Armstrong v. Comm'r

• Decision Date: 19 December 2012
• Docket Number: Docket No. 28738-09,139 T.C. No. 18
• Parties: BILLY EDWARD ARMSTRONG AND PHOEBE J. ARMSTRONG, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

BILLY EDWARD ARMSTRONG AND PHOEBE J. ARMSTRONG, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

139 T.C. No. 18

Docket No. 28738-09

UNITED STATES TAX COURT

Filed December 19, 2012

P-H was divorced, and his ex-wife had custody of their son C.E. A May 2003 arbitration award, a June 2003 State court order, and a March 2007 State court order provided that P-H would be entitled to the dependency exemption for C.E. (and the March 2007 order explicitly required his ex-wife to execute in his favor a Form 8332, "Release of Claim to Exemption for Child of Divorced or Separated Parents"), on the condition that P-H pay child support for C.E. P-H paid the full amount of child support throughout 2007, but his ex-wife failed to provide the executed Form 8332.

P-H remarried. Ps timely filed their joint 2007 Federal income tax return, attaching the May 2003 arbitration award. During an examination of that return, Ps also provided R with P-H's 2003 and 2007 child support orders, the latter signed by P-H's ex-wife. R disallowed Ps' claim for a dependency exemption deduction for C.E. for tax year 2007.

Held: As a substitute for Form 8332, the State court order signed by P-H's ex-wife (C.E.'s custodial parent) does not comply with I.R.C. sec. 152(e)(2)(A), because it fails to unconditionally declare that the ex-wife "will not claim such child as a dependent" for the year at issue.

Billy Edward Armstrong and Phoebe J. Armstrong, for themselves.

Lisa R. Woods, for respondent.

GUSTAFSON, Judge:

The Internal Revenue Service (IRS) determined a deficiency of $1,510 in the 2007 Federal income tax of petitioners Billy Edward Armstrong and Phoebe J. Armstrong and an accuracy-related penalty of $302 pursuant to section 6662.¹ The Armstrongs petitioned this Court, pursuant to section 6213(a), to redetermine the deficiency and the accompanying penalty. The case is now before the Court on the Commissioner's unopposed motion to submit the case without trial on the basis of the parties' stipulation of facts, pursuant to Rule 122. The issues for decision are whether the Armstrongs are entitled to a dependency exemption deduction and a child tax credit for Mr. Armstrong's son for the tax year 2007, and, if not, whether the Armstrongs are liable for an accuracy-related penalty on the resulting deficiency. We conclude that the Armstrongs are not entitled to the deduction and the credit, but that they are not liable for the penalty.

FINDINGS OF FACT

Mr. Armstrong is a truck driver. He and his former wife Dawn Delaney divorced, and in 2003 the couple agreed to resolve by arbitration unspecified questions regarding the support of their two children. The children stayed in Ms. Delaney's custody, but the arbitration resulted in a May 2003 "Arbitration Award" that granted to Ms. Delaney the tax exemption for "C.W." and to Mr. Armstrong the tax exemption for "C.E."² Under the arbitration award, Mr. Armstrong would get the dependency exemption for C.E. outright for tax years 2003 and 2004, but he would get it for later years, including 2007, only if he stayed current with child support. The arbitration award did not include a provision requiring Ms. Delaney to provide Mr. Armstrong with a Form 8332, "Release of Claim to Exemption for Child of Divorced or Separated Parents." (As we will explain below, Form 8332 is the document by which a parent who does not have custody of a child may nonetheless become entitled to claim a dependency exemption deduction for the child.) In June 2003 the Washington State courtoverseeing the divorce entered an "Agreed Order of Child Support on Arbitration" that incorporated this arbitration award and likewise did not require Ms. Delaney to give Mr. Armstrong a Form 8332.

In March 2007, for reasons not in the record, the Washington State court changed the June 2003 order. The March 2007 order contained the following provision:

3.17 INCOME TAX EXEMPTIONS.

Tax exemptions for the children shall be allocated as follows:

The Mother shall have the exemption for C[.W. and] the father shall have the exemption for * * * [C.E.] , as long as the father is current with his child support obligation for the tax year involved.

In reviewing whether or not the father is current, he must have made all twelve of the tax year's child support payments by December 31st of that tax year.

If payments are current, the mother shall provide the father for each entitled year with an executed IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) or its equivalent not later than January 31st of the year immediately following the year for which the tax exemption is to be claimed. The purpose of this provision is to ensure prompt and regular payment of the child support obligation; therefore, exemptions lost by failure to be current on child support payments cannot later be claimed or asserted by subsequent payment of back payments or arrears, nor claimed as a set-off for unpaid support.

The parents shall sign the federal income tax dependency exemption waiver. [Emphasis altered.]

Ms. Delaney signed the March 2007 order.

By 2007 Mr. Armstrong had remarried. He had consistently made his child support payments required under the State court's orders. But Ms. Delaney nonetheless failed to give him an executed Form 8332 for 2007. Lacking that form, the Armstrongs attached a copy of the 2003 arbitration award to their timely filed joint 2007 Federal income tax return.

The IRS examined that 2007 return. During the course of the audit, the Armstrongs sent to the IRS copies of the 2003 and 2007 child support orders, the latter of which had been signed by Ms. Delaney. The Commissioner nonetheless rejected the Armstrongs' claim for a dependency exemption deduction and a child tax credit for C.E., because the award and orders were "condition[al]" upon Mr. Armstrong's staying current with his support obligations. The IRS also determined an accuracy-related penalty. The Armstrongs timely petitioned this Court, and at that time they resided in South Dakota. The parties stipulated the facts and submitted the case for decision without trial.

OPINION

I. Dependency exemption deduction claims under section 152

An individual is allowed a deduction for exemption for "each individual who is a dependent (as defined in section 152) of the taxpayer for the taxable year." Sec. 151(c). Section 152(a) defines the term "dependent" to include "a qualifying child". Generally, a "qualifying child" must: (i) bear a specified relationship to the taxpayer (e.g., be a child of the taxpayer), (ii) have the same principal place of abode as the taxpayer for more than one-half of such taxable year, (iii) meet certain age requirements, and (iv) not have provided over one-half of such individual's support for the taxable year at issue. Sec. 152(c)(1). Under those provisions, Mr. Armstrong could not claim C.E. as a dependent for 2007 because they did not have the same place of abode for more than one-half of the year.

However, in the case of divorced parents, special rules determine which parent may claim a dependency exemption deduction for a child. See sec. 152(e); Espinoza v. Commissioner, T.C. Memo. 2011-108; cf. sec. 152(c)(4). Pursuant to section 152(e), when certain criteria are met, a child like C.E. may be treated as a qualifying child of the noncustodial parent (here, Mr. Armstrong) rather than of thecustodial parent (Ms. Delaney).³ Sec. 152(e)(1); 26 C.F.R. sec. 1.152-4T(a), Q&A-2, Temporary Income Tax Regs., 49 Fed. Reg. 34459 (Aug. 31, 1984). C.E. could be the qualifying child of Mr. Armstrong, under section 152(e)(1) and (2), if--

• The "child receives over one-half of the child's support during the calendar year from the child's parents * * * who are divorced * * * under a decree of divorce", sec. 152(e)(1)(A);

• such child was "in the custody of 1 or both of the child's parents for more than one-half of the calendar year", sec. 152(e)(1)(B);

• "the custodial parent signs a written declaration (in such a manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year", sec. 152(e)(2)(A); and

• "the noncustodial parent attaches such written declaration to the noncustodial parent's return" for the appropriate taxable year, sec. 152(e)(2)(B).

This case turns on whether Mr. Armstrong is able to show compliance with the third of these criteria⁴--i.e., whether Ms. Delaney ever signed a declaration that she "will not claim such child as a dependent".

The IRS's Form 8332 provides an effective and uniform way for a custodial parent to make the declaration required in section 152(e)(2)(A) for the benefit of the noncustodial parent. But a noncustodial parent like Mr. Armstrong may also rely on an alternative document, provided that it "conform[s] to the substance" of Form 8332.⁵ See 26 C.F.R. sec. 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., supra. In particular, for tax years including the year at issue here, a court order that has been signed by the custodial parent may satisfy section 152(e)(2)(A) as the noncustodial parent's declaration if the document "conform[s] to thesubstance" of Form 8332.⁶ See Briscoe v. Commissioner, T.C. Memo. 2011-165 (concluding that the court order attached with the return did not conform with the substance of Form 8332); cf. Boltinghouse v. Commissioner, T.C. Memo. 2003-134 (holding a separation agreement conformed with the substance of Form 8332).

A basic element necessary for satisfying section 152(e)(2)(A) is a custodial parent's declaration that she "will not claim" the child as a dependent for a taxable year. A custodial parent accomplishes this on a Form 8332 with the following statement: "I agree not to claim * * * for the tax year". This statement is unconditional; and in order for a document to comply with the substance of Form 8332 and ultimately section 152(e)(2)(A), the declaration on the document...