(a) Facts: A woman lived with a man in California. The couple was not married. The man had a child by a prior relationship, and the child had two minor children. The man was, therefore, the children’s biological grandfather.
The mother of the two children signed a guardianship agreement giving temporary custody of the children to the man (the children’s biological grandfather) and the woman. She did this because she did not believe she was capable of caring for the children. The agreement was valid from July 16, 2013, to July 16, 2014. The children returned briefly to the mother in September of 2013; she concluded that she was still not ready to care for them, and she returned them to the man and woman.
The children returned to the mother on August 18, 2014. In October of 2014, one of the children, MLS, returned to the custody of the man and woman because he was having behavioral problems at school that his mother could not handle. No formal extension of the guardianship agreement was signed.
Legal custody of the children remained with the mother during the entire period at issue. No court ever issued a temporary or permanent custody order; no abuse and neglect action was ever filed; all changes in de facto custody were made by private agreement.
On her 2014 federal tax return, the woman claimed a dependency exemption for each of the two children. The IRS disallowed the deduction, and the woman sought relief in the Tax Court.
(b) Issue: Was the woman entitled to claim the dependency exemption?
(c) Answer to Issue: No.
(d) Summary of Rationale: The exemption is available only for a “qualifying child.” To be a “qualifying child,” the dependent must first be a “child.” A “child” is defined as either “a son, daughter, stepson, or stepdaughter of the taxpayer,” or “an eligible foster child of the taxpayer.” I.R.C. § 152(f)(1)(A).