In Uncategorized on 03/13/2012 at 17:09

At Least for Section 131

That’s Judge Colvin’s pick-up from a case tried by The Great Dissenter, Judge Holmes, Jonathan E. Stromme and Marylou Stromme, 138 T.C. 9, filed 3/13/12.

Marylou’s disabled brother Danny was the impetus for her and Jonathan to use their Emil Avenue house (originally bought for investment) as a residence for developmentally disabled adults. Jonathan acted as general contractor to remodel and upgrade the Emil Avenue house to county standards, and four disabled persons lived there. Marylou and Jonathan started a business, got licensed and paid by the county for caring for their inmates, hired additional staff (some family, some not) to help, and excluded the payments under Section 131.

But Marylou and Jonathan also owned other houses, one on Mound Avenue that they later sold and one on LaCasse Drive. “It was at the LaCasse Drive house that the Strommes held family get-togethers and celebrated the safe return of another son from service in Iraq. The LaCasse Drive house was also where they celebrated Thanksgiving and Christmas. Ms. Stromme found it a more restful place to recover from foot surgery. This was in part because the LaCasse Drive house was much larger than the one on Emil Avenue. Excluding the basement, the LaCasse Drive house had 2,808 square feet, in contrast to the 1,168 square feet of the Emil Avenue house–and it was large enough to accommodate the Strommes’ extended family and everyday life. Its six bedrooms often housed not only the Strommes and their two children, but also two other children from Ms. Stromme’s first marriage, plus Ms. Stromme’s brother, a niece, and two grandchildren. It also was large enough for the Strommes to bring their clients over for outings.” 138 T.C. 9, at pp. 5-6.

Marylou and Jonathan claimed they owed no tax on the county payments (about $500K), because they cared for the disabled persons in their home. But was Emil Avenue their “home”?

Section 131 excludes from income “…payments if they were:

  • made pursuant to a foster care program of a State;
  • paid by a State or political subdivision thereof, or a qualified agency; and
  • paid to a foster care provider for the care of ‘a qualified foster individual in the foster care provider’s home.’

“See sec. 131(b)(1). The parties disagree about the third requirement. Does the phrase ‘foster care provider’s home’ merely require ownership, as petitioners contend; or does it mean the foster care must be provided in a taxpayer’s residence, as respondent contends? We conclude that it means the foster care must be provided in a taxpayer’s residence.” 138 T.C. 9, at pp. 8-9.

Briefly, home is where you live. Ownership is not enough. And Marylou and Jonathan couldn’t prove that they lived, as distinct from worked, at Emil Avenue.

Judge Colvin: “The only case on the meaning of ‘home’ in section 131 is Dobra v. Commissioner, 111 T.C. 339 (1998). In Dobra, the taxpayers owned four houses where they cared for developmentally disabled people, but conceded that only one house was their ‘personal family residence.’ Id. at 340. The Dobras nevertheless argued that because they owned each house, they could exclude payments tied to the individuals in all four. Id. at 342. We held, however, that under section 131 a person’s ‘home’ is where he resides. ‘Put more plainly, in order for a ‘house’ to constitute * * * [a home], petitioners must live in that house.’ Id. at 345. Precedent fences us in: The Strommes’ mere ownership of the Emil Avenue house is insufficient to make it their home.” 138 T. C.  9, at p. 10.

So no exclusion.

There is much judicial fencing about whether “home” means “principal residence” for Section 131 exclusion, which would disqualify even a secondary residence, and whether Tax Court needs to decide that now. Judge Holmes has a concurrence that deals with those points, although Judge Gustafson doesn’t agree with him.

But Marylou and Jonathan escape the negligence penalty. The law is ambiguous, they did report receipts even though they claimed they weren’t taxable, and even the IRS publications dealing with the issue don’t try to define what is a “home” for Section 131 purposes.


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