Could a New Mexico grandmother claim two minor grandchildren as dependents when they lived with and were supported by her but another taxpayer also claimed them?

Plain-English summary

Priscilla Montoya could claim her two minor grandsons as dependents on her 2017 New Mexico personal income tax return. The Administrative Hearings Office found that the children met the federal qualifying-child rules incorporated into New Mexico law and ordered both assessments fully abated.

Montoya's son, the children's father, had been incarcerated before the younger child was born. Their mother was incarcerated six months after that birth. The younger child then came into Montoya's primary care, and the older child joined the household several years before 2017.

Montoya credibly testified that both children lived with her for more than half of 2017. She provided their shelter, food, clothing, school transportation, school supplies, before- and after-school programs, emotional support, and other necessities.

One grandchild testified that he lived with his grandmother during 2017 and afterward. Another witness corroborated that both children lived with Montoya and that she provided their basic needs. School records tied the children to Montoya's address during part of the year; although their mother later registered them using her own address, the AHO credited the evidence that they continued living with Montoya.

Montoya did not have a court order granting legal guardianship. She also believed the children's mother had claimed them as dependents despite living elsewhere and providing no support. The Department disallowed Montoya's exemptions because another taxpayer had claimed the same children and then issued two assessments.

The grandchildren met all five qualifying-child tests

Regulation 3.3.1.11 required New Mexico dependent exemptions to follow federal law. The decision applied five requirements from Section 152 and IRS Publication 501:

• the required family relationship;
• the age requirement;
• the same principal place of abode for more than half the year;
• the child did not provide more than half of their own support; and
• the child did not file a joint return.

The grandsons were descendants of Montoya's son, were under 18 and attending school, lived primarily with Montoya, did not support themselves, and did not file joint returns. The credible household evidence established each element.

No custody order was required by the dependency test

The federal criteria focused on relationship, age, residence, support, and filing status. The lack of formal court guardianship did not overcome the evidence showing the actual living and support arrangement.

The competing claim did not defeat Montoya's exemptions

Federal law contains a tiebreaker when more than one taxpayer could otherwise claim the same child. A parent generally has priority over a grandparent.

The AHO found that the suspected competing claimant—the children's mother—did not live with the children and did not provide more than half their support. On those facts, the decision concluded that she did not satisfy the underlying dependency tests, so the parent-priority tiebreaker did not change the result.

Result: protest GRANTED. The Department was ordered to abate both assessments of tax, penalty, and interest in their entirety.

What this means for you

Grandparents supporting grandchildren

A grandchild can qualify as your dependent when the federal relationship, age, residence, support, and joint-return requirements are proved. Formal guardianship was not an additional requirement in this decision.

Families facing duplicate dependent claims

A duplicate filing flag begins the inquiry; it does not establish who is legally entitled to the exemption. Evidence of where the child actually lived and who met the dependency criteria can overcome the adjustment.

Taxpayers without a single controlling document

Credible testimony, school records, household witnesses, and testimony from an older child worked together here. The AHO evaluated the total factual record rather than requiring one custody document.

Tax preparers

Document every qualifying-child element, especially principal residence and support, when a parent and grandparent may both appear connected to the child.

Common questions

Q: Did Montoya have court-ordered legal guardianship?
A: No. The AHO still found the federal dependency criteria satisfied based on the actual residence and support evidence.

Q: How long did the grandchildren live with her in 2017?
A: More than half the year. The decision also found that both had been in her care before 2017.

Q: What support did Montoya provide?
A: Shelter, food, clothing, school transportation, supplies, before- and after-school programs, emotional support, and other necessities.

Q: Did the children's occasional visits with their mother change their principal home?
A: No. The AHO found that the children continued to live with Montoya despite occasional overnights, weekends, and visits with their mother.

Q: Why didn't the mother's alleged dependent claim win under the parent tiebreaker?
A: The decision found that the mother did not live with the children and did not provide the required support, so she did not meet the underlying tests needed for the competing-claim tiebreaker to control.

Q: What happened to the assessments?
A: Both assessments of tax, penalty, and interest were abated in full. The decision did not state their dollar amounts.

Citations and references

Statutes and regulations:

• 26 U.S.C. §§ 151 and 152(a), (c), and (c)(4) — dependent exemptions, qualifying-child requirements, and competing-claim tiebreaker
• 26 C.F.R. §§ 152-1 and 152-2 — federal dependent rules
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(Y) — presumption that tax, penalty, and interest assessments are correct
• NMSA 1978, § 9-11-6.2(G) — presumption that Department instructions properly implement administered laws
• Regulation 3.3.1.11 NMAC — New Mexico conformity to federal dependency law
• Regulation 3.1.6.13 NMAC — assessment presumption for penalty and interest

Cases cited:

• Blanco v. Commissioner, 56 T.C. 512 (1971) — proof of support costs for a dependent claim
• Molina v. Commissioner, 86 T.C.M. (CCH) 322, 2003 Tax Ct. Memo. LEXIS 253 — support including residence, food, and clothing
• Poehlein v. Commissioner, T.C. Summary Opinion 2007-2 — proof of principal abode for more than half the year
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — burden shifts after the assessment presumption is overcome

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Priscilla A Montoya
• Decision PDF: D&O 19-08

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
PRISCILLA A. MONTOYA
TO ASSESSMENTS ISSUED UNDER
LETTERS ID NOs. L0097546032 and L1171287856

v. AHO Case Number 19.01-003A, D&O #19-08

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

An administrative hearing on the above-referenced protest was held on February 5, 2019
before Hearing Officer Ignacio V. Gallegos. Mr. Peter Breen Staff Attorney, and Ms. Milagros
Bernardo, Auditor appeared on behalf of the Taxation and Revenue Department (Department).
Priscilla A. Montoya (Taxpayer) appeared for the hearing representing herself.
Priscilla Montoya, I.M. (a child), and Rose Grassham appeared as witnesses for the
Taxpayer. The Department presented Protest Auditor Milagros Bernardo as a witness. Taxpayer
presented one exhibit, marked Exhibit 1. The Department presented two different Exhibits
labeled A, and Exhibit B. For clarity, the A exhibits are referred to as the following: Exhibits A-
1 and A-2 (school registration), Exhibit A-1 through A-5 (Pub. 501), and Exhibit B. The
Taxpayer’s exhibit and the Department’s exhibits were admitted without objection. The Hearing
Officer took administrative notice of all documents contained in the administrative file. All
exhibits are more fully described in the Administrative Exhibit Log.
The sole issue presented before this tribunal in this protest is whether the Department
properly assessed Taxpayer, after rejecting the Taxpayer’s claim for two dependent exemptions.
After making findings of fact in this matter and discussing the arguments and the pertinent legal
authority in more detail, this tribunal ultimately concludes/rules that the Taxpayer prevails in this
matter, as the Taxpayer was able to show that she met the federal requirements for claiming two
dependent grandchildren for the tax year.
Based on the evidence in the record, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT

1. On August 9, 2018, the Department issued an assessment to the Taxpayer for
   taxes due for personal income tax reporting period ending December 31, 2017. [L0097546032].
2. On August 9, 2018, the Department issued an assessment to the Taxpayer for
   taxes due for personal income tax reporting period ending December 31, 2017. [L1171287856].
3. On November 3, 2018, the Taxpayer filed a timely protest. [Administrative file].
4. On November 30, 2018, the Department issued a letter acknowledging the
   Taxpayer’s protest. [L0557027504].
5. On January 16, 2019, the Department filed a Request for Hearing asking that the
   Taxpayer’s protest be scheduled for a scheduling hearing. [Administrative file].
6. On January 16, 2019, the Administrative Hearings Office sent notice of a merits
   hearing to the parties. The Taxpayer and the Department were notified that a hearing would be
   held on February 5, 2019 at 1:00 PM in Room 269 of the Wendell Chino Building, 1220 S. St.
   Francis Drive, Santa Fe, New Mexico. [Administrative file].
7. The notice of hearing was mailed by first class mail to the Taxpayer at the address
   on file in her protest. [Administrative file].
8. At the Merits hearing on February 5, 2019, the Taxpayer appeared in person, and
   Staff Attorney Peter Breen represented the Department, accompanied by Milagros Bernardo,
   Protest Auditor.
9. Mrs. Montoya credibly testified that her grandchildren, both minors at the time,
   were living with her more than half the calendar year of 2017. As part of the living arrangement,
   Mrs. Montoya provided food, shelter, clothing, transport to and from school, school supplies,
   afterschool and before-school programs, and other necessities to the children. [Testimony of
   Mrs. Montoya, Hearing Record (H.R.) 9:40-15:30; 18:45-19:45].
10. Mrs. Montoya’s son, the children’s father, was incarcerated before the birth of the
    youngest child. Mrs. Montoya’s ex-daughter-in-law, the children’s mother, was incarcerated six
    months after the birth of the youngest child. Since that time, the youngest child has been in the
    primary custody and care of Mrs. Montoya. The older child came into Mrs. Montoya’s care
    thereafter, several years before the tax year at issue here. [Testimony of Mrs. Montoya, H.R.
    9:40-11:50; Testimony of Mrs. Grassham, H.R. 1:02:00-1:07:15].

In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 2 of 9

11. The children, during the first part of 2017, attended the public school in the
    district zone associated with Mrs. Montoya’s address at the time. For the second half of the year,
    the children attended a different school, because their mother completed the registration forms,
    using her own address, but the children remained living with Mrs. Montoya. [Administrative
    file, protest letter; Exhibit A-1, A-2 (school registration); Testimony of Mrs. Montoya, H.R.
    26:00-33:30].
12. Mrs. Montoya received assistance from a professional tax preparer when
    completing her 2017 taxes. [Testimony of Mrs. Montoya, H.R. 21:50-22:30].
13. Mrs. Montoya testified that she believes the children’s mother has claimed the
    children as her own dependents, without providing support or living with them. The children’s
    mother did spend time with the children, visiting the Montoya home, and even taking the
    children for some overnights and weekends, from time to time. [Testimony of Mrs. Montoya,
    H.R. 21:25-22:00; 22:35-23:30].
14. I.M., a child, credibly testified in person that he lived with his grandmother, Mrs.
    Montoya, during the calendar year of 2017 and beyond that time. [Testimony of I.M., H.R.
    38:05-38:30].
15. Mrs. Montoya and Mrs. Grassham credibly testified in person that the two
    grandchildren were living with Mrs. Montoya during 2017. During this time, Mrs. Montoya
    provided necessities for the children, including all the basics and emotional support. [Testimony
    of Mrs. Montoya, H.R. 18:45-19:45, 20:00-21:00; Testimony of Mrs. Grassham, H.R. 1:02:00-
    1:05:00].
16. Mrs. Montoya did not have legal guardianship of the children through court order
    at the time. [Testimony of Mrs. Montoya, H.R. 16:50-18:30].
17. The Department denied the Taxpayer’s claims for dependent exemptions for tax
    year 2017, and issued a return adjustment notice [not part of the administrative file], and
    subsequently assessed Taxpayer and initiated collections. [Administrative File, Letter ID

L1762676912; Testimony of Mrs. Montoya, H.R. 20:00-21:00; Testimony of Ms. Bernardo,

H.R. 1:15:00-1:19:00].
18. The Department determined that the Taxpayer was ineligible to claim the
dependents, because the dependents were claimed by another taxpayer. The department relies on

In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 3 of 9
the five-part dependency test of IRS Publication 501. [Testimony of Ms. Bernardo, H.R.1:15:00-
1:18:30; Exhibit A-1 through A-5 (Pub. 501)].

19. The Department relies on self-reporting taxpayers, and could not independently
    confirm with whom the children lived or who supported them based on what documents were
    provided. [Testimony of Ms. Bernardo, H.R. 1:24:30-1:26:50].
20. Both assessments hinged on the disallowance of the claimed dependent
    exemptions. [Testimony of Ms. Bernardo, H.R. 1:21:30-1:24:20].

DISCUSSION
The sole issue in this protest is whether the Taxpayer is entitled to claim two dependent
grandchildren on her 2017 Personal Income Tax return. Under NMSA 1978, Section 7-1-17 (C),
the underlying assessments of tax issued in this case are presumed correct. Unless otherwise
specified, for the purposes of the Tax Administration Act, “tax” is defined to include interest and
civil penalty. See NMSA 1978, Section 7-1-3 (Y). Under Regulation 3.1.6.13 NMAC, the
presumption of correctness under Section 7-1-17 (C) extends to the Department’s assessment of
penalty and interest. Therefore, the Taxpayer has the burden to overcome the assessment and
show she was entitled to an abatement of tax. See Archuleta v. O'Cheskey, 1972-NMCA-165,
¶11, 84 N.M. 428, 504 P.2d 638. If Taxpayer can overcome the presumption of correctness in
the assessment, the burden shifts to the Department to prove the assessment was justified. See
New Mexico Taxation & Revenue Dep’t. v. Whitener, 1993-NMCA-161, 117 N.M. 130, 869
P.2d 829; MPC Ltd. v. New Mexico Taxation & Revenue Dep’t., 2003-NMCA-021, 133 N.M.
217, 62 P.3d 308.

Dependent exemptions.
Under the Regulations issued by the New Mexico Taxation and Revenue Department,
New Mexicans claiming dependents as personal exemptions are required to conform with federal
law, and the tests for dependency under Section 152 of the Internal Revenue Code, 26 U.S.C.
Section 1, et seq. See Regulation 3.3.1.11 NMAC (12/14/00).
Internal revenue code 26 U.S.C. Section 151 explains that individuals may claim
exemptions for themselves, a spouse and other dependents. Internal revenue code 26 U.S.C.
Section 152 is the federal statute which defines who qualifies as a dependent. Under the statute,
In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 4 of 9
the dependent must be a “qualifying child” or a “qualifying relative.” See 26 U.S.C. § 152 (a)(1)
and (a)(2). In order to be a qualifying child, the child must have familial bonds, i.e. “be the child
of the taxpayer or a descendent of such a child.” See Section 152 (C)(2)(a).
The federal regulations further explain how the federal law then considers a dependent
child as a “qualifying child.” See 26 C.F.R. §152-1 and §152-2. Under the federal law, there are
five requirements for a dependent child: to have a certain familial relationship, to be under 24
years of age (if a student), to have the same principal place of abode, the child does not provide
more than half his or her own support, and the child does not file a joint return. See IRS
Publication 501, page 12 [Exhibit A-2].
The children of a child of a taxpayer are clearly descendents of the child of the taxpayer,
and are claimable as qualifying children to this grandparent taxpayer, so they meet the
relationship test. The children were under the age of 18 and in school, so they meet the age test.
Grandmother lived with grandchildren at her home, despite occasional visits with their mother,
so they meet the principal abode test. The children did not file joint returns, and did not provide
more than half of their own support. Evidence supports a finding of dependent children under 26
U.S.C. Section 152 (C), so they are claimable as exemptions under 26 U.S.C. 151.

Tiebreaker rules inapplicable.
Both the Taxpayer and the Department presented testimony that they believed another
claimant (presumably the children’s mother) had claimed the children as dependents, despite the
fact that the mother had not resided with the children, but had only occasional visitation.
Congress has provided a tiebreaker instruction in the statutes, relating to such a possibility. “In
general except as provided in subparagraphs (B) and (C), if (but for this paragraph) an individual
may be claimed as a qualifying child by 2 or more taxpayers for a taxable year beginning in the
same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is
– (i) the parent of the individual, or (ii) if clause (i) does not apply, the taxpayer with the highest
adjusted gross income for such taxable year.” 26 U.S.C. Section 152 (C)(4)(1)(a). This appears
to give the parent of the child an advantage over the grandparent.
Nevertheless, the grandparent can overcome the tiebreaker using other tests. With the
facts attested to in this case, the other claimant would fail the residency test (the requirement that
the taxpayer claiming the exemption actually live with the claimed dependent) as well as the
In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 5 of 9
support test (the requirement that the taxpayer claiming the exemption actually provide more
than half the support for the claimed dependent) as required by 26 U.S.C. 152. See Blanco v.
Comm’r, 56 T.C. 512 (1971) (a taxpayer who cannot prove support costs paid cannot claim an
individual as a dependent); See Molina v. Commissioner of Internal Revenue, 86 T.C.M. (CCH)
322, 2003 Tax Ct. Memo. LEXIS 253 (taxpayer may treat certain individuals, i.e., daughter,
niece, grandparent, as dependents if taxpayer provided over half of their support, including
residence, food, clothing); See also Poehlein v. Comm’r, T.C. Summary Opinion 2007-2 2007
Tax Ct. Summary LEXIS 1 (taxpayer must establish that the taxpayer’s residence was the
children’s principal place of abode for more than half the tax year before claiming the children as
dependents) (non-precedential).
IRS Publication 501 1 gives the following example, pertinent to this case.
Example 10 – child didn’t live with a parent. You and your 7-
year-old niece, your sister’s child, lived with your mother all year.
You are 25 years old, and your AGI is $9,300. Your mother’s AGI
is $15,000. Your niece’s parents file jointly, have an AGI of less
than $9,000, and don’t live with you or their child. Your niece is a
qualifying child of both you and your mother because she meets
the relationship, age, residency, support and joint return tests for
both you and your mother. However, only your mother can treat
her as a qualifying child. This is because your mother’s AGI,
$15,000, is more than your AGI, $9,300.

The example provides a near-perfect mirror image of the case at hand. The example’s
conclusion that the grandparent may claim the grandchild whose parent who did not live with the
child is the same conclusion reached here.
In New Mexico, the instructions issued by the Secretary of the Taxation and Revenue
Department are presumed to be an accurate implementation of the law. NMSA 1978, Section 9-
11-6.2 (G) indicates: “[a]ny regulation, ruling, instruction or order issued by the secretary or
delegate of the secretary is presumed to be a proper implementation of the provisions of the laws
that are charged to the department, the secretary, any division of the department or any director
of any division of the department.” Likewise, in federal jurisprudence, IRS regulations and
interpretations are afforded significant deference. See Mayo Found. For Med. Educ. & Research

1
Although a discrete portion of IRS Publication 501 (2017) was admitted as an exhibit, the entire document is
available online at: https://www.irs.gov/pub/irs-prior/p501--2017.pdf

In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 6 of 9
v. United States, 562 U.S. 44, 53-57 (2011) (applying two-part test of Chevron U.S.A. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984) to IRS interpretation of statutes). See also
Nat’l. Muffler Dealers Ass’n. v. United States, 440 U.S. 472, 99 S.Ct. 1304 (1979) (IRS
interpretation given deference as the masters of the subject matter).
Taxpayer presented credible evidence supporting each of the requirements under federal
law. Mrs. Montoya is a widowed person who maintained a home in 2017 at her own expense,
and provided a home and other necessities, including food, clothing and transportation to and
from school for the two minor sons of her son, i.e., her grandchildren. Her grandchildren were
under the age of 18 years old and attending public primary schools at the time. The fact that the
children’s mother did not live with them, and did not provide greater than fifty percent of their
support makes it so that the tiebreaker provisions do not effect the outcome of this decision. The
Taxpayer rightfully claimed personal exemptions for her dependent grandchildren living with her
in 2017.

CONCLUSIONS OF LAW
A. The Taxpayer filed a timely written protest to the Assessments issued under Letter
ID number L0097546032 and L1171287856, and jurisdiction lies over the parties and the subject
matter of this protest.
B. The Administrative Hearings Office held a hearing within the 90-day hearing
requirement provided in NMSA 1978, Section, 7-1B-8 (A) and Regulation 22.600.3.8 (E).
C. Pursuant to NMSA 1978, Section 7-1-17 (C) (2007), the Department’s assessment is
presumed to be correct, and it is Taxpayer’s burden to come forward with evidence and legal
argument to establish the assessment was made in error.
D. The Taxpayer has satisfactorily met the burden of establishing she was entitled to
the claimed dependent exemptions at issue. See 26 U.S.C. Section 151. See also 26 U.S.C.
Section 152. See also 26 C.F.R. 152-1.

For the foregoing reasons, the Taxpayer’s protest IS GRANTED and the assessments of tax,

penalty and interest should be ABATED in their entirety.

DATED: February 27, 2019.
In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 7 of 9
Ignacio V. Gallegos
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this
decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the
date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this
Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates
the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.
Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative
Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative
Hearings Office may begin preparing the record proper. The parties will each be provided with a
copy of the record proper at the time of the filing of the record proper with the Court of Appeals,
which occurs within 14 days of the Administrative Hearings Office receipt of the docketing
statement from the appealing party. See Rule 12-209 NMRA.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Decision and Order to the parties listed below this 27nd
day of February, 2019 in the following manner:

First Class Mail Interoffice Mail
INTENTIONALLY BLANK

John D. Griego
In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 8 of 9
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505) 827-0466
FX: (505) 827-9732

In the matter of the protest of Priscilla A. Montoya
Letter No. L0097546032 and L1171287856
Page 9 of 9