                    T.C. Summary Opinion 2001-40



                       UNITED STATES TAX COURT



                 RUTHA M. CORLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.     727-99S, 728-99S,       Filed March 26, 2001.
                   16618-99S.


     Rutha M. Corley, pro se.

     Ross M. Greenberg, for respondent.



     ARMEN, Special Trial Judge:    These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the times the petitions were filed.1

The decisions to be entered are not reviewable by any other



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                  - 2 -

court, and this opinion should not be cited as authority.

     Respondent determined deficiencies in petitioner's Federal

income taxes as follows:

            Docket
              No.          Year           Deficiency
             727-99S       1995             $3,699
             728-99S       1996              4,265
           16618-99S       1997              4,317
           16618-99S       1998              2,380

     The issues for decision are as follows:

     (1) Whether petitioner’s filing status is head-of-household

as claimed on petitioner’s     income tax returns for the years in

issue.   We hold that it is.

     (2) Whether petitioner is entitled to dependency exemptions

for her son, daughter, and grandmother as claimed on her income

tax returns for the years in issue.       We hold that she is.

     (3) Whether petitioner is entitled to earned income credits

as claimed on her income tax returns for the years in issue.     We

hold that she is.

Background

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

found.   Petitioner resided in Deland, Florida, at the time that

her petitions were filed with the Court.

     Petitioner has two children, a son Henry Earl Corley

(Henry), who was born on December 9, 1978, and a daughter Ceola

Jean Corley (Ceola), who was born on July 2, 1981.
                               - 3 -

     Petitioner married Willie Corley (Mr. Corley) on July 4,

1985.   Thereafter, Mr. Corley adopted petitioner’s two children,

Henry and Ceola.

     During most, if not all, of their married life, petitioner

and Mr. Corley resided in a rented house located at 229 West

Euclid Avenue, Deland, Florida (the West Euclid Avenue

residence).   Petitioner also used the West Euclid Avenue

residence as the business premises for her day care business,

which she operated as a sole proprietor.

     In May 1994, petitioner filed a petition for dissolution of

marriage with the circuit court for Volusia County, Florida.

Thereafter, Mr. Corley vacated the West Euclid Avenue residence.

Petitioner, together with Henry and Ceola, continued to live in

the West Euclid Avenue residence for the balance of that year.

     During virtually all of 1995, petitioner, together with

Henry and Ceola, lived in the West Euclid Avenue residence.

During some portion of 1995, petitioner’s grandmother Lillie

Lucas also lived at the West Euclid Avenue residence while she

was recuperating from abdominal surgery.

     At the end of 1995, petitioner terminated her day care

business and, together with Henry and Ceola, moved in with her

grandmother at her grandmother’s house located at 628 South

Parsons Avenue, Deland, Florida (the South Parsons Avenue

residence).   Petitioner and Ceola continued to live in the South
                               - 4 -

Parsons Avenue residence with Lillie Lucas through 1998; Henry

continued to live there until he enlisted in the U.S. Army on

November 4, 1997, after graduating from high school earlier in

the year.

     In November 1997, the circuit court for Volusia County,

Florida, entered a final default judgment of dissolution of

marriage.   In the judgment, the court (inter alia) awarded

custody of Ceola to petitioner and ordered Mr. Corley to pay

child support for his daughter in the amount of $97.50 twice per

month through the registry of court.2

     In 1995, petitioner had total income in the amount of

$10,791, consisting of net profits from her day care business in

the amount of $6,274 and wages in the amount of $4,517.   In 1996,

1997, and 1998, petitioner had total income in the amounts of

$12,400, $13,725, and $18,527, respectively, consisting solely of

wages.   Petitioner expended her total income to support herself,

her children, and her grandmother, and to maintain the West

Euclid Avenue residence (in 1995) and the South Parsons Avenue

residence (in 1996 through 1998).

     During the years in issue, Mr. Corley was employed by the

City of Deland, Florida, and received wages in amounts not

specifically disclosed in the record.   After he separated from



     2
       By the time the circuit court entered its judgment, Henry
had attained the age of majority.
                               - 5 -

petitioner, Mr. Corley did not provide any financial assistance

to petitioner for her benefit, nor did he provide any child

support to petitioner until ordered to do so by the circuit court

in the final default judgment of dissolution of marriage.

     During the years in issue, petitioner’s grandmother was an

elderly woman who had no source of income other than Social

Security benefits.   Petitioner’s grandmother received Social

Security benefits in the gross amounts (i.e., before the

withholding of Medicare premiums) of $8,028 in 1995, $8,236 in

1996, $8,473 in 1997, and $8,651 in 1998.   Petitioner’s

grandmother expended some portion of her Social Security benefits

to help support herself, to help maintain the South Parsons

Avenue residence, and to help support petitioner and her

children.

     Petitioner filed Federal income tax returns for the years in

issue.   On each of those returns, petitioner reported her filing

status as head-of-household.   On her returns for 1995 through

1997, petitioner claimed dependency exemptions for Henry, Ceola,

and her grandmother; on her return for 1998, petitioner claimed

dependency exemptions for only Ceola and her grandmother.   Also

on her returns for 1995 through 1997, petitioner claimed the

earned income credit based on two qualifying children (Henry and

Ceola); on her return for 1998, petitioner claimed the earned

income credit based on only one qualifying child (Ceola).
                               - 6 -

     In separate notices, respondent determined deficiencies in

petitioner’s income taxes based on the following adjustments for

each of the years in issue: (1) Respondent changed petitioner’s

filing status from head-of-household to single; (2) respondent

disallowed the dependency exemptions claimed by petitioner; and

(3) respondent disallowed the earned income credit claimed by

petitioner.

Discussion

     Before deciding the substantive issues before us, we think

that a preliminary comment is in order.

     At trial, petitioner testified in her own behalf.

Respondent’s counsel cross-examined petitioner and also called

two third-party witnesses.   We found petitioner to be a credible

witness, and we have relied heavily on her testimony in making

our findings.

     We turn now to the substantive issues before us.

     A. Filing Status

     As relevant herein, an individual qualifies as a head of a

household if such individual is not married at the close of her

taxable year3 and maintains as her home a household that

constitutes for more than one-half of such taxable year the



     3
       Respondent, by determining petitioner’s filing status to
be single for each of the years in issue, has implicitly conceded
that petitioner was not married at the close of any of those
years. See sec. 1(c); see also secs. 2(c); 7703(b).
                                - 7 -

principal place of abode, as a member of such household, of

either (1) a son or a daughter or (2) any other person who is a

dependent of the taxpayer, if the taxpayer is entitled to a

dependency exemption for the taxable year for such person under

section 151.   See sec. 2(b).

      The cost of maintaining a household is the sum of the

expenses incurred for the mutual benefit of the occupants of the

household by reason of its operation as the principal place of

abode of such occupants for the taxable year.   See sec. 1.2-2(d),

Income Tax Regs.   Such expenses include property taxes, mortgage

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

insurance, and food consumed on the premises; however, such

expenses do not include the cost of clothing, education, medical

treatment, vacations, life insurance, and transportation.     See

id.

      During virtually all of 1995, petitioner maintained as her

home a household at the West Euclid Avenue address that

constituted for more than one-half of that year the principal

place of abode of her children Henry and Ceola.   During this

period, petitioner received no financial assistance from Mr.

Corley.   Although petitioner received some financial assistance

from her grandmother, petitioner was the person principally

responsible for maintaining the household at the West Euclid

Avenue address.
                                - 8 -

     During 1996, 1997, and 1998, petitioner maintained as her

home a household at the South Parsons Avenue address.      This home

was owned by petitioner’s grandmother, who contributed to the

cost of maintaining the household.      However, petitioner had

greater financial resources than her grandmother, and it was

petitioner who paid most of the cost of maintaining the

household.    Further, during these years, petitioner received no

financial assistance from Mr. Corley.

     During 1996 and 1997, the household at the South Parsons

Avenue address constituted for more than one-half of each of

those years the principal place of abode of petitioner’s son

Henry.    During 1996, 1997, and 1998, the household at the South

Parsons Avenue address constituted for more than one-half of each

of those years the principal place of abode, as a member of such

household, of petitioner’s daughter Ceola and her grandmother

Lillie.

     In view of the foregoing, we hold that petitioner’s filing

status for the years in issue was head-of-household.

Respondent’s determination to the contrary is therefore not

sustained.

     B. Dependency Exemptions

     As relevant herein, a taxpayer is entitled to a dependency

exemption for a son, daughter, or grandmother if more than half

of such individuals’ support is furnished by the taxpayer.        See
                               - 9 -

secs. 151(c) and 152(a)(1), (4).   In the case of a child whose

parents are either divorced or live apart at all times during the

last 6 months of the calendar year, section 152(e)(1) provides

that the custodial parent is deemed to provide more than half of

the child’s support for such year.4    For purposes of this rule,

and as relevant herein, “custody” is determined by the terms of

the most recent decree of divorce; however, in the absence of

such a decree, “custody” is deemed to be with the parent who, as

between both parents, has the physical custody of the child for

the greater portion of the calendar year.    Sec. 1.152-4(b),

Income Tax Regs.

     Insofar as Ceola is concerned, petitioner had physical

custody of her daughter throughout the years in issue, and she

also had legal custody of Ceola from November 5, 1997, the date

of the circuit court’s final default judgment of dissolution of

marriage, through 1998.

     Insofar as Henry is concerned, petitioner had physical

custody of her son until December 9, 1996, the date on which

Henry attained the age of majority.    See Fla. Stat. Ann. sec.

743.07 (West 1997).   Thereafter, Henry lived with petitioner

until he enlisted in the U.S. Army on November 4, 1997, after

graduating from high school earlier in the year.    The record


     4
       Exceptions to the general rule of sec. 152(e)(1) are not
applicable in the present cases. See sec. 152(e)(2), (3), and
(4).
                               - 10 -

demonstrates that petitioner provided more than half of Henry’s

support in 1997.5

     Insofar as Lillie Lucas, petitioner’s grandmother, is

concerned, the record demonstrates that she received Social

Security benefits for the years in issue and expended some

portion of those benefits for her own support.6   However,

petitioner had greater financial resources than her grandmother,

and the record demonstrates that petitioner expended her total

income to support the family and to maintain the West Euclid

Avenue residence (in 1995) and the South Parsons Avenue residence

(in 1996 through 1998).    Overall, we are satisfied that the

record establishes that petitioner paid more than half of her

grandmother’s support for the years in issue.

     In view of the foregoing, we hold that petitioner is

entitled to dependency exemptions for Ceola, Henry, and her

grandmother as claimed by her on her tax returns for the years in

issue.   Respondent’s determination to the contrary is therefore

not sustained.

     C. Earned Income Credit

     In the case of an eligible individual, section 32(a) allows

an earned income credit.    As relevant herein, the term “eligible


     5
       It should be recalled that petitioner did not claim a
dependency exemption for Henry for 1998.
     6
        Ms. Lucas also expended some portion of her Social
Security benefits to help support petitioner and her children.
                              - 11 -

individual” means any individual who has a qualifying child for

the taxable year.   Sec. 32(c)(1)(A)(i).   Also as relevant herein,

the term “qualifying child” means a son or daughter of the

taxpayer who has the same principal place of abode as the

taxpayer for more than one-half of the taxable year and who

either has not attained the age of 19 as of the close of the

calendar year in which the taxable year of the taxpayer begins or

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

of such taxable year.   See sec. 32(c)(3)(A).

     In the present cases, Ceola, petitioner’s daughter, had the

same principal place of abode as petitioner for more than one-

half of each of the years in issue; moreover, she had not

attained the age of 19 as of the close of 1998, the last of the

years in issue.   Henry, petitioner’s son, had the same principal

place of abode as petitioner for more than one-half of 1995,

1996, and 1997; moreover, as of the close of 1997, Henry, who had

then attained the age of 19, qualified as a student for that

year, having graduated from high school earlier in the year.   See

sec. 151(c)(4).

     In view of the foregoing, petitioner is entitled to earned

income credits as claimed by her on her tax returns for the years

in issue.   Respondent’s determination to the contrary is

therefore not sustained.
                             - 12 -

Conclusion

     Reviewed and adopted as the report of the Small Tax Case

Division.

     In order to give effect to our disposition of the disputed

issues,



                                   Decisions will be entered

                              for petitioner.
