In Uncategorized on 10/04/2017 at 15:58

And the Tools of the Trade

IRS seems to have a problem of perception when it comes to the support leg of the qualifying child test in Section 152(c)(1)(D). But here’s CSTJ Lewis (“Ta Da! Hail to the Chief!”) Carluzzo to set IRS straight in Raymond Ochoa, 2017 T. C. Sum. Op. 78, filed 10/4/17.

Ray lives with qualifying child’s grandma (mommy lives across the country, and only ponies up modest sums to keep the family going, and Daddy is out of the play for whatever reason). Ray is qualifying child’s uncle. Ray claims he pays more than grandma or mommy.

IRS says, “you’re timely but several dollars short, as you don’t provide more than half of non-qualifying child’s support. Have a SNOD.”

Ray petitions, and CSTJ Lew lays it on IRS.

“Respondent takes the position that H.O. cannot be treated as petitioner’s qualifying child because petitioner has failed to show that he provided more than one-half of H.O.’s support.  Respondent’s focus on the source of H.O.’s support, however, misses the mark.  For purposes of determining a taxpayer’s qualifying child it matters not how much support a child receives from others so long as the child did not provide more than one-half of his or her own support.  See sec. 152(c)(1)(D).  We are satisfied that H.O. did not contribute more than one-half of her own support during 2013, so the support test does not, as respondent suggests, preclude her treatment as petitioner’s qualifying child during [year at issue].” 2017 T. C. Sum. Op. 78, at p. 6.

IRS isn’t through. Rummaging through little H. O.’s school records, they find only mommy listed and not Ray. As mommy lives on the other coast, they claim Ray didn’t live with H. O. for the half-year-plus-1-day safe harbor in Section 152(c)(1)(B).

CSTJ Lew finds the rummaging trashed by Ray’s testimony.

“Relying entirely upon the reference to H.O.’s mother on the records of the school district, respondent would have us find that H.O. and [mommy] resided in the same household during [the year at issue] and that the household did not include petitioner for most of the year.  However, petitioner and [grandma] credibly testified that they, along with H.O., shared the same residence during [the year at issue] and that [mommy] did not live with them for most of the year.  We find their testimonies more persuasive than the inference respondent draws from the records of the school district.” 2017 T. C. Sum. Op. 78, at p. 6.

Even if mommy was around for the whole year, the tiebreaker rule in Section 152(c)(4(A)(ii) awards little H. O.’s tax bennies to the taxpayer with the higher AGI for the year at issue. Grandma has only three-figure Social Security, and Ray has a job.

CSTJ Lew conveniently ignores whatever AGI mommy had, but believes she wasn’t around and therefore sends only Ray and grandma to the blueline for the shootout.

Ray gets HOH, and all the child care good stuff.

Now Ray claims American Opportunity Tax Credit because he’s going to trade school by night. The school gave Ray the 1098-T, based upon which CSTJ Lew gives Ray his allocable credit. But IRS gigged Ray for the tools he bought from an outside supplier.

“Although we find petitioner’s testimony credible and have no doubt that he expended amounts for tools and/or equipment used in his weekly workshop at [trade school], the expenses do not constitute fees paid to [trade school] and therefore are not included in the definition of qualified tuition and related expenses.  See id.  Accordingly, petitioner is not entitled to an AOTC for [year at issue] in an amount greater than the amount respondent now concedes.” 2017 T. C. Sum. Op. 78, at p. 10 (Citation omitted).

Hold it a second, Chief. Remember Djamal Mameri? No? Well, ask your predecessor ex-CSTJ Panuthos. Or better yet, read my blogpost “Computational,” 11/4/16, wherein IRS magnanimously conceded Djam’s computer for his English class. IRS’ largesse came off of proposed Reg. 1.25A-1(d)(3) issued August 2, 2016.

Here’s what ex-CSTJ Panuthos said, as reported in my aforementioned blogpost: “The proposed regulation interprets the meaning of ‘required for enrollment or attendance’ as set forth in section 25A(f)(1)(A) and (i)(3) to mean that ‘the course materials are needed for meaningful attendance or enrollment in course of study, regardless of whether the course materials are purchased from the institution’.”

Djam needed a computer for English class, but Ray needed his tools for his electrician’s class. Whatever a student needs, and the school requires, to better him/herself, should be credited to the extent Congress allowed.

Ray ought to ask for a Rule 161 reconsideration, based on what IRS did for Djam. And IRS should cut Ray the same slack they did for Djam.

  1. Hi Lew,

    We haven’t been in touch since the Bloomberg BNA meetings stopped, and I hope all is well.

    I was intrigued by your write-up, and went to look at the *Raymond Ochoa* case. On the tools portion of the opinion, I believe the court actually denied the credit for tools/ equipment used for the course: Although we find petitioner’s testimony credible and have no doubt that he expended amounts for tools and/or equipment that he used in his weekly workshop at Intercoast, the expenses do not constittute fees paid to Intercoast and therefore are not included in the definiition of qualified tuition and related expenses.

    Maybe I just missed something. If you think so, please let me know.

    I always enjoy reading your blog,

    Best, Arnold


  2. Arnold, good to hear from you. To answer your comment, read my blogpost “Computational,” cited in my write-up.


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