Richard Alan Saunders & Shelia Candy Saunders v. Commissioner
2019 T.C. Summary Opinion 29
| Tax Ct. | 2019Background
- Petitioners Richard and Shelia Saunders lived in Georgia with Shelia’s father, Richard worked for USPS, Shelia worked at MedTech College, and they ran a ministry.
- In 2012 the Saunders housed and provided most support for three young children of Lykeithia Thomas; the children slept at the Saunders’ home, were fed/clothed by them, and the Saunders handled most transportation and incidentals.
- Shelia’s father, Mr. Steed, lived with them in a separate bedroom/bathroom, received $733/month in SSI in 2012, and required medical transport and care from the Saunders.
- At Ms. Thomas’s request (and with documents including Social Security numbers), the Saunders listed the three children as dependents and claimed $3,000 in child tax credits on their 2012 return; they also claimed Mr. Steed as a dependent.
- The Commissioner disallowed the claimed credits and exemptions, asserting the children did not meet qualifying-relationship rules and Mr. Steed’s income exceeded the exemption threshold; the Saunders paid Ms. Thomas $3,300 in 2013 and the children left.
Issues
| Issue | Saunders' Argument | Commissioner’s Argument | Held |
|---|---|---|---|
| Entitlement to child tax credits for three children | Had custody, provided principal support and residence, had mother’s permission to claim credits | Children do not bear a qualifying relationship to Saunders under sec. 152(c) | Denied — children not qualifying children; child tax credits disallowed |
| Entitlement to dependency exemption deductions for three children and for Mr. Steed | Provided more than half support for children; provided support/care for Mr. Steed | Children: no proof mother released claim and relationship rule not met; Mr. Steed: his SSI exceeded exemption gross-income limit | Denied — children not established as qualifying relatives (no proof others didn’t claim); Mr. Steed disqualified by income exceeding exemption amount |
| Liability for accuracy-related penalty (sec. 6662) | Reasonable cause and good faith reliance on tax preparer and belief they were entitled to claims | Underpayment due to negligence or disregard of rules | Saunders prevailed on penalty — reasonable cause and good faith (reliance on preparer, credible belief) |
Key Cases Cited
- Welch v. Helvering, 290 U.S. 111 (1933) (taxpayer bears burden to prove entitlement to deductions)
- Higbee v. Commissioner, 116 T.C. 438 (2001) (Commissioner’s burden of production for accuracy-related penalty)
- Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43 (2000) (reasonable-cause and good-faith reliance on advice may avoid penalty)
- Neonatology Assocs., P.A. v. Commissioner, 229 F.3d 221 (3d Cir. 2002) (affirming Tax Court on reasonable-cause/good-faith principles)