                          T.C. Summary Opinion 2012-58



                         UNITED STATES TAX COURT



               PRECIOUS DELORES JONES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 25882-10S.                       Filed June 25, 2012.



      Precious Delores Jones, pro se.

      Gideon I. Alper, for respondent.



                              SUMMARY OPINION


      WELLS, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed.1 Pursuant


      1
       Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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to section 7463(b), the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other case. Respondent

determined a deficiency with respect to petitioner’s 2007 tax year of $5,181. The

issues we must decide are: (1) whether petitioner received income of $14,850 from

her hair-braiding business during 2007; (2) whether petitioner is entitled to

dependency exemption deductions for her three minor children; (3) whether

petitioner is entitled to the additional child tax credit; (4) whether petitioner is

entitled to head of household filing status; and (5) whether petitioner is entitled to

the earned income tax credit.

                                       Background

       Some of the facts and certain exhibits have been stipulated. The parties’

stipulations of facts are incorporated in this opinion by reference and are found

accordingly. At the time she filed her petition, petitioner was a resident of Georgia.

       Petitioner is the mother of three minor children. During 2007, petitioner was

not married, and she and her three children resided in an apartment owned and

managed by the Housing Authority of Columbus, Georgia (Housing Authority).

Petitioner’s primary source of income during 2007 was a hair-braiding business that

she operated out of her apartment.
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      On average, petitioner saw 3 to 5 customers each week, and she performed

services for about 45 different individuals during 2007. The price she charged each

customer depended on the type of hair braid, and her prices ranged from $20 for

simple braids for a child up to $120 for “micros”, which she explained are hair

braids so small that they resemble loose hair. Performing “micros” for a customer

typically took her four to five hours. Most of the materials petitioner used were

supplied by her customers.

      On her 2007 Form 1040, U.S. Individual Income Tax Return, petitioner

reported $14,850 in income from her hair-braiding business. She did not report any

expenses on the Schedule C-EZ, Net Profit From Business, attached to the return

because her customers supplied most of the materials she needed to braid their hair.

On her return, petitioner also claimed dependency exemption deductions for her

three children, head of household filing status, the earned income tax credit with

respect to two of her children, and the additional child tax credit.

      Petitioner used a notebook to keep track of her business income. She

provided that notebook to her tax return preparer when she filed her tax return

during early January 2008. However, a sewage leak in petitioner’s apartment
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during late January 2008 forced her to move to another Housing Authority

apartment, and her tax records were ruined.

      Respondent issued petitioner a notice of deficiency with respect to her 2007

tax return. Petitioner timely filed her petition in this Court.

                                       Discussion

      As a general rule, the Commissioner’s determinations set forth in a notice of

deficiency are presumed correct, and the taxpayer bears the burden of proving

otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). If the

taxpayer satisfies certain substantiation and recordkeeping requirements, the burden

of proof regarding factual matters may shift to the Commissioner. See sec. 7491(a).

Petitioner has not contended, and we do not conclude, that the burden of proof

should shift to respondent. See sec. 7491(a)(2)(A) and (B).

      Respondent contends that petitioner had zero income during 2007 and was

not engaged in the hair-braiding business. Instead, respondent contends, petitioner

reported income on her tax return for the purpose of generating tax benefits through

the refundable earned income tax credit.

      Because of the sewer leak in her apartment, all of petitioner’s records relating

to her hair-braiding business during 2007 were destroyed. To corroborate her

testimony regarding the destruction of her records, petitioner supplied a “Transfer
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Itemized Statement” from the Housing Authority that stated that she was being

moved to another apartment because of “renovation (pipe busted under concrete)”.

The Housing Authority document also states that petitioner was moved from unit

306-C to unit 303-D. The first address is the one listed on petitioner’s 2007 tax

return, corroborating her testimony that she was living in the old apartment when

she filed her tax return during early January 2008. Besides that document, the only

evidence petitioner offered was her own testimony. We found petitioner to be a

credible witness. Her testimony was consistent and reasonably detailed, and the

numbers of customers and prices for services to which she testified were generally

consistent with the amount of income reported on her return. Accordingly, we

credit her testimony that she earned $14,850 in income during 2007 from her work

braiding hair.

      A taxpayer may claim a dependency exemption deduction with respect to an

individual who is either a “qualifying child” or a “qualifying relative”. Secs. 151(c),

152(a). To be a taxpayer’s “qualifying child”, an individual must: (A) bear a

qualifying relationship to the taxpayer; (B) have the same principal place of abode

as the taxpayer for more than one-half of the taxable year; (C) meet certain age

requirements; and (D) not have provided more than half of his or her own support

for the year. Sec. 152(c)(1).
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      At trial, respondent conceded that the three children listed on petitioner’s

return are her children and thus the first requirement is satisfied, and respondent also

concedes that the children met the age requirement during 2007. However,

respondent contends that petitioner has not proved that the children resided with her

during 2007 and that she provided more than half of their support. At trial,

petitioner testified that her children lived with her throughout 2007 and that she was

their primary caregiver. We find that petitioner’s children lived with her during

2007 and that she was their primary source of support. Accordingly, each of

petitioner’s children was a “qualifying child” during 2007 and she therefore was

entitled to the dependency exemption deductions claimed on her return.

      Section 24(a) authorizes a tax credit with respect to each qualifying child of

the taxpayer. The child tax credit provided by section 24(a) may not exceed the

taxpayer’s regular tax liability. Sec. 24(b)(3). Where a taxpayer is eligible for the

child tax credit, but the taxpayer’s regular tax liability is less than the amount of the

child tax credit potentially available under section 24(a), section 24(d) makes a

portion of the credit, known as the additional child tax credit, refundable. The term

“qualifying child” means a qualifying child of the taxpayer as defined in section

152(c) who has not attained age 17. Sec. 24(c). Because each of petitioners’
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children was a “qualifying child”, we conclude that she was entitled to the

additional child tax credit.

          Section 1(b) provides a special tax rate for an individual who qualifies as a

head of household. As pertinent here, section 2(b)(1) provides that an unmarried

individual “shall be considered a head of household” if that individual “maintains as

his home a household which constitutes for more than one-half of such taxable year

the principal place of abode” of “(i) a qualifying child of the individual (as defined

in section 152(c) * * *)”. We conclude that, because petitioner was unmarried and

her children lived with her throughout 2007 and because each is a “qualifying

child”, she qualifies as a head of household.

          Section 32(a)(1) permits an eligible individual to receive an earned income

credit against the individual’s tax liability. As pertinent here, the term “eligible

individual” includes any individual who has a qualifying child for the taxable year.

Sec. 32(c)(1)(A)(i). In general, the term “qualifying child” means a qualifying child

of the taxpayer as defined in section 152(c) determined without regard to section

152(c)(1)(D) (regarding the amount of support) and section 152(e) (regarding

special rules for divorced parents). Sec. 32(c)(3)(A). Because each of petitioner’s

children was a “qualifying child” during 2007, she is entitled to the earned income

credit.
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      In reaching these holdings, we have considered all the parties’ arguments, and

to the extent not addressed herein, we conclude that they are moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                     Decision will be entered for

                                                petitioner.
