review – Los Angeles Tax Attorney

Long Beach Tax Attorney:

Here is a quick summary of a recent US TAX COURT case against the Internal Revenue Service to challenge whether a minor’s relative may claim a tax credit.

HENRY LEE SCOTT v.
COMMISSIONER OF Internal Revenue Service

Tax Problem:

The issue for decision is whether taxpayer’s nephew and niece were his qualifying children for purposes of the earned income tax credit (EITC) provided by section 32.

Applicable Internal Revenue Code:

Internal Revenue Code §32(a)(1) allows an eligible individual an earned income credit against the individual’s income tax liability. The credit is increased if the taxpayer has any qualifying children
Internal Revenue Code §32(c)(3)(A). §152(c)(1)(B) sets forth the requirement that a qualifying child have “the same principal place of abode as the taxpayer for more than one-half” of the taxable year.

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Principal Place of Residence Determines the Tax Credit

During 2004, 2005, and 2006, petitioner’s sister, Tameka Henderson, and her five children under the age of 19 resided in rented dwellings pursuant to written leases governed by the regulations of the Tennessee Low Income Housing Tax Credit Division. The leases each required that the premises be occupied only by the identified members of the household, which were Henderson and her five children. The leases covered property on Patton Street in Memphis in 2004 and 2005, and Walker Avenue in Memphis in 2006 to 2007. Taxpayer began living with Henderson when he was a teenager, after their mother died. In 2004, taxpayer was 31 years old. He lived with his sister and her children during at least part of 2004 and 2006, even though his name was never listed on the leases. The father of the children died in January 2004. Taxpayer contributed toward support of the children and was available as an emergency contact on records of the children’s schools. On his Federal income tax returns for 2004 and 2006, taxpayer listed one nephew and one niece as dependents and as qualifying children for purposes of the Earned Income Tax Credit. His return for 2004 used the Patton Street address as his address. His return for 2006 used an address on South Fourth in Memphis as his address. The petitions filed in these cases used Walker Avenue as taxpayer’s address. As of October 2007, taxpayer no longer used the Walker Avenue address.

US TAX COURT RULING
It is not improbable that taxpayer lived with Henderson and her children contrary to the terms of the leases. It is likely that after the death of the children’s father in January 2004, taxpayer assumed a paternal role toward his nephews and his niece as well as making payments toward their support. For 2004, therefore, we conclude that taxpayer and the children had the same place of abode for most of the year, that he cared for them as his own, and that they are qualifying children for purposes of the EITC. For 2006, however, there is other evidence suggesting that taxpayer maintained an address separate from Henderson’s. Because neither taxpayer nor Henderson adequately explained when he or they lived at the South Fourth address, we cannot conclude that taxpayer and the children shared the same abode for more than half of that year. Taxpayer’s nephew and niece are not qualifying children for 2006.