Jeffrey Scott and Nancy J. Robb - Page 4

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               On their 2001 Federal income tax return, petitioners claimed           
          dependency exemption deductions, inter alia, for three of                   
          petitioner’s children from his marriage to Loretta and child tax            
          credits for two of those children.  Loretta also claimed                    
          dependency exemption deductions for the three children.                     
          Respondent disallowed the dependency exemption deductions and the           
          child tax credits claimed by petitioners.                                   
          1.   Dependency Exemptions                                                  
               Sections 151 and 152 provide that a taxpayer is entitled to            
          deduct an exemption for a dependent if the taxpayer provides over           
          half of the support for the dependent.  The pre-1985 version of             
          the dependency exemption deduction as it applied to the children            
          of divorced or separated parents was “often subjective and                  
          [presented] difficult problems of proof and substantiation”.  H.            
          Rept. 98-432 (Part II), at 1498 (1984).  In order to provide more           
          certainty, Congress amended section 152(e) to “[allow] the                  
          custodial spouse the exemption unless that spouse waives his or             
          her right to claim the exemption.  Thus, dependency disputes                
          between parents will be resolved without the involvement of the             
          Internal Revenue Service.”  Id. at 1499.                                    
               Under section 152(e)(1), in the case of a minor dependent              
          whose parents are divorced or separated and together provide over           
          half of the support for the minor dependent, the parent having              

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