                  T.C. Summary Opinion 2004-22



                      UNITED STATES TAX COURT



             ALLYSON CHRISTINA BRIGGS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2360-03S.              Filed March 5, 2004.



     Allyson Christina Briggs, pro se.

     Michael W. Bitner, for respondent.



     CHABOT, Judge:   This case was heard pursuant to section 7463

in effect for the time the petition was filed.1     The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Sec. 7463(b).




     1
        Unless indicated otherwise, all section references, other
than to sec. 7463, are to sections of the Internal Revenue Code
of 1986 as in effect for the year in issue.
                              - 2 -

     Respondent determined a deficiency in Federal individual

income tax against petitioner for 1999 in the amount of $523.

     The issue for decision is whether petitioner’s net loss from

her trade or business of providing cleaning and lawn mowing

services must be subtracted from her Form W-2 income in

determining her “earned income” under section 63(c)(5)(B),

relating to limitation on basic standard deduction in the case of

certain dependents.

     The instant case was submitted fully stipulated; the

stipulations, stipulated exhibits, and other exhibits received at

the hearing are incorporated herein by this reference.

                           Background

     When the petition in the instant case was filed, petitioner

resided in Washington, Missouri; she also resided there during

1999, the year in issue.

     On her timely filed 1999 income tax return--

          (1) petitioner claimed a tax filing status of

     single;

          (2) petitioner did not claim a personal exemption

     deduction, instead that deduction was claimed on her

     parents’ tax return (see sec. 151(d)(2)); and

          (3) petitioner claimed a standard deduction of

     $4,300.
                                - 3 -

On that tax return, petitioner showed the income items set forth

in table 1.

                               Table 1

Tax return
(Form 1040)
   line               Item                        Amount

     7           Wages                            $4,275
     8a          Taxable interest                  7,922
    12           Business income or (loss)        (3,703)
    13           Capital gain or (loss)           (2,858)
    22           Total income                      5,636

     The “Business income or (loss)” item listed in table 1 was

the loss from a Schedule C, Profit or Loss From Business, sole

proprietorship, which consisted of petitioner’s providing

cleaning and lawn mowing services.

     Respondent does not dispute the correctness of any item

shown on petitioner’s tax return, except the amount of the

standard deduction and consequential items--taxable income and

tax liability.

                             Discussion

     The Statute

     In general, section 63 provides that taxpayers are entitled

to the “standard deduction” if they do not elect to itemize

deductions in calculating their taxable income.    For our

purposes, the standard deduction is the “basic standard
                                 - 4 -

deduction”2.   Section 63(c)(5)3 limits petitioner’s basic

standard deduction4 to no more than $250 plus petitioner’s

“earned income”.

     Parties’ Contentions

     Both sides appear to claim adherence to the 1999 1040 Forms

and Instructions, which provide at page 30 the following relevant

worksheet:


     2
        The “additional standard deduction” relates to aged or
blind taxpayers, and does not apply in the instant case.
     3
         SEC. 63.   TAXABLE INCOME DEFINED.

                    *   *    *    *      *    *   *

          (c) Standard Deduction.--For purposes of this
     subtitle--

                    *   *    *    *      *    *   *

                (5) Limitation on basic standard deduction in the
           case of certain dependents.--In the case of an
           individual with respect to whom a deduction under
           section 151 is allowable to another taxpayer for a
           taxable year beginning in the calendar year in which
           the individual’s taxable year begins, the basic
           standard deduction applicable to such individual for
           such individual’s taxable year shall not exceed the
           greater of--

                     (A) $500 [adjusted to $700 for 1999, on
                account of sec. 63(c)(4)], or

                     (B) the sum of $250 and such individual’s
                earned income.
     4
        The parties evidently assume, and we do also, that
petitioner’s parents’ claim to petitioner’s personal exemption
deduction was allowable, and so the limitation of sec. 63(c)(5)
applies to petitioner for 1999.
                              - 5 -

Standard Deduction Worksheet for
Dependents--Line 36                      Keep for your Records

Use this worksheet only if someone can claim you (or your spouse
if married filing jointly) as a dependent.

1.  Add $250 to your earned income*. Enter the total 1.
2.  Minimum standard deduction. . . . . . . . . . . . 2. 700.00
3.  Enter the larger of line 1 or 2 . . . . . . . . . 3.
4.  Enter the amount shown below for your filing status
     . Single--$4,300
     . Married filing separately--$3,600
     . Married filing jointly or qualifying
       widow(er)--$7,200. . . . . . . . . . . . . . . 4.
     . Head of household--$6,350
5. Standard deduction.
     a. Enter the smaller of line 3 or line 4. If under 65 and
not blind, stop here and enter this amount on Form 1040, line 36.
Otherwise, go to line 5b. . . . . . . . . . . . . . . 5a.
     b. If 65 or older or blind, multiply the number on Form
1040, line 35a, by: $1,050 if single or head of household; $850
if married filing jointly or separately or qualifying widow(er).
. . . . . . . . . . . . . . . . . . . . . . . . . . . .5b.
     c. Add lines 5a and 5b. Enter the total here and on Form
1040, line 36 . . . . . . . . . . . . . . . . . . . . .5c.

* Earned income includes wages, salaries, tips, professional
fees, and other compensation received for personal services you
performed. It also includes any amount received as a scholarship
that you must include in your income. Generally, your earned
income is the total of the amount(s) you reported on Form 1040,
lines 7, 12, and 18, minus the amount, if any, on line 27.

     In the notice of deficiency, respondent calculates as
follows:
          7a. STANDARD DEDUCTION
          It is determined that since you are claimed by someone
     else as a dependent for the year 1999, your basic standard
     deduction may not exceed the greater of $700.00 or the sum
     of $250.00 plus your earned income, up to the applicable
     standard deduction amount for that year. Therefore, your
     standard deduction is $822.00 ($250.00 plus wages of
     $4,275.00 [Form 1040, line 7] plus Schedule C loss of
     $3,703.00 [Form 1040, line 12]) rather than $4,300.00 as
                                 - 6 -

     shown on your 1999 return and your taxable income for 1999
     is increased $3,478.00.

     Petitioner contends “that earned income is only the positive

amount”; she contrasts this to “net earnings from self-

employment”, which could be (and was for petitioner for 1999), a

loss.

     Respondent draws our attention to legislative history

language to the effect that the Congress intended that the

standard deduction could be used “only to offset earned income”

(H. Conf. Rept. 99-841 (Vol. II) at II-9 (1986); 1986-3 C.B.

(Vol. 4) 9), and argues that petitioner’s contention must be

incorrect because it would allow petitioner to use the standard

deduction to offset income that was not earned income.5

     Respondent urges us to follow the approach of section 32,

relating to the credit for earned income.   Section 32 provides,

in pertinent part, as follows:



     5
        However, this expression of congressional intent supports
respondent’s statutory interpretation only by circular reasoning,
or “begging the question”. That is, respondent assumes that
“earned income” in the conference report includes the concept of
net earnings from self-employment, and then asks us to conclude
that “earned income” in sec. 63(c)(5)(B) includes the concept of
net earnings from self-employment. See, e.g., Follett, Modern
American Usage 252 (Avenel 1980 ed.) (“begging the question * * *
means only: using as an argument some disguised form of the
proposition to be proved”); Fowler, Modern English Usage 449 (2d
ed. 1965) (“‘begging the question’. The fallacy of founding a
conclusion on a basis that as much needs to be proved as the
conclusion itself. ARGUING IN A CIRCLE is a common variety”);
Aldisert, Logic for Lawyers: A Guide To Clear Legal Thinking 208-
216 (NITA 3d ed. 1997).
                                - 7 -

          SEC. 32.   EARNED INCOME.

                 *     *    *    *      *   *   *

          (c) Definitions and Special Rules.--For purposes of
     this section--

                 *     *    *    *      *   *   *

               (2) Earned income.

                     (A) The term “earned income” means--

                          (i) wages, salaries, tips, and other
                     employee compensation, but only if such
                     amounts are includible in gross income for
                     the taxable year, plus

                          (ii) the amount of the taxpayer’s net
                     earnings from self-employment for the taxable
                     year (within the meaning of section 1402(a)),
                     but such net earnings shall be determined
                     with regard to the deduction allowed to the
                     taxpayer by section 164(f).

     Petitioner correctly points out that “earned income” in

section 32 is defined in the statute (sec. 32(c)(2)(A)(ii)) to

include the concept of net earnings from self-employment, but

there is no such definition of “earned income” in section 63.

     We agree with petitioner’s conclusion.

     The Table Is Set; The Tax Reform Act of 1969

     Section 802 of the Tax Reform Act of 1969 (TRA 1969), Pub.

L. 91-172, 83 Stat. 487, 676, significantly increased the

standard deduction available to taxpayers who did not itemize

deductions.

     Section 804 of TRA 1969 (83 Stat. at 685) added section

1348, which provided a 50-percent maximum rate on earned income,
                                - 8 -

effective for 1971 and thereafter.      Section 1348(b), as so

enacted, defined “earned income” in pertinent part as follows:

     SEC. 1348.   FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME.

                  *    *    *    *       *    *    *

          (b) Definitions.--For purposes of this section--

               (1) Earned income.--The term “earned income” means
          any income which is earned income within the meaning of
          section 401(c)(2)(C) or section 911(b), except that
          such term does not include any distribution to which
          section 72(m)(5), 72(n), 402(a)(2), or 403(a)(2)(A)
          applies or any deferred compensation within the meaning
          of section 404.

     Section 911(b), as then in effect, provided as follows:

     SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE
            UNITED STATES

                  *    *    *    *       *    *    *

          (b) Definition of Earned Income.--For purposes of this
     section, the term “earned income” means wages, salaries, or
     professional fees, and other amounts received as
     compensation for personal services actually rendered, but
     does not include that part of the compensation derived by
     the taxpayer for personal services rendered by him to a
     corporation which represents a distribution of earnings or
     profits rather than a reasonable allowance as compensation
     for the personal services actually rendered. In the case of
     a taxpayer engaged in a trade or business in which both
     personal services and capital are material income-producing
     factors, under regulations prescribed by the Secretary or
     his delegate, a reasonable allowance as compensation for the
     personal services rendered by the taxpayer, not in excess of
     30 percent of his share of the net profits of such trade or
     business, shall be considered as earned income.

     The Revenue Act of 1971

     In 1971, the Congress became concerned that

     The increases in the standard deduction * * * have
     enhanced the desirability of diverting income * * *
                               - 9 -

     from the high tax bracket of a donor with substantial
     income to a minor with little or no other income.

S. Rept. 92-437 at 62 (1971), 1972-1 C.B. 559, 593.   To the same

effect, see Staff of the Joint Committee on Internal Revenue

Taxation, General Explanation of the Revenue Act of 1971 at 60

(J. Comm. Print 1971).   Thereupon, the Congress enacted the

predecessor of the provision we deal with, in section 301(a) of

the Revenue Act of 1971 (RA 1971), Pub. L. 92-178, 85 Stat. 497,

520, which provided as follows:

     SEC. 301. UNEARNED INCOME OF TAXPAYERS WHO ARE DEPENDENTS
               OF OTHER TAXPAYERS.

          (a) Limitation of Standard Deduction.--Section 141
     (relating to the standard deduction) is amended by adding at
     the end thereof the following new subsection:

          “(e) Limitations in Case of Certain Dependent
     Taxpayers.--In the case of a taxpayer with respect to whom a
     deduction under section 151(e) is allowable to another
     taxpayer for the taxable year--

               “(1) the percentage standard deduction shall be
          computed only with reference to so much of his adjusted
          gross income as is attributable to his earned income
          (as defined in section 911(b)), and

               “(2) the low income allowance shall not exceed his
          earned income for the taxable year.”

     The Tax Reduction and Simplification Act of 1977

     Section 102(a) of the Tax Reduction and Simplification Act

of 1977, Pub. L. 95-30, 91 Stat. 126, 135, revised the definition

of taxable income by introducing the concept of a zero bracket

amount, hereinafter sometimes referred to as ZBA.   The standard

deduction limitation as to dependent taxpayers was moved from
                             - 10 -

section 141(e) to section 63(e).    The method of calculating the

amount of the limitation also was revised.    However, the earned

income definition continued to be “earned income (as defined in

section 911(b)).”

     The Tax Reform Act of 1986

     The Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100

Stat. 2085, eliminated the ZBA.    Section 102(a), TRA 1986, 100

Stat. at 2099, revised section 63 to accomplish that change as

well as numerous other changes.    As may be seen supra note 3, the

revision of the dependent taxpayer rule continues the term

“earned income”, but eliminates the reference to section 911 and

does not provide any replacement definition.

     Section 32

     Respondent urges us to follow the approach of section 32.

As to trade or business income, section 911 focuses on

compensation for personal services, while section 32 deals with

“net earnings from self-employment”.

     Section 32, the earned income credit, was initially enacted

as section 436 by section 204(a) of the Tax Reduction Act of

1975, Pub. L. 94-12, 89 Stat. 26, 30-31.    Subsection

(c)(2)(A)(ii) of then-new section 43, in defining “earned income”

for purposes of the earned income credit, included the same


     6
        Sec. 43 was renumbered as sec. 32 by sec. 471(c)(1) of
the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 494,
826.
                               - 11 -

element to which respondent directs our attention, viz: “(ii) the

amount of the taxpayer’s net earnings from self-employment for

the taxable year (within the meaning of section 1402(a)).”

     Analysis

     From its 1971 origin through its 1977 revision, until TRA

1986, the earned income limitation on the standard deduction was

statutorily defined by reference to section 911.    In TRA 1986,

the Congress chose to remove the reference to section 911 and to

not put any other definition in its place.    Ordinarily, we would

expect that a change in statutory language indicates a change in

meaning.    Robinson v. Commissioner, 119 T.C. 44, 61-62 (2002)

(and cases there cited).    We have not found anything in the

legislative history to lead us to any different conclusion in

this matter.    Compare Robinson v. Commissioner, 119 T.C. at 62

n.11.    Accordingly, we conclude that “earned income” in section

63(c)(5)(B) means something different from “earned income (as

defined in section 911(b))”.

     Section 32 was amended by several provisions of TRA 1986,7

including several provisions in the same title of TRA 1986 that

revised section 63(c)(5).    When section 63(c)(5) was revised, the

Congress could have, but did not choose to, incorporate the

section 32 language, or reference section 32, or use other



     7
        Sec. 32 was amended by secs. 104(b)(1)(B), 111 (5
places), 1272(d)(4), and 1301(j)(8) of TRA 1986.
                              - 12 -

language to achieve the same definition.     The legislative history

does not indicate an intent to define “earned income” in section

63(c)(5)(B) by reference to net earnings from self-employment.

Accordingly, we conclude that “earned income” in section

63(c)(5)(B) means something different from “the amount of the

taxpayer’s net earnings from self-employment for the taxable year

(within the meaning of section 1402(a))”.8

     Thus, the Congress (1) in TRA 1986 departed from the

previous section 911 definition, (2) in TRA 1986 did not move to

the section 32 definition, and (3) never adopted the “maxitax”

section 1348 approach of using both section 911 and net earnings.

     In RA 1971 the Congress responded to what was perceived to

be an abuse situation involving attempts to “game” the tax

system.   The legislative language went beyond the intrafamily

transfers complained of, but even then the Congress decided that

a dependent who received such an intrafamily transfer but also




     8
       Respondent implicitly recognized that the sec. 63 and sec.
32 concepts of earned income were not the same. The earned
income credit worksheet specifically directs the taxpayer to
“Enter any profit (or loss)”. (Emphasis added.) 1999
Publication 596, Earned Income Credit (EIC), at p. 30, Worksheet
B, line 2.b. In contrast the standard deduction worksheet tells
the taxpayer that “Generally, your earned income is the total of
the amount(s) you reported on Form 1040, lines * * * 12". 1999
1040 Forms and Instructions, at p. 30 (emphasis added). The
standard deduction worksheet does not explain “Generally”, and
does not specifically direct the taxpayer to include business
losses in the earned income computation.
                               - 13 -

earned some income from his or her own efforts should not be hit

so hard by the new anti-abuse rule.

     We note that respondent does not suggest that petitioner

divided a unitary activity into an employment and a self-

employment in order to “game the system”.     We note that

respondent does not suggest that any part of petitioner’s $4,275

W-2, Wage and Tax Statement, income was really a gift, or for any

other reason was not properly part of petitioner’s “earned

income” under section 63(c)(5)(B).      Instead, it appears that in

1999 petitioner had two income-earning activities, one of which

did not produce a profit that year.     In the absence of any

indication of impropriety on the part of petitioner or her

parents, we conclude that we are not required to interpret the

term earned income as though (1) the Congress had not intended to

change the law when it changed the statutory language or (2) the

Congress had intended to change the law to the section 32 model

even though the Congress did not use the section 32 language or

even indicate in the legislative history that section 32 was to

be the model for section 63.   Under the circumstances, we

conclude that the Congress’s purposes are better served by

agreeing with petitioner’s conclusion in the setting of the

instant case.

     We hold that petitioner’s self-employment loss does not

reduce her earned income for purposes of section 63 and on the
                             - 14 -

record in the instant case, her allowable standard deduction is

$4,300, the amount she claimed.



                                        Decision will be entered

                                   for petitioner.
