                  T.C. Summary Opinion 2001-162



                     UNITED STATES TAX COURT



             PRINCESS STEPHAN OBRIOT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5465-00S.                   Filed October 11, 2001.



     Princess Stephan Obriot, pro se.

     Ross M. Greenberg, for respondent.



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.    The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.    Unless otherwise

indicated, subsequent 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.
                                - 2 -

     Respondent determined deficiencies of $2,626.50 and $2,048

in petitioner’s Federal income taxes for the tax years 1997 and

1998, respectively.    The issues for decision are: (1) Whether

petitioner is entitled to dependency exemption deductions; (2)

whether petitioner is entitled to the head-of-household filing

status; (3) whether petitioner is entitled to child care credits;

and (4) whether petitioner is entitled to earned income credits.

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

found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioner resided in

Port Richey, Florida, at the time that she filed her petition.

For clarity and convenience, we have combined our findings of

fact and discussions of pertinent legal issues.

     During the years in issue petitioner worked as a laborer

building concert stages.    Petitioner has a daughter, Ayla Olsen

(Ayla), who was born in 1994.    Petitioner was not married during

the years in issue.    During 1997 and 1998, petitioner and Ayla

lived with petitioner’s parents, Peter and Katherine Stephan (the

Stephans).

     Petitioner reported $15,647 and $18,383 in adjusted gross

income on her Federal income tax returns for 1997 and 1998,

respectively.

     For 1997 and 1998 petitioner reported her filing status as

head-of-household.    Petitioner claimed a dependency exemption
                                - 3 -

deduction for Ayla, a child care expense credit, and an earned

income credit for each of the tax years 1997 and 1998.

     Respondent issued a notice of deficiency for each of the

years 1997 and 1998.   Respondent disallowed the claimed

dependency exemption deduction for each of the tax years on the

basis that petitioner failed to establish that she provided more

than one-half of Ayla’s support.   Respondent disallowed the

claimed head-of-household filing status on the basis that

petitioner failed to establish that she paid more than one-half

of the household expenses.   Respondent disallowed petitioner’s

child care credit for each of the years in issue because

petitioner failed to establish that she maintained a household

and failed to substantiate the amounts paid.1   Finally,

respondent disallowed petitioner’s earned income credit for each

of the years in issue on the ground that the Stephans’ modified

adjusted gross income was higher than petitioner’s in both 1997

and 1998.

     The first issue for our consideration is whether petitioner

is entitled to a dependency exemption deduction for Ayla for each

of the years in issue.   A taxpayer is allowed a deduction for a

dependent, such as a daughter, for whom the taxpayer has provided

over one-half of her support.   Secs. 151(a), (c), and 152(a).


     1
        Respondent conceded that petitioner substantiated
payments for child care in the amounts of $901 for 1997 and $275
for 1998.
                                  - 4 -

The term “support” includes food, shelter, clothing, medical care

and dental care, education, child care, and the like.    Lustig v.

Commissioner, 274 F.2d 448 (9th Cir. 1960) (allowing child care

expense to be factored into determination of whether taxpayer

contributed more than one-half of the support of a claimed

dependent), affg. 30 T.C. 926 (1958); sec. 1.152-1(a)(2)(i),

Income Tax Regs.

     To determine whether a taxpayer has provided more than one-

half of the support of an individual, the entire amount of

support which the individual received from the taxpayer is

compared to the entire amount of support which the individual

received from all sources.   Sec. 1.152-1(a)(2)(i), Income Tax

Regs.

     We thus compare the entire amount expended for Ayla’s

support to the amount provided by petitioner.   From a review of

the record, we conclude that the amounts expended as support for

Ayla and the amounts provided by petitioner are as follows:

                                  1997

                 Total Support for Ayla   Support From Petitioner

Rent                     $1,425                    $0
Utilities                   348                   348
Food                      1,800                 1,800
Clothing,
 medical, etc.              800                   800
Child care                3,900                 1,195

Total                     8,273                 4,143
                                   - 5 -

                                   1998

                  Total Support for Ayla       Support From Petitioner

Rent                      $1,425                        $0
Utilities                    396                       396
Food                       1,800                     1,800
Clothing,
 medical, etc.               800                       800
Child care                 4,040                     1,770

Total                      8,461                     4,766


     We briefly explain our conclusions below.        During 1997 and

1998, petitioner and Ayla lived in the house belonging to the

Stephans in Jonesboro, Georgia.      Petitioner occupied the

partially completed basement, and Ayla occupied one of the three

bedrooms.   Petitioner, Ayla, and the Stephans shared use of the

kitchen and family room.

     The amount expended for Ayla includes one quarter of the

rental value of the house in which she lived.        See Reed v.

Commissioner, T.C. Memo. 1980-333.         Based on the record we

conclude that the fair rental value was $475 per month, or $5,700

per year.   The portion expended for Ayla is $1,425 for each year.

Petitioner did not pay rent on the allocable portion of the fair

market rental value of the house that she and Ayla occupied.

     One quarter of the total water, gas, and electricity bills

(utility bills) is allocable to Ayla’s support.         Id.   We conclude

the total utility costs of the household were $1,392 in 1997 and

$1,583 in 1998.    Ayla’s allocable share of utility costs was $348
                                - 6 -

and $396 for 1997 and 1998, respectively.    Petitioner gave the

Stephans money each month for utilities.    The Stephans paid the

utility bills from a combination of petitioner’s contributions

and their own funds.   We are satisfied that the amount expended

by petitioner for utilities exceeded Ayla’s allocable share.

     Petitioner purchased all of the groceries for herself and

Ayla.   The total amount of support for Ayla includes one-half of

the amount spent by petitioner on food.    We conclude that the

amount expended for Ayla’s support was $1,800 in each of 1997 and

1998.

     Petitioner paid for all of Ayla’s additional expenses

including Ayla’s medical expenses that were not covered by

Medicare, dental care, and clothes.     The amounts petitioner spent

on these items are included in the amount of support for Ayla.

The Medicare benefits that Ayla received are not included in the

entire amount of her support.    Turecamo v. Commissioner, 554 F.2d

564 (2d Cir. 1977), affg. 64 T.C. 720 (1975); Rev. Rul. 79-173,

1979-1 C.B. 86.   We conclude that the amount of additional

expenses for Ayla was $800 in each of 1997 and 1998.

     Petitioner paid for Ayla to attend two day care centers, one

of which was subsidized.   The amounts spent on Ayla’s day care

centers, including the subsidies, are included in the entire

amount of Ayla’s support; however, the subsidies are not treated

as contributions made by petitioner.    Cf. Donner v. Commissioner,
                                - 7 -

25 T.C. 1043 (1956) (determining that tuition paid by the State

for child care was not treated as paid by taxpayer parents);

Turecamo v. Commissioner, supra.

     We conclude that petitioner provided over one-half of Ayla’s

support in 1997 and 1998.    Accordingly, petitioner is entitled to

the dependency exemption deduction for both 1997 and 1998.

     The next issue is whether petitioner is entitled to head-of-

household filing status.    In order to qualify for head-of-

household filing status, petitioner must satisfy the requirements

of section 2(b).   Under section 2(b), an unmarried person may

claim head-of-household status if the taxpayer maintains as her

home a household which constitutes the principal place of abode

of, inter alia, a daughter of the taxpayer for more than one-half

of such taxable year.    A taxpayer is considered the head of a

household if she is not married, not a surviving spouse, and if,

among other choices, she maintains as her home a household which

constitutes the principal place of abode of an individual,

including a daughter of the taxpayer.    Sec. 1.2-2(b)(1), (3),

Income Tax Regs.

     Maintaining a household requires paying more than one-half

of the expenses of the household for the taxable year.    Sec. 1.2-

2(d), Income Tax Regs.    Expenses include property taxes, mortgage

interest, rent, utility charges, upkeep and repairs, property

insurance, and food consumed on the premises, but do not include
                                - 8 -

items such as clothing, education, and medical treatment.      Sec.

1.2-2(d), Income Tax. Regs.

     We found petitioner and Mr. Stephan to be credible and

forthright witnesses.    Based on all the evidence, we conclude

that petitioner paid more than one-half of the expenses for her

household.   Accordingly, petitioner qualifies for the head-of-

household filing status for 1997 and 1998.

     The next issue for decision is whether petitioner is

entitled to child care credits for 1997 and 1998.      Under section

21(a)(1), a taxpayer who maintains a household may receive as a

credit a certain percentage of employment-related expenses for a

qualifying individual.    A qualifying individual includes a child

under the age of 13 who is a dependent of the taxpayer under

section 152 for the purpose of the section 151(c) dependency

exemption deduction.    Sec. 21(b)(1)(A).

     Employment-related expenses are those incurred to care for a

qualifying individual, but only if they are incurred to enable

the taxpayer to be gainfully employed.      Sec. 21(b)(2)(A)(ii).

These expenses include child care services, such as nursery

school.   Sec. 1.44A-1(c)(3)(i), Income Tax Regs.2

     As previously indicated, petitioner provided more than one-

half of the cost of maintaining the household.      Petitioner’s


     2
        Sec. 44A was redesignated as sec. 21 for tax years
beginning after Dec. 31, 1983, pursuant to sec. 471(c)(1) of the
Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 826.
                               - 9 -

child care costs were incurred to care for Ayla, her qualifying

child, while petitioner worked.   As previously indicated, Ayla

qualifies as petitioner’s dependent for 1997 and 1998.    As a

result, petitioner is entitled to the full child care credits for

1997 and 1998.

     The final issue for decision is whether petitioner is

entitled to earned income credits (EIC) for 1997 and 1998.    Under

section 32(a), a taxpayer may be allowed an EIC if she is an

eligible individual.   An eligible individual includes one who has

a qualifying child for the taxable year.   Sec. 32(c)(1)(A)(i).

Under section 32(c)(3)(B) a qualifying child includes a daughter

of the taxpayer or a descendant of a daughter.   The qualifying

child must have the same principal place of abode as the taxpayer

for more than one-half of the tax year, under section

32(c)(3)(A)(ii), and the child must not have attained the age of

19, under section 32(c)(3)(C)(i).

     Additionally, in order to receive the EIC, the taxpayer must

have identified the child on her return under the identification

rule of section 32(c)(3)(D), but need not have so identified the

child to be an eligible individual with respect to that

qualifying child.   The identification rule under section

32(c)(3)(D) is effective for both 1997 and 1998.3


     3
        We previously discussed the identification rule and the
constitutionality of its retroactive amendment in Sutherland v.
                                                   (continued...)
                               - 10 -

     Under section 32(c)(1)(C), the so-called tie breaker rule,

if there are two or more eligible individuals who could receive

the EIC with respect to that qualifying child, only the

individual with the highest modified adjusted gross income for

such taxable years shall be treated as the eligible individual

with respect to the qualifying child.      Sutherland v.

Commissioner, T.C. Memo. 2001-8; Jackson v. Commissioner, T.C.

Memo. 1996-54.

     Ayla had the same principal place of abode as both

petitioner and the Stephans for more than one-half of 1997 and

1998.    Ayla is petitioner’s daughter, and she is also a

descendant of the Stephans’ daughter.      Ayla had not attained 19

by the close of either 1997 or 1998.      Ayla could be a qualifying

child for either petitioner or the Stephans, and either

petitioner or the Stephans could be the qualifying individual or

individuals.     The Stephans, filing jointly, reported gross

income in the amount of $60,485 for 1997 and $69,537 for 1998.

The Stephans’ modified adjusted gross income for both 1997 and

1998 was higher than petitioner’s.      Accordingly, upon the

application of the tie breaker rule, the Stephans are treated as




     3
      (...continued)
Commissioner, T.C. Memo. 2001-8. Also, we discussed the issue as
specific to petitioner for the taxable years 1995 and 1996 in
another summary opinion.
                             - 11 -

the eligible individuals with respect to Ayla under section

32(c)(1)(C).

     Whether the Stephans identified Ayla as a qualifying child

and elected the EIC on their income tax returns for 1997 and 1998

is not relevant to the determination of who the eligible

individual is with respect to Ayla.    Merely their qualification

as eligible individuals with respect to Ayla under section

32(c)(1)(C) is sufficient to deny petitioner the EIC for 1997 and

1998.

     Respondent is sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                           Decision will be entered

                                      under Rule 155.
