Rev. Rul. 72-591

The Internal Revenue Service has been asked to clarify the guidelines prescribed in Revenue Ruling 235, C.B. 1953-2, 23, and Revenue Ruling 64-222, C.B. 1964-2, 47, for determining the amount and source of support of members of a household, for purposes of the dependency exemption provisions of section 152(a) of the Internal Revenue Code of 1954, under the circumstances described below.

H, a husband, established a residence separate from W, his wife, on January 5, 1970, leaving their minor son and daughter, S and D, in W's custody. H and W are not divorced or legally separated under a decree of divorce or separate maintenance, nor are they separated under a written separation agreement. Records kept by W were insufficient to establish the amount of support actually provided to any member of the household, but it was determined that a total of $3,600 had been used for the support and maintenance of the household in 1970, and that of this amount, $1,920 was furnished by W from her earnings.

Situation (1): H voluntarily sent W a personal check for $90 each month made payable to W for the support and maintenance of the common household. W's uncle, U, sent $30 monthly to W for support of the family. S gave W his earnings of $20 per month for household use.

Situation (2): H voluntarily sent W a personal check for $90 each month made payable to W and marked "$60 for support of S; $30 for support of D." W's uncle, U, sent $30 monthly to W for support of the family. S gave his earnings of $20 per month for household use.

The question presented in each situation is whether H furnished over one-half the support of S and whether W furnished over one-half the support of D within the meaning of section 152(a) of the Code, for purposes of the additional exemption for dependents provided by section 151(e) of the Code.

Section 152(a) of the Code defines the term "dependent" as an individual who is related to the taxpayer in any of certain ways, over half of whose support for the calendar year in which the taxable year of the taxpayer begins was received from the taxpayer (or is treated under the Code as received from the taxpayer). Support is defined in section 1.152-1 of the Income Tax Regulations to include "food, shelter, clothing, medical and dental care, education and the like."

Revenue Ruling 235, which outlines the method for determining who furnished over half of the support of a dependent where several members of a household contribute to the support of the household, provides the following guidelines that are applicable in the instant case:

--In the absence of an actual record of the expenses relating to the support of each member of the household, a pro rata portion of the aggregate of such expenses may be allocated to each member.

--Once the cost of supporting each member of the household is determined, the amount used by the taxpayer for his own support should be subtracted from the amount he contributed.

--The remainder will be the amount which the taxpayer actually contributed toward the support of other members of the household, and unless he is able to show otherwise, it will be presumed that such remainder was used equally for the support and maintenance of each of the other members.

Revenue Ruling 64-222 provides additional guidelines to be applied in situations where an individual who is not a member of the household contributes to but does not share in the common fund:

--Where members of a household contribute to their own support, and also receive support from an individual outside the household not sharing in the common fund, in the absence of evidence of actual support, the individual outside the household will be considered to be contributing equal amounts to each member of the household.

--In cases where contributions to the support of the common household are made by an outsider in addition to those made by the members, the allocation under Revenue Ruling 235 will first be made as among members of the household, and then the outsider's contribution will be allocated equally among the members of the household for the purposes of determining the dependency exemptions the outsider may claim.

The sources of support in Situation (1), as determined by the application of the above guidelines, are as follows:

   Source of Support      Recipient of Support & Amount Received

a. The total funds generated within the household must be aggregated, and inasmuch as W did not offer any evidence of actual support, a pro rata portion of the total support funds is allocated to W, S and D. The total intra-household income is $2,160 ($1,920 from W and $240 from S), and W, S and D are hence allocated $720 of support.

b. The amounts allocated to W and S ($720) must be subtracted from the amounts they contributed ($1,920 for W, and $240 for S).

c. Only W had a positive remainder from which to contribute to the support of S and D, and thus in order to elevate S and D to their pro rata share of intra-household support, W is deemed to have contributed $480 to S and $720 to D. The presumption that W divided the $1,200 surplus equally between S and D is rebutted by the facts in that S's $240 earnings must be applied first towards his own support.

2. Under Revenue Ruling 64-222:

a. U's undesignated $360 contribution to W for the support of the common household is allocated equally ($120) to W, S and D.

b. H's undesignated $1,080 contribution to W for the support of the common household is allocated equally ($360) to W, S and D.

Inasmuch as Revenue Ruling 235 and Revenue Ruling 64-222 are concerned with those cases where no specific designations of support funds are alleged by the taxpayer, it is necessary in Situation (2) to determine what effect will be given such designations. Uncontradicted designations will be given effect to the extent that the householder's own income does not exceed his pro rata share of total support.

Designations of support funds, in order to substantiate a section 152(a) deduction, must be of such a nature that they constitute evidence of "actual support." Revenue Ruling 64-222. Moreover, the Commissioner's determination is presumptively correct, Rose D. Seraydar v. Commissioner, 50 T.C. 756 (1968), Acq. C.B. 1969-1, 21, and thus the taxpayer claiming the exemption must bear the burden of proving actual support. Aaron F. Vance v. Commissioner, 36 T.C. 547 (1961).

Although actual tracing of support funds through a detailed accounting will not be required to substantiate an uncontradicted designation, the taxpayer is charged with the burden of presenting a sufficient quantum of evidence in support of his claim. While the evidence offered by the taxpayer must be of such a nature that the District Director is convinced of the genuineness of his claim, it need not be conclusive. It is evident that what in fact constitutes sufficient evidence of actual support may vary from case to case.

While not required, written statements contemporaneous with the expenditures of support funds setting forth the amounts and purposes of such expenditures are entitled to great weight. Similarly, written support agreements between parties or memoranda to the effect that an oral support agreement exists also will be considered as providing strong evidence of actual support. Little weight will be attached to oral agreements alone, but depending on the particular facts, such evidence may be regarded as providing evidence of actual support.

Notations by the maker on support checks purporting to allocate funds to particular household members, made payable to an individual having custody of a claimed dependent, will be regarded as evidence of actual support.

The sources of support in Situation (2) as determined by the application of the above guidelines are as follows:

   Source of Support     Recipient of Support and Amount Received

Accordingly, based on the application of the guidelines established herein as well as Revenue Ruling 235 and Revenue Ruling 64-222, it is concluded that W provided over one-half the support of D ($720 out of $1,200) in both Situation (1) and Situation (2), but that H provided over one-half the support of S ($720 out of $1,200) in Situation (2) only.

Revenue Ruling 235, C.B. 1953-2, 23, and Revenue Ruling 64-222, C.B. 1964-2, 47, are clarified both with respect to their applicability upon a showing of actual support and to the interpretation of "actual support" as that term is used therein.