Alejandro J. Rojas & Elena G. Rojas ( 2022 )

United States Tax Court
T.C. Memo. 2022-77ALEJANDRO J. ROJAS AND ELENA G. ROJAS,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 7453-19. Filed July 18, 2022.
—————
Michael K. Blue, for petitioners.
Nora Demirjian and Michael K. Park, for respondent.
MEMORANDUM OPINION
THORNTON, Judge: Respondent determined a $24,458
deficiency in petitioners’ 2016 federal income tax and a section 6662(a)
accuracy-related penalty of $4,892. 1 Respondent having conceded the
penalty, the issue for decision is whether petitioners may deduct as
alimony under section 215 certain payments that petitioner Alejandro
Rojas (Alejandro) made to his former spouse, Cristina Rojas (Cristina),
pursuant to a divorce decree. For the reasons explained below, we hold
that they may not.
The parties submitted this case for decision without trial
pursuant to Rule 122.
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
All monetary amounts are rounded to the nearest dollar.
Served 07/18/22
2
[*2] Background
Alejandro and Cristina married in 1995, separated in 2010, and
divorced in 2012. On July 25, 2012, the Los Angeles Superior Court
(L.A. Superior Court) entered a judgment of dissolution, to which was
attached a stipulated judgment that stated in part:
CHILD SUPPORT
a. Neither party shall pay child support to the other.
The Court shall retain jurisdiction over the issue of spousal
support until further order of the [C]ourt.
SPOUSAL SUPPORT
a. Neither party shall pay spousal support to the
other. The Court shall retain jurisdiction over the issue of
spousal support until mutual agreement or further order of
the [C]ourt, whichever event first occurs.
FAMILY SUPPORT
a. In addition to the above provisions regarding
support, family support shall be payable by Respondent
[Alejandro] to Petitioner [Cristina] in the monthly amount
of $4,500.00 payable on the 1st of each month. . . .
b. Such support order commences August 1, 2011
and is continuing until both minor children emancipate or
Petitioner remarries. If Petitioner remarries, the family
support obligation shall be modified to $2,500.00 per month
until each minor child emancipate[s]. . . . The Family
Support obligation is non-modifiable beyond the terms
listed above.
On December 16, 2013, Alejandro filed with the L.A. Superior
Court a request for order (RFO), seeking downward modification of child
support. In her response, Cristina opposed the granting of the RFO,
contending that “[t]here is no current child support order in place”
because the stipulated judgment provided only for family support, which
she contended should be construed as nonmodifiable spousal support.
On February 11, 2014, the L.A. Superior Court denied the RFO without
prejudice, stating in its order: “The Court makes a finding that there is
3
[*3] no current child support order.” The L.A. Superior Court further
found that the RFO sought to modify the existing family support order,
entered by way of stipulated judgment, but had “fail[ed] to provide the
legal authority to warrant such a modification.”
During 2016 Alejandro made 12 monthly payments of $5,824 each
to Cristina, for a total of $69,888. 2
After the divorce Alejandro married petitioner Elena J. Rojas. On
their joint Form 1040, U.S. Individual Income Tax Return, for taxable
year 2016 petitioners deducted $69,880 as alimony payments. 3 By
notice of deficiency respondent disallowed this deduction. While
residing in California, petitioners timely petitioned this Court.
Discussion
Section 215(a) generally permits an individual to deduct from
gross income “alimony or separate maintenance payments,” as defined
in section 71(b). 4 This deduction is allowable, however, only if the
alimony or separate maintenance payments are includible in the
recipient’s gross income under section 71. § 215(b). As a general rule,
alimony or separate maintenance payments are includible in the payee
spouse’s gross income. § 71(a). This general rule is inapplicable,
however, and consequently no deduction is allowable under section 215,
for certain such payments that are made or treated as made to support
the payor spouse’s children. § 71(c). More particularly, section 71(c)
provides in relevant part:
(1) In general.—Subsection (a) shall not apply to
that part of any payment which the terms of the divorce or
separation instrument fix (in terms of an amount of money
or a part of the payment) as a sum which is payable for the
support of children of the payor spouse.
2 The record does not reveal why these monthly payments were higher than
the $4,500 monthly family support payments required by the stipulated judgment.
3 The record does not explain the $8 discrepancy between this reported
deduction and the $69,888 of family support payments that Alejandro actually made
in taxable year 2016.
4 Congress repealed sections 71 and 215 for all divorce or separation
agreements executed or modified after December 31, 2018. Tax Cuts and Jobs Act of
2017, Pub. L. No. 115-97, § 11051, 131 Stat. 2054, 2089. This repeal does not affect
this case.
4
[*4] (2) Treatment of certain reductions related to
contingencies involving child.—For purposes of paragraph
(1), if any amount specified in the instrument will be
reduced—
(A) on the happening of a contingency
specified in the instrument relating to a child (such
as attaining a specified age, marrying, dying,
leaving school, or a similar contingency), or
(B) at a time which can be clearly associated
with a contingency of a kind specified in
subparagraph (A),
an amount equal to the amount of such reduction will be
treated as an amount fixed as payable for the support of
children of the payor spouse.
Respondent does not dispute that the payments in question meet
the definitional requirements of section 71(b)(1) for “alimony or separate
maintenance payment[s].” But according to the divorce instrument’s
express terms, the payments are subject to a child-related contingency.
Specifically, the payments continue only “until both minor children
emancipate or [Cristina] remarries.” Under California law a child is
emancipated upon any of the following events: (1) appointment of a
guardian of the person; (2) marriage; (3) attainment of majority;
(4) active duty with the armed forces of the United States; or (5) receipt
of a declaration of emancipation under the Emancipation of Minors Law.
10 B.E. Witkin, Summary of California Law, ch. XIV, § 356 (11th ed.
2021). Consequently, that provision of the divorce instrument requiring
Alejandro to make family support payments only until both minor
children emancipate is a child-related contingency that encompasses
types of contingencies expressly specified in section 71(c)(2)(A), i.e.,
“attaining a specified age, marrying . . . or a similar contingency.” See
also Temp. Treas. Reg. § 1.71-1T(c), Q&A-17. The existence of this child-
related contingency triggers the application of section 71(c)(1) and (2)(A)
and makes the payments in question nonincludible in Cristina’s gross
income under section 71(a) and hence nondeductible by petitioners
under section 215(b).
Petitioners argue that because the divorce instrument contains
both a child-related contingency (“until both minor children
emancipate”) and a spouse-related contingency (until Cristina
remarries), section 71(c)(2)(A) is inapplicable to this “mixed
contingency.” Petitioners’ argument is unavailing. Under the statute’s
clear terms, as construed in this Court’s well-established caselaw,
5
[*5] section 71(c)(2)(A) is triggered by “a contingency . . . relating to a
child” without regard to the existence of other contingencies. See, e.g.,
Biddle v. Commissioner, T.C. Memo. 2020-39 (holding that designated
“alimony” payments that terminated upon the youngest child’s 18th
birthday, the husband’s or wife’s death, the wife’s remarriage, or the
wife’s becoming self-supporting triggered application of section
71(c)(2)(A) to preclude any deduction under section 215); Hammond v.
Commissioner, T.C. Memo. 1998-53 (holding that designated “alimony”
payments that terminated upon the earlier of the child’s 18th birthday
or the wife’s remarriage triggered application of section 71(c)(2)(A) to
preclude any deduction under section 215); Fosberg v. Commissioner,
T.C. Memo. 1992-713 (holding that designated “alimony” payments that
terminated upon the earlier of the youngest child’s 18th birthday or the
wife’s death or remarriage triggered application of section 71(c)(2)(A) to
preclude any deduction under section 215).
Petitioners argue that because the L.A. Superior Court stated in
its February 11, 2014, order that “there is no current child support
order,” the Full Faith and Credit Act, 28 U.S.C. § 1738, precludes this
Court from characterizing the family support payments as
nondeductible child support. Petitioners’ reliance on the L.A. Superior
Court’s order and the Full Faith and Credit Act is misplaced. In the first
place, the L.A. Superior Court’s order merely reflects that under the
express terms of the divorce instrument the payments in question were
labeled neither as “child support” nor as “spousal support” but rather as
“family support,” which under California law represents combined, but
unallocated, child support and spousal support. Cal. Fam. Code § 92(West 2022); see Berry v. Commissioner, T.C. Memo. 2005-91. More
fundamentally, federal law rather than state law governs the federal
income tax treatment of such payments. See, e.g., Bardwell v.
Commissioner, 318 F.2d 786, 789 (10th Cir. 1963) (citing Soltermann v.
United States, 272 F.2d 387 (9th Cir. 1959)), aff’g 38 T.C. 84 (1962).
“Although the property interests of divorcing parties are determined by
state law, federal law governs the federal income tax treatment of that
property.” Hoover v. Commissioner, 102 F.3d 842, 844 (6th Cir. 1996)
(quoting Green v. Commissioner, 855 F.2d 289, 292 (6th Cir. 1988), rev’g
T.C. Memo. 1986-269), aff’g T.C. Memo. 1995-183. As discussed above,
our holding today does not turn upon the labels used either in the
divorce instrument or by the L.A. Superior Court to describe the
payments in question but rather upon the express terms of section 71(a)
and (c) that make the payments nonincludible in Cristina’s gross income
and hence nondeductible under section 215(b).
6
[*6] Finally, petitioners contend that it is inequitable to treat the
payments in question as nondeductible “child support” in the light of the
L.A. Superior Court’s order denying the RFO and purportedly rejecting
petitioners’ characterization of the payments as child support.
Petitioners invite us to apply equitable principles to allow them to
deduct the payments. Petitioners’ argument is without merit. As stated
in an analogous context in Paxman v. Commissioner, 50 T.C. 567, 576‒
77 (1968), aff’d, 414 F.2d 265 (10th Cir. 1969):
[W]e do not regard it as necessary to discuss the question
whether the allowance of deduction would or would not be
equitable, it being our opinion that it is sufficient to say
that not only is the Tax Court not a court of equity but that
petitioners, in effect, are asking us to legislate changes in
the statute as enacted by Congress. The proper forum for
a petition or plea of that kind is Congress. The power to
legislate is exclusively the power of Congress and not of
this Court or any other court.
See also Pollock v. Commissioner, 132 T.C. 21, 33 (2009) (“We are
similarly reticent in our refusal to create deductions, credits, or
exclusions out of a desire for a fairer outcome—we understand that this
would be legislation, and legislation belongs exclusively to Congress.”).
Accordingly, we sustain respondent’s disallowance of petitioners’
claimed alimony deduction. To reflect the foregoing and to give effect to
respondent’s concession of the section 6662(a) penalty,
An appropriate decision will be entered.