This article delves into the Tax Court’s decision in Correll v. Commissioner, T.C. Memo. 2025-31, providing a technical analysis relevant for tax practitioners. The case highlights the crucial requirements for claiming a child as a dependent and the subsequent eligibility for the child tax credit, particularly in situations involving separated or divorced parents.

Facts of the Case

In Correll, the petitioner, Melissa Correll, was the noncustodial mother of three children. The case centered on her claim of dependency and the child tax credit for her middle child, J.M.A. (referred to as Child No. 2 by the court), for the 2021 tax year. Child No. 2, who was 16 during 2021, resided full-time with his father in Georgia, while Ms. Correll lived in Florida.

Ms. Correll and her ex-husband had a history of agreements regarding the dependency claims for their two older children. An initial settlement agreement allowed Ms. Correll to claim Child No. 2, and the father to claim the eldest child, M.G.A. (Child No. 1). This agreement was revised in 2015, reversing the arrangement, with the father entitled to claim Child No. 2 and Ms. Correll entitled to claim Child No. 1. Despite the revised agreement and the children residing with their father, their past practice had been to adhere to the original agreement. For the 2021 tax year, both parents claimed Child No. 2 as a dependent. Unbeknownst to Ms. Correll, her ex-husband claimed Child No. 2 because Child No. 1 was no longer a minor.

Taxpayer’s Claim for Relief

On her 2021 federal income tax return, Ms. Correll claimed Child No. 2 as a dependent and sought the associated child tax credit.

Court’s Analysis of the Law

The Tax Court’s analysis began by reiterating fundamental principles of tax law. The court emphasized that the Commissioner’s determinations in a Notice of Deficiency are presumed correct, and the taxpayer bears the burden of proving that the determinations are erroneous, citing Welch v. Helvering, 290 U.S. 111, 115 (1933) and Tax Court Rule 142(a). Furthermore, the court stated the well-established principle that deductions and credits are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to any claimed deduction or credit, citing INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992) and New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934), and Rule 142(a).

Regarding the dependency exemption, the court referred to section 151(a) and (c) of the Internal Revenue Code (IRC), which allow a deduction for "each individual who is a dependent (as defined in section 152) of the taxpayer for the taxable year". Section 152(a)(1) defines a dependent to include a "qualifying child". The definition of a "qualifying child" under IRC § 152(c)(1)(B) includes the requirement that the child must have "the same principal place of abode as the taxpayer for more than one-half of [the taxable] year". The court noted that Child No. 2 did not meet this requirement as he lived with his father for the entire year.

The court also addressed the tie-breaker rules in IRC § 152(c)(4)(B), which apply when parents filing separate returns both claim the same child. The primary tie-breaker rule dictates that the child is treated as the qualifying child of the parent with whom the child resided longer during the taxable year, citing IRC § 152(c)(4)(B)(i). However, the court determined that these rules were not applicable in this case because there was no dispute that Child No. 2 resided with his father for the entire year.

The court then considered the exception for noncustodial parents in IRC § 152(e). This section allows a noncustodial parent to claim a child as a dependent if (1) the custodial parent signs a written declaration that the custodial parent will not claim the child as a dependent, and (2) the declaration is attached to the noncustodial parent’s return. The court explicitly stated that neither of these conditions was met in Ms. Correll’s situation. Furthermore, the court noted that the agreement in effect for 2021 specified that the child’s father was entitled to claim Child No. 2 as his dependent.

Finally, the court analyzed the child tax credit. Section 24(a) of the IRC allows a taxpayer to claim a child tax credit for "each qualifying child" for whom the taxpayer is allowed a deduction under section 151. A "qualifying child" for the purposes of the child tax credit is defined in IRC § 24(c)(1) as a "qualifying child" as defined in section 152(c) who has not attained the age of 17.

The court also briefly addressed the burden of proof under IRC § 7491(a), which can shift the burden to the Commissioner under certain circumstances. The court noted that Ms. Correll did not argue for this shift and the record did not indicate that she met the necessary requirements.

Application of Law to the Facts

Applying the aforementioned legal principles to the facts of the case, the Tax Court concluded that Ms. Correll’s claim failed on multiple fronts. Because Child No. 2 did not live with her for more than half of the year, he did not meet the definition of her "qualifying child" under IRC § 152(c)(1)(B). The exception for noncustodial parents under IRC § 152(e) was not applicable because Ms. Correll did not obtain a written declaration from the custodial parent. Consequently, Ms. Correll was not entitled to a dependency deduction for Child No. 2 under IRC § 151.

Following this determination, the court reasoned that because Child No. 2 was not Ms. Correll’s qualifying child for dependency deduction purposes, she was also not entitled to the child tax credit under IRC § 24(a). The eligibility for the child tax credit is directly linked to the allowance of a dependency deduction for a "qualifying child".

Court’s Conclusions

Based on the facts and the applicable law, the Tax Court agreed with the Commissioner’s disallowance of Ms. Correll’s claim for the dependency exemption and the child tax credit for Child No. 2. The court ordered that a decision be entered under Tax Court Rule 155.

This case serves as a clear reminder of the strict requirements for claiming a child as a dependent, particularly the residency test for a "qualifying child" and the specific rules that apply to noncustodial parents. Tax practitioners should emphasize the importance of these rules with clients, especially in situations involving divorce or separation, to ensure accurate tax filings and avoid potential notices of deficiency. The Correll decision underscores the necessity of adhering to the statutory requirements and proper documentation, such as Form 8332, when a noncustodial parent intends to claim a child as a dependent.

Prepared with assistance from NotebookLM.