                        T.C. Summary Opinion 2014-56



                        UNITED STATES TAX COURT



                 TONY RAY DUNCAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 16709-13S.                     Filed June 19, 2014.



      Tony Ray Duncan, pro se.

      Kimberly T. Packer, for respondent.



                             SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the
                                         -2-

petition was filed.1 Pursuant 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 in petitioner’s Federal income tax for

2011 of $5,055 and an accuracy-related penalty of $1,010. After deemed

concessions by petitioner and a concession by respondent,2 the issues for decision

are as follows:

      (1) Whether petitioner is entitled to a personal exemption deduction for his

former spouse. We hold that he is not;




      1
        Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code (Code) in effect for 2011, the taxable year in issue. All
Rule references are to the Tax Court Rules of Practice and Procedure.
      2
        Petitioner did not assign any error or allege any facts in the petition
regarding respondent’s determination that he received unreported unemployment
compensation of $2,061 and unreported wages of $236 in 2011. Similarly,
petitioner did not address those income adjustments at trial. Accordingly,
petitioner is deemed to have conceded them. See Rule 34(b)(4) (“Any issue not
raised in the assignments of error shall be deemed to be conceded.”); see also
McNeil v. Commissioner, T.C. Memo. 2011-150, 2011 WL 2559802, at *1 n.3
(issues not raised on brief or at trial are deemed conceded), aff’d per curiam, 451
Fed. Appx. 622 (8th Cir. 2012).
       Respondent acknowledges that in computing the accuracy-related penalty,
the notice of deficiency did not take into account the Court’s Opinion in Rand v.
Commissioner, 141 T.C. __ (Nov. 18, 2013), such that the amount of the penalty
was overstated.
                                           -3-

         (2) whether petitioner is entitled to dependency exemption deductions for

his two minor stepchildren. We hold that he is;

         (3) whether petitioner is entitled to joint filing status for 2011. We hold that

he is not; rather, petitioner is entitled to head of household filing status; and

         (4) whether petitioner is liable for the accuracy-related penalty under section

6662(a). We hold that he is to the extent provided herein.

         Other adjustments in the notice of deficiency, including petitioner’s

entitlement to the earned income credit and the additional child tax credit, are

either derivative or computational in nature and will be resolved on the basis of

the Court’s disposition of the disputed issues.

                                       Background

         Some of the facts have been stipulated, and they are so found. We

incorporate by reference the stipulated facts and the related exhibits.

         Petitioner resided in the State of Oregon at the time that the petition was

filed.
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      Petitioner married Candice Lee Arbogast in 2008. Ms. Arbogast had two

children, B.E. and H.A., from previous relationships.3 B.E. was born in 2006, and

H.A. was born in 2007 and thus turned 5 and 4 years of age, respectively, in 2011.

      Petitioner, Ms. Arbogast, and the two children lived together as a family

from when they married in 2008 through early November 2011, at which time

petitioner and Ms. Arbogast separated, and petitioner moved out of the marital

home. B.E. and H.A. remained with their mother.

      On November 15, 2011, petitioner and Ms. Arbogast were divorced in an

uncontested action.4

      During the time that the family was together, petitioner was employed and

provided most of the support for the family and household. Ms. Arbogast was

employed only part time for a few weeks at a local Wal-Mart in 2011. Her wages

were insufficient to require the filing of a return for 2011.

      In July 2011 Ms. Arbogast received an inheritance from her mother, which

was used to pay off the couple’s mortgage in August or September 2011. Ms.


      3
       For privacy reasons, the Court refers to minor children by their initials.
See Rule 27(a)(3).
      4
        The divorce decree was silent regarding both legal and physical custody of
B.E. and H.A. as there was no dispute about the matter between petitioner and Ms.
Arbogast. Nevertheless, the record is clear that petitioner had affectionate
relationships with his stepchildren.
                                        -5-

Arbogast did not otherwise use her inheritance to provide any appreciable support

for her children or the household during the portion of 2011 that she and petitioner

lived together.

      Petitioner self-prepared and timely filed a Form 1040A, U.S. Individual

Income Tax Return, for 2011. On it petitioner elected joint filing status and

claimed deductions for (1) a personal exemption for Ms. Arbogast and (2)

dependency exemptions for B.E. and H.A.

      After examination respondent issued a notice of deficiency. As relevant

herein, respondent adjusted petitioner’s filing status and disallowed both the

personal exemption deduction for Ms. Arbogast and the dependency exemption

deductions for petitioner’s two stepchildren.5 Respondent also imposed an

accuracy-related penalty, predicating his determination on, inter alia, negligence or

disregard of rules or regulations.

      Petitioner timely filed a petition for redetermination of the deficiency and

penalty.

      5
         The notice of deficiency is no model of clarity insofar as filing status is
concerned. Thus, Form 4549, Income Tax Examination Changes, suggests that
petitioner’s appropriate filing status is “single”, whereas Form 886-A, Explanation
Of Items, suggests that it is “married filing separately”. Given the fact that for
2011 the amount of the standard deduction, $5,800, and the tax at petitioner’s
income level were the same for both “single” and “married filing separately” filing
status, the inconsistency in the statutory notice is moot.
                                          -6-

                                      Discussion6

I. Exemption Deduction for Ms. Arbogast

      Personal exemptions are allowed for a taxpayer and the taxpayer’s spouse if

a joint return is not filed by the taxpayer and his spouse and if the spouse has no

gross income for the taxable year and cannot be considered as the dependent of

another taxpayer. Sec. 151(b). However, the determination of whether an

individual is married, and therefore has a spouse, is made at the close of the

taxable year, in this case December 31, 2011. Sec. 7703(a)(1). In addition, an

individual legally separated from his spouse under a decree of divorce shall not be

considered married. Sec. 7703(a)(2).

      In the instant case Ms. Arbogast was not petitioner’s spouse at the close of

the taxable year because their divorce was finalized on November 15, 2011. But

even if this were not so, Ms. Arbogast received gross income in 2011 from wages,

albeit modest in amount, from her employment at Wal-Mart. See sec. 1.151-1(b),

Income Tax Regs. (providing in relevant part that “a husband is not entitled to an

exemption for his wife on his separate return for the taxable year beginning in a

calendar year during which she has any gross income (though insufficient to

require her to file a return).”). Accordingly, as a matter of law, petitioner is not

      6
          We decide the issues in this case without regard to the burden of proof.
                                         -7-

entitled to a personal exemption deduction for Ms. Arbogast. We therefore sustain

respondent’s determination on this issue.7

II. Dependency Exemption Deductions for Petitioner’s Stepchildren

       In general a taxpayer may claim a dependency exemption deduction “for

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

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

include “a qualifying child”.

       Generally, to be considered a “qualifying child”, the individual must: (1)

Bear a specified relationship to the taxpayer, including stepchild; (2) have the

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

year; (3) meet certain age requirements; and (4) not have provided over one-half of

such individual’s support for the taxable year in issue. Sec. 152(c)(1) and (2),

(f)(1)(A)(i).

       At trial respondent conceded that petitioner satisfied all of the foregoing

requirements except for the relationship test. However, section 1.152-2(d),


      7
        We acknowledge that petitioner supported Ms. Arbogast for the majority
of the year. However, from a dependency exemption perspective under sec. 152,
an individual who is married to a taxpayer for any part of a taxable year does not
qualify under sec. 152(d)(2)(H) as a “qualifying relative” of the taxpayer. Thus,
notwithstanding the support that petitioner provided, he may not, as a matter of
law, claim Ms. Arbogast as a dependent.
                                        -8-

Income Tax Regs., provides that “[t]he relationship of affinity once existing will

not terminate by divorce or death of a spouse.” See Brown v. Commissioner, T.C.

Memo. 1992-548, 1992 WL 224518, n.2 at *2, aff’d without published opinion, 7

F.3d 1042 (8th Cir. 1993). Therefore, petitioner’s divorce did not terminate his

stepparent-stepchild relationships with B.E. and H.A. Accordingly, they are

petitioner’s stepchildren, thus satisfying the relationship test. We therefore hold

that B.E. and H.A. are petitioner’s qualifying children for purposes of the

dependency exemption deductions for 2011. See sec. 152(c)(1), (4)(C),

(f)(1)(A)(i).

III. Filing Status

       On his 2011 return petitioner claimed joint filing status, presumably because

he was married for most of the year. But that is not the test. Rather, as previously

discussed, the determination of whether an individual is married is made at the

close of the taxable year. Sec. 7703(a)(1). And, on December 31, 2011, the record

is clear that petitioner was unmarried, his divorce having been finalized on

November 15, 2011. See sec. 7703(a)(2). Accordingly, petitioner is not entitled to

joint filing status. Instead, as an unmarried taxpayer and on the record before us,

petitioner qualifies for head of household filing status for 2011.
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      As relevant herein, section 2(b)(1) defines a “head of household” as an

individual who is not married at the close of the taxable year and who maintains as

his home a household that constitutes for more than one-half of the taxable year the

principal place of abode, as a member of such household, of a qualifying child. See

sec. 2(b)(2)(A) (providing that “an individual who is legally separated from his

spouse under a decree of divorce or of separate maintenance shall not be

considered as married”).

      We have already held that B.E. and H.A. were qualifying children of

petitioner in 2011, and we have previously found that during the time that the

family was together, which was more than one-half of the year, petitioner furnished

most of the support for the family and the household. Although Ms. Arbogast did

receive an inheritance from her mother that was used to pay off the mortgage on the

marital home in August or September 2011, her one-time capital outlay does not

eclipse the value of the household that petitioner provided for the majority of the

year.8 See sec. 2(b)(1) (flush language).


      8
        At trial respondent conceded that B.E. and H.A. received more than half of
their support for the calendar year from petitioner. Such concession may be
tantamount to a concession that petitioner furnished over half of the cost of
maintaining the household during the portion of the calendar year that the family
lived together. In any event, the record supports that fact, which we have so
found.
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IV. Accuracy-Related Penalty

      As relevant, section 6662(a) and (b)(1) imposes a penalty of 20% of the

portion of an underpayment of tax attributable to the taxpayer’s negligence or

disregard of rules or regulations. “Negligence” includes any failure to make a

reasonable attempt to comply with the Code. See sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs.

      The section 6662(a) accuracy-related penalty does not apply with respect to

any portion of an underpayment if the taxpayer proves that there was reasonable

cause for such portion that he acted in good faith with respect thereto. Sec.

6664(c)(1). The determination of whether a taxpayer acted with reasonable cause

and in good faith depends on the pertinent facts and circumstances, including the

taxpayer’s efforts to assess the proper tax liability and the knowledge and

experience of the taxpayer. Sec. 1.6664-4(b)(1), Income Tax Regs. Generally, the

most important factor is the taxpayer’s effort to assess his proper tax liability. Id.

      The Commissioner has the burden of production under section 7491(c) with

respect to the accuracy-related penalty under section 6662. To satisfy that burden,

the Commissioner must produce sufficient evidence showing that it is appropriate

to impose the penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Respondent has satisfied his burden (1) through petitioner’s concessions regarding
                                        - 11 -

unreported income and (2) by demonstrating that petitioner claimed, contrary to

law, (a) an exemption for Ms. Arbogast and (b) joint filing status. Accordingly,

because respondent has satisfied his burden of production, petitioner must provide

persuasive evidence that he acted with reasonable cause and in good faith. See sec.

6664(c)(1); Rule 142(a); Higbee v. Commissioner, 116 T.C. at 446.

      Petitioner may very well have acted in good faith, but he has not made any

persuasive argument that he acted with reasonable cause as to either his unreported

income or any of the issues for which we have sustained respondent’s

determination. Accordingly, we sustain the accuracy-related penalty to that extent.

                                     Conclusion

      To give effect to our disposition of the disputed issues, as well as

the parties’ concessions, see supra note 2,


                                                      Decision will be entered under

                                                 Rule 155.
