                           T.C. Memo. 2000-5



                      UNITED STATES TAX COURT



     ANN POWERS, F/K/A MELANIE ANN STUDINGER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.   7230-98.                     Filed January 6, 2000.



     Ann Powers, pro se.

     Kimberly J. Webb, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     ARMEN, Special Trial Judge:     Respondent determined a

deficiency in petitioner's Federal income tax for the taxable

year 1996 in the amount of $3,556.

     Respondent’s deficiency determination is attributable solely

to the disallowance of the earned income credit claimed by
                                 - 2 -


petitioner on her 1996 income tax return.     Respondent disallowed

the earned income credit on the ground that petitioner did not

have any earned income in 1996.1    Accordingly, the issue for

decision is whether petitioner had earned income in 1996.     We

hold that she did not.


                         FINDINGS OF FACT

     Most of the facts have been stipulated, and they are so

found.   Petitioner resided in Michigan at the time that her

petition was filed with the Court.

     In 1996, petitioner received payments in the form and in the

amounts as follows:


          Form of Payment                Amount of Payment
          Aid to Families with
            Dependent Children
            (AFDC)                                $3,998
          Supplemental Securi-
            ty Income (SSI)                           74
          Social Security Dis-
            ability Benefits                       5,640
          Gifts                                    1,500
            Total                                 11,212


     Petitioner was not issued any Form W-2 (Wage and Tax

Statement) for the taxable year 1996.     Other than the payments




     1
        Respondent did not determine, nor did respondent contend
at trial, that petitioner is not otherwise entitled to an earned
income credit.
                                - 3 -


set forth in the table above, petitioner did not receive any

“income” in 1996.2

     On or about January 27, 1997, petitioner filed an income tax

return (Form 1040) for 1996.    On the return, petitioner indicated

her filing status as “head of household” and claimed two

dependency exemptions.

     On line 7 of Form 1040, petitioner reported “wages” in the

amount of $11,212.   This amount consisted of the AFDC and SSI

payments, the Social Security disability benefits, and the gifts

as set forth in the table above.    Petitioner reported no other

items of “income”, inserting the word “NONE” on each and every

line (other than line 7) of the “Income” portion of Form 1040.

Specifically, on line 12 (Business income or (loss)), petitioner

inserted the word “NONE”.

     On page 2 of Form 1040, petitioner claimed the standard

deduction applicable to her indicated filing status ($5,900) and

the dollar value of 3 exemptions ($7,650), thereby reporting

taxable income of “-0-“.    Petitioner did not claim any


     2
        Gifts are excluded from gross income, and welfare
benefits such as AFDC and SSI may also be excluded therefrom.
See sec. 102(a); Bailey v. Commissioner, 88 T.C. 1293, 1299-1301
(1987), acknowledging the “general welfare doctrine” of income
exclusion; cf. Notice 99-3, 1999-2 I.R.B. 10.
                               - 4 -


withholding or estimated tax payments, but she did claim an

earned income credit in the amount of $3,556 and requested that

such amount be refunded to her as an overpayment of tax.

     For 1996, the maximum allowable amount of the earned income

credit was $3,556.   See sec. 32(a)(1) and (b).3

                              OPINION

     Petitioner bears the burden of proof in this case.     See Rule

142(a); INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992);

Welch v. Helvering, 290 U.S. 111, 115 (1933); cf. sec. 7491 as

effective for court proceedings arising in connection with

examinations commencing after July 22, 1998.4   In order to be

entitled to an earned income credit, petitioner is therefore

obliged to prove that she had earned income in 1996.

     Section 32 provides for an earned income credit.   In order

to be entitled to an earned income credit, the taxpayer must

satisfy a number of requirements.   One of the requirements is

that the taxpayer have earned income.   See sec. 32(a)(1).

Without earned income, there is no earned income credit.5


     3
        All section references are to the Internal Revenue Code
in effect for the taxable year in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
     4
        The notice of deficiency in this case was issued on Jan.
22, 1998. Accordingly, sec. 7491 has no application to this
case.
     5
        Sec. 32(a)(1) provides in relevant part that “there shall
be allowed as a credit against the tax imposed by this subtitle
for the taxable year an amount equal to the credit percentage of
                                                   (continued...)
                                  - 5 -


     The term “earned income” is defined to mean wages, salaries,

tips, and other employee compensation, plus the amount of the

taxpayer’s net earnings from self-employment.         See sec.

32(c)(2)(A); see also sec. 1.32-2(c)(2), Income Tax Regs.        Earned

income does not include welfare payments such as AFDC and SSI,

nor does earned income include Social Security disability

benefits or gifts.   See sec. 32(c)(2)(A); see also sec. 1.32-

2(c)(2), Income Tax Regs.

     The legislative history of section 32 provides further

support for our conclusion.   Thus, the legislative history

demonstrates that the earned income credit was originally created

as an employment inducement and an offset to the Social Security

tax for low-income taxpayers:

     Under present law an individual is not required to pay
     income tax unless his income exceeds the amount of the
     minimum standard deduction plus the sum of available
     personal exemptions. Social security taxes, however,
     are paid on all covered earnings by workers * * * ,
     regardless of how small the amount of earnings.
     * * * it is appropriate to use the income tax system to
     offset the impact of the social security taxes on
     low-income persons * * * by adopting a refundable
     income tax credit against earned income.

                     *   *    *    *      *   *   *


     5
     (...continued)
so much of the taxpayer’s earned income for the taxable year as
does not exceed the earned income amount.” (Emphasis added.)
Despite the complexity of this language, it is apparent that if a
taxpayer has no earned income, then there is no earned income
credit.
                               - 6 -


     however, * * * the most significant objective of the
     provision should be to assist in encouraging people to
     obtain employment, reducing the unemployment rate and
     reducing the welfare rolls.

S. Rept. 94-36 (1975), 1975-1 C.B. (Part II) 590, 603 to

accompany the Tax Reduction Act of 1975, Pub. L. 94-12, 89 Stat.

26, sec. 204.

     At trial, petitioner testified that she was physically

disabled and should therefore be deemed to have earned income

pursuant to a special rule that “assumes an earned income of $200

per month for one qualifying person, and an earned income of $400

per month for two or more qualifying persons.”   This special

rule, however, serves to ameliorate the earned income limitation

on the amount of a taxpayer’s “employment-related expenses” for

purposes of the child care credit under section 21; this special

rule does not apply in determining the amount of a taxpayer’s

earned income for purposes of the earned income credit under

section 32.   See sec. 21(d)(2).

     Petitioner also testified at trial that she is an inventor,

implying that her power or ability to invent is a trade or

business.   However, petitioner did not allege, much less prove,

that she had net earnings from any such trade or business.

     Finally, petitioner testified at trial that she received

“under $400 miscellaneous income” from “my sister and a friend of

mine”, apparently for doing “legal correspondence and a lot of
                               - 7 -


correspondence”.   Petitioner’s contention is belied, however, by:

(1) The insertion of the word “NONE” on line 12 (Business income

or (loss)) of Form 1040; (2) the parties’ stipulation that

petitioner received no “income” in 1996 other than AFDC and SSI

payments, Social Security disability benefits, and gifts; and (3)

the absence of any documentary or third party testimony.     See

Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992); Wichita

Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),

affd. 162 F.2d 513 (10th Cir. 1947).   Regardless, the record does

not reveal whether the “under $400" amount represents gross

receipts or, as is required for purposes of the earned income

credit, net earnings.

Conclusion

     In view of the foregoing, we hold that petitioner did not

have any earned income in 1996 and is therefore not entitled to

an earned income credit for that year.

     To reflect our disposition of the disputed issue,



                                    Decision will be entered

                               for respondent.
