In the case of Smyth v. Commissioner, TC Memo 2017-29 it seems everyone believed that the just result would have been to allow the taxpayer to keep the refund she had received that was now at risk due to actions of her less than responsible (or apparently wholly honest) son.
The IRS pointed out at trial that it did not defend the justice of the result it was seeking. Ms. Smyth was assisted by counsel who volunteered to help generally at calendar call, was moved by her testimony and entered an appearance for her after trial. The judge deciding the case also noted that it is impossible to accept the result the IRS sought in the case was just—that is, “to send money meant to help those who care for small children to someone who spent it on drugs instead.”
But, in the end, the Court agreed with the IRS that the law itself allowed for no other result, forcing a poor grandmother to face a tax bill of over $5,000 after the Court found her son went back on his word and filed a tax return claiming the child to obtain money he spent on drugs.
Ms. Smyth’s basic situation was explained by the Court as follows:
Smyth is a certified nursing assistant who lives in El Paso, Texas. For all of 2012 Smyth’s adult son, his wife, and their two young children, who were then 2 and 4 years old, lived with Smyth in her home. The children, J.H.K.S. and J.H.Y.S.,2 are Smyth’s grandchildren. Smyth’s job is hard, and it does not pay much. But with her wages and Social Security benefits, Smyth had a higher adjusted gross income than either her son or his wife. And in 2012 she provided all the financial support for the household because her son “did not work, and he was into dealing drugs” while his wife “stayed home and took care of the babies.”
When the time came to file the tax returns her son told his mother to claim the children on her return. As the Court noted:
Smyth timely filed her 2012 income tax return claiming J.H.K.S. and J.H.Y.S. as her dependents after her son told her that he and his wife were not going to file and that she should try to get back some of the money she had spent supporting his family.
Under the law this would be an acceptable result. Although parents generally will win the tie-breaker and be deemed to be the party that must claim the qualifying child, an exception exists that Ms. Smyth would have qualified for had her son truly not claimed the child:
..[I]f the children’s parents do not claim them, then another taxpayer may claim the children as her “qualifying children” if that taxpayer has a higher adjusted gross income than either parent. Sec. 152(c)(4)(C).
As the Court noted:
We do have Smyth’s own testimony, and we did believe her when she said that she didn’t know her son and his wife had filed their own 2012 return claiming J.H.K.S. and J.H.Y.S. as their “qualifying children.” We also believe her when she said that she would never have claimed her grandchildren as her own “qualifying children” if she thought her son had done so too. But this is evidence of her own honesty and good faith; it is not enough proof that her son didn’t say one thing and do another.
And, as the Court noted, it did find that it was most likely her son had gone ahead and filed a return claiming the children, noting:
We have to find that it is more likely than not that Smyth’s son and his wife did indeed file an original 2012 return on which they claimed J.H.K.S. and J.H.Y.S. as their “qualifying children.” The IRS has a program that automatically flags returns for further investigation if it notices (by searching for duplicate Social Security numbers) that more than one taxpayer has claimed the same “qualifying child.” It’s therefore highly likely that Smyth’s return was chosen for review because her son and his wife had already filed an original 2012 return on which they claimed J.H.K.S. and J.H.Y.S. Smyth also testified that her son admitted he filed a return in order to get the refund “for his drugs,” and prepared an amended return presumably to correct his previously filed original return. Both support our finding that Smyth’s son and his wife filed an original 2012 return.
But, as the Court noted, the son prepared an amended return—so shouldn’t that have solved the problem? Well it could have except the Court found that the son had not actually completed the steps necessary to truly file an amended return.
The problem is that you can’t just hand an amended return to any IRS employee, including one involved in the case. Rather it must be filed in accordance with the IRC. The Court notes:
The Code doesn’t define the word “file”, but section 6091 helps us. That section says that a taxpayer must file her income tax return in the internal revenue district where she resides or at the service center for that same district. Sec. 6091(b)(1)(A). Most taxpayers also have to file any amended return with the correct service center. Sec. 1.6091-2(e)(1), Income Tax Regs. A taxpayer who wants to file an amended return does not have to mail it to the IRS. He can hand carry it and turn it in to “any person assigned the responsibility to receive hand-carried returns in the local Internal Revenue Service office.” Id. para. (d)(1); see also sec. 301.6091-1(c), Proced. & Admin. Regs. (defining “hand carried”).
Ms. Smyth’s problem is that IRS counsel is not a person assigned the responsibility to receive hand-carried returns. The opinion continues:
It is undisputed that Smyth’s son and his wife prepared an amended 2012 return. Smyth claims that they “filed” this amended return when a copy was delivered by their return preparer to the Commissioner’s counsel. That’s a problem for Smyth here, because we have already mentioned in another case that “hand delivery of a return to counsel for respondent does not constitute the filing of that return.” Quarterman v. Commissioner, T.C. Memo. 2004-241, 2004 WL 2361672, at 3 n.6. Here the problem is that the Commissioner’s counsel is neither the service center that serves taxpayers living in El Paso nor a person that the IRS has assigned to receive returns for the local IRS office. Therefore, we have to find that the amended return was not properly “filed” and cannot be the basis for a claim that Smyth’s son and his wife gave up their right to claim J.H.K.S. and J.H.Y.S. as their “qualifying children.”
The Court goes on to note that giving an amended return to various other parties does not count as filing either:
Quarterman is not the only case like this. In Espinoza v. Commissioner, 78 T.C. 412 (1982), we found that delivery of a return to an IRS agent did not amount to the filing of the return. And in Friedmann v. Commissioner, T.C. Memo. 2001-207, 2001 WL 883222, at \7, aff’d, 80 F. App’x 285 (3d Cir. 2003), we held that “the revenue agent was not the prescribed place for filing.” This Court has even held that a return mailed to the wrong service center is not officially filed unless and until it is received by the correct service center. See Winnett v. Commissioner, 96 T.C. 802, 808 (1991).*
The Court found that since the son and his wife had never relinquished their right to claim the children, the grandmother must be denied the childrend—and, as well, denied the earned income credit and the child tax credits that would have been available to her had the parents not claimed the children.
An important point to note in this case is the very technical rules the Court looked to when determining a return had not been filed, and the list of parties to whom delivery will not count as hand filing. Remember that the Court specifically held that giving a return to any of these parties will not be deemed a proper filing:
- Revenue agents
- IRS counsel
- A service center other than the one designated for the taxpayer to file his/her return.
If, in fact, it’s important to get an amended return filed during an examination the taxpayer needs to assure the document is delivered to an authorized party—it can’t simply be dropped on the agent’s desk and count as filed.