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Husband's Joint Tax Return Negated by Wife's Subsequently Filed Separate Return.
(Parker Tax Publishing June 3, 2014)

The Tax Court held that a taxpayer was not entitled to the filing status of married filing jointly where, after he had filed a joint return but before the return's due date, his wife filed a separate return. Accordingly, the court found he was not entitled to dependency exemption deductions for his two children, the child tax credit, the additional child tax credit, or the earned income credit. Bruce v. Comm'r, T.C. Summary 2014-46 (5/12/14).

Jason Bruce and his former wife, Jazsmine, were married in 2008, and they had a son who was born in 2008. Jazsmine also had a daughter from a previous relationship. Jason had worked as a technician on an aircraft carrier in the U.S. Navy since 1997, and he was deployed on sea duty intermittently throughout 2010. His family lived in Navy housing in 2009. Jason, Jazsmine, and the children moved into Jazsmine's mother's house in January 2010. During 2010 Jason, Jazsmine, and the children mostly lived at Jazsmine's mother's house, but also spent time at Jason's mother's house. In March 2010, Jason initiated divorce proceedings. Jason continued to live with Jazsmine and the children at his mother-in-law's house at least until December 2010 when he moved out.

Jason and Jazsmine had filed a 2009 joint federal income tax return after their first year of marriage, claiming dependency exemption deductions for the two children and the child tax credit, the additional child tax credit, and the earned income credit. In January 2011, Jason electronically filed a 2010 return, claiming the status of married filing jointly. The return showed an overpayment of $4,581. In February 2011, Jason informed Jazsmine that he had filed a joint tax return for 2010 and that he intended to share the refund with her. Jazsmine did not object to the joint filing but indicated that she would consult her mother's friend who "does taxes" to claim deductions for certain school expenses. Jazsmine also provided her bank information to Jason after he mentioned sharing the refund. Also in February 2011, the Bruces' divorce was finalized. In March 2011, unbeknownst to Jason, Jazsmine filed a 2010 federal income tax return, claiming head of household filing status. She also claimed the two minor children as dependents.

In a deficiency notice dated July 11, 2012, the IRS determined that Jason was not entitled to the filing status of married filing jointly and adjusted his filing status to married filing separately. The IRS also disallowed his claimed dependency exemption deductions, the child tax credit, the additional child tax credit, and the earned income credit and imposed the accuracy-related penalty under Code Sec. 6662(a).

Code Sec. 6013(a) allows spouses to file a joint return. The married filing jointly status does not apply to a federal income tax return unless both spouses intend to make a joint return. However, the failure of one spouse to sign the return does not negate the intent of filing a joint return by the non-signing spouse. Where spouses file a joint return with respect to a tax year, neither spouse may thereafter elect married filing separately status for that tax year if the time for filing the tax return of either spouse has expired.

Code Sec. 151(c) allows an exemption deduction for each dependent claimed by a taxpayer. Code Sec. 152(a) defines dependent as a "qualifying child" or a "qualifying relative." Furthermore, under Code Sec. 152(c)(1), a qualifying child is as an individual: (1) who bears a designated relationship to the taxpayer; (2) who shares the same principal place of abode as the taxpayer; (3) who meets specific age requirements; (4) who has not provided over one-half of his or her own support; and (5) who has not filed a joint return. Generally, the residency test is satisfied if the individual has the same principal place of abode as the taxpayer for more than one-half of the tax year for which the dependency exemption deduction is claimed. Temporary absences due to special circumstances, such as military service, are not treated as absences for purposes of determining the residency requirement.

Where a child meets the qualifying test for more than one taxpayer, special tiebreaker rules come into play. The applicable rule for this case states that if an individual may be claimed as a qualifying child by one or both parents and they do not file a joint return, the child is treated as the qualifying child of the parent with whom the child lived for the longer period during the tax year. Code Sec. 152(c)(4)(B). Additionally, if the child lived with both parents for the same amount of time, the child is treated as the qualifying child of the parent with the higher AGI.

The Tax Court upheld the IRS's adjustment of Jason's filing status to married filing separately. According to the Tax Court, even if Jazsmine had tacitly agreed to filing a joint 2010 return, it was undisputed that she subsequently filed a separate tax return before the time for either spouse to file a return had expired. Since Jazsmine had timely filed a separate return in March 2011, Jason was not entitled to the filing status of married filing jointly for 2010.

The Tax Court then held that Jason was not entitled to the dependency exemption deductions for the children for 2010. While the court found that the children lived most of 2010 with both parents and thus meet the qualifying child test for both Jason and Jazsmine, it concluded that the children lived with Jazsmine for a slightly longer period during 2010. Thus, under the tiebreaker rules, the children were treated as Jazsmine's qualifying children for 2010. The court also concluded that, because Jason was not entitled to dependency exemption deductions with respect to the children for 2010, he was not entitled to the child tax credit or the additional child tax credit for each child for the 2010 tax year. Nor, the court said, was he entitled to the earned income credit for 2010.

With respect to the accuracy-related penalty, the Tax Court found that Jason credibly testified that he believed Jazsmine did not have her own income in 2010 and that it was reasonable for him to believe that a joint filing would be beneficial to the couple. Therefore, the court held that he was not liable for the accuracy-related penalty.

For a discussion of joint filing status, see Parker Tax ¶10,530. (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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