Ultimately the case of Engesser v. Commissioner, TC Summary Opinion 2018-29, turned on the question of whether the taxpayer’s testimony regarding where his child lived in the year in question would be believed by the Court. And, in this case, the Tax Court found the taxpayer’s testimony believable.
The issue of where H.E. (the child in this case) lived was complicated by the fact that when the child’s mother moved out of Mr. Engesser’s apartment in early 2014, she moved to a nearby apartment. Both Mr. Engesser and the mother claimed the child as a dependent on their 2014 income tax returns. Neither parent attached a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, with their individual tax return.
As the Court pointed out, under the law the following requirements must be met for H.E. to be Mr. Engesser’s qualifying child:
Generally, a “qualifying child” must (1) bear a specified relationship to the taxpayer (e.g., be the taxpayer's child), (2) have the same principal place of abode as the taxpayer for more than one-half of the taxable year, (3) meet certain age requirements, (4) not have provided over one-half of such individual's own support for the relevant period, and (5) not have filed a joint return for that year. Sec. 152(c)(1).
The IRS found that H.E. met all the requirements under IRC §152 to be dependent of Mr. Engesser except for one. The IRS argued that the taxpayer failed to show that H.E. had the same place of abode as Mr. Engesser for over one-half of the year.
Aside from Mr. Engesser’s testimony, the Court found itself faced with the following pieces of information that could be useful in determining where H.E. resided. The following developments took place in 2014 as outlined by the Court:
A letter dated October 14, 2015, from Messina Pediatrics states that H.E. was seen in that office on November 10, 2014, December 5, 2014, and March 25, 2015, and that according to the records of that office, H.E. resided at apartment E.
A U.S. Postal Service (USPS) change of address form dated December 4, 2014, purports to change H.E.'s address from apartment S to apartment E. Petitioner did not prepare the change of address form, and the record does not show who prepared it and submitted it to the USPS.
The Court then went on to detail the following developments that took place in 2015 and 2016:
A letter from Old Bridge Township Public Schools dated August 26, 2015, states that H.E. lived at apartment E, presumably meaning in August 2015.
Petitioner initiated a custody proceeding in 2015 in the Superior Court of New Jersey. On October 28, 2015, the superior court ordered joint custody over H.E. for petitioner and Ms. Anthony. Under this schedule each parent had custody over H.E. about one-half of the time. The October 28, 2015, order also said that Ms. Anthony could claim H.E. as a dependent for 2015 and all odd-numbered years and petitioner could claim her as a dependent for 2016 and all even-numbered years. On September 20, 2016, the superior court revised the custody schedule, reducing the time H.E. would be with petitioner.
The IRS raised the following objections based on the information the Court had before it:
Respondent points out that (1) the letter from Messina Pediatrics does not say where H.E. lived during most of 2014; (2) the 2015 and 2016 custody orders do not give petitioner custody over H.E. for more than one-half of the time after October 28, 2015; (3) the USPS change of address form of unknown authorship says H.E.'s address changed from apartment S to apartment E in December 2014; (4) petitioner did not include a Form 8332 with his Form 1040 for 2014; and (5) there were anomalies in petitioner's testimony.
The Court first looked at the IRS’s last contention—that there were issues with the taxpayer’s testimony and rejected that view:
Petitioner testified that H.E. resided with him in apartment E throughout 2014. Petitioner also testified that Ms. Anthony sometimes asked whether she could take H.E. for a period, such as one or two days, and that he always agreed to those requests. Respondent points out that saying H.E. lived with him during “all” of 2014 is inconsistent with petitioner's testimony that H.E. sometimes spent some days with Ms. Anthony, but we do not believe those two statements undermine petitioner's contention that H.E. had the same principal place of abode as petitioner for more than one-half of 2014.
The Court then considers the limited documentary information before the Court and finds it does not undermine the taxpayer’s testimony on this issue:
The letter from Messina Pediatrics shows that H.E. lived with petitioner during November and December 2014. The letter from H.E.'s school shows that H.E. lived with petitioner in August 2015. We do not consider the December 4, 2014, USPS change of address form because the record does not show who provided that information.
Respondent infers from the 2015 and 2016 joint custody orders, which resulted from a custody suit brought by petitioner, that H.E. did not have the same principal place of abode as petitioner for more than one-half of 2014 and that petitioner brought the custody case in order to expand the extent of his custody for H.E. However, petitioner testified, in effect, that he initiated that suit because he wanted a more formalized custody arrangement. Petitioner's account is credible on the basis of this record.
Respondent points out that Ms. Anthony claimed H.E. as a dependent and did not provide a Form 8332 to petitioner waiving her right to do so, but this seems no more noteworthy in establishing H.E.'s residence than the fact that petitioner also claimed her as a dependent and, apparently, did not provide a Form 8332 to Ms. Anthony.
The gaps in the documentary evidence for 2014, the documentary evidence for 2015-16, and the anomalies in petitioner's testimony do not undermine petitioner's overall testimony.
The Court found, therefore, that the taxpayer was entitled to claim H.E. as a dependent in 2014, as well as claim the child tax credit, the earned income credit and qualify for a filing status of head of household for 2014.
While not stated by the Court, the key here is that the taxpayer’s testimony had no inconsistencies, either internally or with the documents that were brought to the Court’s attention. Had the taxpayer been caught “stretching the truth” or making hard to believe claims with no support, the result likely would not have turned as well as it did in this case.