Haubrich v. Comm'r

T.C. Memo. 2008-299
UNITED STATES TAX COURT
GREGORY H. HAUBRICH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24079-06. Filed December 30, 2008.
Frederick J. O’Laughlin, for petitioner.
William F. Castor, for respondent.
MEMORANDUM OPINION
MARVEL, Judge: Petitioner timely petitioned this Court for
redetermination of an income tax deficiency of $2,245 for 2004
determined by respondent in a notice of deficiency dated
August 22, 2006. The deficiency is attributable to the
disallowance of a $12,625 alimony deduction petitioner claimed on
his 2004 Federal income tax return. The issues for decision are
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whether petitioner is entitled to a deduction for alimony paid
during 2004 pursuant to section 2151 and if so, the amount.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. Our findings of fact consist of the stipulated facts
and facts drawn from stipulated exhibits.
Petitioner resided in Oklahoma when he petitioned the Court.
Petitioner’s Divorce Decree
In 2001 Betty A. Haubrich (Ms. Haubrich) filed for divorce
from petitioner in the District Court of Oklahoma County,
Oklahoma (district court). On August 13, 2003, the district
court entered a decree of divorce dissolving the marriage of Ms.
Haubrich and petitioner and approving a Joint Custody Plan that
was attached to the divorce decree as Exhibit A and incorporated
therein and that set forth the custody arrangements regarding the
two minor children of petitioner and Ms. Haubrich--MMH and ODH.
Among other things, the divorce decree provided the
following:
1. Petitioner and Ms. Haubrich have joint custody over the
children, but Ms. Haubrich is the primary custodial parent and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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has physical custody of the children, subject to the agreed
visitation rights of petitioner.
2. Petitioner must pay Ms. Haubrich child support of $1,000
per month starting June 1, 2003, and continuing on the first day
of each month thereafter for MMH through age 18 and for ODH until
her 21st birthday or further order of the Court.
3. Petitioner must pay a $3,500 child support arrearage2 at
the rate of $250 per month starting July 15, 2003, and continuing
on the 15th day of each month thereafter until the arrearage is
fully paid.
4. Petitioner must pay Ms. Haubrich support alimony of
$72,000, at the rate of $1,000 per month starting July 2003 and
continuing each month thereafter until the full alimony award is
satisfied.
5. Petitioner and Ms. Haubrich are to share responsibility
for the children’s medical insurance premiums and health expenses
not compensated by insurance in the following percentages:
petitioner (75 percent) and Ms. Haubrich (25 percent). If
petitioner or Ms. Haubrich pays more than the required
percentage, the other party has to reimburse the payor within 30
days of receipt of the appropriate expense documentation
(reimbursement obligation).
2
The arrearage arose under an Agreed Temporary Order that
had been entered in the divorce proceeding on Jan. 4, 2002.
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Petitioner’s 2003 Payment Obligations and Payments
The divorce decree required petitioner to make installment
payments of $14,500 ($7,000 of child support, $6,000 of support
alimony, and $1,500 toward the child support arrearage) during
2003. However, petitioner made payments of only $5,375, leaving
a payment shortfall of $9,125 for 2003. Ms. Haubrich, who kept
spreadsheets of payments due under the divorce decree, applied
the 2003 payments of $5,375 to child support ($2,675), support
alimony ($2,325), and arrearage ($375).
After accounting for the 2003 payments, Ms. Haubrich’s
spreadsheets showed that petitioner owed the following unpaid
amounts for 2003: Child support ($4,325), support alimony
($3,675), and child support arrearage ($1,125).
On March 8, 2004, the district court entered an order
awarding Ms. Haubrich a judgment against petitioner of $12,825,3
representing the unpaid child support, support alimony, and child
support arrearage through February 2004.
Petitioner’s 2004 Payment Obligations and Payments
The divorce decree required petitioner to make total
installment payments during 2004 of $26,000 ($12,000 of child
support, $12,000 of support alimony, and $2,000 toward the child
support arrearage). The divorce decree also required petitioner
3
Ms. Haubrich’s spreadsheets showed a delinquency totaling
$12,875 for the same period.
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to pay his reimbursement obligation, which totaled $6,022.49
according to Ms. Haubrich’s spreadsheets.4 Petitioner, however,
made payments under the divorce decree during 2004 totaling only
$17,962.82, $14,059.67 less than the divorce decree required.
Ms. Haubrich applied the 2004 payments as follows: $4,325 to
2003 child support, $12,000 to 2004 child support, $142.64 to the
child support arrearage, $1,495.18 to petitioner’s reimbursement
obligation, and none to support alimony.5 After applying the
2004 payments as described above, Ms. Haubrich’s spreadsheets
showed the following balances due from petitioner as of the end
of 2004: Unpaid child support installments from 2003 and 2004--
none; unpaid support alimony from 2003 and 2004--$15,675; unpaid
balance of child support arrearage--$3,982.36;6 unpaid balance of
petitioner’s share of children’s health expenses--$4,527.31.
4
According to Ms. Haubrich’s spreadsheet, which was a
stipulated exhibit, the children’s medical/dental expenses for
2004 totaled $8,029.98, and petitioner’s share totaled $6,022.49
(75 percent x $8,029.98).
5
Petitioner stipulated that his reimbursement obligation for
2004 was at least $1,495.18. However, he did not object to the
admission of Ms. Haubrich’s spreadsheets, and he did not
stipulate that he disputed the accuracy of any items on the
spreadsheets.
6
The total child support arrearage resulting from the
temporary order was $3,500. The divorce decree required
petitioner to pay the arrearage in 14 equal monthly payments of
$250. Ms. Haubrich’s spreadsheets record 18 payment
installments, resulting in what appears to be an incorrect
balance.
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Petitioner’s 2004 Return; Notice of Deficiency
Petitioner filed a Form 1040, U.S. Individual Income Tax
Return, for 2004 on which he claimed an alimony deduction of
$12,625 for alimony he claimed he paid to Ms. Haubrich. In the
notice of deficiency that was issued to petitioner for 2004,
respondent disallowed the alimony deduction in full.
Discussion
A taxpayer who receives alimony payments during a taxable
year must include those payments in his or her gross income for
the year in which the payments are received. Sec. 71(a). A
taxpayer who makes alimony payments that satisfy the requirements
of section 215 may deduct those payments on the income tax return
for the year in which the payments are made. Sec. 215.
Section 71(b)(1) defines the term “alimony” as follows:
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--
(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 under
this section 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 separate maintenance, the payee
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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.
However, section 71(c)(1) provides that alimony does not include
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 as child support.
See also Daley v. Commissioner, T.C. Memo. 1991-555, affd.
without published opinion 982 F.2d 528 (10th Cir. 1992). If any
payment is less than the required child support payment specified
in the relevant divorce or separation instrument, then the
payment is applied first to satisfy the payor’s child support
obligation. Sec. 71(c)(3); see also Hazam v. Commissioner, T.C.
Memo. 2000-71; Thornton v. Commissioner, T.C. Memo. 1992-286;
Daley v. Commissioner, supra.
The divorce decree required petitioner to make total
installment payments of $26,000 during 2004, consisting of child
support payments of $12,000, payments of $2,000 toward the child
support arrearage that had accumulated because of petitioner’s
failure to make child support payments under the temporary order,
and support alimony of $12,000. The divorce decree also required
petitioner to pay his reimbursement obligation, which totaled
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$6,022.49 for 2004 according to Ms. Haubrich’s spreadsheets. In
addition, because petitioner paid only $5,375, which should have
been applied to his 2003 child support and arrearage obligation
of $8,500, petitioner still owed $3,125 in unpaid child
support/arrearage for 2003.7
Petitioner paid only $17,962.82 during 2004. The issue we
must decide is whether petitioner properly deducted any portion
of that amount as alimony under section 215. The answer is no.
Under section 71(c)(3) payments must first be applied to a
taxpayer’s unpaid child support obligation, and any payments so
applied are not alimony. Petitioner’s unpaid child support
obligation (including the unpaid child support arrearage and
petitioner’s reimbursement obligation) before application of
petitioner’s 2004 payments were as follows:
2004 child support obligation $12,000.00
2004 child support arrearage 2,000.00
2003 unpaid child support 3,125.00
2004 reimbursement obligation 6,022.49
Total child support obligation due 23,147.49
Because petitioner’s total payments for 2004 of $17,962.82 were
less than the total child support that he owed for 2004
(including arrearages and reimbursement obligation), the payments
must be allocated to child support and may not be deducted as
7
Because his payments should have been applied first to his
2003 child support obligation and to his child support arrearage,
see sec. 71(c)(3), petitioner also owed $6,000 of support alimony
for 2003.
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alimony under section 215. Sec. 71(c)(3); see also Hazam v.
Commissioner, supra.8
To reflect the foregoing,
Decision will be entered for
respondent.
8
In making this analysis, we have disregarded Ms. Haubrich’s
allocation of the 2003 and 2004 payments she received. Although
Ms. Haubrich allocated a portion of the 2003 payments to alimony,
sec. 71(c) specifies the rules we must follow in determining
whether a payment is treated as child support instead of alimony
for Federal income tax purposes. However, even if we were to
accept Ms. Haubrich’s allocation as controlling, we would still
conclude that petitioner is not entitled to an alimony deduction
for 2004 because petitioner’s unpaid child support obligation
(including petitioner’s reimbursement obligation) in 2004 using
Ms. Haubrich’s figures was even higher than the figure calculated
herein.