                  T.C. Summary Opinion 2004-167



                     UNITED STATES TAX COURT



          JACOB R. AND JACKIE L. BOUCH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 16318-02S.              Filed December 6, 2004.


     Jackie L. Bouch, pro se.

     Fred E. Green, Jr., for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered in this case is not reviewable by any

other court, and this opinion should not be cited as authority.




     1
          Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
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     Respondent determined a deficiency in petitioners' Federal

income tax for 1999 in the amount of $2,540 and the accuracy-

related penalty under section 6662(a) in the amount of $508.

     At trial, respondent conceded the accuracy-related penalty

under section 6662(a).    The issues for decision are:   (1) Whether

petitioners are entitled to dependency exemption deductions under

section 151 for the two children of petitioner Jackie L. Bouch's

prior marriage, and (2) whether petitioners are entitled to the

child tax credit under section 24.

     Some of the facts were stipulated.    Those facts, with the

exhibits annexed thereto, are so found and are made part hereof.

Petitioners' legal residence at the time the petition was filed

was Reno, Nevada.

     Jackie L. Bouch (petitioner) was previously married to John

R. Harris.   Two children were born of that marriage, James Harris

and Jack Harris.    Petitioner and Mr. Harris were divorced on May

25, 1988.    Petitioner thereafter married petitioner Jacob R.

Bouch, and the two filed a joint Federal income tax return for

1999.   On that return, petitioners claimed the two children of

petitioner's prior marriage as dependents and claimed the child

tax credit under section 24 with the two children as qualifying

children.    In the notice of deficiency, respondent disallowed the

dependency exemption deductions and the child tax credit.
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     The divorce decree of May 25, 1988, contained no provision

relating to custody of the two children, nor any provision for

child support.   However, the divorce decree, by reference,

incorporated a marital and property settlement agreement between

petitioner and her former spouse.   That agreement provided that

petitioner "shall take the minor children as dependents for tax

purposes".   The marital and property settlement agreement was not

entered into evidence at trial, except for the one page of the

agreement relating to the dependency exemption deductions.

During 1999, petitioner's former spouse petitioned the divorce

court to compel petitioner (his former wife) to produce certain

financial information regarding her income and to decree that

petitioner's former spouse was entitled to the dependency

exemption deductions for the two children for tax years 1997 and

1998.   The divorce court denied that latter request but granted

the request of the former spouse for the production, by

petitioner, of the financial information requested in the motion.

Following the production of this information by petitioner the

divorce court, by order dated May 16, 2000, concluded that

petitioner's two children had been living with their father since

January 1999; that petitioner had not paid or contributed any

support for them; that their father (petitioner's former spouse)

was their primary custodian; and that, therefore, petitioner's

former spouse was entitled to claim the two children as
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dependents for Federal income tax purposes.   The court further

ordered petitioner to pay child support of $950 per month and

held that petitioner was additionally liable for $9,350 in

arrearages for past due child support.

     Section 151(c) allows taxpayers to deduct an annual

exemption amount for each dependent as defined in section 152.

Under section 152(a), the term "dependent" means certain

individuals, such as a son, daughter, stepson, or stepdaughter,

"over half of whose support, for the calendar year in which the

taxable year of the taxpayer begins, was received from the

taxpayer (or is treated under section (c) or (e) as received from

the taxpayer)".

     The support test in section 152(e)(1) applies if:   (1) A

child receives over half of his support during the calendar year

from his parents; (2) the parents are separated under a written

separation agreement or live apart at all times during the last 6

months of the calendar year; and (3) such child is in the custody

of one or both of his parents for more than one-half of the

calendar year.    If these requirements are satisfied, the "child

shall be treated, for purposes of subsection (a), as receiving

over half of his support during the calendar year from the parent

having custody for a greater portion of the calendar year (* * *

referred to as the 'custodial parent')", sec. 152(e)(1)(B), thus
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allowing the dependency exemption deduction to be claimed by the

"custodial parent".

     Section 1.152-4(b), Income Tax Regs., provides that custody

will be determined by the terms of the most recent decree of

divorce or separate maintenance, or subsequent custody decree,

or, if none, a written separation agreement.   If neither a

divorce decree nor written separation agreement establishes who

has custody, custody will be deemed to be with the parent who has

physical custody of the child for the greater part of the

calendar year.   In this case, the May 25, 1988, divorce decree

did not contain any provision regarding custody of the children.

Consequently, the custodial parent is the one who, between

petitioner and her former spouse, had physical custody for the

greater part of the year.   In this respect, the court order of

May 16, 2000, establishes that petitioner's former spouse, John

Harris, had physical custody of the children from January 1999

and, therefore, was the custodial parent.   Petitioner's former

spouse, therefore, is entitled to the dependency exemption

deduction for the two children under section 152(e)(1) unless one

of the exceptions of section 152(e)(2), (3), or (4) applies.   The

only possible exception that conceivably could apply would be the

exception provided under section 152(e) relating to the release

of the claim to the exemption for the year by the custodial

parent.   To satisfy the requirements of a release, the custodial
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parent must sign a written declaration that the custodial parent

will not claim the child as a dependent on his or her income tax

return, and the noncustodial parent attaches such written

declaration to the income tax return of the noncustodial parent

for the taxable year.   Sec. 152(e)(2).    Petitioner's former

spouse did not release his claim to the dependency exemption for

the two children, and petitioner, as the noncustodial parent, did

not attach any release of such claim to her 1999 joint Federal

income tax return.   Petitioner, thus, does not satisfy the

requirements of section 152(e)(2).     The Court, therefore,

sustains respondent's disallowance of the dependency exemptions

to petitioners for 1999.

     The second issue is whether petitioners are entitled to the

child tax credit under section 24.     For the year at issue,

section 24 allowed a credit against the tax of $500 for each

qualifying child under the age of 17.     In general, a qualifying

child is an individual for whom the taxpayer can claim a

dependency exemption and is the son or daughter of the taxpayer.

Petitioners claimed the credit on their 1999 return for

petitioner's two sons as qualifying children.     The credit was

disallowed in the notice of deficiency.     Respondent is sustained

on this issue because petitioners were not entitled to the

dependency exemption deductions for the two sons for 1999.
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    Reviewed and adopted as the report of the Small Tax Case

Division.



                                     Decision will be entered for

                         respondent as to the deficiency and

                         for petitioners as to the penalty.
