Frank v. Comm'r of Internal Revenue
| Citation | 77 T.C. 765 |
| Decision Date | 07 October 1981 |
| Docket Number | Docket No. 4735-80. |
| Parties | FRANK and RUTH MCGUIRE, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Husband and wife claimed a dependency exemption for the husband's son by a previous marriage. Petitioners secured health insurance covering the son. Petitioners claimed that proceeds from the health insurance policy, in addition to the premiums paid for the coverage, should be included in the sec. 152 support computation. Held: Premiums must be included in the sec. 152 support computation but proceeds must be excluded from the calculation. Consequently, petitioners were not entitled to the dependency exemption.
Petitioners also claimed depreciation and expense deductions for an unfinished rental unit which they never rented and never held out for rent. Held, deductions denied because the “rental activity” constituted an activity not engaged in for profit. Sec. 183, I.R.C. 1954. Frank and Ruth McGuire, pro se.
Frank R. DeSantis, for the respondent.
Respondent determined deficiencies in petitioners' income tax for the years 1977 and 1978, in the respective amounts of $457 and $170.1 Concessions having been made by the petitioners, the issues remaining for decision are: (1) Whether petitioners are entitled to a dependency exemption for the support of Robert McGuire in the year 1977; and (2) whether petitioners are entitled to deductions in 1977 and 1978 for depreciation and remodeling expenses for an unfinished rental unit which the petitioners never rented and never held out for rent.
Some of the facts have been stipulated. The stipulation and exhibits attached thereto are incorporated herein by reference.
Petitioners resided in Poland, Ohio, at the time the petition in this case was filed.
Petitioner Frank McGuire was married to Rose McGuire on May 15, 1950. Two children, James and Robert, were born of this marriage. On May 26, 1972, Frank McGuire and Rose McGuire were divorced. The divorce decree provided custody of the children to Rose McGuire and obligated Frank McGuire to pay Rose McGuire $100 per month per child in child support. The decree was silent as to who was entitled to claim the children as dependents for Federal income tax purposes.
During 1977, Robert McGuire lived with Rose McGuire. Robert was age 16 during 1977.
In 1972, petitioner Frank McGuire married petitioner Ruth McGuire.
Petitioners paid a total of $1,260 for the support of Robert during 1977, as follows:
+------------------------------------------------------------+
¦(1) Child support payments to Rose McGuire ¦$1,080.00¦
+--------------------------------------------------+---------¦
¦(2) Health insurance premiums applicable to Robert¦180.00 ¦
+--------------------------------------------------+---------¦
¦Total ¦1,260.00 ¦
+------------------------------------------------------------+
During 1977, Rose McGuire made the following payments for the support of Robert:
+------------------------------+
¦Lodging ¦$1,000.00¦
+--------------------+---------¦
¦Food ¦600.00 ¦
+--------------------+---------¦
¦Real property taxes ¦75.91 ¦
+--------------------+---------¦
¦Electricity ¦113.14 ¦
+--------------------+---------¦
¦Natural gas ¦126.49 ¦
+--------------------+---------¦
¦Water ¦35.16 ¦
+--------------------+---------¦
¦Telephone ¦71.40 ¦
+--------------------+---------¦
¦Home insurance ¦35.33 ¦
+--------------------+---------¦
¦Clothing ¦86.76 ¦
+--------------------+---------¦
¦Parochial school ¦483.00 ¦
+--------------------+---------¦
¦Tools (gift) ¦46.00 ¦
+--------------------+---------¦
¦Accident claim ¦125.00 ¦
+--------------------+---------¦
¦Car insurance ¦352.00 ¦
+--------------------+---------¦
¦Total: ¦3,150.19 ¦
+------------------------------+
Other sources for the support of Robert during 1977 included:
+-------------------------------+
¦Automobile payments2 ¦$818.00 ¦
+----------------------+--------¦
¦Robert's earnings ¦1,300.00¦
+----------------------+--------¦
¦Total: ¦2,118.00¦
+-------------------------------+
Robert was injured in an automobile accident during 1977. Medical expenses in the amount of $1,583 were incurred as a result of the accident. An insurer paid these expenses pursuant to a health insurance plan purchased by petitioner Frank McGuire.
Petitioners owned a house located at 7157 Youngstown-Pittsburgh Road, Poland, Ohio. They extensively renovated portions of the house during 1976 and 1977 with the expectation that they would rent the second floor as a separate living unit. Petitioners did not complete the renovation due to a lack of funds. The property was not rented or held out for rent from 1972 through July 1, 1980. Petitioners had no rental income during 1977 and 1978.
On audit, the Commissioner's agent told the petitioners that they were entitled to certain deductions concerning the house at 7157 Youngstown-Pittsburgh Road. The agent assisted the petitioners in the completion of the forms necessary to claim the deductions for the years 1977 and 1978.
Petitioners assert that they are entitled to a rental loss deduction of $1,008.42 for 1977. This loss is based on zero gross income from rental activity less a $382 depreciation claim and a $626.42 remodeling expenses claim. Petitioners also assert that they are entitled to a rental loss deduction of $382 for 1978. This loss is based on zero gross income from rental activities less a $382 depreciation claim.
Respondent disallowed these deductions in a statutory notice of deficiency dated February 13, 1980.
OPINIONIssue 1. Dependency Exemption
Section 151(e)(1)(B)3 permits a taxpayer to claim a dependency exemption for each dependent who is a child of the taxpayer and is under the age of 19. As a general rule, a child is a dependent of a taxpayer if the taxpayer furnishes more than one-half of the child's support. Sec. 152(a). However, special rules apply to children of parents who are divorced, legally separated under a decree of divorce or separate maintenance, or separated under a written separation agreement. Sec. 152(e).4
Section 152(e)(1) provides that the parent who has custody of the child for the greater portion of the year is entitled to the dependency exemption. There are two exceptions to this general rule, pursuant to which the parent not having custody is entitled to the exemption. The first of these exceptions grants the exemption to the parent not having custody if the decree of divorce or separate maintenance or a written agreement between the parents specifies that the noncustodial parent is entitled to the exemption, and if the noncustodial parent has contributed at least $600 to the support of the child during the year. Sec. 152(e)(2)(A).
The second exception provides that the noncustodial parent is s entitled to the exemption if he contributes $1,200 or more to the support of the child for the tax year in question and if the custodial parent does not clearly establish that the custodial parent provided more support during the year than did the noncustodial parent. Sec. 152(e)(2)(B). The words “clearly establish” impose a burden of proof on the custodial parent to demonstrate support contributions by a clear preponderance of the evidence. It does not impose the clear and convincing standard of proof. Sec. 1.152-4(d)(3), Income Tax Regs. See also Labay v. Commissioner, 55 T.C. 6 (1970), affd. per curiam 450 F.2d 280 (5th Cir. 1971). When, as here, the custodial spouse is not a party to the Tax Court proceedings, the burden falls upon the respondent to overcome the presumption favoring the noncustodial parent after the noncustodial parent demonstrates a $1,200 support contribution. Labay v. Commissioner, supra at 11.
The divorce decree which dissolved the marriage of Frank and Rose McGuire did not state who was entitled to claim the children as dependents for Federal income tax purposes. At trial, petitioner Frank McGuire alledged that Rose and he had made an oral agreement that he would get the dependency exemptions. Even if this evidence is accepted as true, an oral agreement would not help the petitioner. Section 152(e)(2)(A)(i) requires that a written agreement between the parents is necessary to effectively allocate a dependency exemption. See also Sheeley v. Commissioner, 59 T.C. 531 (1973). Therefore, petitioners must satisfy the requirements of section 152(e)(2)(B) to be entitled to the dependency exemption for Robert during 1977.5
Initially, petitioners must demonstrate that they provided $1,200 or more for Robert's 1977 support. Petitioners assert that they provided three types of support for Robert during 1977: (1) Support payments made to Rose McGuire; (2) health insurance premiums and proceeds paid for Robert's benefit during 1977; and (3) Robert's lodging for 1977. These support contributions will be discussed separately.
The parties stipulated that petitioner Frank McGuire paid Rose McGuire $765 in support payments for Robert during 1977. Canceled checks which were introduced into evidence demonstrate that these payments were made periodically from June 1 to December 31 of that year. At trial, Frank McGuire testified that he paid Rose McGuire an additional $315 for Robert's support during the first part of 1977. He claimed that the checks which would substantiate this additional amount were lost when his house was remodeled. We think that the evidence of 7 months of conscientious payment during the latter part of 1977 supports the inference that Frank McGuire made support payments to Rose McGuire earlier in the year. Also, our opportunity to view petitioner's...
To continue reading
Request your trial
-
Gardner v. Commissioner
...does not clearly establish that she provided more for the support of such child than the noncustodial parent. McGuire v. Commissioner Dec. 38,330, 77 T.C. 765, 769-770 (1981). And where, as here, the custodial parent is not before the Court and the noncustodial parent establishes the requis......
-
Weiss v. Comm'r
...Dixon v. United States, 381 U.S. 68, 72-73 (1965); Auto. Club of Mich. v. Commissioner, 353 U.S. 180, 183-184 (1957); McGuire v. Commissioner, 77 T.C. 765, 779-780 (1981). In short, neither the Commissioner nor the Court is constrained in this case by the "No Change" letter issued in respec......
-
Jones v. Commissioner
...Estate of Rockefeller v. Commissioner Dec. 41,505, 83 T.C. 368, 374 (1984), affd. 762 F.2d 264 (2d Cir. 1985); McGuire v. Commissioner Dec. 38,330, 77 T.C. 765, 778 (1981); Madison Gas & Electric Co. v. Commissioner Dec. 36,142, 72 T.C. 521, 566-567 (1979), affd. 80-2 USTC ¶ 9754 633 F.2d 5......
-
Dapice v. Commissioner
...occurred. In any event, respondent is not bound by the erroneous, inaccurate or incomplete advice of his agents. McGuire v. Commissioner Dec. 38,330, 77 T.C. 765, 779-780 (1981). II. Section 6501(a) generally provides that tax must be assessed within 3 years after the filing of a return or ......
-
Dependency exemption issues for college students.
...(5) Publication 17, Your Federal Income Tax (2009), Worksheet 3-1, Worksheet for Determining Support. (6) See McGuire, 77 T.C. 765 (7) Rev. Rul. 77-282, 1977-2 C.B. 52. (8) Id. (9) Abbott, 13 T.C.M. (CCH) 113(1954). (10) Moore, 13 T.C.M. (CCH) 65 (1954). (11) Rev. Rul. 58-67, 1958-1 C.B. 62......