Schwening v. Comm'r ( 2009 )

T.C. Summary Opinion 2009-7
UNITED STATES TAX COURT
JORDAN LEE SCHWENING, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27056-07S. Filed January 8, 2009.
Jordan Lee Schwening, pro se.
Douglas S. Polsky, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2004,
the taxable year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a deficiency of $2,900 in petitioner’s
Federal income tax for 2004. The sole question presented for
decision is whether payments petitioner made to his ex-wife met
the definition of “alimony” under the Internal Revenue Code.
Because we are required to hold that those payments were not
alimony, we must sustain respondent’s determination.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time the petition was filed, Jordan Lee Schwening
(petitioner) resided in the State of Kansas.
The marriage between petitioner and his ex-wife was
dissolved in 2001 by a State court in Colorado. Pursuant to that
court’s Stipulated Final Orders (final orders), petitioner was to
pay his ex-wife “the amount of $1,700 per month as and for family
maintenance.” The payments were to “be made for six years from
April 1, 2001, and * * * [are] non-modifiable.” The final
orders further explained that “if [minor child] is still in his
minority at the end of the said six-year period of non-modifiable
maintenance, the parties shall agree to an amount of child
support for that child.”
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In 2004, petitioner paid his ex-wife $11,200 pursuant to the
final orders, and he deducted that amount as alimony on his
Federal income tax return.2
Respondent disallowed the claimed deduction because the
payments did not meet the requirements for an alimony deduction
under section 71.
Discussion3
Section 71(a) provides the general rule that alimony
payments are included in the gross income of the payee spouse;
section 215(a) provides the complementary general rule that
alimony payments are tax deductible by the payor spouse in “an
amount equal to the alimony or separate maintenance payments paid
during such individual’s taxable year.”
The term “alimony” means any amount received as alimony or
separate maintenance payments as defined in section 71, the
relevant provision of which explains:
SEC. 71(b). Alimony or Separate Maintenance Payments
Defined.--For purposes of this section--
(1) In general.–-The term “alimony or
separate maintenance payment” means any
payment in cash if--
2
Because of some difficult economic circumstances,
petitioner was unable to pay his ex-wife the full amount of
$20,400 due at that time.
3
The issue for decision is essentially legal in nature;
accordingly, we decide it without regard to the burden of proof.
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(A) such payment is received by (or on
behalf of) a spouse under a divorce or
separation instrument,
(B) the divorce or separation instrument
does not designate such payment as a payment
which is not includible in gross income * *
* and not allowable as a deduction under
section 215,
(C) in the case of an individual legally
separated from his spouse under a decree of
divorce or of separate maintenance, the payee
spouse and the payor spouse are not members
of the same household at the time such
payment is made, and
(D) there is no liability to make any
such payment for any period after the death
of the payee spouse and there is no liability
to make any payment (in cash or property) as
a substitute for such payments after the
death of the payee spouse.
Both parties agree that petitioner’s payments to his ex-wife
satisfied the requirements set out in section 71(b)(1)(A), (B),
and (C). The parties do not agree, however, whether the
requirement to make payments would have terminated in the event
of petitioner’s ex-wife’s death. See sec. 71(b)(1)(D).
Although section 71(b)(1)(D) originally required that a
divorce or separation instrument affirmatively state that
liability for payments terminate upon the death of the payee
spouse in order to be considered alimony, the statute was
retroactively amended in 1986 so that such payments now qualify
as alimony as long as termination of such liability would occur
upon the death of the payee spouse by operation of State law.
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Hoover v. Commissioner, 102 F.3d 842, 845-846 (6th Cir. 1996),
affg. T.C. Memo. 1995-183. If the payor is liable for any
qualifying payment after the recipient’s death, none of the
related payments required will be deductible as alimony by the
payor. See Kean v. Commissioner, 407 F.3d 186, 191 (3d Cir.
2005), affg. T.C. Memo. 2003-163.
Here, the final orders do not provide any conditions for the
termination of the payments to petitioner’s ex-wife other than
the operation of time and a minor child reaching the age of
majority; some courts have held that “payments are not considered
alimony to the extent that the divorce or separation instrument
fixes a sum of money as child support, or provides that the
payments are reduced on the happening of an event related to the
child, or at a time associated with such an event.” Kean v.
Commissioner, supra at 192 (Emphasis in original).
Because the final orders do not expressly provide for the
termination of petitioner’s payments in the event of his ex-
wife’s death, we look to Colorado State law to resolve the issue.
See Morgan v. Commissioner, 309 U.S. 78, 80-81 (1940); see also,
e.g., Kean v. Commissioner, supra at 191; Sampson v.
Commissioner, 81 T.C. 614, 618 (1983), affd. without published
opinion 829 F.2d 39 (6th Cir. 1987); Berry v. Commissioner, T.C.
Memo. 2000-373 (stating: “Although Federal law controls in
determining [the taxpayer’s] income tax liability * * *, State
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law is necessarily implicated in the inquiry inasmuch as the
nature of [the payor’s] liability for the payment” was based in
State law), affd. 36 Fed. Appx. 400 (10th Cir. 2002).
Petitioner contends that the intent of the final orders was
both to provide for the deductibility of his payments and to
comply with Colo. Rev. Stat. 14-10-122(2) (2008), the Colorado
rule clarifying that the obligation to pay future maintenance
terminates on the death of either party. Petitioner testified
that his ex-wife also agreed that the payments made to her would
be deductible to him. However, Colo. Rev. Stat. 14-10-122(2)
speaks to “future maintenance”, not “family maintenance”, and it
is the latter that is the relevant term in the final orders.
Further, because the final orders’ provision clearly deals with,
at least in part, child support, we are unable to ascertain what
portion of petitioner’s payments might have been for spousal
support and what portion was intended to provide support of the
couple’s children. Compare sec. 71(c) (explaining that child
support is not “alimony”) and Colo. Rev. Stat. 14-10-122(3)
(explaining that child support payments do not terminate upon the
death of a parent obligated to support the child); See also Colo.
Rev. Stat. 14-10-122(2).
What we can ascertain is that the final orders contain a
provision that calls for petitioner to provide unallocated
support through monthly payments to his ex-wife. Thus, if the
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unallocated support payments would terminate upon petitioner’s
ex-wife’s death, petitioner’s payments would be considered
alimony. If not, then we must sustain respondent’s
determination.
Petitioner argues that any portion of the payments providing
for child support would terminate in the event of his ex-wife’s
death because petitioner would then become the custodial parent.
Unfortunately, as logical as that argument might seem, the law
does not operate that way. Child support is expressly not
“alimony”. Sec. 71(c).
The Court of Appeals for the Tenth Circuit has explained
that, under Colorado law, unallocated payments of temporary
maintenance and child support do not terminate upon the death of
the payee spouse and are thus not deductible as “alimony”.
Lovejoy v. Commissioner, 293 F.3d 1208, 1211 (10th Cir. 2002),
affg. Miller v. Commissioner, T.C. Memo. 1999-273. In the
absence of a different interpretation from the Colorado Supreme
Court, Lovejoy is both controlling and on point.
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For the reasons discussed above, we sustain respondent’s
determination that petitioner’s payments made to his ex-wife in
2004 did not satisfy the statutory requirements of section 71,
and, accordingly,
Decision will be entered
for respondent.