Graham v. Commissioner

Documentation Gap Sinks EITC Claim for Disabled Sister

The Tax Court dashed the Graham family's hopes for a $3,686 Earned Income Tax Credit (EITC) in 2022, denying their claim for the wife's 64-year-old sister, Angela Davis. While the judge seemingly believed the taxpayers' account of Davis's stroke and subsequent residency with the Grahams, the court ruled against them, citing a critical lack of documentary evidence to corroborate their claims. The case serves as a stark reminder: even credible testimony can fall short without the backing of solid paper documentation in tax disputes.

The 64-Year-Old 'Child'

Continuing from the denial of the Grahams' hopes for a $3,686 Earned Income Tax Credit (EITC) in 2022 for the wife's 64-year-old sister, Angela Davis, the Tax Court's decision hinged on specific factual elements. The Grahams had claimed the EITC, permitted under Section 32(a)(1), which allows an eligible individual an earned income credit against that individual’s income tax liability. The amount of the credit varies depending on whether the taxpayer has qualifying children under Section 32(b). Here, the credit was claimed for Angela Davis. The court noted that the Grahams conceded they were not eligible for the EITC for Rayquan Graham, clearing that issue from contention. The core of the dispute centered on Ms. Davis. In 2022, Davis was 64 years old and did not file a joint tax return. Given her age, she would typically not qualify as a "qualifying child" under Section 152(c)(3), which generally requires that the individual be under age 19, or under age 24 if a student, unless an exception applied. Mr. Graham testified regarding Ms. Davis's debilitating stroke, her confinement to a wheelchair, and her residency with him and his wife.

Statutory Mazes: Age, Abode, and Disability

As the court turned to the substance of the disagreement, the tax code’s specific requirements came into sharper focus. The IRS contested whether Ms. Davis met the criteria to be considered a qualifying child, zeroing in on the age and disability requirements. Internal Revenue Code Section 32 provides the rules for the Earned Income Tax Credit, a refundable credit for low-to-moderate income working families. To claim the credit with respect to a child, that child must qualify under the tests laid out in Section 152(c).

Section 152(c)(3) specifies the age requirements for a qualifying child. Generally, to qualify, an individual must be under age 19 at the end of the tax year, or under age 24 if a student. However, Section 152(c)(3)(B) provides an exception: this age limitation does not apply to an individual who is "permanently and totally disabled." The Code then refers to Section 22(e)(3) for the definition of 'permanently and totally disabled.' That section defines it as someone unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment that can be expected to result in death or has lasted (or can be expected to last) for a continuous period of not less than 12 months.

The petitioners argued that Ms. Davis's stroke, wheelchair confinement, and residency with them satisfied the requirements, focusing on Mr. Graham's testimony. The IRS, however, demanded strict adherence to the statutory definitions, particularly emphasizing the need for documented proof of Ms. Davis's disability and residency.

Credible But Insufficient: The Documentation Mandate

The Tax Court, in Graham v. Commissioner, ultimately sided with the IRS, highlighting the stringent documentation requirements for claiming the Earned Income Tax Credit (EITC) under Section 32, even in sympathetic circumstances. While Section 32 provides a refundable tax credit for low-to-moderate-income workers, eligibility hinges on strict adherence to the statutory requirements and substantiation of qualifying child status under Section 152(c).

Judge Kerrigan acknowledged Mr. Graham’s testimony regarding Ms. Davis's residency and disability as "credible". However, the court emphasized that credibility alone does not satisfy the taxpayer's burden of proof under Tax Court Rule 142(a). That rule generally places the burden of proof on the taxpayer to demonstrate that the Commissioner's determinations are erroneous. The court found that the absence of corroborating documentation, such as medical records or residency logs, was fatal to the Grahams' claim.

The court explained that without such documentation, the petitioners failed to demonstrate that Ms. Davis lived with them for more than six months in 2022 or that she was permanently and totally disabled, as defined in Section 22(e)(3), which requires a medically determinable physical or mental impairment expected to last at least 12 months or result in death. Because the Grahams did not satisfy the statutory requirements, the court held that they were not eligible to claim the EITC for Ms. Davis.

The decision serves as a stark reminder that sympathy does not substitute for substantiation in Tax Court. Taxpayers must maintain meticulous records to support their claims, particularly when dealing with nuanced eligibility criteria like those surrounding disability and residency for EITC purposes. The Graham case underscores the importance of securing and retaining relevant documents such as medical records and proof of address to substantiate claims for tax benefits.