Litton v. Comm'r

ARMEN, Special Trial Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time that the petition was filed. ¹ The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

Respondent determined a deficiency in petitioner's Federal income tax for the taxable year 2003 in the amount of $ 2,117.

The issues for decision are:

(1) Whether petitioner is entitled to dependency exemption deductions for her son and daughter. We hold that she is.

(2) Whether petitioner is entitled to the child tax credit in*141 respect of her children. We hold that she is.

Background

Some of the facts have been stipulated, and they are so found. We incorporate by reference the parties' stipulation of facts and accompanying exhibits.

At the time that the petition was filed, petitioner resided in Leander, Texas.

Petitioner and Gregory Lee Litton (Mr. Litton) were married in 1986. The couple have two children, a son, who was born in 1992, and a daughter, who was born in 1995.

In March 1997, petitioner and Mr. Litton were divorced pursuant to a decree entered by the district court of Williamson County, Texas. The divorce decree listed Mr. Litton's residence as the "present address" of each of the parties' children. The divorce decree made no provision with respect to dependency exemption deductions for the children.

The divorce decree named petitioner and Mr. Litton as "Joint Managing Conservators" of the parties' children, but it provided that Mr. Litton "shall have the exclusive right to determine the residence and domicile of the children." The divorce decree also provided that Mr. Litton "shall have possession of the children at all times not specifically awarded in this decree to NORMA KAY CASEY LITTON*142 [petitioner], or otherwise mutually agreed by the parties."

In a Standard Possession Order, which was incorporated in the divorce decree, the district court set forth detailed guidelines regarding "possession" of the children. In particular, the Standard Possession Order provided that petitioner "shall have possession of the child at any and all times mutually agreed to in advance by the parties, and, failing mutual agreement," shall have the right to possession of the children, in pertinent part, as follows: ²

Weekends. On weekends, beginning at 6:00 P.M. on the first, third, and fifth Friday of each month and ending at 6:00 P.M. on the following Sunday.

Weekend Possession Extended by a School Holiday. Except as otherwise explicitly provided in this Standard Possession Order, if a weekend period of possession by Joint Managing Conservator, NORMA KAY CASEY LITTON, begins on a Friday that is a school holiday during the regular school term or a federal, state, or local holiday during the summer months when school is not in session, or if the period ends on or is immediately followed by a Monday that is such a holiday, that weekend period of possession shall begin at*143 6:00 P.M. on the Thursday immediately preceding the Friday school holiday or end at 6:00 P.M. on that Monday holiday or school holiday, as applicable.

Tuesday and Thursday. On Tuesday and Thursday of each week during the regular school term, beginning at 6:00 P.M., and ending at 8:00 A.M. the following morning.

Generally speaking, petitioner*144 and Mr. Litton faithfully observed the terms of the Standard Possession Order during 2003. Petitioner and Mr. Litton, however, each strove to accommodate the other's reasonable requests, and they often deviated from the terms of that order upon their mutual agreement. More specifically, the parties frequently agreed to allow the children to spend Sunday night at petitioner's home for such weekends that petitioner had custody of the children. ³

*145 The Standard Possession Order was in effect during the 2003 calendar year. Petitioner and Mr. Litton together provided more than half of the support for the children in 2003, and the children were in the custody of both parents for more than half of the year.

Petitioner timely filed a Federal income tax return (Form 1040) for 2003. On her return, petitioner claimed dependency exemption deductions for her two children and the child tax credit.

In the notice of deficiency, respondent disallowed the dependency exemption deductions "since another taxpayer has also claimed this dependent on their tax return." ⁴ Respondent also disallowed the child tax credit on the ground that petitioner was not entitled to claim the children as dependents.

Discussion ⁵

In general, a taxpayer may deduct an exemption for a dependent, such as a taxpayer's child, over half of whose support is provided by the taxpayer. Secs. 151(a), (c)(1), 152(a). An individual cannot be a dependent of more than one taxpayer. See sec. 151(d)(2).

In the case of a child of divorced parents, if a child receives over half of his support during the year from both his parents and is in custody of one or both parents for more than half of the year, then the child shall be treated as receiving over half of his support during the year from the parent having custody for a greater portion of the year. ⁶Sec. 152(e)(1). That parent is referred to as the "custodial parent". Id. In the event of so-called split or joint custody, "'custody' will be 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.

*147 Petitioner contends that she is the custodial parent because the children were in her custody for more than half of the year. In contrast, respondent contends that Mr. Litton is the custodial parent because the children were in his custody for more than half of the year. The resolution of this issue therefore turns on whether petitioner had physical custody of the children for the greater portion of 2003. See McCullar v. Commissioner, T.C. Memo. 2003-272; sec. 1.152-4(b), Income Tax Regs.

In support of her contention, petitioner relies on her day-planner that was introduced into evidence. In the day-planner, petitioner placed a "K" (for "kids") on each day that she had custody of the children and then numbered each such mark sequentially. The day-planner contained 195 "K" marks. ⁷ Petitioner therefore asserts that she had physical custody of the children for 195 days in 2003, which is more than half of the year.

*148 At the center of this dispute is how petitioner and Mr. Litton quantified the time that the children spent with petitioner. In particular, how the parties quantified the Sunday of the first, third, and fifth weekend. Petitioner quantified physical custody in terms of "days" that the children were in her physical custody; that is, Tuesday, Thursday, and the first, third, and fifth Friday, Saturday, and Sunday weekend. Although petitioner and Mr. Litton dispute whether the children spent the respective Sunday night at her home, petitioner counted Sunday as a full day that the children were in her physical custody. Therefore, according to petitioner, the children spent 195 days in her physical custody.

There is no statutory yardstick to quantify physical custody "for a greater portion" of the year, but such a yardstick is determined by the facts of each individual case. In the present case, the Standard Possession Order awarded petitioner physical custody during the regular school term every Tuesday and Thursday beginning at 6 p.m. and ending at 8 a.m. the following morning. With respect to the weekends, the Standard Possession Order awarded petitioner custody beginning at 6 p.m. on*149 the first, third, and fifth Friday of each month and ending at 6 p.m. on the following Sunday. If Monday was a school holiday, petitioner's custody would end at 6 p.m. on that Monday. In light of the fact that the Standard Possession Order awarded physical custody to each parent on the basis of an overnight stay, we find it appropriate in this case to quantify physical custody on the number of nights that the children spent with each parent.

We found petitioner's testimony at trial to be straightforward and credible, and she impressed us as a sincere and conscientious taxpayer. Moreover, we found that petitioner diligently documented the time that she had physical custody of the children in her day-planner, which she maintained on an accurately contemporaneous basis. Petitioner testified with specificity as to the time that the children spent with her, and Mr. Litton acknowledged that he and petitioner often mutually agreed to deviate from the beginning and ending times set forth in the Standard Possession Order.

Petitioner and Mr. Litton do not dispute that the children spent the night at petitioner's home on Tuesdays, Thursdays, and the respective Fridays and Saturdays, as well*150 as on other days mutually agreed upon between the parties. ⁸ With respect to the designated Sundays, the Standard Possession Order awarded petitioner physical custody of the children until 6 p.m. It follows therefrom that the children would have spent the night at Mr. Litton's home on Sunday unless the parties mutually agreed that the children would spent the night at petitioner's home. Indeed, it is apparent from the record that the parties frequently agreed to allow the children to spend Sunday night with petitioner when she had custody of them during the weekend.

Petitioner asserts that the children spent the night at her home for most, or for more than half, of the Sundays that she had physical custody of them for the weekend. Mr. Litton acknowledged that the children spent the night at petitioner's home on Sunday for at least one-third of the time that she had physical custody of*151 them for the weekend. Furthermore, Mr. Litton testified that during the summer and other breaks when the children did not have school on Monday, the children frequently spent Sunday night with petitioner.

The record establishes that the children spent 167 non-Sunday nights with petitioner and sufficiently more than half of the 28 Sunday nights for such weekends that petitioner had physical custody of them to constitute more than half of the 365 nights of the year. On balance, and in light of the facts and circumstances of this case, we conclude that the children spent more than 50 percent of the time with petitioner. Therefore, we hold under section 152(e)(1) that petitioner had physical custody of the children for the greater portion of 2003. Accordingly, petitioner is entitled to dependency exemption deductions for her son and daughter in the taxable year 2003. ⁹ Respondent's determination on this issue is not sustained.

Section 24(a) provides that a taxpayer may claim a credit for "each qualifying child". A qualifying child is defined, inter alia, as any individual if "the taxpayer is allowed a deduction under section 151 with respect to such individual for the taxable year". Sec. 24(c)(1)(A). For the reasons stated above, petitioner may claim dependency exemption deductions for her son and daughter under section 151, and, therefore, she may claim a child tax credit. Respondent's determination on this issue is not sustained.

Reviewed and adopted as the report of the Small Tax Case Division.

To reflect the foregoing,

Decision will be entered for petitioner.