                  T.C. Summary Opinion 2004-106



                     UNITED STATES TAX COURT



             LAWRENCE MICHAEL SPANIER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                  PAMELA SPANIER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 4692-03S, 5428-03S.     Filed August 3, 2004.


     Lawrence Michael Spanier, pro se in docket No. 4692-03S.

     Pamela Spanier, pro se in docket No. 5428-03S.

     Huong T. Duong, for respondent.



      DEAN, Special Trial Judge:   These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time that the petitions were filed.

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and

Procedure.   The decisions to be entered are not reviewable by any

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

     Respondent determined for 1998 a deficiency in Lawrence

Michael Spanier's Federal income tax of $3,468 and an accuracy-

related penalty under section 6662(a) of $694.   Respondent also

determined for 1998 a deficiency in Pamela Spanier's Federal

income tax of $2,415 and an accuracy-related penalty under

section 6662(a) and an addition to tax under section 6651(a) of

$483 and $241, respectively.

     Lawrence Michael Spanier (Mr. Spanier) and Pamela Spanier

(Ms. Spanier) were formerly married to each other.   The issues

for decision are:    (1) Which petitioner is entitled to deductions

for dependency exemptions with respect to three children from

their former marriage; (2) whether either petitioner is subject

to the accuracy-related penalty under section 6662(a); and (3)

whether Ms. Spanier is subject to an addition to tax under

section 6651(a)(1) for failure to timely file her 1998 Federal

income tax return.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.   At the time the petitions in

these cases were filed, both petitioners resided in California.

The Court consolidated these cases for purposes of trial,

briefing, and opinion because they involve common facts and
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questions of law arising from the separation and divorce of petitioners.

                            Background

     Petitioners married each other in 1985.   They were divorced

on December 24, 1997.   Three children were born of the marriage:

Leah Spanier, born on November 25, 1987, Marissa Spanier, born on

March 29, 1990; and Aaron Spanier, born on October 8, 1992.

     Petitioners were granted joint custody of their children,

with Ms. Spanier being the custodial parent for all three

children.

     Mr. Spanier timely filed a Form 1040, U.S. Individual Income

Tax Return, for 1998.   Ms. Spanier filed a Form 1040 for 1998 on

June 1, 1999.   On their separate Federal income tax returns for

1998, petitioners each claimed dependency exemption deductions

for their three children.   Ms. Spanier did not sign a Form 8332,

Release of Claim to Exemption for Child of Divorced or Separated

Parents, or a statement conforming to the substance of Form 8332,

and Mr. Spanier did not attach such documentation to his Form

1040.

     Respondent issued a letter dated January 25, 2000, to Mr.

Spanier notifying him that respondent had received two or more

1998 Federal individual income tax returns using the same Social
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Security numbers to claim a tax benefit.1   In separate notices of

deficiency dated January 9, 2003, respondent disallowed the three

dependency exemption deductions claimed by Mr. Spanier and Ms.

Spanier on their respective returns.

     A copy of the judgment of divorce was not offered into

evidence; however, copies of several subsequent court orders were

offered relating to various visitation and child and spousal

support questions that arose after the divorce.   None of the

court documents addressed the dependency exemption deductions for

the children for Federal income tax purposes.

     On March 12, 2003, Mr. Spanier petitioned the superior court

of California requesting a determination that he is entitled to

claim dependency exemption deductions for the children for 1997

and 1998 and that Ms. Spanier be ordered to execute the necessary

releases.   A hearing was held on May 14, 2003, and on August 22,

2003, the superior court granted Mr. Spanier's petition.   The

superior court's order states, in pertinent part:

     This Nunc pro tunc order corrects the previous order,
     which failed to reflect the true intention of the Court
     at the time the order was rendered. At the time the
     order was rendered, it was the intent of the Court to
     allow the transfer of the dependency exemptions. This
     order does not constitute a modification of the prior
     order, but rather a clarification of the same.


     1
      This letter refers only to duplication of two of the three
Social Security numbers assigned to petitioners' children. No
explanation is given for the omission of the third Social
Security number.
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                             Discussion

     Respondent's determinations in the notices of deficiency are

presumed correct, and generally, petitioners bear the burden of

proving that respondent's determination of income tax

deficiencies is incorrect.    See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).    Under section 7491, the burden of

proof with respect to factual issues relevant to ascertaining the

tax liability of the taxpayer may shift to the Commissioner in

certain circumstances.   See Prince v. Commissioner, T.C. Memo.

2003-247.   The issues in these cases are questions of law, and

the Court decides the issues without regard to the burden of

proof.

Dependency Exemption Deductions

     There is no dispute that the three children of petitioners

are "dependents" as defined in section 152 and that each of the

children received, during the year at issue, over half of his or

her support from their parents.    Where the parents are divorced

and the children are in the custody of one or both parents for

more than one-half of the calendar year, section 152(e)(1) allows

the dependency exemption deductions to the "custodial parent".

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

custodial parent is determined by the most recent decree of

divorce in effect between the parties.    In these cases, there is

no dispute that Ms. Spanier was the custodial parent for the
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three children.   However, the noncustodial parent is allowed a

dependency exemption deduction under section 152(e)(2) if the

custodial parent signs a written declaration that such custodial

parent will not claim a child as a dependent, and the

noncustodial parent attaches such written declaration to the

noncustodial parent's income tax return for the taxable year.

     Mr. Spanier never obtained from Ms. Spanier a completed Form

8332 or a written declaration that she would not claim dependency

exemptions for the children.   Therefore, the Court cannot allow

him dependency exemption deductions under section 152.

     Mr. Spanier contends that the superior court's nunc pro tunc

order dated September 8, 2003, clarified the original order and

granted him the right to the exemptions for 1998 and, therefore,

should be given effect for Federal income tax purposes.   In

general, State court adjudications retroactively changing the

rights of the parties are disregarded for Federal income tax

purposes.   Ianniello v. Commissioner, 98 T.C. 165, 175 n.5 (1992)

(citing Daine v. Commissioner, 9 T.C. 47 (1947), affd. 168 F.2d

449 (2d Cir. 1948)).   An exception to this rule is made when the

nunc pro tunc order retroactively corrects an order which failed

to reflect the true intention of the court at the time it was

rendered.   Gordon v. Commissioner, 70 T.C. 525, 530 (1978);

Johnson v. Commissioner, 45 T.C. 530, 532 (1966).   The order at

issue herein contains precisely this language.
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        In general, however, State courts, cannot by their decisions

determine issues of Federal tax law.     Miller v. Commissioner, 114

T.C. 184, 196 (2000); see also Kenfield v. United States, 783

F.2d 966 (10th Cir. 1986); White v. Commissioner, T.C. Memo.

1996-438 (citing with approval Commissioner v. Tower, 327 U.S.

280 (1946)).     Therefore, even assuming arguendo that Mr. Spanier

is correct in his contention, the nunc pro tunc order issued by

the superior court is ineffective because he did not comply with

the requirements set down in the Internal Revenue Code.

     The exception granting the noncustodial parent the exemption

under section 152(e)(2) applies only if "the custodial parent

signs a written declaration".    Ms. Spanier (admittedly the

custodial parent) did not sign any such written declaration.

Because Mr. Spanier, the noncustodial parent, did not meet the

requirements of the Internal Revenue Code, he simply does not

come within the exception provided in section 152(e)(2).

Accordingly, the Court holds that Mr. Spanier is not entitled to

dependency exemption deductions for Leah, Marissa, and Aaron for

1998.    Further, the Court holds that Ms. Spanier is entitled to

those dependency exemption deductions for 1998.

Additions to Tax

        Under section 7491(c), the Commissioner has the burden of

production in any court proceeding with respect to the liability

of any individual for any penalty or addition to tax.     Higbee v.
                                 - 8 -

Commissioner, 116 T.C. 438, 446-447 (2001).     In order to meet his

burden of production, the Commissioner must come forward with

sufficient evidence indicating that it is appropriate to impose

the accuracy-related penalty.     Id. at 446.   Once the Commissioner

meets his burden of production, the taxpayer must come forward

with evidence sufficient to persuade a court that the

Commissioner's determination is incorrect.      Id. at 447.

     1.      Accuracy-Related Penalty

     Respondent determined that Mr. Spanier is liable for a

penalty for negligence under section 6662(a) for claiming the

dependency exemption deductions for his children.     Respondent

also determined that if Mr. Spanier is determined to be entitled

to those dependency exemption deductions, Ms. Spanier would be

liable for a penalty for negligence under section 6662(a) for

claiming the same dependency exemption deductions.

     Section 6662(a) imposes an accuracy-related penalty of 20

percent of the portion of the underpayment of tax attributable to

negligence or disregard of rules or regulations.     See sec.

6662(a) and (b)(1).     "Negligence" is defined as any failure to

make a reasonable attempt to comply with the provisions of the

internal revenue laws and includes any failure by the taxpayer to

keep adequate books and records or to substantiate items

properly.     See sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax

Regs.     Moreover, negligence is the failure to exercise due care
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or the failure to do what a reasonable and prudent person would

do under the circumstances.     Allen v. Commissioner, 925 F.2d 348,

353 (9th Cir. 1991), affg. 92 T.C. 1 (1989); Zmuda v.

Commissioner, 731 F.2d 1417, 1422 (9th Cir. 1984), affg. 79 T.C.

714 (1982); Neely v. Commissioner, 85 T.C. 934, 947 (1985).

"Disregard" includes any careless, reckless, or intentional

disregard of rules or regulations.       See sec. 6662(c); sec.

1.6662-3(b)(2), Income Tax Regs.    No penalty will be imposed with

respect to any portion of an underpayment if it is shown that

there was reasonable cause for such portion and that the taxpayer

acted in good faith with respect to such portion.      See sec.

6664(c).

     Mr. Spanier acknowledges that Ms. Spanier is the custodial

parent of their children.     However, he still claimed dependency

exemption deductions for them despite the fact that he had not

obtained a waiver of the exemptions from Ms. Spanier.       While Mr.

Spanier took steps in State court in 2003 to obtain a

clarification of his right to claim dependency exemption

deductions for his children, his rights were not clear when he

filed his 1998 tax return.    The court order allowing him the

exemptions was not issued until 2003.       The State court had not

previously addressed the issue, and Mr. Spanier should have noted

that fact when preparing his income tax return for 1998.       See

Nieto v. Commissioner, T.C. Memo. 1992-296.       Therefore, the Court
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concludes that Mr. Spanier is liable for the accuracy-related

penalty as determined by respondent.     The Court further concludes

that Ms. Spanier is not liable for the accuracy-related penalty

as determined by respondent.

     2.     Failure-To-File Addition to Tax

     Respondent contends that Ms. Spanier is liable for an

addition to tax pursuant to section 6651(a)(1).    Section

6651(a)(1) imposes an addition to tax for failure to file a

Federal income tax return by its due date, determined without

regard to any extension of time for filing previously granted.

The addition equals 5 percent for each month that the return is

late, not to exceed 25 percent.    Sec. 6651(a)(1).   Additions to

tax under section 6651(a)(1) are imposed unless the taxpayer

establishes that the failure was due to reasonable cause and not

willful neglect.    Sec. 6651(a)(1); Crocker v. Commissioner, 92

T.C. 899, 912 (1989).    "Reasonable cause" requires the taxpayer

to demonstrate that she exercised ordinary business care and

prudence.    United States v. Boyle, 469 U.S. 241, 246 (1985).

"Willful neglect" is defined as a "conscious, intentional failure

or reckless indifference."     Id. at 245.

     Ms. Spanier's 1998 return was filed on June 1, 1999.    She

did not prove she had reasonable cause or a lack of willful

neglect.    Therefore, the Court sustains respondent's

determination as to the section 6651(a)(1) addition to tax.
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    Reviewed and adopted as the report of the Small Tax Case

Division.

                                  Decision will be entered in

                             docket No. 4692-03S for respondent,

                             and decision will be entered in

                             docket No. 5428-03S for petitioner

                             as to the deficiency in income tax

                             and the accuracy-related penalty

                             under section 6662, and for

                             respondent as to the addition to

                             tax under section 6651.
