                        T.C. Memo. 2020-96



                  UNITED STATES TAX COURT



          REBECCA L. BETHUNE, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10198-17.                        Filed June 30, 2020.



       In 2014 P was the noncustodial parent of two children. The
custodial parent was their father, C. P and C each filed a timely 2014
Federal income tax return claiming the two children as dependents.
No Form 8332, “Release/Revocation of Release of Claim to
Exemption for Child by Custodial Parent”, was attached to P’s return.
In July 2015 P and C jointly proposed a family court order that stated
that the children “will continue to be claimed by Mother/plaintiff (as
prior to 2014 tax year)”, and each signed a statement that the
statements in the proposed order “are true and accurate”.

      R examined P’s 2014 return. P provided C’s written statement,
but R nonetheless proposed disallowance of the dependency
exemption deductions, child tax credit, and head-of-household
(“HOH”) filing status. R suggested that P obtain a Form 8332 signed
by C for 2014. C signed the form, and P produced it to the IRS.
However, C did not file an amended return disclaiming his previous
claim of the children as dependents.
                                          -2-

[*2]         Held: Since P did not attach to her return any Form 8332 or
       equivalent release, P is not entitled under I.R.C. sec. 152(e)(2)(A) to
       claim the dependency exemption deduction or the child tax credit.

              Held, further: P is not entitled to the HOH filing status under
       I.R.C. sec. 2(b)(1).



       Rebecca L. Bethune, for herself.

       Michael E. D’Anello, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


       GUSTAFSON, Judge: The Internal Revenue Service (IRS) determined a

deficiency of $4,377 in the 2014 Federal income tax of petitioner, Rebecca L.

Bethune. Ms. Bethune petitioned this Court, pursuant to section 6213(a),1 for

redetermination of the deficiency. The issues for decision are whether

Ms. Bethune is entitled to (1) a dependency exemption deduction for two of her

children under section 151(c), (2) a child tax credit for those children under

section 24(a), and (3) head-of-household (“HOH”) filing status under

section 2(b)(1). On these issues we hold for the IRS.

       1
       Unless otherwise indicated, all citations of sections refer to the Internal
Revenue Code (26 U.S.C.) in effect for the tax year at issue, and all citations of
Rules refer to the Tax Court Rules of Practice and Procedure.
                                        -3-

[*3]                           FINDINGS OF FACT

       Ms. Bethune resided in Massachusetts when she filed her petition.

Ms. Bethune’s children

       Ms. Bethune married Timothy Kirby in October 2001. Together they had

four daughters. The two older daughters, Christine and Katherine, are no longer

minors. The two younger daughters were minors at the time of the trial, and we

therefore refer to them by their initials as N.K. and C.K. It is the two younger

daughters for whom the status as dependents is in dispute.

Divorce and custody

       Ms. Bethune and Mr. Kirby divorced in February 2006. Their original

divorce judgment did not indicate who would claim dependency exemptions for

the four girls for Federal income tax purposes. Since 2009 Mr. Kirby has had

primary physical custody of N.K. and C.K. Ms. Bethune concedes that in 2014

(the year at issue) she did not have physical custody of either N.K. or C.K.

2014 tax returns

       Ms. Bethune timely filed her 2014 income tax return. On that return she

claimed HOH filing status and claimed dependency exemptions and child tax

credits for both N.K. and C.K. Ms. Bethune signed and dated her 2014 return by

hand and filed it in paper form, not electronically. When she filed that 2014 return
                                        -4-

[*4] in early 2015, she did not attach to it Form 8332, “Release/Revocation of

Release of Claim to Exemption for Child by Custodial Parent”, or any other

written declaration signed by Mr. Kirby stating that he would not claim N.K. and

C.K. as dependents for 2014.

      Mr. Kirby timely filed his own 2014 income tax return, and on it he claimed

both N.K. and C.K. as dependents.

      Neither Ms. Bethune nor Mr. Kirby ever filed an amended return for 2014.

The July 2015 court order

      On July 14, 2015--several months after Ms. Bethune and Mr. Kirby had

filed their 2014 returns--the district court in Bangor, Maine, issued an order

modifying the parental rights and responsibilities of Ms. Bethune and Mr. Kirby.

Their names are typed at the bottom of the one-page order, and the order is in the

form of a request by them that the court agree to its stated “changes” in the terms

of a prior order, and it reflects that Ms. Bethune and Mr. Kirby agreed to those

changes. The July 2015 order addressed various topics (including “Parental

Rights and Responsibilities”; “Primary Residence of Children”; “Parent/Child

Contact”; “Child Support”; “Medical Insurance for Children”; and “Uninsured

Medical, Dental, Optical, Hospital and Prescription Expenses of Children”) and--

especially relevant here--“Tax Exemption”. The order provided:
                                        -5-

[*5] N[.K.] and C[.K.] will continue to be claimed by Mother/plaintiff
     (as prior to 2014 tax year)

      Katherine and Christine will continue to be claimed by
      Father/defendant (as prior to 2014 tax year)

      Starting tax year 2015, Christine and N will be claimed by
      Mother/Plaintiff.

      Starting tax year 2015, C and Katherine will be claimed by
      Father/defendant.

Thus, the July 2015 order provided for future treatment (“will continue”, “will be

claimed”) and referred to years “[s]tarting tax year 2015” and years “prior to

2014”, but it made no explicit provision for the 2014 year itself, which was a past

year for which Ms. Bethune and Mr. Kirby had both already filed their returns.

      Ms. Bethune and Mr. Kirby each signed separate pages that were attached to

the proposed order, and each signature (at the top of the page) was notarized with

a statement underneath the signature that, on Mr. Kirby’s page, reads as follows:

            On this day personally appeared the above-named Timothy
      K. Kirby and acknowledged and made oath that the above statements
      subscribed by him are true and accurate to the best of his personal
      knowledge, information and belief, and insofar as based on
      information and belief, he believes them to be true.

                                       Before me,

        7/9/15                          Jennifer L. Clarke
      Dated                            NOTARY PUBLIC
                                       -6-

[*6] IRS examination

      The IRS began examining Ms. Bethune’s 2014 income tax return in the fall

of 2016. In October 2016 (while the examination was ongoing) Ms. Bethune first

provided the July 2015 order and statements to the IRS.

      In February 2017 an IRS employee told Ms. Bethune that the July 2015

order was insufficient to show she was entitled to the dependency exemptions for

N.K. and C.K., because the IRS questioned its authenticity. The employee

suggested that Ms. Bethune needed a Form 8332 signed by Mr. Kirby. Before that

time, Ms. Bethune had not heard of Form 8332.

Form 8332

      Starting in February 2017, Ms. Bethune told Mr. Kirby that she needed him

to sign a Form 8332. On April 12, 2017, she presented to him for signing a

Form 8332 that stated: “I agree not to claim an exemption for * * * [N.K. and

C.K.] for the tax year 2014.” Mr. Kirby signed the form, dated it “4/12/17”, and

handed it to her.2 (However, despite purporting on Form 8332 to “agree not to

claim an exemption” for the two daughters, Mr. Kirby had in fact already claimed




      2
       Mr. Kirby denies that he signed the form and disavows the signature that
appears on it, but Ms. Bethune’s detailed account of the circumstance of the
signing persuades us that he probably did sign it, as she says.
                                       -7-

[*7] those exemptions on the 2014 return he had filed two years earlier, and he did

not ever file with the IRS an amended return disclaiming those exemptions.)

SNOD and petition

       By March 31, 2017, the IRS had not received Form 8332 from Ms. Bethune,

and on that date the IRS issued to Ms. Bethune a statutory notice of deficiency

(“SNOD”) for 2014. That SNOD determined that Ms. Bethune was not allowed

HOH filing status nor dependency exemptions and child tax credits for N.K. and

C.K.

       On May 1, 2017, Ms. Bethune sent to the IRS by telefacsimile the

Form 8332 that Mr. Kirby had signed.3 On the same date, she timely mailed to the

Court her petition commencing this case and challenging the SNOD. (To the

petition she also attached a copy of the signed Form 8332.)

       Ms. Bethune’s case was tried in Boston, Massachusetts, in October 2018.

The Commissioner filed his post-trial brief as ordered, but Ms. Bethune did not

file a brief.

       3
       A letter from the IRS attached to Ms. Bethune’s amended petition, whose
authenticity the Commissioner did not dispute, shows that IRS examination
personnel received her fax. The letter states: “We received your response dated
05/02/2017. If we can’t complete our review of the information you sent us by
06/05/2017, we will contact you again to provide a date when you can expect our
response. You don’t need to respond to this letter; however, if you have questions
or need additional information, you can contact the person listed above.”
                                         -8-

[*8]                                  OPINION

I.      Burden of proof

        A.    General rule

        The IRS’s determinations are presumed correct, and a taxpayer generally

bears the burden to prove her entitlement to any deduction, credit, or other tax

benefit that she claims. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). The taxpayer must satisfy the specific requirements for any deduction

claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Where the

evidence presented at trial is insufficient to support a finding that a particular item

should be allowed, we must sustain the IRS’s determinations and disallow the

item.

        B.    Witness credibility

        We observe the candor, sincerity, and demeanor of a witness in order to

evaluate his testimony. See, e.g., Gerdau Macsteel, Inc. v. Commissioner,

139 T.C. 67, 155 (2012). “We will not accept the testimony of witnesses at face

value if we find that the outward appearance of the facts in their totality conveys

an impression contrary to the spoken word.” Neonatology Assocs. P.A. v.

Commissioner, 115 T.C. 43, 84 (2000), aff’d, 229 F.3d 221 (3d Cir. 2002). This is

all the more true when witnesses contradict one another. See Law v.
                                         -9-

[*9] Commissioner, 2 T.C. 623, 628 (1943) (“The problem plainly requires the

selection of one of two witnesses as the one whose testimony must be accepted to

be true and controlling, each one having given testimony which contradicts the

other”).

II.   The dependency exemption deduction

      A.       The provisions of section 152

      For the year 2014 an individual is allowed a deduction for an exemption for

“each individual who is a dependent (as defined in section 152) of the taxpayer for

the taxable year.” Sec. 151(c). Section 152(a) defines the term “dependent” to

include “a qualifying child”. Generally, a “qualifying child” must: (1) bear a

specified relationship to the taxpayer (e.g., be a child of the taxpayer), (2) have the

same principal place of abode as the taxpayer for more than one-half of such

taxable year, (3) meet certain age requirements, (4) not have provided over one-

half of such individual’s support for the taxable year at issue, and (5) not have

filed a joint return for that year. Sec. 152(c)(1). Under those provisions

Ms. Bethune could not claim her children as dependents for 2014 because, as she

admits, they did not share the same place of abode with her for more than one-half

of the year.
                                       - 10 -

[*10] However, in the case of divorced parents, special rules determine which

parent may claim a dependency exemption deduction for a child. See sec. 152(e);

Espinoza v. Commissioner, T.C. Memo. 2011-108; cf. sec. 152(c)(4). Pursuant to

section 152(e), when certain criteria are met, a child may be treated as a qualifying

child of the noncustodial parent (here, Ms. Bethune) rather than of the custodial

parent (Mr. Kirby). Sec. 152(e)(1); 26 C.F.R. sec. 1.152-4, Income Tax Regs.

N.K. and C.K. could be the qualifying children of Ms. Bethune, under section

152(e)(1) and (2), if--

      •      the “child receives over one-half of the child’s support during the
             calendar year from the child’s parents * * * who are divorced * * *
             under a decree of divorce”, sec. 152(e)(1)(A);

      •      such child was “in the custody of 1 or both of the child’s parents for
             more than one-half of the calendar year”, sec. 152(e)(1)(B);

      •      “the custodial parent signs a written declaration (in such manner and
             form as the Secretary may by regulations prescribe) that such
             custodial parent will not claim such child as a dependent for any
             taxable year beginning in such calendar year”, sec. 152(e)(2)(A); and

      •      “the noncustodial parent attaches such written declaration to the
             noncustodial parent’s return” for the appropriate taxable year, sec.
             152(e)(2)(B).

      The IRS’s prescribed means for the noncustodial parent to make this

declaration is Form 8332, on which the relevant statement is “I agree not to

claim”. A noncustodial parent may rely on an alternative document, provided that
                                         - 11 -

[*11] it “conform[s] to the substance” of Form 8332. 26 C.F.R. sec. 1.152-

4(e)(1)(ii). Form 8332 requires a taxpayer to furnish: the name of the child; the

name and Social Security number of the noncustodial parent claiming the

dependency exemption deduction; the Social Security number of the custodial

parent; the signature of the custodial parent; the date of the custodial parent’s

signature; and the year(s) for which the claims were released. For the year at issue

here, a signed judgment copy of a court order cannot satisfy section 152(e)(2).

See 26 C.F.R. sec. 1.152-4(e)(1)(ii) (“A court order or decree or a separation

agreement may not serve as a written declaration”).

      Whether made on Form 8332 or by an equivalent document, the basic

element necessary for satisfying section 152(e)(2)(A) is a custodial parent’s

declaration that (in the words of the statute) he “will not claim” the child as a

dependent for a taxable year.

      B.     The lack of a declaration

      The Commissioner contends that Ms. Bethune’s claim in this case fails

because she is unable to show compliance with the third and fourth requirements

stated above. That is, the Commissioner contends that Mr. Kirby did not ever sign

a declaration that he “will not claim such child as a dependent” and that

Ms. Bethune did not “attach[] such written declaration to” her return.
                                       - 12 -

[*12] Ms. Bethune proffers two documents that, she contends, satisfy

section 152(e)(2). We consider each in turn.

             1.    Mr. Kirby’s July 2015 document

      Ms. Bethune provided to IRS examination personnel Mr. Kirby’s statement,

signed and notarized on July 9, 2015, which she contends satisfies

section 152(e)(2). The Commissioner contends that the document is inadequate

for two procedural reasons that we need not address,4 because we sustain a third

argument he makes.

      In that document Mr. Kirby did not make the statement required by the

statute--i.e., that he “will not claim” the child as a dependent for 2014. Mr. Kirby

did swear “that the above statements subscribed by him are true and accurate”, and

the “above statements” included that “N and C will continue to be claimed by

Mother/plaintiff (as prior to 2014 tax year)”. But there are two defects in the

statement:




      4
       First, the Commissioner cites 26 C.F.R. sec. 1.152-4(e)(1)(ii), Income Tax
Regs. (“A written declaration * * * must be a document executed for the sole
purpose of serving as a written declaration under this section. A court order or
decree * * * may not serve as a written declaration”), but Mr. Kirby’s statement is
arguably a document distinct from the order itself, and its purpose is unclear.
Second, the Commissioner argues that the statement was not “attached” to
Ms. Kirby’s return. See infra pt. II.B.2.
                                         - 13 -

[*13] First, Mr. Kirby’s July 2015 document makes no undertaking about what

Mr. Kirby will claim as to N.K. and C.K. It states that Ms. Bethune “will” claim

N.K. and C.K., but it does not state that Mr. Kirby will not claim them. In fact,

Mr. Kirby did claim them, and in that statement he did not undertake to do

otherwise nor to undo what he had previously done.

      Second, Mr. Kirby’s document executed in July 2015 makes no undertaking

about what Mr. Kirby will claim for 2014. The document makes assertions about

what “will continue to be claimed” and what “will be claimed” on tax returns, but

those forward-looking assertions made in July 2015 do not address the previous

year of 2014. Cf. 26 C.F.R. sec. 1.152-4(e)(1)(i) (“A written declaration that

specifies all future years is treated as specifying the first taxable year after the

taxable year of execution” (emphasis added)). The document makes assertions

about claims made “prior to 2014 tax year”, but those do not address 2014.

      Mr. Kirby’s July 2015 statement simply falls short of what section 152(e)(2)

requires.

             2.     The April 2017 Form 8332

      IRS personnel examining her 2014 return told Ms. Bethune in February

2017 that she needed a Form 8332 signed by Mr. Kirby, and she produced it to

them two months later (shortly after they had issued the SNOD). Ms. Bethune
                                        - 14 -

[*14] contends that this form satisfied section 152(e)(2). The Commissioner

disputed the authenticity of the Form 8332 as a matter of fact, but we have found

that Mr. Kirby did sign the form as alleged. Ms. Bethune has thus prevailed on

that dispute of fact.

        However, the Commissioner raises an additional argument against the

Form 8332: Section 152(e)(2)(B) provides that the requirements are satisfied if

“the noncustodial parent attaches such written declaration to the noncustodial

parent’s return for the taxable year beginning during such calendar year.” The

Commissioner contends that, for purposes of that statute, Ms. Bethune did not

“attach[] such written declaration [i.e., the Form 8332] to * * * [her] return” for

2014.

        “Attach” has an evident literal meaning, see Armstrong v. Commissioner,

139 T.C. 468, 479 (2012) (Goeke, J., concurring), aff’d, 745 F.3d 890 (8th Cir.

2014), but that literal meaning has become sometimes difficult to vindicate when

construing section 152(e) in the context of its practical administration by the IRS.

For example, where returns are filed electronically, see id. at 481-508 (Holmes, J.,

dissenting), a more figurative meaning must be invoked. Moreover, in January
                                        - 15 -

[*15] 2017 the Government proposed5 regulations that allow submission, “during

an examination”, of a Form 8332 that was not literally attached to the return:

      A noncustodial parent may submit a copy of the written declaration to
      the IRS during an examination to substantiate a claim to a
      dependency exemption for a child. A copy of a written declaration
      * * * provided during an examination, will not meet the requirement
      of this paragraph (e) if the custodial parent signed the written
      declaration after the custodial parent filed a return claiming a
      dependency exemption for the child for the year at issue, and the
      custodial parent has not filed an amended return to remove that claim
      to a dependency exemption for the child.

Sec. 1.152-5(e)(2)(i), Proposed Income Tax Regs., 82 Fed. Reg. 6387 (Jan. 19,

2017). In the second sentence quoted above, this proposed regulation qualifies the

allowance of the Form 8332 submitted during examination by stating that the form

will be ineffective if it would allow the noncustodial parent to get the tax benefit

that the custodial parent had already obtained and would not relinquish. Like the


      5
       In his post-trial brief, the Commissioner explains the effect of these
(merely) proposed regulations as follows:

            The proposed regulation is applicable to taxable years
      beginning after the date the regulations are published as final
      regulations in the Federal Register. 82 Fed. Reg. 6370, 6388
      (proposed Jan. 19, 2017) (to be codified at Treas. Reg. § 1.152-
      5(e)(2)(i)). Pending the issuance of the final regulations, taxpayers
      may choose to apply the proposed regulations in any open taxable
      years. Id. at 6377. Proposed regulations are not binding on the Court
      and are generally given no greater weight than a litigation position
      though the Court may rely on them for guidance. [Citations omitted.]
                                         - 16 -

[*16] provisions for electronic filing, that rule does not seem to employ a plain or

literal meaning of the word “attached”.

       However, the provisions for electronic filing are not applicable here, where

Ms. Bethune filed a paper return, and the provisions for submission during

examination are not applicable here, where the custodial parent never relinquished

the dependency exemption deduction. The applicable, operative rule is that

Ms. Bethune had to “attach” the Form 8332 to her return, but she did not do so.

Consequently, she is not entitled to the dependency exemption deductions for N.K.

and C.K.

III.   Child tax credit

       A taxpayer is entitled to a child tax credit for “each qualifying child”, as

defined in section 152, who has not reached the age of 17 and for whom the

taxpayer is allowed a dependency exemption deduction under section 151.

Sec. 24(a), (c)(1). Given our determination that under section 152 neither N.K.

nor C.K. is a “qualifying child” of Ms. Bethune for the year at issue and that

Ms. Bethune is not allowed the dependency exemption deduction for either of

them, it follows that Ms. Bethune is not entitled to a child tax credit for N.K. or

C.K. for that year.
                                        - 17 -

[*17] IV.    Head-of-household filing status

      Section 1 of the Code provides different tax rates for different taxpayers,

and section 1(b) provides relatively favorable rates for a “head of a household (as

defined in section 2(b))”. Section 2(b) in turn defines “head of a household”, and

one of the criteria for that status is that the taxpayer “maintains as his home a

household which constitutes for more than one-half of such taxable year the

principal place of abode, as a member of such household, of * * * (i) a qualifying

child of the individual (as defined in section 152(c), determined without regard to

section 152(e))”. Sec. 2(b)(1)(A)(i). Under section 152(c)(1)(B), a “qualifying

child” must have “the same principal place of abode as the taxpayer for more than

one-half of such taxable year”; and by providing that the child’s status is

determined “without regard to section 152(e) [“Special Rule for Divorced Parents,

Etc.”]”, section 2(b) provides that a noncustodial parent cannot meet the “principal

place of abode” requirement by obtaining a declaration from the custodial parent.

Rather, HOH status depends on having a qualifying child actually sharing the

taxpayer’s place of abode for more than one-half of the year.

      Ms. Bethune admits, however, that both N.K. and C.K. resided with their

father for more than one-half of 2014. Consequently, no qualifying child lived
                                        - 18 -

[*18] with Ms. Bethune in her place of abode for more than one-half of that year,

so she is not entitled to HOH filing status.

      In view of the foregoing,


                                                 Decision will be entered for

                                        respondent.
