The Second

Victor Dulay Cabradilla, Docket No. 10154-14S, filed 5/20/15, has a problem. He’s supporting his three little ones, but they’re at home among the islands formerly known as and by the name Ladrones, but now the Republic of the Philippines.

He and ex-spouse Imelda own the house wherein the children reside, but ex-spouse’s sister cares for them, as Vic and Imelda can’t.

Vic claims HOH, dependency credit, and EITC (the Big Three), as to two of the three children (the “girls”). Imelda testifies Vic paid her more than half the children’s support and she remitted the whole amount to sister, she never took the dependency credit or EITC, and, since Vic paid, he should get it all.

IRS says “no” to all, and slugs Vic with a 6662(a) accuracy chop.

Judge Goeke gives Vic a one-third slice in this off-the-bencher: “We believe, because the girls did not reside with the Petitioner in 2010, they would not qualify as qualifying children under section 152(c). So we now turn to whether the girls would be eligible as dependents to the Petitioner pursuant to the qualifying relative requirements in section 152(d). Clearly, the girls meet the requirements of section 152(d)(1)(A) regarding their relationship to the taxpayer. And there’s no dispute that the girls did not have gross income such that they would be ineligible as dependents, pursuant to section 152(d)(1) (B).

“We previously found as fact that the Petitioner provided over one half of their support, which means that they qualify pursuant to section 152(d)(1)(C). They were not claimed as dependent by anyone else such that there’s no other impediment in section 152(d)(1) to them being qualifying relatives of the Petitioner. And as previously stated, they meet the relationship requirement.” Order, at p. 6.

HOH is out because the girls did not reside with Vic. And EITC for the girls is out, because, per Section 32, they did not live more than half the year in the US of A. And so is the Section 6662(a) chop, because Vic acted in good faith.

But Vic might get the EITC for his own self, so Judge Goeke sends him off to a Rule 155 beancount to reckon that up.

Takeaway– Your clients’ at home abroad relatives might get them a dependency credit. But, as Davy Crockett remarked, “Make sure you’re right, then go ahead.”

Off-topic–Sorry for the lateness of this blogpost. The US Tax Court Judicial Conference reception this evening was something I will always remember. And it was all off the record.