Flatt v. Commissioner, Docket No. 8982-84

• Decision Date: 30 September 1986
• Docket Number: 13418-84.,Docket No. 8982-84
• Parties: Hollis B. Flatt and Judy F. Flatt v. Commissioner. James K. Bailey and Cleta Sue Bailey v. Commissioner.
• Court: U.S. Tax Court

52 T.C.M. (CCH) 713 (1986)

T.C. Memo. 1986-495.

Hollis B. Flatt and Judy F. Flatt v. Commissioner.

James K. Bailey and Cleta Sue Bailey v. Commissioner.

Docket Nos. 8982-84, 13418-84.

United States Tax Court.

Filed September 30, 1986.

William Robert Pope, Jr., 230 Fourth Ave., Nashville, Tenn., for the petitioners in docket No. 8982-84. John B. Owens, Jr., 200 Fourth Ave., Nashville, Tenn., for the petitioners in docket No. 13418-84. Nancy W. Hale, for the respondent.

Memorandum Opinion

GUSSIS, Special Trial Judge:

These consolidated cases were assigned pursuant to section 7456(d) of the Internal Revenue Code of 1954 and Rules 180, 181 and 182, Tax Court Rules of Practice and Procedure.¹

Respondent determined the following deficiencies in income tax:

                Income Tax
                Petitioner Year Deficiency
                    Hollis B. and Judy F. Flatt .............................. 1980      $1,066
                      (Docket No. 8982-84)                                     1981       1,274
                    James K. and Cleta Sue Bailey ............................ 1980      $  860
                      (Docket No. 13418-84)                                    1981         730
                

The issue is whether the custodial or the noncustodial parent is entitled to dependency exemption deductions in 1980 and 1981 for their two minor children.

Some of the facts were stipulated and they are herein incorporated by this reference. Petitioners Hollis B. and Judy F. Flatt were residents of Gallatin, Tennessee at the time their petition herein was filed. Petitioners James K. and Cleta Sue Bailey were residents of Dickson, Tennessee at the time their petition herein was filed.

Judy F. Flatt and James K. Bailey were divorced in 1972 and Judy was awarded custody of their two minor children Cynthia and James Darrell. James was obligated to pay child support in the total amount of $40 per week. The divorce decree also provided, inter alia, as follows:

Mr. Bailey is to keep in effect the hospitalization insurance he has on the children at the present time. Mr. Bailey is to keep the Metropolitan Life Insurance policy of $5,000 in effect and to keep the children as beneficiaries on the life insurance policy.

It is agreed that if Mr. Bailey complies with this agreement in full that he will be the one to claim the two minor children for income tax purposes.

James Darrell Bailey resided with the custodial parent throughout 1980 and 1981. Cynthia Bailey resided with the custodial parent throughout 1980 and from January to sometime in June 1981 (after the end of the school year). She then resided with her father, James K. Bailey, from June 1981 through the end of the year. Petitioner James K. Bailey made support payments of $2,080 in 1980. After his daughter came to live in his residence in June 1981 he reduced the weekly $40 to $20 per week so that his total support payments in 1981 were in the amount of $1,520.

Section 151(e) allows an exemption for each dependent as defined in section 152. Section 152(a) defines the term "dependent" as any of certain specified individuals, including children, over half of whose support during the taxable year is paid by the taxpayer. However, section 152(e) provides a special support test in the case of divorced parents. Section 152(e)(1) provides as a general rule that the parent having custody of the child for the greater portion of the year is entitled to the dependency exemption for the child. Section 152(e)(2)(A) provides an exception to the general rule as follows:

(2) SPECIAL RULE. — The child of parents described in paragraph (1) shall be treated as having received over half of his support during the calendar year from the parent not having custody if —

(A)(i) the decree of divorce or of separate maintenance, or a written agreement between the parents applicable to the taxable year beginning in such calendar year, provides that the parent not having custody shall be entitled to any deduction allowable under section 151 for such child, and

(ii) such parent not having custody provides at least $600 for the support of such child during the calendar year ***

The custodial parent, Judy F. Flatt, contends that the noncustodial parent, James K. Bailey, failed to comply in full with the terms of the divorce decree and that she is therefore entitled to the dependency exemption for the two children in 1980 and 1981. Specifically, she contends that the noncustodial parent failed to maintain health insurance coverage for the two children, that he failed to maintain a life insurance policy with his children as beneficiaries and that he routinely delayed payment of the requisite weekly child support payment.

In McClendon v. Commissioner Dec. 36,867, 74 T.C. 1 (1980), this Court stated that the overriding purpose of section 152(e)(2)(A) was to provide certainty to the parties and that we would not subvert the intent of the statute by adding an "implied exception" when the party entitled to the exemption is not in compliance with the divorce decree. However, where a divorce agreement conditions the claim for dependency exemptions upon the performance of specific obligations, it is appropriate for this Court to determine if, in fact, the party obligated to meet such conditions has fully complied. See Flautt v. Commissioner Dec. 40,001(M), T.C. Memo. 1983-172. The record shows that petitioner provided hospitalization insurance under a...