                          T.C. Summary Opinion 2014-28



                         UNITED STATES TAX COURT



                   DAVID M. KOSOSKI, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 17326-12S.                       Filed March 27, 2014.



      David M. Kososki, pro se.

      Nancy Klingshirn, for respondent.



                              SUMMARY OPINION


      PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to

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

petition was filed. Pursuant to section 7463(b), the decision to be entered is not

reviewable by any other court, and this opinion shall not be treated as precedent
                                          -2-

for any other case. Unless otherwise indicated, subsequent section references are

to the Internal Revenue Code (Code) in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

      Respondent determined a $5,618 deficiency in, and an accuracy-related

penalty of $1,401 with respect to, petitioner’s 2010 Federal income tax. The

issues for decision are: (1) whether petitioner is entitled to the filing status of

married filing jointly, and if not, whether he is entitled to: (a) dependency

exemption deductions for his two minor children, (b) the earned income credit,

and (c) the additional child tax credit; and (2) whether petitioner is liable for the

accuracy-related penalty under section 6662(a).

                                     Background

      The stipulation of facts and the attached exhibits are incorporated herein by

this reference. At the time the petition was filed, petitioner resided in Michigan.

      During 2010 petitioner and Nicole Kososki lived together as husband and

wife with their children and provided for the children’s support. Petitioner’s 2010

adjusted gross income did not equal or exceed Ms. Kososki’s. Petitioner and Ms.

Kososki had been married for approximately eight years and had previously filed

their Federal income tax returns as married filing jointly. Petitioner’s mother
                                         -3-

typically prepared and electronically filed the returns with the consent of petitioner

and Ms. Kososki.

      In early February 2011 petitioner and Ms. Kososki discussed the preparation

and filing of their 2010 tax return. On February 4, 2011, petitioner, with

assistance from his mother, electronically filed the 2010 tax return as married

filing jointly. The joint return reflected an overpayment and a claim for credits

resulting in a refund due of $7,768.

      Shortly after the 2010 return was filed, Ms. Kososki moved out of the

marital home. Sometime thereafter Ms. Kososki and petitioner discussed the

status of their tax return and apportioning the refund. Ms. Kososki indicated that

she did not object to the filing of a joint return but only because she expected to

receive a portion of the refund from petitioner.

      In March 2011 Ms. Kososki learned that petitioner had received the tax

refund which had been claimed on the joint return. The refund was directly

deposited into petitioner’s bank account. Ms. Kososki was not a named account

holder on petitioner’s bank account, and petitioner did not otherwise share any of

the refund with Ms. Kososki. In late March 2011 Ms. Kososki filed a tax return

for 2010 with the status of married filing separately and claimed dependency

exemption deductions for their two children.
                                         -4-

      As a result of the conflicting filing statuses, the Internal Revenue Service

(IRS) initiated an examination of petitioner’s 2010 joint tax return. Ultimately, the

IRS issued a notice of deficiency determining that petitioner was not entitled to

joint filing status and disallowed the claimed dependency exemption deductions,

the earned income tax credit, and the additional child tax credit and determined an

accuracy-related penalty under section 6662(a).

                                     Discussion

Burden of Proof

      In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayer bears the burden of proving

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

(1992); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 7491(a), however,

places the burden of proof on the Commissioner with regard to certain factual

issues. Because petitioner has not alleged or shown that section 7491(a) applies,

the burden of proof remains on petitioner.

Joint or Separate Return

      Section 6013(a) permits a husband and wife to file a joint return. Spouses

who elect to file a joint return for a tax year are required to compute their tax on

the aggregate income of both spouses, and both spouses are jointly and severally
                                         -5-

liable for all taxes due. See sec. 6013(d)(3); Butler v. Commissioner, 114 T.C.

276, 282 (2000). Where spouses file a joint return with respect to a tax year,

neither spouse may thereafter elect married filing separately status for that tax year

if the time for filing the tax return of either spouse has expired. See United States

v. Guy, 978 F.2d 934 (6th Cir. 1992); Ladden v. Commissioner, 38 T.C. 530, 534

(1962); Haigh v. Commissioner, T.C. Memo. 2009-140; sec. 1.6013-1(a)(1),

Income Tax Regs.

      Respondent argues that petitioner and his former wife did not file a joint

return. We disagree. Petitioner, with the consent of Ms. Kososki, initially timely

filed a joint return for 2010 on February 4, 2011. In late March 2011 Ms. Kososki

timely filed a separate return for the same tax year. Generally, the time for filing a

tax return is the 15th day of April following the close of the calendar year. Sec.

6072(a). Because Ms. Kososki filed as married filing separately before the time

for either spouse to file a return had expired, her separate return is valid. See sec.

1.6013-1(a)(1), Income Tax Regs. Since Ms. Kososki filed a separate return after

the joint return and the IRS accepted it, respondent adjusted the original joint

return of petitioner to married filing separately status. Accordingly, we sustain the

determination insofar as respondent determined that petitioner is not entitled to

joint return filing status. The filing of petitioner’s separate return, however, is not
                                        -6-

dispositive of his entitlement to the claimed dependency exemption deductions

and tax credits.

Dependency Exemption Deductions

      Deductions and credits are a matter of legislative grace, and the taxpayer

bears the burden of proving entitlement to any deduction or claimed credit. Rule

142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940).

      Section 151(c) allows a deduction for each dependency exemption as

defined in section 152. Section 152(a) provides that a dependent means a

“qualifying child” or a “qualifying relative”. Section 152(c)(1) defines a

qualifying child as an individual: (1) who bears a designated relationship to the

taxpayer, such as a child of the taxpayer; (2) who has the same principal place of

abode as the taxpayer for more than one-half of the tax year; (3) who has not

attained the age of 19 or is a student who has not attained the age of 24 as of the

close of the calendar year; (4) who has not provided over one-half of such

individual’s own support for the calendar year in which the tax year of the

taxpayer begins; and (5) who has not filed a joint return with the individual’s

spouse.
                                          -7-

      As indicated, petitioner and Ms. Kososki did not separate until 2011. Thus,

the children lived in the same household as petitioner and Ms. Kososki. It would

thus appear initially that the children are the qualifying children of each parent.

      The Code provides an objective rule for determining which taxpayer or

parent is entitled to a dependency exemption deduction in the event that both

parents attempt to treat the same individual as a qualifying child on separately

filed returns when the qualifying child resided with both parents for the same

amount of time during the taxable year. See sec. 152(c)(4)(B)(ii). Under section

152(c)(4)(B), “[i]f the parents claiming any qualifying child do not file a joint

return together, such child shall be treated as the qualifying child of * * * (ii) * * *

the parent with the highest adjusted gross income.”

      Respondent does not contest that petitioner’s children meet all the

requirements of section 152(c)(1). However, respondent asserts that because

petitioner was not entitled to joint filing status and because Ms. Kososki had the

higher adjusted gross income for 2010, he is not entitled to claim the dependency

exemption deductions for 2010. According to respondent, Ms. Kososki is,

therefore, the only taxpayer entitled to the deductions under section 151.

Petitioner admits that Ms. Kososki had the higher adjusted gross income for 2010.
                                           -8-

Therefore, pursuant to section 152(c)(4)(B)(ii) petitioner is not entitled to the

dependency exemption deductions for 2010.

Earned Income Credit

       Taxpayers are afforded a refundable credit under section 32 against income

tax when their earned income is below a statutory level; however, section 32(d)

denies this credit to married individuals who file separate returns. Because we

find petitioner is not entitled to joint return filing status, he is not entitled to the

earned income credit for 2010.

Additional Child Tax Credit

       With respect to the additional child tax credit for 2010, a taxpayer may

claim a credit against Federal income tax of up to $1,000 for each qualifying child

of the taxpayer for which the taxpayer is allowed a dependency exemption

deduction under section 151. Sec. 24(d).

       The Court concludes that petitioner is not entitled to a dependency

exemption deduction for either of his two children. As a result, he is not entitled

to the additional child tax credit for 2010.

Accuracy-Related Penalty

       Section 6662(a) and (b)(1) and (2) imposes a penalty of 20% of the portion

of an underpayment of tax attributable to the taxpayer’s negligence, disregard of
                                        -9-

rules or regulations, or substantial understatement of income tax. “Negligence”

includes any failure to make a reasonable attempt to comply with the Code,

including any failure to keep adequate books and records or to substantiate items

properly. See sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. A “substantial

understatement” includes an understatement of income tax that exceeds the greater

of 10% of the tax required to be shown on the return or $5,000. See sec. 6662(d);

sec. 1.6662-4(b), Income Tax Regs.

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

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

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

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

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

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

experience of the taxpayer; and any reliance on the advice of a professional, such

as an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs. Generally, the most

important factor is the taxpayer’s effort to assess the taxpayer’s proper tax

liability. Id.

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

respect to the accuracy-related penalty under section 6662. To satisfy that burden,
                                          - 10 -

the Commissioner must produce sufficient evidence showing that it is appropriate

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

Respondent determined the accuracy-related penalty for 2010 for negligence or a

substantial understatement of income tax. Respondent has satisfied his burden by

producing evidence that the underpayment of tax with respect to petitioner is the

result of a substantial understatement of income tax for 2010 because the

understatement of $5,618 exceeds $5,000, which is greater than 10% of the tax

required to be shown on the return.1

      Accordingly, since respondent has met his burden of production, petitioner

must provide persuasive evidence that the accuracy-related penalty should not be

imposed with respect to the underpayment because he acted with reasonable cause

and in good faith. See sec. 6664(c)(1); Rule 142(a); Higbee v. Commissioner, 116

T.C. at 446.

      In early 2011 petitioner filed a joint return with Ms. Kososki when they

were married and still living together. The record indicates that at the time the

return was filed, Ms. Kososki did not object to the filing and in fact had discussed

with petitioner the filing of the return, the status of the refund, and apportioning

the refund. When Ms. Kososki learned that she would not receive any of the tax

      1
          Petitioner’s original 2010 tax return reflected tax due of $333.
                                         - 11 -

refund from the jointly filed return, she filed a separate return within the

prescribed time for filing a return. Although petitioner’s initial joint return was

adjusted by the IRS as a result of the later timely filed separate return, and we have

sustained this adjustment, petitioner has demonstrated that he acted with good

faith at the time the return was filed and he had reasonable cause for filing the

return with the status of married filing jointly because Ms. Kososki had agreed to

that status at the time the return was filed. Therefore, petitioner is not liable for

the accuracy-related penalty for tax year 2010.

      For the foregoing reasons, the Court sustains respondent’s determination

that petitioner is not entitled to the status of married filing jointly, the claimed

dependency exemption deductions, the earned income credit, and the additional

child tax credit for tax year 2010. The Court does not sustain respondent’s

imposition of the accuracy-related penalty under section 6662(a) for tax year 2010.

      We have considered all of the parties’ arguments, and, to the extent not

addressed herein, we conclude that they are moot, irrelevant, or without merit.
                            - 12 -

To reflect the foregoing,


                                     Decision will be entered for

                            respondent as to the deficiency and

                            for petitioner as to the accuracy-

                            related penalty under section 6662(a).
