Tax Court Takes Almost Five Years to Decide a Dependency Exemption Case

I set aside the case of Hicks v. Commissioner, T.C. Memo 2022-10 to possibly write about the procedure for claiming a qualified child dependent who doesn’t live with you.  That procedure requires taxpayers to carefully follow certain steps that can be difficult to follow as a family breaks apart.  I will talk about the facts and the law regarding the case.  Before I do so, I feel compelled to discuss the amazing amount of time it took the Tax Court to decide a dependency exemption case in which there was no delay in answering the case, no continuance of the trial, and no brief by the pro se petitioner. 

The case took almost 17 months after the filing of the petition before the trial occurred because petitioner selected place of trial in Cleveland and the Tax Court doesn’t go there too often.  Seventeen months between petition and the trial in a case with no continuance is a bit longer than normal but not extraordinary for cities to which the Court does not frequently travel and depending on the timing of the petition vis a vis the timing of the Court’s calendar.  The trial in the Hicks’ case occurred on October 1, 2018.  The only brief filed in the case was filed by the IRS on November 14, 2018, at which time the case was ready for the Tax Court to decide.  Three years and three months later the Tax Court issued its opinion. 

This seems like an extraordinary amount of time for a case involving a dependency exemption issue.  I have noted on a number of occasions lengthy periods of time in Tax Court cases between the petition and the opinion and will continue to do so, but the Hicks case stands out since it is such a clean case with no continuances or anything that suggests reason for delay other than that the Tax Court is extraordinarily slow in providing parties with an opinion.

Delays sometimes occur if an opinion is precedential since that requires a process of review within the Court.  Delay may occur as the Court does research the pro se taxpayer was unequipped to do.  As discussed below, the Court parses through the facts and the law to find, in part, for the taxpayer based on research by the judge or the judge’s clerks.  Delays could occur because of a heavy trial calendar imposed on a particular judge caught up trying a huge case for weeks or months.  I would have thought the pandemic might have provided the judges with more time to write opinions since it reduced travel and, for a time, reduced trials. 

No matter how I factor it, three years and three months to decide a dependency exemption case after the trial, even one that required three government lawyers against one pro se taxpayer, seems much too long.  I don’t expect an explanation from the Court, but I do expect some type of docket management that moves cases faster than this.  It doesn’t seem fair to cause petitioners to wait almost five years to learn whether they can claim a dependent.


Moving past my rant regarding the timing of the opinion, the case does provide some insight into the rules regarding how to claim a qualified child dependent who lives elsewhere.  In this case the petitioner, Mr. Hicks, is the father of two children and claimed both on this return for 2014.  He starts with an uphill battle for claiming the children because they lived for more than half of 2014 with their mother and grandmother.  IRC 152(c) sets up five tests that a taxpayer must meet in order to claim a dependent and one of those tests involves residence.  It requires that a qualifying child dependent live with the taxpayer for more than half the year.  A taxpayer who fails any of the tests loses the ability to claim the dependent as a qualifying child.

But, an exception to the residence rule exists if the custodial parent grants to the non-custodial parent the right to claim the child.  That exception and the rules governing it become the focus of the case.  Here, the parents had gone to court where:

On June 15, 2006, the Summit County Court of Common Pleas Domestic Relations Division (state court) adopted a “Shared Parenting Plan” that had been signed by petitioner and Oddimissia, which provided, inter alia, that “Mother [Oddimissia] will claim [Child 12] every year and Father [petitioner] will claim [Child 2] every year for tax purposes unless [the] parties reach another agreement in writing.”

The parties later went back to the court and it

entered an order and judgment on October 28, 2009, which adjusted petitioner’s and Oddimissia’s child support obligations and further stated: “Effective tax year 2009, Father [petitioner] shall claim the dependency exemption for both minor children each year.” The October 2009 order and judgment were not signed by Oddimissia or petitioner.

Mr. Hicks timely filed his 2014 return claiming the dependency exemption for both children as provided in the 2009 state court order; however, he did not attach to his return Form 8332 or a written declaration or waiver signed by Oddimissia or a pre-2008 court decree or separation agreement.  Subsequent to filing the return and during the examination process, he did submit to the IRS a copy of the Shared Parenting Plan that Oddimissia signed and the state court adopted in the 2006 order.

Oddimissia did not file in 2014 but her mom did and her mom also claimed both children as dependents, setting up the fight.  The court does not state if the grandmother’s return was also audited.  The IRS has created a race to file the tax return in these situations because only the first person to claim a dependent can file electronically.  My observation, without any empirical evidence, is that it frequently audits the return of the second filer, leaving the return of the first filer alone.  If that’s what happened in this case, the length of the Tax Court case has allowed the statute of limitations to run on the making of any adjustment to the grandmother’s return at this time in the absence of fraud of which there is no indication.

The Court recounts the statutory rules for qualified children and qualified relative dependents before getting to the heart of this case involving separated parents and their ability to claim dependents.  Then it turns to IRC 152(e) which allows the non-custodial parent to claim as a qualified child dependent someone who fails the residency test if two conditions are met:

(1) the custodial parent “signs a written declaration (in such manner and form as the Secretary may by regulations prescribe)” stating that he or she “will not claim such child as a dependent” for the year at issue, and (2) the noncustodial parent “attaches” the written declaration to his or her return for that year. 

To satisfy the written statement requirement Mr. Hicks needed to attach a Form 8332 to his return or a statement providing substantially the same information as required by Treas. Reg. § 1.152-4(e)(1)(ii).  Since he did not attach the Form 8332, he had to hope that one or both of the state court orders could suffice. Generally, the Tax Court has not given much leeway with this requirement because of the language in the regulation.  Treasury Regulation § 1.152-4(e)(5) permits a taxpayer to use a court order or separation agreement entered prior to July 2, 2008; however, a court order entered after that date does not work.  The IRS was trying to get out of the business of interpreting sometimes vague court orders and drive taxpayers to the clear grant of permission provided in Form 8332.

In Mr. Hicks’ case this means that the older court order could work but the more recent one could not because it was entered after July 2, 2008.  So, the court grants him one dependent after analyzing the earlier court order and determining that it meets the requirements of the regulation by providing the needed information.  The court found that the order contained the information required by Form 8332 with the exception of the parties’ social security number.  It found the absence of their SSNs did not invalidate the order as an appropriate written statement.

Next the court dealt with the requirement that Mr. Hicks should have attached the court order to his return.  It finds that for year 2014, this requirement could also be met by providing the order to the IRS during the examination phase.  For years after 2017, taxpayers must attach the Form to their return and could not rely on submitting it subsequently.  Mr. Hicks benefited from the old rules in both the timing of the order and the timing of the regulation, but because the older court order only allowed him one child as a dependent, the court limits him to only one of the two dependents he claimed.

The Court notes that he also receives the Child Tax Credit for the child who was determined to be his dependent.  It’s not clear if he qualifies based on his income, however, if he did qualify from an income perspective, a qualifying child dependent cannot form the basis for claiming the earned income tax credit.  This is one of the quirks of claiming a qualified child dependent by the non-custodial parent.

So, after his long wait, Mr. Hicks gets half a loaf.  The facts in the case don’t show whether he has already received a refund for the larger amount both children would bring and must now pay the IRS the additional tax plus several years of interest or if his refund was frozen by the IRS meaning he will now finally get his money which will include several years of interest.  A delay of this length for a low income taxpayer can place upon them a significant economic burden.

Who is a Qualified Child – District Court Offers a Possible Expansion of the Test

Low income taxpayer clinics deal regularly with the issue of qualifying children because they provide the basis for obtaining refundable credits. This issue plays out regularly in Tax Court but almost never in district court.  In the recent case of Mullins v. IRS, the district court cracks open the door to qualified child status in circumstances not ordinarily allowed albeit through the denial of a summary judgment motion rather than an affirmative victory for the taxpayer.  The facts in the case and the taxpayer’s tortured path through the IRS administrative process offer a glimpse at the challenges facing unrepresented individuals as they try to pursue remedies to which they claim entitlement.  Mr. Mullin’s persistence in the face of significant adversity bought him the victory on the summary judgment motion.  Perhaps he will carry the day if the matter goes to trial but he still faces an uphill climb.


Mr. Mullins, like many individuals in America, lives in a situation not well suited to the tax code. Les wrote about this recently as he described how the Code does not match reality in many family circumstances.  Many of the Code’s credits that benefit families presuppose traditional relationships with a husband and a wife and biological children. Things get messy when, as in this case, the taxpayer is not (or not yet) married but is living with and caring for children with whom he does not share a biological relationship. The non-traditional family circumstances implicates tax procedure because taxpayers in these situations often struggle to document the relationships or the time spent with claimed dependents. Representatives often struggle to explain how someone providing the support for a child or other dependent receives no credit for that support in the tax code as Les addressed in his article.

That is what is at issue in this case. In 2007, the year at issue in the refund suit, Mr. Mullins lived with his fiancée in her house together with her two children by a previous relationship.  He apparently provided almost all of the support for the family and his fiancée had some disabilities preventing her from contributing much financially other than the home.  When he filed his tax return for 2007, Mr. Mullins claimed his fiancée and her children as dependents.  Based on the facts available in the opinion, it appears that all three may qualify as his dependents pursuant to section 152(d) making them qualified relatives.  The problem here primarily concerns his claim of the earned income and child tax credits which require the dependents to meet the tests of qualified children rather than qualified relatives.  The court’s solution to his problem, at least from the perspective of summary judgment, provides a practical solution based on the realities of the family situation but could introduce significant administrability issues for the IRS.

For a blog dedicated to procedure, his travails in the administrative process offer a typical and disheartening picture of the effort to fight for the correctness of the position taken on the return. I take the facts as stated by the Court which seems to take the facts as provided by Mr. Mullins.  The IRS may have more to add on the give and take in this situation.  The process does look similar to that many clinic clients face.  When the IRS questioned his return, he responded and sent the IRS information to support his claimed deduction.  Mr. Mullins had the presence of mind to make note of the IRS employee ID# of the person with whom he communicated.  IRS employees are required to provide their ID# in communications with taxpayers.  They almost always do it at the outset of the conversation if it is a telephone conversation.  Almost no clients coming into my office take note of this identifying information and training students to take note of it can also provide challenges.  The fact that he kept a record of the employee with whom he spoke impressed me as I read this case.

The employee told him to amend his return and change his filing status from head of household to single, claim the dependents and his refund would issue. If the IRS employee told him to change his filing status, something only required if the dependents were section 152(d)(2)(h) dependents, it surprises me that the employee also said the full refund would issue since the employee seemed to have identified the source of the problem from a refundable credit standpoint; however, that was Mr. Mullins’ memory of the conversation as reported by the Court.  Mr. Mullins apparently amended his return to comply with the request of the IRS employee and no refund issued.  It seems possible that Mr. Mullins misunderstood the employee but for purposes of summary judgment, the Court gives Mr. Mullins the benefit of the doubt.  Of course, whether or not the employee said that a refund would issue, the statute and not the employee controls the outcome of the case.

Mr. Mullins continued to try to convince the IRS of the correctness of his return; however, the IRS eventually issued a notice of deficiency and he eventually petitioned the Tax Court. Late.  The dismissal of the Tax Court case allowed the IRS to assess the tax but did not stop Mr. Mullins from trying to convince the IRS of the correctness of his return.  His subsequent year’s refund was offset and appears to have fully satisfied the liability for 2007.  I imagined that in the meantime he married his fiancée allowing him to claim the earned income tax and child tax credits without challenge because her children became his qualified children.  He resent his amended return and the IRS now treated it as a claim for refund and formally issued a notice of claim disallowance.  He filed the complaint in district court which led to this opinion.  His persistence in pursuing the issue pro se into district court, not generally a pro se friendly forum like the Tax Court, not only speaks to his persistence but also to the contextual unfairness of the rule that denies the credits to someone like Mr. Mullins who has taken on quite a financial burden with no apparent assistance from the government.

I have seen a number of low income taxpayers go through a process similar to Mr. Mullins. I have not seen them reach district court nor have the reaction he received from the judge there.  The Court looked at his documents and decided that it was possible that he was the guardian of his fiancée’s children.  He had no court order establishing him as a formal guardian but some of the school records seemed to support the position that he served that role.  The Court knew that he needed something to overcome the hurdle necessary to make the children qualified children under section 152(c).  It found that he might be the childrens’ guardian during 2007 which would make them his foster children.  The broad definition of a guardian under Ohio law coupled with the records suggesting that he served that role allowed the Court to find enough inference of guardianship to deny summary judgment to the IRS.

The Court, however, did not stop there. It next discussed Mr. Mullin’s novel basis for determining that he met the requirements for claiming the children as qualified children.  He argued that since he could claim the mother of the children as his dependent, he should have the ability to claim the children.  Since the IRS did not address this theory, the Court determined it was not yet ripe for a decision.

Winning, or perhaps better put, not losing the summary judgment motion gives Mr. Mullins the chance to keep fighting for his exemptions and his credits.  The IRS seems focused on the credits and not the exemptions.  Succeeding on the merits of the issue will require him to establish something like the guardianship the Court found might exists for purposes of denying summary judgment.  While Mr. Mullins has done well to this point, his case points to the need for counsel to find the facts and arguments necessary to succeed.  If someone in the Dayton area wants some district court experience, I imagine Mr. Mullins would welcome assistance from a pro bono attorney.

Summary Opinions for 11/29/2013

Happy Holidays!  Sorry for the delay in posting, hectic weekend, but what a great weekend.  Thanksgiving, the start of Hanukkah, Keith had his first grandson, and it seemed like every third car had a Christmas tree tied to the top.  Although it was a short week, there was still some excellent procedure news.  Let’s start with a few Thanksgiving related items.


  • I found this estimate of the amount of taxes paid on the average Thanksgiving dinner on Accounting Today.  The Tax Foundation has a summary of travel taxes and tolls (road taxes) for travel along the northeast found here.  I’m not sure how accurate either are, but interesting posts about Thanksgiving and taxes.
  • Jack Townsend’s Tax Procedure Blog has a summary of Eichelburg v. Comm’r, where the taxpayer’s claim was tossed for failing to timely file under the timely mailing is timely filing rule in Section 7502.  His sin—thriftiness (and not following the rules).  He went for the FedEx Express Saver, which is not an enumerated acceptable private delivery service under Notice 2004-83.
  • From the Freakanomics blog, a podcast regarding fighting poverty. This post has to do with charity, but I think the concepts apply to the reallocation of assets (EITC) under the Code and the incentives that could raise a family up the socioeconomic ladder (student loan interest deduction, mortgage interest deduction).  Oversimplifying the post, cash infusions are great at doing certain things like eliminating a current need, but not very good at assisting a family in moving out of poverty.  Although this is not a stunning revelation, the stories and examples are very interesting, and made me wonder if we had good evidence behind a lot of the incentives and deterrents under the code.  More behavioral economics.  Perhaps we should change this to a behavioral economics blog.
  • MauledAgain has a discussion of the Tax Court’s holding in Jibril v. Comm’r, where the Court disallowed dependency exemptions for a taxpayer’s cousins.  The Court held that cousins did not fall within “qualifying children” under Section 152(c)(2) or “qualifying relatives” under Section 152(d)(2).  Although this is not a novel holding, the last paragraph of Jim Maule’s post highlights the Court’s comments regarding the “sympathetic” taxpayer, and outlines some suggestions  from Professor Maule on how to eliminate the harsh application of the statue when family members are supporting family members not specifically outlined in the statute.
  • Messrs. Lipton, Richardson, and Jenner, attorneys at Baker & McKenzie, have written an article published at 119 Journal of Taxation 267 (December 2013), about the Tax Court holding in Barnes Group, Inc. v. Comm’r, concluding that the Tax Court wrongly applied the step transaction doctrine and discussing the imposition of penalties even though the taxpayer had a “substantial authority” opinion from PWC.  The Baker attorneys disagree with the collapsing of the transaction under step-transaction, arguing that the transaction was very similar to a Rev. Rul. previously issued, and the differences were minor technicalities. What caught my eye was the discussion regarding the imposition of penalties even though PWC had issued a substantial authority opinion.  Initially, I thought this was going to be more like the Canal Corp case, where the Court found the messy, aggressive opinion by PWC was not reasonable to rely upon.  However, upon reviewing Barnes, the holding regarding the penalty was that Barnes failed to follow PWC’s advice when it did not comply with the “mere technicalities”, and waived its right to rely on PWC’s opinion.  The Baker attorneys felt reasonable cause should be available, since the taxpayer relied on a competent advisor and that this opinion created substantial issues regarding advisor reliance.  I, personally, thought the step-transaction doctrine was the key, and the case did not tread any new ground on advisor reliance.
  • The Tax Court, in Meyer v. Comm’r, remanded a case back to Appeals for review after the SO failed to properly verify that statutory notice had been issued after the IRS issued a substitute for return.  The case has a good discussion of the IRS procedures in this area, including how an SFR relates to a stat notice and how Appeals is supposed to verify that the IRS issued a stat notice when the taxpayer claims to have not received it.  In light of Appeals not having adequately verified the stat notice’s issuance, there was also a discussion regarding whether the Court should remand or simply hold for the taxpayer. In this case, the Tax Court remanded, though it suggested that in the future, it may toss not remand and find for the taxpayer, and invalidate the assessment. If time permits, we may have more on this case later in the week or next week.
  • Chief Counsel has issued advice, found here, regarding whether the Service must apply restitution payments required because of corporate income tax to the income tax, or whether it may be applied to other unpaid liabilities.  Counsel determined that the Service can apply the payments as involuntary payments, in the Service’s best interests.  Counsel relied on US v. Pepperman, out of the Third Circuit, which held that involuntary payments are defined as “any payment received by…the United States as a result of distrait or levy or from a legal proceeding in which the Government is seeking to collect its delinquent taxes or file a claim therefor.”  Counsel determined that restitution only comes from court orders or settlements, and therefore was an involuntary payment.  I would be surprised if there was not some argument to the contrary. This notice relates to restitution that arose prior to the effective date of Section 6201(a)(4), which allows IRS to assess certain orders of restitution.  Either way, practitioners should be cognizant of this issue. Saltzman and Book Chapter 10 (revised and coming out next month) has a thorough discussion on the new restitution provisions, and I suspect a post on this coming up soon.
  • Last week we touched on Notices 2013-78 and 2013-79, which contained draft procedures for seeking competent authority assistance and advance pricing agreements.  KPMG provides a small summary of some of the changes in the new notices. I will either try to provide more information regarding these notices in the coming days and weeks, or find other good summaries, as the changes are substantial and important.