Sometimes a grandfather knows best, even when the disagreement involves the Internal Revenue Service.

In a case decided earlier this month in Tax Court, a taxpayer, James Roberts, claimed dependency head of household filing status on his 2012 return, along with the Earned Income Tax Credit, the child tax credit and dependency exemptions based on his relationship to his three grandchildren.

The IRS contested the filing status, the EITC, the child tax credit and the exemptions, and assessed an accuracy-related penalty. At trial, the IRS conceded the accuracy-related penalty.

During January 2012, Roberts’ daughter and her two children became homeless. A third child was born that March. In order to help his daughter and her children, Roberts entered into an agreement with Tammy Moody whereby he and his three grandchildren would reside with Ms. Moody at her apartment.

The agreement stated in part: “This is an agreement between Tammy Moody and [James Roberts]. [James Roberts] agrees to pay 75 percent rent and utilities and bear full cost of meals, etc.”
Both Roberts and Ms. Moody signed and dated the agreement.

Roberts and his two grandchildren moved into the apartment in January 2012, joined by the third grandchild in March. Roberts complied with the agreement to provide rent, utilities and meals. They lived in the apartment until October 2012. During the time they were there, Roberts’ daughter also lived in the apartment and provided nonmonetary care for the three children. Ms. Moody also provided care for the children when Roberts and his daughter were not at the apartment, with Roberts reimbursing Ms. Moody for any expenses she incurred in caring for the children.

The Tax Court, in T.C. Summary Opinion 2014-88, found that Roberts qualified for the deductions, credits, and filing status.

The IRS conceded that Roberts’ grandchildren met both the relationship test and the age requirement for the dependency exemption, but contested the “same principal place of abode as the taxpayer for more than one-half of such taxable year” requirement. Based on its findings of fact, the court found that Roberts established this requirement.

Likewise, the court found that the grandchildren did not provide over one-half of their own support for the 2012 tax year, and therefore they constituted qualifying children for the year. Therefore, Roberts was entitled to the dependency exemptions for his three grandchildren for 2012. The same requirement under Section 152(c) of the Tax Code qualified the children for Roberts to take the EITC and child tax credit.

To qualify for head of household, which provides a special tax rate, the taxpayer must have maintained as his or her home a household that was the principal place of abode for at least one dependent for more than one-half of the taxable year. The Tax Court found that Roberts satisfied this requirement because he maintained a household and the three grandchildren were his dependents for 2012. Thus, he was entitled to head of household filing status in calculating his tax liability for 2012.

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