text:                                T.C. Memo. 2016-200
  
  
  
                           UNITED STATES TAX COURT
  
  
  
                     YOSEF A. TSEHAY, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent
  
  
  
        Docket No. 12761-15.                          Filed November 3, 2016.
  
  
  
        Yosef A. Tsehay, pro se.
  
        Dean H. Wakayama and Kristin H. Joe, for respondent.
  
  
  
              MEMORANDUM FINDINGS OF FACT AND OPINION
  
  
        KERRIGAN, Judge: Respondent determined a deficiency of $9,814 and a
  
  penalty of $1,963 under section 6662(a) with respect to petitioner’s Federal
  
  income tax for tax year 2013. Unless otherwise indicated, all section references
  
  are to the Internal Revenue Code in effect for the year at issue, and all Rule
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  [*2] references are to the Tax Court Rules of Practice and Procedure. We round
  
  all monetary amounts to the nearest dollar.
  
        The issues for consideration are whether for tax year 2013 petitioner is: (1)
  
  entitled to dependency exemption deductions, an earned income tax credit, child
  
  tax credits, and head of household filing status and (2) liable for a penalty under
  
  section 6662(a).
  
                                 FINDINGS OF FACT
  
        Some of the facts have been stipulated and are so found. The stipulation of
  
  facts and the exhibits received into evidence are incorporated herein by this
  
  reference. Petitioner resided in Washington when he timely filed his petition.
  
        English is not petitioner’s first language, and during the tax year at issue he
  
  was employed as a custodian at a community college. Petitioner and his wife--
  
  who is not a party to this proceeding--were married in 2001. Their relationship
  
  was “on-again, off-again”. Petitioner credibly testified that during 2013 he and his
  
  wife were married and living together with their five children in a public housing
  
  apartment. At some point in 2014 petitioner and his wife were again separated,
  
  and at least at the time of trial they were undergoing divorce proceedings. The
  
  State of Washington’s Office of Administrative Hearings, DSHS Division of Child
  
  Support (child support) granted petitioner’s petition for a modification of prior
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  [*3] child support. The child support order was effective August 1, 2015.
  
  Although petitioner’s wife was responsible for paying the rent on the public
  
  housing unit, petitioner paid for food and other expenses of his family during
  
  2013.
  
          Petitioner electronically filed a timely Form 1040A, U.S. Individual Income
  
  Tax Return, for tax year 2013. It is unclear from the record why petitioner’s paid
  
  return preparer listed differing numbers of children for the various claimed credits
  
  when petitioner has five children. That said, on his Form 1040A, petitioner
  
  claimed: (1) dependency exemption deductions for four children; (2) the earned
  
  income tax credit for three children; (3) the child tax credit for four children; and
  
  (4) head of household filing status. As explained in the parties’ stipulation of
  
  facts, petitioner did not attach a Form 8332, Release/Revocation of Release of
  
  Claim to Exemption for Child by Custodial Parent, or a statement conforming to
  
  the substance of a Form 8332, to his Form 1040A for tax year 2013.
  
          On February 9, 2015, respondent sent petitioner a notice of deficiency that
  
  disallowed the claimed dependency exemption deductions, earned income tax
  
  credit, and child tax credit for 2013. The notice also changed petitioner’s filing
  
  status from head of household to single and determined an accuracy-related
  
  penalty under section 6662(a).
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  [*4]                                  OPINION
  
         The Commissioner’s determinations in a notice of deficiency are generally
  
  presumed correct, and the taxpayer bears the burden of proving that the
  
  determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
  
  (1933). Deductions and credits are a matter of legislative grace, and the taxpayer
  
  bears the burden of proving that he is entitled to any deduction or credit claimed.
  
  New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Likewise, the
  
  taxpayer is obliged to demonstrate entitlement to an advantageous filing status,
  
  such as head of household. See, e.g., Smith v. Commissioner, T.C. Memo.
  
  2008-229.
  
         Although the record in this case is meager, we found petitioner to be a
  
  credible witness. See Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (stating that
  
  the process of distilling truth from the testimony of witnesses, whose demeanor we
  
  observe and whose credibility we evaluate, is the daily grist of judicial life).
  
  Petitioner testified that although he and his wife had previously been separated
  
  and he had at times been ordered to pay child support, for 2013 he was married
  
  and living in public housing with his wife and their children.
  
         The determinations in the notice of deficiency stemmed from respondent’s
  
  records showing that petitioner was not the custodial parent of his minor children
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  [*5] and from petitioner’s failure to attach a copy of Form 8332 or its equivalent
  
  to his return. See sec. 152(e)(2). Respondent provided a copy of a child support
  
  order to establish that petitioner was in fact a “noncustodial parent”. However, the
  
  child support order was entered August 3, 2015. It does not contradict petitioner’s
  
  testimony. Further, the child support order was not effective until August 1, 2015.
  
        Petitioner sufficiently met his burden of establishing that he and his wife
  
  were married during 2013, and any special requirement of a Form 8332 under
  
  section 152(e)(2) is inapplicable.
  
  I.    Dependency Exemption Deductions
  
        The Internal Revenue Code allows as a deduction in computing taxable
  
  income an exemption for each dependent of a taxpayer. See sec. 151(c). As
  
  relevant here, an individual must be a “qualifying child” of the taxpayer to be a
  
  dependent. Sec. 152(a). The issue in this case is whether the children claimed on
  
  petitioner’s return as dependents had the same principal place of abode as
  
  petitioner for more than one-half of the taxable year--a requirement for being a
  
  “qualifying child”. See sec. 152(c)(1). It appears from this limited record that
  
  they did and that petitioner is entitled to the dependency exemption deductions
  
  claimed on his 2013 Federal income tax return.
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  [*6] II.     Earned Income Credit
  
         Section 32(a)(1) provides an eligible individual with an earned income
  
  credit against the individual’s income tax liability, subject to a phaseout explained
  
  in section 32(a)(2). The amount of the credit to which an eligible individual is
  
  entitled increases if the individual has a qualifying child. Sec. 32(b), (c)(3).
  
  Because he had “three or more” qualifying children for tax year 2013, petitioner is
  
  entitled to the earned income credit. Sec. 32(b).
  
  III.   Child Tax Credit and Additional Child Tax Credit
  
         Section 24(a) allows a taxpayer a $1,000 credit against income tax with
  
  respect to each qualifying child. Section 24(d) makes a portion of that credit--
  
  commonly referred to as the additional child tax credit--refundable. For purposes
  
  of section 24, a “qualifying child” is a qualifying child of the taxpayer, as defined
  
  in section 152(c), who has not yet reached the age of 17. Sec. 24(c). Petitioner is
  
  entitled to the child tax credits and the additional child tax credits claimed.
  
  IV.    Head of Household
  
         Petitioner explained at trial that because he and his wife had separated by
  
  the time he was ready to file his 2013 tax return, he had asked his preparer to file
  
  for him as “married filing separately”. It appears that the preparer erroneously
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  [*7] filed at least petitioner’s return as “head of household”; petitioner’s wife’s
  
  return for 2013 is not part of the record before us.
  
        Section 1(b) provides a special tax rate for an individual who qualifies as a
  
  head of household. Section 2(b) defines a head of household as an individual
  
  taxpayer who, among other things, is “not married at the close of his taxable year
  
  and is not a surviving spouse”. Petitioner was married for 2013, and therefore he
  
  cannot qualify for head of household filing status. Since petitioner was married,
  
  he was not eligible to file as single as determined by respondent in the notice of
  
  deficiency. See sec. 1(c). Petitioner’s correct filing status for 2013 is married
  
  filing separately. See sec. 1(d).
  
  V.    Section 6662(a) Penalty
  
        Respondent determined that petitioner is liable for an accuracy-related
  
  penalty pursuant to section 6662(a) for tax year 2013. We held above that
  
  petitioner is entitled to his claimed dependency exemption deductions, earned
  
  income tax credit, and child tax credits. We held that petitioner was not entitled to
  
  file as head of household. Our discussion of the penalty will be in reference only
  
  to any underpayment of tax that results from petitioner’s having incorrectly filed
  
  with a claimed status of head of household.
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  [*8] Section 6662(a) imposes a 20% penalty on any underpayment attributable
  
  to, among other things, negligence or disregard of rules or regulations within the
  
  meaning of subsection (b)(1), or any substantial understatement of income tax
  
  within the meaning of subsection (b)(2). Only one accuracy-related penalty may
  
  be applied with respect to any given portion of an underpayment, even if that
  
  portion is subject to the penalty on more than one of the grounds set out in
  
  subsection (b). Sec. 1.6662-2(c), Income Tax Regs.
  
        The Commissioner bears the burden of production regarding the taxpayer’s
  
  liability for any penalty. Sec. 7491(c); see also Higbee v. Commissioner, 116 T.C.
  
  438, 446-447 (2001). Respondent can meet the burden of production by showing
  
  that petitioner was negligent. Negligence includes any failure to make a
  
  reasonable attempt to comply with the provisions of the internal revenue laws, to
  
  exercise due care, or to do what a reasonable and prudent person would do under
  
  the circumstances. Sec. 6662(c); Neely v. Commissioner, 85 T.C. 934, 947
  
  (1985); sec. 1.6662-3(b)(1), Income Tax Regs. Negligence is strongly indicated
  
  where a taxpayer fails to make a reasonable attempt to ascertain the correctness of
  
  a deduction, credit, or exclusion on a return that would seem to a reasonable and
  
  prudent person to be “too good to be true” under the circumstances. Sec. 1.6662-
  
  3(b)(1)(ii), Income Tax Regs.
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  [*9] An understatement of income tax is substantial if the understatement
  
  exceeds the greater of 10% of the tax required to be shown on the return or
  
  $5,000. Sec. 6662(d)(1)(A). Rule 155 computations will determine whether
  
  petitioner has a substantial understatement of income tax. If these computations
  
  establish a substantial understatement of income tax, respondent has met his
  
  burden of production. See Olagunju v. Commissioner, T.C. Memo. 2012-119.
  
  Once the Commissioner has met his burden, the taxpayer must provide persuasive
  
  evidence that the Commissioner’s determination was incorrect. See Rule 142(a);
  
  Higbee v. Commissioner, 116 T.C. at 447.
  
        The accuracy-related penalty does not apply with respect to any portion of
  
  an underpayment for which it is shown that the taxpayer had reasonable cause and
  
  acted in good faith. Sec. 6664(c)(1). Reasonable cause and good faith are
  
  determined on a case-by-case basis, taking into account all pertinent facts and
  
  circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. On these particular facts,
  
  petitioner’s reliance on his return preparer was reasonable. See Neonatology
  
  Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d (3d Cir.
  
  2002). Among other things, petitioner had a language barrier, sought and relied
  
  on professional advice, and was separated from his wife when he actually filed his
  
  return. Under these circumstances, we find that petitioner had reasonable cause
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  [*10] and acted in good faith. The penalty does not apply to any portion of the
  
  underpayment.
  
        Any contentions we have not addressed are irrelevant, moot, or meritless.
  
        To reflect the foregoing,
  
  
                                                 Decision will be entered under
  
                                        Rule 155.
  