Petrie v. Commissioner
| Decision Date | 13 December 1995 |
| Docket Number | Docket No. 10286-94. |
| Citation | 70 T.C.M. 1566 |
| Parties | James A. Petrie IV v. Commissioner. |
| Court | U.S. Tax Court |
DINAN, Special Trial Judge:
This case was heard pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent determined deficiencies in petitioner's 1990 and 1991 Federal income taxes in the amounts of $2,587 and $1,183, respectively, and an addition to tax for late filing of the return in the amount of $699 for 1990.
After concessions by the parties,2 the issues for decision are: (1) Whether petitioner is entitled to claim head of household filing status for the years in issue; (2) whether petitioner is entitled to claim a mortgage interest rental expense for 1990; (3) whether petitioner may exclude rental income and is entitled to claim additional rental expenses for 1991; (4) whether petitioner may exclude from income one-half of his retirement income during the years in issue; and (5) whether petitioner is liable for the addition to tax pursuant to section 6651(a)(1) for his failure to file a timely 1990 Federal return.
Some of the facts have been stipulated and are so found. The stipulations of fact and attached exhibits are incorporated herein by this reference. Petitioner resided in Westminster, Colorado, on the date the petition was filed in this case.
Petitioner and his former wife were married for 30 years and six children were born of their marriage. Three of their six children were dependents of petitioner and his former wife during the years in issue under section 151. Petitioner and his former wife lived together in the family residence until January 5, 1991, when due to marital difficulties, petitioner moved from the family residence. The three dependent children and Ms. Petrie continued to reside in the family residence until March 1992. Among their marital assets, petitioner and Ms Petrie owned residential rental property in Mesa, Arizona (Arizona rental property).
On April 17, 1991, by Temporary Orders in and for the District Court, County of Arapahoe, State of Colorado (Temporary Orders) petitioner was ordered to make certain payments, including temporary child support payments and awarded temporary possession of certain personal marital property. The Temporary Orders considered the earning potential of petitioner and Ms. Petrie and considered petitioner's AT&T retirement income in arriving at its determinations. The Temporary Orders required petitioner to pay all expenses, including the first and second mortgage payments totaling approximately $340 per month on the Arizona rental property and directed that the rental property income of approximately $600 per month be paid directly to Ms. Petrie. The Temporary Orders were intentionally "phrase[d] * * * in terms of receipt of the proceeds from the Arizona rental property rather than a maintenance order". The Temporary Orders awarded Ms. Petrie temporary custody of the dependent children and required petitioner to pay child support in accordance with the State of Colorado guidelines.
By Final Orders dated January 3, 1992, in and for the District Court, County of Arapahoe, State of Colorado (Final Order), the Court entered a decree for dissolution of petitioner's and Ms. Petrie's marriage. The Final Orders awarded petitioner the family residence, and granted Ms. Petrie the right to remain in the family residence until August 1992. Ms. Petrie was awarded the Arizona rental property subject to the outstanding mortgages.
The Final Orders made reference to petitioner's AT&T retirement income as follows:
The Court finds that the Husband is the recipient of a pension from AT&T which was accumulated during the course of the marriage and is, therefore, marital property subject to division by this Court. From the evidence, the Court has determined that both parties have made substantial contributions during the course of the marriage, and that it would be inequitable to not grant the Wife any interest in the proceeds of this pension. From the testimony, the court finds the present amount being paid under the pension is $1,849.87 per month. It is ordered that the parties shall divide equally the income from the pension commencing March 1, 1992. [Emphasis added.]
Ms. Petrie and the three dependent children moved from the family residence to the Arizona rental property in March 1992.3 At that time, petitioner took possession of the family residence. After regaining possession of the family residence, petitioner first timely filed a 1991 joint Federal return and in May 1992 filed an unsigned 1990 joint Federal return.4
The 1990 joint Federal return claimed married filing jointly filing status, claimed a personal exemption for petitioner, an exemption for Ms. Petrie and three dependency exemptions. The 1990 joint Federal return reported petitioner's W-2 income, Ms. Petrie's Form W-2 income in the amount of $345.55, petitioner's AT&T retirement income in the amount of $20,408,5 a taxable IRA distribution, 100 percent of the Arizona rental property income in the amount of $5,500, and 100 percent of the Arizona rental property expenses in the amount of $3,799.6 When he filed his 1990 joint Federal return, petitioner paid taxes in the amount of $2,077, and estimated interest on late filing of $1,000 and disclosed his former spouse's failure to sign the return.
Petitioner later filed an amended 1990 Federal return in which he claimed head of household filing status, omitted the exemption amount for Ms. Petrie, omitted Ms. Petrie's Form W-2 income, and excluded the Arizona rental property income.
The notice of deficiency, based on petitioner's 1990 joint Federal return, changed petitioner's filing status to married filing separately, disallowed the exemption for Ms. Petrie, reduced petitioner's rental income by $2,750,7 and disallowed $2,629 of petitioner's rental expenses.
For 1991, petitioner initially timely filed a joint Federal return and claimed exemptions for himself and Ms. Petrie and three dependency exemptions. The 1991 joint Federal return reported petitioner's W-2 income, petitioner's AT&T retirement income, 100 percent of the income from the Arizona rental property in the amount of $6,000, and Arizona rental property expenses of $4,608.8
Petitioner amended his 1991 joint Federal return in which he claimed head of household filing status, omitted the exemption amount for Ms. Petrie, and excluded the Arizona rental property income.
The notice of deficiency, based on the 1991 joint Federal return disallowed the exemption amount for Ms. Petrie, reduced petitioner's reported rental income by $3,0009 and disallowed $2,30410 of petitioner's rental expense.
The first issue for decision is whether petitioner is entitled to use head of household filing status11 for the years in issue. Petitioner contends that he is entitled to claim head of household filing status as claimed on his 1990 and 1991 amended returns. Respondent contends that petitioner was married during the years in issue and because Ms. Petrie did not join in the filing of the returns, petitioner must claim married filing separately filing status.
Section 1 imposes a tax on the taxable income of individuals. The rate of tax depends on the taxpayer's filing status. Sec. 1(a) through (d). There are four filing categories for individual taxpayers: (1) Married filing a joint return; (2) unmarried head of household; (3) unmarried individual; and (4) married filing a separate return.
The marginal tax rates are lowest for married individuals filing jointly and they progressively increase for each category as follows: Head of household, individual, and married filing separately.
The threshold issue in determining filing status is to determine marital status. Marital status for purposes of filing a joint or separate return is determined under section 7703.
Under section 7703(a), a taxpayer who is "married" may be considered unmarried for tax purposes, if he is legally separated under a decree of divorce or separate maintenance or meets the requirements of section 7703(b).12
An individual is considered legally separated under a decree of divorce or separate maintenance if the decree "expressly and affirmatively provides that the parties live apart in the future". Capodanno v. Commissioner [Dec. 34,953], 69 T.C. 638, 646 (1978), affd. [79-2 USTC ¶ 9447] 602 F.2d 64 (3d Cir. 1979) (quoting Boettiger v. Commissioner [Dec. 23,260], 31 T.C. 477, 483 (1958)). A decree of support or temporary alimony which does not require separation is not considered a decree of divorce or separate maintenance within the meaning of section 7703(a). Dunn v. Commissioner [Dec. 35,176], 70 T.C. 361 (1978), affd. without published opinion 607 F.2d 995 (2d Cir. 1979).
Petitioner separated from Ms. Petrie on January 5, 1991. At the close of the 1990 tax year petitioner was married, lived with his former wife in the family residence, and does not qualify for head of household filing status.
Petitioner was separated from Ms. Petrie at the close of the 1991 tax year. First, we must consider whether the Temporary Orders constitute a decree of separate maintenance for purposes of section 7703. The Temporary Orders failed to provide that petitioner and Ms. Petrie live apart. The Temporary Orders constitute a temporary decree for support which does not satisfy the requirement that the parties be legally separated under a decree of divorce or separate maintenance. Dunn v. Commissioner, supra.
Secondly, petitioner did not maintain as his household a principal place of abode for a dependent child and accordingly does not meet the requirements of section 7703(b). Therefore, for 1991, petitioner was married for purposes of section 7703 and is not entitled to claim head of household filing status. Accordingly, respondent is sustained on this issue.
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