Labay v. Comm'r of Internal Revenue
| Decision Date | 05 October 1970 |
| Docket Number | Docket No. 3868-69. |
| Citation | 55 T.C. 6 |
| Parties | ALLEN F. LABAY AND GENEVIEVE M. LABAY, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harry G. Dippel, for the petitioners.
W. Read Smith, for the respondent.
Held: 1. Petitioners are not entitled to deductions for dependency exemptions for two minor children in 1966 because they did not provide more than half of their total support under sec. 152(a)(1), I.R.C. 1954.
2. Petitioners, who provided over $1,200 for child support in 1967, are not entitled to deductions for dependency exemptions for two minor children not in their custody because the evidence adduced through the records and testimony of the children's mother, the parent having custody, clearly established that under sec. 152(e)(2)(B)(ii), I.R.C. 1954, she provided more for the support of the children in 1967 than the petitioners.
Respondent determined deficiencies in petitioners' Federal income taxes for the years 1966 and 1967 in the amounts of $325.02 and $336, respectively. The issue is whether petitioners are entitled to deductions for dependency exemptions for Allen F. Labay's two minor children, by a prior marriage, who were in the custody of their mother during the years in question. For the year 1967 we must consider the effect of section 152(e).1
Some of the facts were stipulated by the parties. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Allen F. Labay and Genevieve M. Labay are husband and wife who filed their joint Federal income tax returns for 1966 and 1967 with the district director of internal revenue at Austin, Tex. They were residents of Houston, Tex., at the time they filed their petition herein. ‘Petitioner’ shall refer to Allen F. Labay.
Petitioner was divorced from Deana Frances Labay under a decree of the 151st Judicial District Court of Harris County, Tex., on September 24, 1956. Under the terms of the decree, custody of the minor children, Allen Dean Labay, a boy born October 8, 1952, and Morgan Lea Labay, a girl born October 27, 1955, was granted to the mother, now Deana Frances Sherman.
Pursuant to the divorce decree, petitioner paid through the Probation Department of Harris County, Tex., child support in the amount of $1,925 in 1966 and $1,820 in 1967.
Following a contempt hearing on December 14, 1964, the 151st Judicial District Court of Harris County, Tex., entered an order on February 10, 1965, directing petitioner to pay $750 in arrearages through the Harris County Probation Department. Pursuant to that order, petitioner paid to Deana Frances Sherman $120 principal and $18.96 interest in 1966, and $120 principal and $12.96 interest in 1967.
The gross income reported on the returns of Darrell R. and Deana F. Sherman was $12,818.61 in 1966 and $13,082.65 in 1967.
The total support for Allen Dean Labay and Morgan Lea Labay in 1966 was as follows:
+-------------------------------------------------+
¦Item ¦Allen ¦Morgan Lea ¦
+---------------------------+--------+------------¦
¦Lodging, utilities ¦$428.57 ¦$428.57 ¦
+---------------------------+--------+------------¦
¦Food ¦525.00 ¦525.00 ¦
+---------------------------+--------+------------¦
¦Clothing, cleaning, jewelry¦645.33 ¦857.51 ¦
+---------------------------+--------+------------¦
¦Medical, dental ¦175.70 ¦174.20 ¦
+---------------------------+--------+------------¦
¦Grooming ¦18.00 ¦80.50 ¦
+---------------------------+--------+------------¦
¦Entertainment, allowance ¦433.86 ¦221.45 ¦
+---------------------------+--------+------------¦
¦Transportation ¦57.44 ¦57.44 ¦
+---------------------------+--------+------------¦
¦School expenses ¦67.92 ¦67.92 ¦
+---------------------------+--------+------------¦
¦Four-H ¦100.05 ¦100.05 ¦
+---------------------------+--------+------------¦
¦Babysitters ¦19.50 ¦19.50 ¦
+---------------------------+--------+------------¦
¦ ¦ ¦ ¦
+---------------------------+--------+------------¦
¦ ¦2,471.37¦2,532.14 ¦
+-------------------------------------------------+
The total support for Allen Dean Labay and Morgan Lea Labay in 1967 was as follows:
+----------------------------------------------+
¦Item ¦Allen ¦Morgan Lea ¦
+------------------------+--------+------------¦
¦Lodging, utilities ¦$419.10 ¦$419.10 ¦
+------------------------+--------+------------¦
¦Food ¦525.00 ¦525.00 ¦
+------------------------+--------+------------¦
¦Clothing, cleaning, etc ¦533.36 ¦661.06 ¦
+------------------------+--------+------------¦
¦Medical, dental ¦209.64 ¦115.17 ¦
+------------------------+--------+------------¦
¦Grooming ¦18.00 ¦137.00 ¦
+------------------------+--------+------------¦
¦Entertainment, allowance¦411.12 ¦155.96 ¦
+------------------------+--------+------------¦
¦Transportation ¦61.23 ¦61.23 ¦
+------------------------+--------+------------¦
¦School expenses ¦63.46 ¦68.09 ¦
+------------------------+--------+------------¦
¦Gifts ¦50.00 ¦50.00 ¦
+------------------------+--------+------------¦
¦ ¦2,290.91¦2,192.61 ¦
+----------------------------------------------+
Petitioners provided less than half of the children's total support in 1966 and 1967.
OPINIONAt issue are the dependency exemptions for the two children in 1966 and 1967. The 2 years straddle a change in the law regarding the ‘support test’ for children of divorced parents, so it is necessary to discuss each year separately. But we will first dispose of two preliminary issues.
First, petitioner offered in evidence, for the purpose of demonstrating inconsistencies in Deana Sherman's testimony and impeaching her credibility, certain documents submitted by her to respondent and other documents prepared by respondent during consultation with her. Treasury Department Form 2038 ‘Information to Support Exemption Claimed for Dependent on Federal Income Tax Return,‘ for 1966 and 1967, and other forms executed by an auditor entitled ‘Itemized Statement of Expenditures on Which Claim of Dependent's Support is Based,‘ for 1966 and 1967, are involved. We conclude that the documents are admissible. For the year 1966, the document is entitled to little, if any, weight because Deana Sherman was given no opportunity to testify with respect to it. For the year 1967, the audit figures had been made available to petitioner's counsel for the purpose of eliciting her testimony and she was questioned about the figures in some detail. Mrs. Sherman did explain the discrepancies between her testimony and the document, saying that ‘when I went back for a more thorough investigation, then I had all of my cancelled checks.’ See sec. 152(e)(3).
Second, during 1966 and 1967 petitioner paid current child support, plus arrearages, under court order. He contends that the arrearages should be counted as support in 1966 and 1967. In Thomas Lovett, 18 T.C. 477 (1952), we held that arrearages paid in addition to current child support did not count as child support in the year of payment. In Frank P. Gajda, 44 T.C. 783 (1965), we held that where payments did not exceed current child support obligations, the amount of the taxpayer's contribution would not be reduced by arrearages if the money was actually spent for support. The rule in Lovett prevents a father from claiming exemptions, to which he might not ordinarily be entitled, by shifting child support from one year to another. On the other hand, the Gajda case provides that he will not lose the exemption merely because he is in arrears. The contrary rule might discourage him from making current payments. Petitioner herein falls under the Lovett rule. His arrearage payments were not child support in 1966 and 1967.
1. The Law Applicable to the Year 1966.— Section 152(a),2 which was controlling in 1966, defined a dependent as a child or other specified person, ‘over half of whose support * * * was received from the taxpayer. Thus, it is petitioner's burden to establish not only what amount he contributed toward the support of his children, but he must also show in some way that it exceeded one-half of their total support. Aaron F. Vance, 36 T.C. 547, 549 (1961). Ordinarily in a case such as this, where only the father is before the Court, he faces the exceedingly difficult, if not impossible, burden of establishing total support through the uncooperative mother. Where respondent has allowed the dependency exemptions to the mother, there is no compulsion (except by subpoena) for the mother to appear as a witness. The petitioner in this case had the mixed fortune of having his former wife appear as a witness. Fortunately, he was able to establish total support; but unfortunately for him the total support shown was more than twice the amount of his contribution.
2. The Law Applicable to the Year 1967.— Section 152(e),3 which applies in 1967, was enacted partly because the Internal Revenue Service found itself ‘in the position of an unwilling arbiter between the contending parties * * * hampered by the provisions of existing law which prohibit disclosure to either parent by the Service of information concerning the support (and the amount thereof) which the other claims to have contributed.’ H.Rept.No. 102, 90th Cong., 1st Sess. (1967¢, 1967-2 C.B. 591. In addition to being unjust to taxpayers who were unable to establish total support, the existing law imposed a heavy administrative burden upon respondent. As many as 5 percent of the cases handled at the informal conference level involved primarily this...
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