My sophomore year in college, I shared a door room with this guy, Greg. Greg was the best roommate a 19-year old could ask for, for the simple fact that he was never around. Greg had a serious girlfriend, and whether out of affection for her or a distaste for Busch Light and Italian League soccer, he chose to spend all of his time at her dorm.
So which dorm room was Greg’s? The one he was assigned pursuant to school records, or the one where he brushed his teeth, kept his stuff, and slept 99 days out of 100?
Hell if I know; but then, it’s not my job to know. The same can’t be said for the members of the Tax Court, however, who recently had to determine which of a taxpayers’ two houses was their home. And all that was at stake was a $140,000 tax deficiency.
Marylou Stromme (Marylou) was a kind soul, this much is not open for debate. Marylou’s developmentally disabled older brother had spent much of his life institutionalized, motivating her to find a way to provide a better life for those similarly challenged. Her first step was to open a group home where patients could get better care than that found in congregate institutions.
The Stromme’s owned two homes, one on Lacasse Drive (Lacasse) and one on Emil Ave (Emil). For various reasons, the Strommes chose to convert the Emil property into the group home, performing extensive renovations and eventually housing up to six “clients.”
Marylou spent so much time at the Emil home, most of the surrounding neighbors assumed she lived there. She would often spend the night, recieve mail there, and perform basic upkeep. She would, however, return to the Lacasse home to be with her family and enjoyed the trappings of suburbia:
It was at the LaCasse Drive house that the Strommes held family get togethers and celebrated the safe return of another son from service in Iraq. LaCasse Drive house was also where they celebrated Thanksgiving and Christmas. Ms. Stromme found it a more restful place to recover from foot surgery.
In exchange for providing foster care, the State of Minnesota paid the Strommes $556,000 over 2005 and 2006. The Strommes excluded the payments from income. The IRS disagreed with this treatment, assessing over $140,000 in tax due, interest, and penalties.
Section 131 provides an exclusion from income for qualified foster care payments. To qualify for the exclusion, the payments must be:
1. Made pursuant to a foster care program of a state;
2. Paid by a State or political subdivision thereof, or a qualified agency; and;
3. Paid to a foster care provider for the care of a qualified foster individual in the foster care provider’s home.
At issue was the third requirement; specifically, the interpretation of the phrase “in the foster care provider’s home.” With no regulations and minimal relevant case law to reference, the Tax Court was left to determine what Congress intended with the use of the word “home.” Ultimately, the court concluded that mere ownership of the Emil foster house was not enough; the Strommes were required to provide foster care at the house at which they reside.
We interpret the Code’s use of the word “home” to mean the house where a person regularly performs the routines of his private life–for example, shared meals and holidays with his family, or family time with children or grandchildren.
Ultimately, the Strommes were sold out by their Lacasse neighbors — with whom they seemed to have engaged in previous altercations — who testified that the Lacasse home was indeed where the Strommes resided:
The LaCasse Drive neighbors also knew the Strommes owned two houses, and those neighbors understood that the Strommes worked at the Emil Avenue house. They frequently saw Ms. Stromme leave in the morning to go to work at the Emil Avenue house and then return in the evening. They often saw Mr. Stromme working in the yard or on his cars; they saw both Strommes bringing in groceries and noted Ms. Stromme’s car was reliably in the driveway around dinnertime. They also credibly recounted scenes of the Strommes having ordinary suburban American fun, like returning from a Minnesota Wild hockey game [Ed note: there’s nothing fun about a hockey game] or throwing a lively pool party–
Based in part on this damning testimony, the court was forced to conclude that while the Strommes owned two houses, only the Lacasse property was their home. And since the Strommes did not provide foster care in their home, the full amount of the payments were taxable, as the Strommes’ failed to meet the requirements of Section 131.
The decision was not without its controversy. While both Judges Holmes and Gustafson concurred with the opinion, they disagreed on the precedent being established.
Judge Holmes believed that a foster care provider could have more than one home; the exclusion is not limited to payments received for providing care at the taxpayer’s primary residence. For example, a taxpayer could own and reside in a primary residence as well as a vacation home, with foster care provided in either one qualifying for exclusion. The issue in Strommes — according to Judge Holmes — was that the Emil house was not even a vacation home, it was simply a place of business. But in other situations, where a taxpayer provided foster care services in one of several homes owned and used by the taxpayer as a residence, the taxpayer should be entitled to the Section 131 exclusion.
Judge Gustafson disagreed, arguing that exclusions must be narrowly construed, and thus a taxpayer’s home had to follow the singular language written into the statute.