McElfresh v. Dept. of Rev.
This text of McElfresh v. Dept. of Rev. (McElfresh v. Dept. of Rev.) is published on Counsel Stack Legal Research, covering Oregon Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
JONATHAN PAUL McELFRESH, ) ) Plaintiff, ) TC-MD 190254G ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
Plaintiff appealed Defendant’s denial of his claimed Working Family Household and
Dependent Care (WFHDC) credit for tax year 2018. At trial, Plaintiff appeared pro se. He and
his mother, Jayne Scheckla, each testified. William Swanson, auditor, appeared on behalf of
Defendant and testified. Defendant’s Exhibits A to M were admitted without objection; Plaintiff
did not offer any exhibits.
I. STATEMENT OF FACTS
During all times relevant to this appeal, Plaintiff lived in his mother’s house with his
young daughter. His daughter began attending child care while he completed college, and his
mother, Ms. Scheckla, made all payments to the child care provider. Ms. Scheckla continued
paying the provider after Plaintiff graduated in 2017. A typed summary of receipts from the
child care provider shows that Ms. Scheckla paid $7,326 for child care in 2018. (Ex G.)
Plaintiff started making payments to his mother after finding employment in 2017 and
continued making payments to her throughout 2018. Ms. Scheckla testified that Plaintiff’s
payments partly satisfied monthly obligations for water, electricity, car insurance, cellular
telephone service, and child care, but not rent. She testified that he also repaid her a loan for a
down payment on a car. Ms. Scheckla testified that the remainder was satisfied through a “quid
DECISION TC-MD 190254G 1 of 5 pro quo” arrangement, whereby he would, for example, buy groceries for her. She testified she
kept a monthly tally of his quid pro quo expenses against his obligations to her, and he paid
whatever was left over each month—either by check, peer-to-peer payment software, or cash.
Other than the monthly tallies, which were not retained, there were no written records of the quid
pro quo arrangement.
The written evidence contains eight canceled checks and two printed records of peer-to-
peer money transfers from Plaintiff to Ms. Scheckla. (Ex I.) The amounts of the payments so
recorded total $7,922.10 in 2018 and vary widely. (Id.) Defendant does not dispute that those
payments occurred, and they are confirmed by bank statements from both Plaintiff and
Ms. Scheckla. (Exs J, K.) The payments occurred approximately monthly throughout the year,
usually around month’s end. On the memo line of each check was written “bills”; the peer-to-
peer payment confirmations contained no useful description of their purpose.
During the pendency of this appeal, Plaintiff prepared and, in response to questions from
Defendant’s auditor, revised a spreadsheet allocating the documented payments to various bills.
(Exs E, F.) His spreadsheets allocated fixed monthly amounts for water, car insurance, and
electricity, and a large one-time “transfer for car down payment” in October—the latter charge
being a repayment of a loan. (Id.) Plaintiff attributed whatever portion of his documented
payments exceeded his reported bills each month “directly to child care.” (Ex D at 3.) His
original spreadsheet reported the October loan repayment at $1,500 and the October child care
payment at $1,240, a singularly large amount. (Ex E.) In response to the auditor’s inquiry,
Plaintiff revised his spreadsheet to report a $2,500 loan repayment, leaving $240 allocated to
child care. (Exs D, F.) In three months, no amount was attributed to child care; child care
amounts for the other months varied from $221 to $843, totaling $3,690.10. (Ex F.)
DECISION TC-MD 190254G 2 of 5 Plaintiff claimed the WFHDC credit based on $7,326 in child care expenses, an amount
equal to the total payments shown on the child care provider’s typed summary of receipts. (Exs
A at 2; G.) Defendant adjusted Plaintiff’s return and disallowed the entire credit. (Id.) On
appeal, Plaintiff asks the court to reverse that adjustment.
II. ANALYSIS
At issue is whether Plaintiff qualified for the WFHDC credit and, if so, to what extent.
The WFHDC credit is a state tax credit equal to a means-tested percentage of the federal
tax credit allowed by section 21 of the Internal Revenue Code (IRC); the credit is allowed for
dependent child care expenses, among other things. ORS 316.078(1). 1 One requirement for
claiming the credit is that the expenses be paid by the taxpayer claiming the credit.
IRC § 21(a)(1). That requirement may be met where the care provider has been paid by a third
party whom the taxpayer has reimbursed. Gibson v. Dept. of Rev., TC–MD 060399C, 2007 WL
900764 (Or Tax M Div Mar 23, 2007) (allowing credit where taxpayer reimbursed mother’s
payments to provider).
Here, it is agreed that the child care provider was paid by Ms. Scheckla. Any payments
from Plaintiff to his mother reimbursing her for child care expenses would therefore qualify him
for the WFHDC credit. See Gibson, 2007 WL 900764. While Plaintiff made some payments to
his mother, Defendant does not concede that any of those payments were for child care.
As the party seeking relief from the taxing authority’s decision, Plaintiff must bear the
burden of proving what portion, if any, of his payments to Ms. Scheckla were for child care
rather than other bills. See ORS 305.427. To show that a payment is for child care, a taxpayer
ordinarily must provide contemporaneous written evidence, such as canceled checks or receipts.
1 The court’s references to the Oregon Revised Statutes (ORS) are to 2017.
DECISION TC-MD 190254G 3 of 5 Shirley v. Dept. of Rev., TC–MD 130451D, 2014 WL 811543 at *3 (Or Tax M Div Mar 3, 2014)
(stating properly completed contemporaneous receipts are “essential evidence” for taxpayers
paying for child care with cash).
Here, although Plaintiff alleges he made additional payments via cash and the “quid pro
quo” arrangement, he only retained records of his payments by check and peer-to-peer payment
software. Without written records, he has not borne his burden of proof with respect to any
additional payments. See Shirley, 2014 WL 811543.
Plaintiff argues the evidence shows he paid at least some of the child care expenses. The
evidence consists of the spreadsheet prepared before trial, buttressed by the testimony of Plaintiff
and his mother. In the spreadsheet, Plaintiff has concluded the portion of his proven payments
attributable to child care by subtracting amounts credited to various monthly bills.
This case illustrates the difficulty of establishing the purpose of payments without
contemporaneous evidence. Plaintiff has had many economic transactions with his mother; at a
distance of a year or two, difficulty in recalling them all would not be unusual. In this case,
Plaintiff’s spreadsheet originally underreported a $2,500 loan repayment by $1,000. Likewise,
Plaintiff’s spreadsheet does not include his cellular telephone bill, the existence of which
Ms. Scheckla testified to at trial. No evidence establishes the amount of that cellular telephone
bill. Indeed, no evidence corroborates the amounts shown on the spreadsheet for any of the bills.
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