                                                                               REPORTS

                                                                                  OF THE

                                                        UNITED STATES TAX COURT


                                             LEAH M. CARLEBACH AND URIEL FRIED, PETITIONERS
                                                  v. COMMISSIONER OF INTERNAL REVENUE,
                                                               RESPONDENT
                                                    Docket No. 19291–10.                          Filed July 19, 2012.

                                                  Ps, calendar year taxpayers, and their children resided in
                                               Israel during the years in issue. R determined that Ps’ chil-
                                               dren may not be claimed as dependents until they meet the
                                               citizenship test specified in I.R.C. sec. 152, as elaborated in
                                               sec. 1.152–2(a)(1), Income Tax Regs. Ps argue that the regula-
                                               tion, requiring that children be citizens at some time during
                                               the calendar year for which the child is claimed as a
                                               dependent, is invalid and that the children qualify as depend-
                                               ents for both dependency exemption deductions and accom-
                                               panying credits because, at the time the returns were filed,
                                               they were citizens. Alternatively, Ps argue that the children
                                               possessed derivative citizenship during the calendar years in
                                               issue and thus qualified. R disagrees. R disallowed a child
                                               care credit claimed by P–W for one year because she did not
                                               meet the requirement of filing a joint return. R imposed on Ps
                                               accuracy-related penalties and additions to tax for late filing.
                                                  1. Held: Sec. 1.152–2(a)(1), Income Tax Regs., is valid. Ps
                                               could not claim a child as a dependent for calendar years
                                               before that child obtained his or her certificate of citizenship.
                                                  2. Held, further, P–W is not eligible for a child care credit
                                               for 2008 because she did not file a joint return.
                                                  3. Held, further, penalties and additions to tax are sus-
                                               tained.



                                                                                                                                    1




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                                     2                   139 UNITED STATES TAX COURT REPORTS                                       (1)


                                       Elissa F. Borges, Saul B. Abrams, and Stuart M. Schabes,
                                     for petitioners.
                                       Stephen C. Huggs and Jeffrey E. Gold, for respondent.
                                       HALPERN, Judge: This case involves two notices of defi-
                                     ciency (together, notices). By the first notice, respondent
                                     determined deficiencies, additions to tax, and penalties with
                                     respect to petitioners’ joint Federal income tax, as follows:

                                                                                  Addition to tax                 Penalty
                                              Year           Deficiency           sec. 6651(a)(1)               sec. 6662(a)

                                              2004             $4,696                      $424                      $939
                                              2005              6,296                       595                      1,259
                                              2006              5,811                       527                      1,162

                                       By the second notice, respondent determined deficiencies,
                                     additions to tax, and penalties with respect to petitioner
                                     Carlebach’s individual Federal income tax, as follows:

                                                                                  Addition to tax                 Penalty
                                              Year           Deficiency           sec. 6651(a)(1)               sec. 6662(a)

                                              2007             $5,168                     $523                     $1,034
                                              2008              9,062                      -0-                      1,812

                                        The issues for decision with respect to petitioners for 2004
                                     through 2006 are whether, on account of their children, they
                                     are entitled to dependency exemption deductions, child care
                                     credits, a child tax credit (for 2005), and additional child tax
                                     credits; also whether they are liable for additions to tax for
                                     late filing and accuracy-related penalties.
                                        After concessions, the issues remaining for decision with
                                     respect to petitioner Carlebach for 2007 and 2008 are
                                     whether, for 2007, on account of two of her children, she is
                                     entitled to dependency exemption deductions and an addi-
                                     tional child tax credit; also, for 2007, whether she is liable
                                     for an addition to tax for late filing and an accuracy-related
                                     penalty and, for 2008, whether she is entitled to a child care
                                     credit.
                                        Simplifying somewhat, the denominator common to the
                                     deduction and credit issues is whether a child, to qualify as
                                     a dependent for a parent’s taxable (calendar) year, must be
                                     a U.S. citizen or a resident at some time during that year.
                                     The answer is ‘‘yes’’.




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                                     (1)                           CARLEBACH v. COMMISSIONER                                            3


                                       Unless otherwise indicated, all section references are to the
                                     Internal Revenue Code in effect for the years in issue, and
                                     all Rule references are to the Tax Court Rules of Practice
                                     and Procedure. 1 We round all dollar amounts to the nearest
                                     dollar.
                                       Petitioners bear the burden of proof. See Rule 142(a)(1). 2

                                                                         FINDINGS OF FACT

                                       Some of the facts have been stipulated and are so found.
                                     The stipulation of facts, with accompanying exhibits, is incor-
                                     porated herein by this reference. Petitioners resided in Israel
                                     at the time they filed the petition.
                                     Petitioners’ Family
                                        Petitioners have been married since 1990. Petitioner
                                     Carlebach was born in 1968 in the United States and is a
                                     U.S. citizen. She has resided in the United States for less
                                     than two years since age 14 and has resided in the United
                                     States for less than five years in total. Her parents were also
                                     born in the United States and are U.S. citizens. Her mother
                                     has resided in the United States for more than five years in
                                     total and, since reaching the age of 14, has resided in the
                                     United States for more than two years in total. Petitioner
                                     Fried was born in Israel in 1968 and is not a citizen of the
                                     United States, nor has he ever resided in the United States.
                                        Petitioners have six children—by initials, C.B.F., R.F.,
                                     S.F., E.A.F., Y.F., and N.F. (collectively, children)—all of
                                     whom were born in Israel. During the years in issue, peti-
                                     tioners and the children resided in Israel. The children have
                                     never resided in the United States. The oldest of the chil-
                                     dren, C.B.F., was born in 1993. In June 2007, the Director
                                     of the United States Citizen and Immigration Services,
                                     Department of Homeland Security (Director), granted certifi-
                                     cates of citizenship to four of the children, R.F., E.A.F., Y.F.,
                                     and N.F., who were then in the United States and who
                                        1 Secs. 21, 24, 151, and 152, sections important to this case, were different as applicable to

                                     2004 and as applicable to 2005 through 2008. The differences are not important to resolution
                                     of the issues here presented, and we shall refer only to the provisions of those sections applica-
                                     ble to the latter years.
                                        2 The burden of proof plays little role in our analysis. Nevertheless, petitioners have not raised

                                     the issue of sec. 7491(a), which shifts the burden of proof to the Commissioner in certain situa-
                                     tions. We conclude that sec. 7491(a) does not apply because petitioners have not produced any
                                     evidence that they have satisfied the preconditions for its application. See sec. 7491(a)(2).




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                                     4                   139 UNITED STATES TAX COURT REPORTS                                       (1)


                                     applied for, and were issued, Social Security cards. In April
                                     2008, the Director granted certificates of citizenship to the
                                     remaining two children, C.B.F. and S.F., who were then in
                                     the United States and who applied for, and were issued,
                                     Social Security cards.
                                     Petitioners’ Joint Federal Income Tax Returns
                                        In December 2007, petitioners filed three Forms 1040A,
                                     U.S. Individual Income Tax Return, one each for 2004, 2005,
                                     and 2006, showing on each their filing status to be ‘‘married
                                     filing jointly’’. On each, they claimed dependency exemption
                                     deductions—three for 2004 (for R.F., E.A.F., and Y.F.) and
                                     four for 2005 and 2006 (adding N.F.)—a child care credit and
                                     an additional child tax credit. They also claimed a child tax
                                     credit for 2005. 3 On each return, they reported an overpay-
                                     ment of tax and claimed a refund.
                                     Petitioner Carlebach’s Federal Income Tax Returns
                                        In October 2008, petitioner Carlebach filed a Form 1040A
                                     for 2007, showing her filing status to be ‘‘single’’. On that
                                     return, she claimed six dependency exemption deductions
                                     and an additional child tax credit of $2,555. She also
                                     reported an overpayment of tax and claimed a refund.
                                        In June 2009, petitioner Carlebach filed a Form 1040A for
                                     2008, showing her filing status to be ‘‘married filing sepa-
                                     rately’’. On that return, she claimed six dependency exemp-
                                     tion deductions, a child care credit, an additional child tax
                                     credit, and a recovery rebate credit. She also reported an
                                     overpayment of tax and claimed a refund.
                                     Refunds
                                       In January 2008, the Internal Revenue Service (IRS) made
                                     refunds to petitioners for 2004, 2005, and 2006. In March
                                     2009, the IRS made a refund to petitioner Carlebach for 2007.
                                     Because of this litigation, the IRS has made no refund to her
                                     for 2008.



                                        3 The stipulation of facts erroneously states that the child tax credit was claimed for 2006;

                                     it is contradicted by the 2005 and 2006 Forms 1040A.




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                                     (1)                           CARLEBACH v. COMMISSIONER                                        5


                                     Notices
                                        In each notice, respondent disallowed the claimed depend-
                                     ency exemption deductions and credits described above on
                                     the basis that none of the children met the definition of
                                     ‘‘qualifying child’’ under section 152. Respondent also deter-
                                     mined section 6651(a)(1) additions to tax and section 6662(a)
                                     penalties with respect to petitioners for 2004–06 and with
                                     respect to petitioner Carlebach for 2007 and 2008 (since con-
                                     ceding the addition to tax and penalty for 2008).

                                                                                  OPINION

                                     I. Dependency Exemption Deductions
                                           A. Applicable Law
                                        Section 151(a) and (c) allows a taxpayer an exemption
                                     deduction for each ‘‘dependent’’ as defined in section 152.
                                     ‘‘The term ‘dependent’ does not include an individual who is
                                     not a citizen or national of the United States unless such
                                     individual is a resident of the United States or a country
                                     contiguous to the United States.’’ Sec. 152(b)(3)(A) (citizen-
                                     ship test). In pertinent part, section 1.152–2(a)(1), Income
                                     Tax Regs., provides: ‘‘to qualify as a dependent an individual
                                     must be a citizen or resident of the United States * * * at
                                     some time during the calendar year in which the taxable
                                     year of the taxpayer begins.’’ The parties dispute only when
                                     the citizenship test must be satisfied in order that petitioners
                                     may claim the children as dependents.
                                           B. Respondent’s Position
                                       Respondent argues that petitioners are not entitled to the
                                     dependency exemption deductions claimed for 2004–07,
                                     because some or all of the children were not U.S. citizens in
                                     the tax (calendar) years for which they were claimed as
                                     dependents. More specifically, he asserts that none of the
                                     children met the citizenship test for 2004, 2005, or 2006, and
                                     only four of the six met the citizenship test for 2007, because
                                     the children did not become citizens until they received their
                                     certificates of citizenship. He contends that, without the chil-
                                     dren’s having satisfied the citizenship test, petitioners are
                                     not entitled to the dependency exemption deductions, nor are




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                                     6                   139 UNITED STATES TAX COURT REPORTS                                          (1)


                                     they allowed the child-related credits, which require that the
                                     children satisfy the same statutory test.
                                           C. Petitioners’ Position 4
                                        Petitioners argue that they are entitled to the dependency
                                     exemption deductions for 2004–07 because the children were
                                     citizens at the time petitioners filed tax returns for those
                                     years. They claim that section 1.152–2(a)(1), Income Tax
                                     Regs., which requires that an individual be a citizen at some
                                     time during the calendar year in which begins the taxable
                                     year of the taxpayer claiming the individual as a dependent,
                                     is invalid. Employing the analysis set out in Chevron U.S.A.,
                                     Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)
                                     (Chevron), petitioners claim that section 152(b)(3)(A) is
                                     unambiguous and that Congress specifically addressed the
                                     temporal requirement of citizenship by declining to require
                                     that an individual be a citizen ‘‘at some time during the cal-
                                     endar year in which the taxable year of the taxpayer begins
                                     in order to be a dependent.’’
                                        Alternatively, petitioners argue that the children satisfied
                                     the citizenship test for 2004–07 because each child ‘‘had
                                     derivative citizenship ‘at some time’ during the tax years in
                                     which he or she was claimed as a dependent.’’ Thus, peti-
                                     tioners assert that the children ‘‘satisfied the citizenship test
                                     for each of the tax years in question except for the formality
                                     of traveling to the United States to receive their certificates
                                     of citizenship.’’ We address their last argument first.
                                           D. Discussion
                                           1. Derivative Citizenship Claim
                                       There are ‘‘two sources of citizenship, and two only: birth
                                     and naturalization.’’ United States v. Wong Kim Ark, 169
                                     U.S. 649, 702 (1898). 5 Under the Fourteenth Amendment to
                                     the Constitution, ‘‘[e]very person born in the United States,
                                     and subject to the jurisdiction thereof, becomes at once a cit-
                                     izen of the United States, and needs no naturalization.’’ Id.
                                     Individuals born outside the United States may ‘‘only become
                                       4 Unless otherwise noted, we use the term ‘‘petitioners’’ collectively to refer to both petitioners

                                     to the notice issued to both of them (for 2004–06) and to petitioner Carlebach, the sole petitioner
                                     to the notice issued to her alone (for 2007 and 2008).
                                       5 The Immigration and Nationality Act elaborates the rules for at-birth citizenship, 8 U.S.C.

                                     secs. 1401–1409 (2012), and naturalization, id. secs. 1421–1458.




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                                     (1)                           CARLEBACH v. COMMISSIONER                                        7


                                     a citizen by being naturalized, either by treaty * * * or by
                                     authority of Congress’’. Id. at 702–703. Congress’ authority to
                                     ‘‘establish a uniform Rule of Naturalization’’ is found under
                                     Article I, Section 8, Clause 4 of the Constitution.
                                        U.S. citizenship obtained by virtue of the status of one’s
                                     parent or grandparent as a U.S. citizen is sometimes referred
                                     to as derivative citizenship. See, e.g., Guzman v. U.S. Dept.
                                     of Homeland Sec., 679 F.3d 425, 430 (6th Cir. 2012) (‘‘The
                                     Child Citizenship Act[6] allows a child to achieve derivative
                                     citizenship where only one parent is a U.S. citizen[.]’’
                                     (internal quotation marks omitted)).
                                        A child of a U.S. citizen (1) born outside the United States
                                     and (2) residing permanently in the United States becomes
                                     a citizen automatically when certain additional conditions
                                     are fulfilled. 8 U.S.C. sec. 1431 (2012). Children who regu-
                                     larly reside outside the United States may qualify for natu-
                                     ralization under 8 U.S.C. sec. 1433 (2012). 7 In pertinent
                                     part, 8 U.S.C. sec. 1433 provides:
                                     SEC. 1433.         CHILDREN BORN AND RESIDING OUTSIDE THE
                                                        UNITED STATES; CONDITIONS FOR ACQUIRING
                                                        CERTIFICATE OF CITIZENSHIP.
                                     (a) Application by citizen parents; requirements.
                                        A parent who is a citizen of the United States (or, if the citizen parent
                                     has died during the preceding 5 years, a citizen grandparent or citizen
                                     legal guardian) may apply for naturalization on behalf of a child born out-
                                     side of the United States who has not acquired citizenship automatically
                                     under section 1431 of this title. The Attorney General shall issue a certifi-
                                     cate of citizenship to such applicant upon proof, to the satisfaction of the
                                     Attorney General, that the following conditions have been fulfilled:
                                        (1) At least one parent (or, at the time of his or her death, was) is[1] a
                                     citizen of the United States, whether by birth or naturalization.
                                        (2) The United States citizen parent—
                                        (A) has (or, at the time of his or her death, had) been physically present
                                     in the United States or its outlying possessions for a period or periods
                                     totaling not less than five years, at least two of which were after attaining
                                     the age of fourteen years; or
                                        (B) has (or, at the time of his or her death, had) a citizen parent who
                                     has been physically present in the United States or its outlying posses-
                                       6 The Child Citizenship Act of 2000 (CCA), Pub. L. No. 106–395, secs. 101 and 102, 114 Stat.

                                     at 1631, amended secs. 320 and 322 of the Immigration and Nationalization Act (8 U.S.C. secs.
                                     1431 and 1433), governing the acquisition of citizenship by certain children born outside the
                                     United States. See H.R. Rept. No. 106–852, at 3 (2000), 2000 U.S.C.C.A.N. 1499, 1502.
                                       7 Since the children, although born outside the United States, have not resided permanently

                                     in the United States, we are concerned only with the provisions of 8 U.S.C. sec. 1433 and not
                                     with the provisions of 8 U.S.C. sec. 1431.




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                                     8                    139 UNITED STATES TAX COURT REPORTS                                       (1)


                                     sions for a period or periods totaling not less than five years, at least two
                                     of which were after attaining the age of fourteen years.
                                        (3) The child is under the age of eighteen years.
                                        (4) The child is residing outside of the United States in the legal and
                                     physical custody of the applicant (or, if the citizen parent is deceased, an
                                     individual who does not object to the application).
                                        (5) The child is temporarily present in the United States pursuant to a
                                     lawful admission, and is maintaining such lawful status.
                                     (b) Attainment of citizenship status; receipt of certificate.
                                       Upon approval of the application (which may be filed from abroad) and,
                                     except as provided in the last sentence of section 1448(a) of this title, upon
                                     taking and subscribing before an officer of the Service within the United
                                     States to the oath of allegiance required by this chapter of an applicant
                                     for naturalization, the child shall become a citizen of the United States
                                     and shall be furnished by the Attorney General with a certificate of citi-
                                     zenship.
                                           1So   in the original.

                                        As is apparent from the statute, citizenship acquired
                                     pursuant to 8 U.S.C. sec. 1433 is not acquired automatically,
                                     but pursuant to application. See H.R. Rept. No. 106–852, at
                                     5 (2000), 2000 U.S.C.C.A.N. 1499, 1502 (‘‘The bill [which
                                     became the CCA] further provides that foreign-born children
                                     of U.S. parents who are temporarily present in the United
                                     States but intend to reside abroad will continue to be eligible
                                     to apply for citizenship as they do under current law.’’). An
                                     application for citizenship made under 8 U.S.C. sec. 1433
                                     must be approved by the Attorney General, and the applicant
                                     must appear in the United States and, unless the require-
                                     ment is waived (e.g., because of the age of the child), take an
                                     oath of allegiance before the certificate of citizenship may be
                                     conferred. 8 U.S.C. secs. 1433(b), 1448. Despite petitioner
                                     Carlebach’s having pursuant to 8 U.S.C. sec. 1433(a) made
                                     application on behalf of her children for naturalization, and
                                     the children’s having fulfilled all of the conditions set forth
                                     in 8 U.S.C. sec. 1433(a)(1) through (5), the children could not
                                     receive their certificates of citizenship until they personally
                                     appeared before the Attorney General (or his duly appointed
                                     representative) in the United States in 2007 and 2008. Other
                                     courts have recognized that the conferral of a certificate of
                                     citizenship is ‘‘ministerial rather than discretionary.’’
                                     Harriott v. Ashcroft, 277 F. Supp. 2d 538, 543 (E.D. Pa.
                                     2003). However, no matter how insignificant the appearance
                                     and subsequent oath may seem, those elements are man-




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                                     (1)                           CARLEBACH v. COMMISSIONER                                         9


                                     dated by Congress, which, except in cases governed by treaty,
                                     has the sole authority to govern the process by which those
                                     born abroad may become naturalized citizens. See Wong Kim
                                     Ark, 169 U.S. at 702–703. Finally, as illustrated by the chil-
                                     dren’s certificates, which are in evidence, the actual certifi-
                                     cate itself recognizes that citizenship is conferred only at the
                                     time the certificate is bestowed. Thus, while the children
                                     may have derived their citizenship from the status of their
                                     mother and grandparents as citizens, they did not become
                                     citizens until they were in the United States in 2007 and
                                     2008 and fulfilled all of the conditions of 8 U.S.C. sec. 1433.
                                           2. Chevron Analysis
                                        Petitioners principally argue that section 1.152–2(a)(1),
                                     Income Tax Regs., is invalid. They contend that section
                                     152(b)(3)(A) simply provides that a dependent ‘‘does not
                                     include an individual who is not a citizen or national of the
                                     United States’’ and that it includes no requirement that a
                                     child be a citizen at some time during the calendar year in
                                     which begins the taxable year of the taxpayer claiming the
                                     individual as a dependent. They argue, therefore, that,
                                     because the children were citizens at the time petitioners
                                     filed their returns, they are entitled to the claimed depend-
                                     ency exemption deductions, and that any additional require-
                                     ment imposed by the regulations is invalid. 8
                                        Last year, the U.S. Supreme Court confirmed that courts
                                     apply Chevron deference to Treasury regulations. See Mayo
                                     Found. for Med. Educ. and Research v. United States, 562
                                     U.S. ll, ll, 131 S. Ct. 704, 711–713 (2011). Determining
                                     whether a Treasury regulation merits Chevron deference
                                     often involves a two-step process: We first determine whether
                                     Congress has directly spoken to the precise question at issue.
                                     Chevron, 467 U.S. at 842. If the answer is yes, we must give
                                     effect to congressional intent. Id. at 842–843. We make the
                                     determination as to whether Congress has directly spoken
                                     ‘‘employing traditional tools of statutory construction’’.
                                     United States v. Home Concrete & Supply, LLC, 566 U.S.
                                        8 While petitioners appear to restrict themselves to arguing that the children can be claimed

                                     as dependents if they are citizens at the time petitioners filed their returns, their logic (based
                                     on the absence of a time constraint on citizenship in sec. 152(b)(3)(A)) is not so restricted, and
                                     it would seem to allow the retroactive qualification of a dependent (as a citizen) at any time
                                     within the period of limitations (to file an amended return).




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                                     10                  139 UNITED STATES TAX COURT REPORTS                                       (1)


                                     ll, ll, 132 S. Ct. 1836, 1844 (2012) (citing Chevron, 467
                                     U.S. at 843 n.9). If, employing those tools, we determine that
                                     Congress has not directly spoken to the precise question at
                                     issue, we proceed to the second Chevron step, to determine
                                     whether the agency’s chosen interpretation is a ‘‘reasonable
                                     interpretation’’ of the enacted statutory text. Chevron, 467
                                     U.S. at 843–844. If it is a reasonable interpretation, the
                                     regulation will stand. It will be ruled invalid only if it is
                                     found to be ‘‘ ‘arbitrary or capricious in substance, or mani-
                                     festly contrary to the statute.’ ’’ Mayo Found., 562 U.S. at
                                     ll, 131 S. Ct. at 711 (quoting Household Credit Servs., Inc.
                                     v. Pfennig, 541 U.S. 232, 242 (2004)).
                                        Petitioners claim that section 152(b)(3)(A) unambiguously
                                     does not require that an individual be a citizen at some time
                                     during the calendar year in which begins the taxable year of
                                     the taxpayer claiming the individual as a dependent. They
                                     cite as dispositive the omission from section 152(b)(3)(A) of
                                     that requirement by pointing out that Congress expressly
                                     required that many other elements of section 152 be fulfilled
                                     within the taxable year (e.g., the principal place of abode,
                                     age, and support tests) but did not similarly extend that
                                     requirement to the citizenship test. In support of their
                                     contention, petitioners cite Russello v. United States, 464
                                     U.S. 16, 23 (1983), in which the U.S. Supreme Court stated:
                                     ‘‘[W]here Congress includes particular language in one sec-
                                     tion of a statute but omits it in another section of the same
                                     Act, it is generally presumed that Congress acts intentionally
                                     and purposely in the disparate inclusion or exclusion.’’ There-
                                     fore, they claim that section 1.152–2(a)(1), Income Tax Regs.,
                                     which imposes that similar temporal requirement on section
                                     152(b)(3)(A), is an invalid agency interpretation of the
                                     statute.
                                        Arguably, section 152(b)(3)(A) is, as petitioners claim,
                                     unambiguous. In our view, however, the statute can only be
                                     read as being consistent with, not contrary to, section 1.152–
                                     2(a)(1), Income Tax Regs. Petitioners’ argument is based on
                                     context (the omission of a temporal requirement with respect
                                     to citizenship is significant because Congress included the
                                     requirement in other elements of section 152). Indeed, con-
                                     text is critical. In determining statutory meaning, the U.S.
                                     Supreme Court has cautioned against confining the examina-
                                     tion to the particular language in isolation. FDA v. Brown &




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                                     (1)                           CARLEBACH v. COMMISSIONER                                       11


                                     Williamson Tobacco Corp., 529 U.S. 120, 132 (2000). It
                                     explained: ‘‘The meaning—or ambiguity—of certain words or
                                     phrases may only become evident when placed in context.’’
                                     Id. It added: ‘‘ ‘It is a fundamental canon of statutory
                                     construction that the words of a statute must be read in their
                                     context and with a view to their place in the overall statutory
                                     scheme.’ ’’ Id. at 133 (quoting Davis v. Mich. Dept. of
                                     Treasury, 489 U.S. 803, 809 (1989)). Applying a contextual
                                     analysis, we think it plain that Congress did not intend sec-
                                     tion 152(b)(3)(A) to be read in a manner inconsistent with
                                     section 1.152–2(a)(1), Income Tax Regs.
                                        We must interpret section 152(b)(3)(A) in the context of
                                     subtitle A of the Internal Revenue Code, which deals with
                                     income taxes, and in which the concept of an annual
                                     accounting system is deeply embedded. See secs. 441(a),
                                     451(a), 461(a). 9 The U.S. Supreme Court has emphasized the
                                     role of an annual accounting system in Federal income tax:
                                     Congress has enacted an annual accounting system under which income is
                                     counted up at the end of each year. It would be disruptive of an orderly
                                     collection of the revenue to rule that the accounting must be done over
                                     again to reflect events occurring after the year for which the accounting
                                     is made, and would violate the spirit of the annual accounting system. This
                                     basic principle cannot be changed simply because it is of advantage to a
                                     taxpayer or to the Government in a particular case that a different rule
                                     be followed. [Healy v. Commissioner, 345 U.S. 278, 284–285 (1953).]

                                     In the narrower context of section 152 and its immediate
                                     environs (part V, subchapter B, chapter 1, subtitle A of the
                                     Internal Revenue Code), the allowance as deductions of addi-
                                     tional exemptions for dependents (including qualified chil-
                                     dren) is cast in terms of an additional exemption ‘‘for each
                                     individual who is a dependent * * * of the taxpayer for the
                                     taxable year.’’ Sec. 151(c) (emphasis added). Likewise, the
                                     qualification ‘‘taxable year’’ appears over 30 times in section
                                     152 (2008), and it is anomalous to think that the determina-
                                     tion of whether a qualifying child or relative is, on account
                                     of the citizenship test, a dependent of a taxpayer for a tax-
                                     able year of that individual could be unknown for, at least

                                       9 See also sec. 11 (imposing a tax ‘‘for each taxable year on the taxable income of every cor-

                                     poration’’); sec. 162 (allowing ‘‘as a deduction all the ordinary and necessary expenses paid or
                                     incurred during the taxable year in carrying on any trade or business’’).




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                                     12                    139 UNITED STATES TAX COURT REPORTS                                       (1)


                                     in theory, an indefinite period. 10 Generally, a Federal income
                                     tax return reflects the events that affect income during the
                                     taxable year for which it is filed. 11 Four of petitioners’ chil-
                                     dren were naturalized and became U.S. citizens in 2007, and
                                     yet petitioners claimed them as dependents on their 2004
                                     through 2006 income tax returns, despite the fact that those
                                     children had not yet become citizens. The other two children
                                     became citizens in 2008 and yet were claimed as dependents
                                     in 2007. Allowing petitioners dependency exemption deduc-
                                     tions with accompanying credits for children failing to meet
                                     the citizenship test—as construed in section 1.152–2(a)(1),
                                     Income Tax Regs.—would be violative of Congress’ expressed
                                     preference in the income tax provisions of the Internal Rev-
                                     enue Code for a system of annual accounting.
                                        Even if we concede that section 152(b)(3)(A) is ambiguous
                                     regarding the time at which the alleged dependent must
                                     achieve citizenship, we reach the same result under Chevron
                                     step 2. In the light of the Federal income tax law’s embodi-
                                     ment of a system of annual accounting, it is beyond dispute
                                     that section 1.152–2(a)(1), Income Tax Regs., is reasonable
                                     and ‘‘based on a permissible construction of the statute.’’
                                     Chevron, 467 U.S. at 843. And while ‘‘ ‘neither antiquity nor
                                     contemporaneity with [a] statute is a condition of [a regula-
                                     tion’s] validity’ ’’, Mayo Found., 562 U.S. at ll, 131 S. Ct.
                                     at 712 (quoting Smiley v. Citibank (South Dakota), N.A., 517
                                     U.S. 735, 740 (1996)), ‘‘To be sure, agency interpretations
                                     that are of long standing come before us with a certain
                                     credential of reasonableness, since it is rare that error would
                                     long persist’’, Smiley, 517 U.S. at 740. Section 1.152–2(a)(1),
                                     Income Tax Regs., gains legitimacy from the fact that the
                                     temporal requirement contained therein is longstanding,
                                     having been in the regulations since 1944. See sec. 29.25–
                                     3(b), Regs. 111 (1944). In 1949, following notice and comment
                                     procedures, the Secretary amended section 29.25–3, Regs.
                                     111, to restate much of the language from the 1944 regula-
                                     tions, including the temporal requirement contained therein.
                                           10 See
                                             supra note 8.
                                           11 See
                                              also Burnet v. Sanford & Brooks Co., 282 U.S. 359, 363–366 (1931) (confirming that
                                     the income tax acts enacted by Congress imposed annual, rather than transactional, accounting
                                     for income). When the strict application of the annual accounting system results in what may
                                     be perceived as an inequitable result, Congress can act to remedy any inequity, as evidenced
                                     by the net operating loss carryback and carryover rules found in sec. 172 and the capital loss
                                     carryback and carryover rules found in sec. 1212.




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                                     (1)                           CARLEBACH v. COMMISSIONER                                       13


                                     Income Tax; Taxable Years Beginning After Dec. 31, 1947, 13
                                     Fed. Reg. 6289 (proposed Oct. 27, 1948); T.D. 5687, 1949–1
                                     C.B. 9, 21.
                                       We hold that section 1.152–2(a)(1), Income Tax Regs., is
                                     valid.
                                           3. Conclusion
                                        We find that, for failure to satisfy the citizenship test, none
                                     of the children qualified as petitioners’ dependents for 2004–
                                     06, and two of the six children did not qualify as petitioner
                                     Carlebach’s dependents for 2007. The remaining four chil-
                                     dren qualified as petitioner Carlebach’s dependents for 2007.
                                     Therefore, petitioners are entitled to no dependency exemp-
                                     tion deductions for 2004–06, and petitioner Carlebach is enti-
                                     tled to four dependency exemption deductions for 2007. 12
                                     II. Child Care Credit, Child Tax Credit, and Additional
                                         Child Tax Credit
                                        In order for a taxpayer to claim a section 21 credit for
                                     expenses for household and dependent care services nec-
                                     essary for gainful employment (child care credit), a taxpayer
                                     must incur employment-related expenses on behalf of, as
                                     pertinent to this case, a dependent of the taxpayer as defined
                                     in section 152(a)(1). 13 Sec. 21(b)(1)(A). Additionally, married
                                     taxpayers must file a joint return. Sec. 21(e)(2).
                                        In order to claim the child tax credit and additional child
                                     tax credits, section 24, in relevant part, requires that a child
                                     be a ‘‘qualifying child’’, applying a modified version of the
                                     citizenship test. See sec. 24(a), (c).
                                        Because we have determined that the children only met
                                     the citizenship test for the year in which they received their
                                     certificates of citizenship (2007 for R.F., E.A.F., Y.F., and
                                     N.F., and 2008 for C.B.F. and S.F.), we sustain respondent’s
                                     disallowance of those credits relating to R.F., E.A.F., Y.F.,
                                     and N.F. for 2004, 2005, and 2006 and the disallowance of
                                     those credits relating to C.B.F. and S.F. for 2007.
                                       12 We today decide another citizenship test case consistently. Stern v. Commissioner, T.C.

                                     Memo. 2012–204.
                                       13 Petitioners apparently concede that, in determining whether the children were qualifying

                                     children and, thus, dependents under sec. 152(a)(1), we take into account the citizenship test
                                     in sec. 152(b)(3)(A).




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                                     14                  139 UNITED STATES TAX COURT REPORTS                                       (1)


                                        For 2008, respondent concedes that each child satisfied the
                                     citizenship test but argues that petitioner Carlebach is not
                                     entitled to the child care credit because, although married at
                                     the time, she did not file a joint return. See sec. 21(e). Peti-
                                     tioner Carlebach claims that she is so entitled. She argues
                                     that, in contravention of section 7522, which requires that a
                                     notice of deficiency ‘‘describe the basis for, and identify the
                                     amounts (if any) of, the tax due, interest’’ and other items
                                     included in the notice, respondent changed the basis for the
                                     disallowance of the 2008 child care credit from a section 152
                                     violation in the second notice to a section 21(e) violation in
                                     his posttrial brief. She further argues that respondent’s reli-
                                     ance on section 21(e) as an alternative basis for the disallow-
                                     ance is forbidden as ‘‘late-in-the-day maneuvering.’’
                                        While the first sentence of section 7522(a) does indeed
                                     require that a notice of deficiency give notice as described by
                                     petitioner Carlebach, the second sentence of that section
                                     adds: ‘‘An inadequate description under the preceding sen-
                                     tence shall not invalidate such notice.’’ Moreover, we have
                                     held that section 7522(a) does not require the Commissioner
                                     to identify the specific statutory provision supporting each
                                     adjustment in the notice of deficiency, nor is he required to
                                     lay out the factual basis for his determination in that notice.
                                     E.g., Cadwell v. Commissioner, 136 T.C. 38, 49 (2011), aff ’d,
                                     483 Fed. Appx. 847 (4th Cir. 2012).
                                        In pertinent part, Rule 142(a)(1) provides that, in respect
                                     to any new matter pleaded in the answer, the burden of proof
                                     shall be on respondent. Even if we were to consider respond-
                                     ent’s argument a new matter (which we do not), the burden
                                     of proof would not be determinative, since petitioner
                                     Carlebach’s 2008 Form 1040A, showing her filing status as
                                     married filing separately, is stipulated.
                                        At worst, respondent has a new theory, and ‘‘A ‘new theory’
                                     is just a new argument about the existing evidence and is
                                     thus allowed.’’ Hurst v. Commissioner, 124 T.C. 16, 29 (2005).
                                     Although respondent’s new theory was first advanced on
                                     brief, petitioner Carlebach has had (and indeed took advan-
                                     tage of) the opportunity to address it in her answering brief.
                                     We see no disadvantage to petitioners requiring any remedy.
                                        Because petitioner Carlebach did not file a joint return
                                     with her husband for 2008, she is not entitled to a child care




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                                     (1)                           CARLEBACH v. COMMISSIONER                                       15


                                     credit for that year. See sec. 21(e)(2). Accordingly, we sustain
                                     respondent’s disallowance of that credit for 2008.
                                     III. Additions to Tax and Penalties
                                           A. Accuracy-Related Penalties
                                           1. Applicable Law
                                        Section 6662(a) and (b) provides for the imposition of an
                                     accuracy-related penalty equal to 20% of any portion of an
                                     underpayment attributable to, among other things, neg-
                                     ligence or disregard of rules or regulations (without distinc-
                                     tion, negligence), or any substantial understatement of
                                     income tax.
                                        In general, an understatement is the excess of the amount
                                     of the tax required to be shown on the return for the taxable
                                     year over the amount of the tax imposed that is shown on
                                     the return reduced by any rebate. Sec. 6662(d)(2)(A). For an
                                     individual, such an understatement is ‘‘substantial’’ when it
                                     exceeds the greater of (1) 10% of the tax required to be
                                     shown or (2) $5,000. Sec. 6662(d)(1)(A). ‘‘The term ‘neg-
                                     ligence’ includes any failure to make a reasonable attempt to
                                     comply with the provisions of * * * [the Internal Revenue
                                     Code], and the term ‘disregard’ includes any careless, reck-
                                     less, or intentional disregard.’’ Sec. 6662(c). Negligence has
                                     been generally defined as lack of due care or failure to do
                                     what a reasonably prudent person would do under like cir-
                                     cumstances. See, e.g., Hofstetter v. Commissioner, 98 T.C.
                                     695, 704 (1992).
                                        Section 6664(c)(1) provides that the accuracy-related pen-
                                     alty shall not be imposed with respect to any portion of an
                                     underpayment if it is shown that there was reasonable cause
                                     for that portion and the taxpayer acted in good faith with
                                     respect to that portion.
                                     The determination of whether a taxpayer acted with reasonable cause and
                                     in good faith is made on a case-by-case basis, taking into account all perti-
                                     nent facts and circumstances. * * * Circumstances that may indicate
                                     reasonable cause and good faith include an honest misunderstanding of
                                     * * * law that is reasonable in light of all of the facts and circumstances,
                                     including the experience, knowledge, and education of the taxpayer. * * *
                                     [Sec. 1.6664–4(b)(1), Income Tax Regs.]




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                                     16                  139 UNITED STATES TAX COURT REPORTS                                       (1)


                                        Respondent determined that petitioners are liable for
                                     accuracy-related penalties on the basis of negligence for 2004
                                     and on the basis of negligence and substantial understate-
                                     ment for 2005 and 2006. He also determined that petitioner
                                     Carlebach is liable for accuracy-related penalties on the basis
                                     of negligence for 2007 and 2008 but subsequently conceded
                                     the penalty for 2008.
                                        Only one accuracy-related penalty may be applied with
                                     respect to any given portion of an underpayment, even if that
                                     portion is subject to the penalty on more than one of the
                                     grounds set out in section 6662(b). Sec. 1.6662–2(c), Income
                                     Tax Regs.
                                        Under section 7491(c), the Commissioner bears the burden
                                     of production with regard to penalties, additions to tax, or
                                     additional amounts and must come forward with sufficient
                                     evidence indicating that it is proper to impose the penalty or
                                     addition. Kaufman v. Commissioner, 136 T.C. 294, 323
                                     (2011). However, once the Commissioner has met the burden
                                     of production, the burden of proof remains with the taxpayer,
                                     including the burden of proving that the penalties or addi-
                                     tions are inappropriate because of reasonable cause. Id.
                                           2. Analysis
                                           a. Evidence of Negligence
                                        Respondent has met his burden with respect to the ground
                                     of negligence for 2004–07 by establishing that petitioners, in
                                     claiming exemption deductions and credits for children who
                                     did not meet the citizenship test, were negligent and dis-
                                     regarded the applicable regulation. Accordingly, petitioners
                                     are liable for the section 6662(a) penalty on the ground of
                                     negligence for tax years 2004–07 unless they meet the sec-
                                     tion 6664(c) exception for reasonable cause and good faith.
                                     Because of section 1.6662–2(c), Income Tax Regs., we need
                                     not address the applicability of the penalty based upon the
                                     ground of substantial understatement of income tax for 2005
                                     and 2006.
                                           b. Reasonable Cause and Good Faith Defense
                                       Petitioners failed to prove that they acted with reasonable
                                     cause and good faith in claiming the deductions and credits
                                     at issue herein. They claim that they ‘‘were acting in good




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                                     (1)                           CARLEBACH v. COMMISSIONER                                       17


                                     faith. * * * [They] had no familiarity with United States
                                     Income Tax and acted in accordance with what they believed
                                     the law to be.’’ However, petitioners claimed deductions in
                                     violation of a valid regulation. Petitioners have offered no
                                     evidence to demonstrate reasonable cause for their position.
                                     Their argument regarding the invalidity of the regulation did
                                     not surface until litigation commenced, and they presented
                                     no evidence of reliance on a tax professional for the decision
                                     to claim those dependency exemption deductions and accom-
                                     panying credits. A taxpayer’s ignorance of the law is no
                                     excuse for failure to comply with it. E.g., McGehee Family
                                     Clinic, P.A. v. Commissioner, T.C. Memo. 2010–202; see also
                                     United States v. Int’l Minerals & Chem. Corp., 402 U.S. 558,
                                     563 (1971) (‘‘The principle that ignorance of the law is no
                                     defense applies whether the law be a statute or a duly
                                     promulgated and published regulation.’’); Barlow v. United
                                     States, 32 U.S. 404, 411 (1833) (ignorance of the law is no
                                     excuse in either civil or criminal cases).
                                           3. Conclusion
                                        We find no credible evidence that petitioners acted in good
                                     faith in claiming dependency exemption deductions and
                                     accompanying credits for children who had yet to meet the
                                     citizenship test. We therefore (1) find petitioners liable for
                                     accuracy-related penalties for 2004–06 and (2) find petitioner
                                     Carlebach liable for an accuracy-related penalty for 2007.
                                     Subject to adjustments to reflect certain concessions,
                                     respondent’s determinations of penalties under section
                                     6662(a) are sustained.
                                           B. Additions to Tax
                                           1. Applicable Law
                                        Section 6651(a)(1) provides that, in the case of a failure to
                                     file an income tax return by the due date, there shall be
                                     imposed an addition to tax for such failure of 5% of the
                                     amount of tax required to be shown on the return, reduced
                                     by timely payments and credits under section 6651(b)(1), for
                                     each month or portion thereof during which the failure con-
                                     tinues, not exceeding 25% in the aggregate, unless such
                                     failure is due to reasonable cause and not due to willful
                                     neglect.




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                                     18                  139 UNITED STATES TAX COURT REPORTS                                       (1)


                                       In the notices, respondent determined a section 6651(a)(1)
                                     addition to tax for 2004–07. The parties have stipulated that
                                     petitioners’ 2004, 2005, and 2006 Forms 1040A were all filed
                                     in December 2007. They have also stipulated that petitioner
                                     Carlebach’s 2007 Form 1040A was filed in October 2008.
                                           2. Analysis
                                        Petitioners were calendar year taxpayers during the years
                                     in issue. Accordingly, unless extensions of time to file had
                                     been granted, petitioners’ 2004–07 returns were due on April
                                     15 of the following year. See secs. 6072(a), 6081(a). There is
                                     no evidence of any such extensions. Petitioners’ 2004–07
                                     returns were, therefore, late.
                                        Petitioners claim that their returns were not filed late
                                     because they were ‘‘filed within the allowed time period for
                                     claiming a refund.’’ We acknowledge that there is no penalty
                                     for late filing when a refund is due. However, as discussed
                                     supra, petitioners’ children did not satisfy the citizenship test
                                     for 2004–06 and thus were not eligible to be claimed as
                                     dependents. Additionally, two of the children did not satisfy
                                     the citizenship test in 2007. As a result, petitioners had no
                                     valid claim for refund for those years. Their mistaken claims
                                     for refund do not establish reasonable cause and the absence
                                     of willful neglect. See Calloway v. Commissioner, 135 T.C. 26,
                                     45 (2010) (‘‘Petitioners’ explanation [that, if deficiency had
                                     not been sustained, they would have been entitled to a
                                     refund] establishes neither reasonable cause nor the absence
                                     of willful neglect.’’).
                                           3. Conclusion
                                       Petitioners failed to timely file their 2004–07 Forms
                                     1040A, and they have not shown that those failures were due
                                     to reasonable cause and lack of willful neglect. Respondent’s
                                     determinations of additions to tax under section 6651(a)(1)
                                     are sustained.




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                                     (1)                           CARLEBACH v. COMMISSIONER                                       19


                                     IV. Conclusion
                                                                         Decision will be entered under Rule 155.
                                                                               f




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