That’s what Judge Swift Tells IRS’ Lawyers
The takeaway from Ada R. Santos, 2011 T.C. Sum. Op. 108, filed 9/12/11, is that lawyers, even IRS lawyers, should really read the law before writing their trial briefs.
The issues in Santos are the dependency deduction, EITC and HOH filing status. Ada supported her 100% disabled son Walter, who got Social Security (SSI) and Medicaid benefits for the year at issue.
Ada wins on all three, because tax law changes effective for the tax year at issue (2005) eliminated the half-of-support requirement. IRS argued that Ada had to show she provided one-half of Walter’s support. No, says Judge Swift, the 2004 amendments did away with that.
“A qualifying child means an individual who: (1) Bears a qualifying relationship to the taxpayer (e.g., a child of the taxpayer); (2) has the same principal place of abode as the taxpayer for more than one-half of the taxable year; (3) meets the age requirement of section 152(c)(3); (4) has not provided over one-half of his or her own support for the taxable year; and (5) has not filed a joint return with his or her spouse, if any. Sec. 152(c)(1). There is no longer a requirement that a parent claiming a dependency exemption for a qualifying child have provided over one-half of the total support for the child.” 2011 T.C. Sum. Op. 108, at p. 4.
In deciding whether Walter supplied more than one-half of his own support, IRS wanted to include Walter’s Social Security benefits (SSI). OK, says Judge Swift: “The value of government benefits normally excludable from income (e.g., Social Security benefits) may be included in the term “support”. See Turecamo v. Commissioner, 554 F.2d 564,569 (2d Cir. 1977), affg. 64 T.C. 720 (1975); sec. 1.152-1(a)(2)(ii), Income Tax Regs.” 2011 T.C. Sum. Op. 108, at pp. 4-5.
Now the SSI was a known figure, but Walter’s Medicaid benefits weren’t, so IRS argued that Ada couldn’t show how much of Walter’s support Ada, as opposed to Walter via Medicaid, provided for himself.
No fair, says Judge Swift: “We, however, have acknowledged that payments received under Medicaid are not necessarily included in determining the support of a claimed dependent. In Archer v. Commissioner, 73 T.C. 963 (1980), Medicaid payments received were held not to involve ordinary support for the mother of the taxpayer. The Court noted:
‘To require that Medicaid payments be included inthe support equation * * * means that those individuals whose parents are the neediest will be the least likely to get a dependency exemption for supporting * * *[their parents]. This * * * seems exceedingly unfair and contrary to the basic thrust of the Medicaid program itself. Id. at 971.’
“On the limited record before us, we find it appropriate to exclude Medicaid benefits Walter received in calculating the total amount of Walter’s 2009 support. ” 2011 T.C. Sum. Op. 108, at pp. 5-6.
As a last straw, IRS argued that the value of the support, not the dollar amount alleged or proven actually to have been spent, should govern. No again, says Judge Swift: “In determining whether a qualifying child has provided more than half of his or her own support, the amount of support provided by the child is compared to the total amount of support available to the child. However, we have explained that ‘a taxpayer is not precluded from being entitled to a dependency exemption simply because he is not able to prove conclusively the total cost of the child’s support’. Stafford v. Commissioner, 46 T.C. 515, 517 (1966).” 2011 T.C. Sum. Op. 108, at p. 6.
Judge Swift finds Ada proved her living expenses, that only she and Walter lived in her residence, and that the dollar amount of her expenses allocable to Walter exceeded his SSI by a sufficient margin to establish that Walter did not provide more than one-half of his own support.
Since Walter is a qualifying child, Ada gets the dependency deduction, the EITC and HOH filing status.
Note that Ada tried this case pro se. She did a lot better than IRS counsel.