                       T.C. Memo. 2000-238



                     UNITED STATES TAX COURT



          J. ERIK AND CARRIS J. KOCHER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4938-99.                     Filed August 4, 2000.


     J. Erik Kocher and Carris J. Kocher, pro sese.

     Carol-Lynn E. Moran, for respondent.



                       MEMORANDUM OPINION


     DEAN, Special Trial Judge:   Respondent issued a notice of

deficiency to petitioners for taxable year 1997.   In the notice,

respondent determined a deficiency of $1,688 in Federal income

tax and an accuracy-related penalty of $338 under section
                                - 2 -

6662(a).1   Respondent later raised a new issue and asserted an

increased deficiency of $6,520 and an accuracy-related penalty of

$1,304.

     The issues for decision are:    (1) Whether petitioners are

entitled to 10 dependency exemption deductions for their

children; (2) if petitioners are entitled to the deductions,

whether they are liable for the alternative minimum tax; and (3)

whether petitioners were negligent, disregarded rules or

regulations, or substantially understated their income tax.

                             Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by reference.    Petitioners resided in Glen

Mills, Pennsylvania, at the time their petition was filed.

     Petitioners claimed dependency exemption deductions for

their 10 children on their joint 1997 Form 1040, U.S. Individual

Income Tax Return.    Petitioners wrote “NA” in the section

provided for listing the Social Security numbers (SSN’s) of

claimed dependents.    Petitioners’ children are all U.S. citizens

under the age of 18 and do not have SSN’s.




     1
        Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -

     Respondent issued a notice of deficiency determining that

petitioners were subject to the alternative minimum tax

prescribed by section 55 on account of the number of dependency

exemptions claimed for their children.   Petitioners filed a

timely petition for redetermination of the deficiency and later

amended their petition.2   In respondent’s answer to petitioners’

amendment to their petition, respondent challenged petitioners’

entitlement to dependency exemption deductions for their children

because of petitioners’ failure to provide SSN’s for their

children, and respondent asserted an increased deficiency and an

increased addition to tax under section 6662(a).   Resolution of

the dependency exemption issue in favor of respondent will

resolve the alternative minimum tax issue; if petitioners are not

entitled to the dependency exemptions, they are not subject to

the alternative minimum tax.

                            Discussion

     Taxpayers are entitled to claim an exemption for each child

who qualifies as a dependent under sections 151 and 152.   Section

151(e) provides:   “No exemption shall be allowed under this

section with respect to any individual unless the TIN of such




     2
        By order dated August 4, 1999, the Court construed
petitioners’ amendment to make a claim for an overpayment of tax
for tax year 1997.
                               - 4 -

individual is included on the return claiming the exemption.”3

     A “TIN” is “the identifying number assigned to a person

under section 6109.”   Sec. 7701(a)(41).    Section 6109(d) provides

that the SSN issued to an individual is the identifying number of

the individual, except as otherwise specified under applicable

regulations.   The regulations specify that individuals required

to furnish a TIN must use an SSN unless the individual is not

eligible to obtain an SSN or unless the individual is required to

use an employer identification number.     See sec. 301.6109-

1(a)(1)(ii)(A), (B), and (C), Proced. & Admin. Regs.     “Any

individual who is duly assigned a social security number or who

is entitled to a social security number will not be issued an IRS

individual taxpayer identification number.”     Sec. 301.6109-

1(d)(4), Proced. & Admin. Regs.   All U.S. citizens are eligible

to receive SSN’s.   See 20 C.F.R. sec. 422.104 (2000).

     Respondent bears the burden of proof with respect to new

matters not raised in the notice of deficiency; thus, respondent

must establish that petitioners are not entitled to the

exemptions they claimed for their children.     See Rule 142(a).

The parties have stipulated that petitioners’ children are U.S.

citizens, and petitioners do not contend that their children are



     3
        Sec. 151(e), which was added to the Code by the Small
Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1615(a)(1), 110 Stat. 1853, generally applies to returns due on
or after Sept. 19, 1996.
                               - 5 -

ineligible for SSN’s.   Thus, under section 151(e) and the

applicable regulations, petitioners cannot properly claim

dependency exemption deductions for their children unless they

provide SSN’s for them.   Deductions are strictly a matter of

legislative grace, and taxpayers must satisfy the specific

requirements for any deduction claimed.   See INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).

     Petitioners, however, ask the Court to find that section

151(e) is “invalid because of its obvious coercive and irrelevant

nature” or to require the IRS to issue individual taxpayer

identification numbers for their children.    They are opposed to

having SSN’s assigned to their children because they

conscientiously object to obligating their children “to an

irrevocable contract” and “believe it is not right to indenture

minors for life.”

     We recently held that the SSN requirement is the least

restrictive means of achieving the Government’s compelling

interests in implementing the Federal tax system in a uniform,

mandatory way and in detecting fraudulent claims to dependency

exemptions.   See Miller v. Commissioner, 114 T.C. __ (2000);

Davis v. Commissioner, T.C. Memo. 2000-210.    In Miller and in

Davis, the taxpayers raised religious objections to the use of

SSN’s.   We explicitly rejected the taxpayers’ suggestion that the
                                - 6 -

Commissioner could accommodate their religious beliefs by issuing

individual taxpayer identification numbers for their children

because it would be a less effective means of detecting fraud

than requiring SSN’s.   See Miller v. Commissioner, supra; Davis

v. Commissioner, supra.

     We do not question the sincerity of petitioners’ objections

to obtaining SSN’s for their children.   Petitioners, however, are

not entitled to the benefit of dependency exemption deductions

afforded by section 151 unless they obtain the SSN’s clearly

required by section 151(e).   See Miller v. Commissioner, supra;

Davis v. Commissioner, supra.    Accordingly, we uphold

respondent’s determination that petitioners are not entitled to

dependency exemption deductions for their 10 children.

     Respondent has conceded that if petitioners are not entitled

to dependency exemption deductions, they are not liable for the

alternative minimum tax.   We therefore turn our attention to

petitioners’ liability for an addition to tax under section

6662(a).

     Section 6662(a) imposes a penalty of 20 percent of the

portion of an underpayment attributable to negligence or

disregard of rules or regulations or attributable to any

substantial understatement of income tax.   See sec. 6662(b)(1)

and (2).   “Negligence” is defined as any failure to make a

reasonable attempt to comply with the provisions of the Internal
                                - 7 -

Revenue Code, and “disregard” is defined as any careless,

reckless, or intentional disregard.     Sec. 6662(c).   An

understatement of income tax is substantial if it exceeds the

greater of 10 percent of the tax required to be shown on the

return for the taxable year or $5,000.     See sec. 6662(d).   For

purposes of this computation, the amount of the understatement is

reduced to the extent:    (1) There is or was substantial authority

for the taxpayers’ treatment of an item; or (2) the relevant

facts affecting an items’ tax treatment were adequately disclosed

in the taxpayers’ return or in an attached statement, and there

is a reasonable basis for the tax treatment of such item.      See

sec. 6662(d)(2)(B).

     The accuracy-related penalty does not apply if petitioners

had reasonable cause for the underpayment and acted in good faith

with respect to the underpayment.    See sec. 6664(c).    Whether a

taxpayer acted with reasonable cause and in good faith is

determined case by case, taking into account all pertinent facts

and circumstances.    See sec. 1.6664-4(b)(1), Income Tax Regs.

The most important factor generally is the extent of the

taxpayers’ effort to assess their proper tax liability.      See id.

An honest misunderstanding of fact or law that is reasonable in

light of all the facts and circumstances may indicate reasonable

cause.   See id.

     As respondent has the burden of proving new matters pleaded
                                - 8 -

in his answer, respondent must prove petitioners are liable for

the addition to tax under section 6662(a).    See Rule 142(a).   At

trial, Carris Kocher testified she was aware they were required

to include SSN’s for their children in order to obtain dependency

exemptions when she and her husband filed their 1997 Federal

income tax return.   In claiming exemptions for their children but

failing to provide SSN’s, petitioners intentionally disregarded

rules and regulations.

     Moreover, they substantially understated their income tax.

Petitioners reported tax due of $5,141 on their return.    A

deficiency of $6,520 resulted from the denial of dependency

exemptions.   There is no substantial authority for petitioners’

omission of their children’s SSN’s on their return, nor did

petitioners make adequate disclosure of the relevant facts

regarding their omission.   See sec. 1.6662-4(f)(2), Income Tax

Regs.; Rev. Proc. 97-56, 1997-2 C.B. 582.    The deficiency thus

exceeds the greater of 10 percent of the tax required to be shown

on their return for the taxable year or $5,000.

     Petitioners do not qualify for the reasonable cause

exception of section 6664(c).   They had no reasonable cause to

to claim exemptions for their children because they had no

intention of including SSN’s for the children and were aware of

the SSN requirement.   Petitioners are not excused from satisfying

the specific statutory requirements for any deduction they claim.
                                 - 9 -

We, therefore, hold that petitioners are liable for the accuracy-

related penalty of section 6662(a).

     To reflect the foregoing,

                                              Decision will be entered

                                         for respondent.
