Tax Court: Dependency Exemption Stands, Daughter Not Married under Common Law.

(Parker Tax Publishing February 18, 2015)

The Tax Court held a taxpayer was entitled to dependency exemptions, earned income tax credit, and additional child tax credit for her daughter and grandchild, as the daughter was not in a common law marriage and could be claimed as a qualifying child by the taxpayer. Saenz v. Comm'r, T.C. Summary 2015-6.

Background

From January until August of 2011, Leticia Saenz supported her daughter and grandchild, allowing them to live in her home. For the remainder of 2011, Saenz's daughter and grandchild resided with the daughter's boyfriend, Michael Nieto.

In 2012, Saenz filed her 2011 return and claimed dependency exemption deductions and the earned income tax credit with respect to her daughter and grandchild, as well as the additional child tax credit with respect to her grandchild. On April 15, 2012, Saenz's daughter and Mr. Nieto filed a joint return for 2011 and attached a statement representing that they were married. On their joint return, they also claimed a dependency exemption deduction and the earned income tax credit with respect to Saenz's grandchild.

On April 1, 2013, the IRS mailed Saenz a notice of deficiency and disallowed her deductions and credits, noting that Saenz's daughter and grandchild were claimed on another return filed for that year. The IRS contended that Saenz was not entitled to these credits and deductions because her daughter and her daughter's boyfriend were "common law" married under Texas law and had filed a joint return. Saenz argued that her daughter and grandchild were qualifying children, as her daughter was not actually married.

Analysis

Taxpayers are entitled to claim the Code Sec. 32 earned income tax credit and the Code Sec. 24 additional child tax credit for all qualified children. Under Code Sec. 152(c), a qualifying child must be the taxpayer's child or a descendant of the taxpayer's child. In addition to other requirements, a qualifying child must be an individual who has not filed a joint return with the individual's spouse under Code Sec. 6013 for the same tax year for which the taxpayer is claiming the qualifying child (Code Sec. 152(c)(1)(E)).

The Tax Court reasoned that while Saenz's daughter and Mr. Nieto resided together during part of 2011, they failed to meet the requirements of common law marriage under Texas law, which requires (1) the couple agree to be married; (2) after the agreement, they live together as husband and wife; and (3) they represent to others that they are married.

The court found that the couple fell short of the meeting these requirements. The court noted Mr. Nieto's testimony, in which Nieto stated that he and Saenz's daughter agreed to be married when they signed and filed their 2011 tax return. As the 2011 tax return was jointly filed in 2012, the court found they did not agree to be married until 2012, the year following the tax year in question. Additionally, Saenz's son testified that he believed Mr. Nieto was his sister's boyfriend, not husband.

Finding that Saenz's daughter was not married, common law or otherwise, to Mr. Nieto in 2011, the court concluded the daughter did not file a joint return with her spouse "under section 6013" and therefore did not fail the requirement in Code Sec. 152(c)(1)(E). The court determined Saenz could claim her daughter as a qualifying child for purposes of the dependency exemption deduction and the earned income tax credit on her 2011 tax return.

Consequently, even though both Saenz and her daughter claimed Saenz's grandchild as a qualifying child on their respective 2011 returns, Saenz's daughter was barred from doing so because she was a dependent of Saenz for that year. Accordingly, Saenz could claim her grandchild as a qualifying child for purposes of the dependency exemption deduction, the earned income tax credit, and the additional child tax credit for the 2011 tax year.

For a discussion on the dependency exemption deduction, see Parker Tax ¶10,700 (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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