Jeffrey Siegel & Sandra Siegel v. Commissioner

T.C. Memo. 2019-11UNITED STATES TAX COURT
JEFFREY SIEGEL AND SANDRA SIEGEL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27572-16. Filed February 14, 2019.
Peter J. Tomao and Lawrence J. Scherer, for petitioners.
Jerry M. Innocent and Gennady Zilberman, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined that petitioners had a $44,281
deficiency in Federal income tax for 2012. This determination resulted from
respondent’s disallowance of $115,618 of petitioners’ $242,137 deduction of
payments of alimony arrearages for 2012.
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[*2] We granted respondent’s motions to remove the small tax case designation
and for leave to file an amended answer asserting an increased deficiency against
petitioners based on the denial of $225,000 instead of $115,618 of petitioners’
alimony deduction. Thus, the issue for decision is whether petitioners are entitled
to deduct as alimony arrearages $242,137 (as petitioners claimed and contend) or
$17,137 (as respondent contends). We hold that petitioners are entitled to deduct
alimony of $242,137 for 2012.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.2
A. Mr. Siegel’s Prior Marriage
Jeffrey Siegel (petitioner) and Belinda Johnson (his ex-spouse) were
married on September 16, 1989, and have two daughters.
Petitioner and his ex-spouse were divorced pursuant to a judgment of
divorce entered in the Supreme Court of New York, County of Nassau, on May
1
Under the Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, sec. 11051,
131 Stat. at 2089-2090, alimony paid is no longer deductible if paid pursuant to a
divorce instrument executed after December 31, 2018. That statutory change does
not apply to the tax year before the Court in this case.
2
Petitioners resided in Florida when the petition was filed. Unless otherwise
indicated, section references are to the Internal Revenue Code in effect for the year
in issue. Rule references are to the Tax Court Rules of Practice and Procedure.
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[*3] 23, 2003. Under the judgment of divorce, petitioner was required to make
monthly spousal maintenance payments to his ex-spouse of $10,110 per month
and child support payments of $5,000 per month.
B. Petitioner’s Maintenance Obligations From 2003 to 2007
After the divorce petitioner’s business went into bankruptcy, his income fell
drastically, and he fell behind in making the payments required by the judgment of
divorce. In May 2004 his ex-spouse obtained an order from a judge of the
Supreme Court of New York, County of Nassau, for entry of a money judgment3
of $228,483 against petitioner. On December 19, 2006, the Family Court of New
York, County of New York, found petitioner to be in arrears of $253,622. On
September 14, 2007, the Family Court issued a money judgment of $216,625
against petitioner.
C. Petitioner’s Maintenance Obligations From 2008 to 2012
On August 15, 2008, petitioner’s ex-spouse filed a motion in the Supreme
Court of New York, County of Nassau, to hold petitioner in contempt and to
enforce the financial provisions of the judgment of divorce. Petitioner filed a
motion on September 17, 2008, seeking (1) to reduce his child support and obtain
3
“Money judgment” has been defined as “[a] judgment for damages subject
to immediate execution, as distinguished from equitable or injunctive relief.”
Black’s Law Dictionary 920 (9th ed. 2009).
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[*4] other relief and (2) to consolidate those requests with his ex-spouse’s
contempt petition. Those cases were consolidated and a hearing was held before a
special referee of the Supreme Court of New York, County of Nassau, who issued
a report dated November 23, 2010.
From the entry of the 2007 money judgment until the issuance of the
November 23, 2010, report, petitioner made 92 child support and alimony
payments to his ex-spouse totaling $255,410.
The special referee recommended that the Supreme Court of New York,
County of Nassau, grant petitioner’s motion to reduce the amount of petitioner’s
child support payments and also concluded that petitioner had willfully failed to
comply with a lawful order of support. Taking into account the reduction of
petitioner’s support obligations, the special referee calculated that from July 2006
to August 2010 petitioner owed his ex-spouse $567,991 in child support, alimony,
and attorney’s fees. Taking into account payments made by petitioner from July
2006 through August 2010, the total remaining arrearages were $242,137. The
referee also recommended that the Supreme Court of New York, County of
Nassau, award attorney’s fees of $156,000 to petitioner’s ex-spouse. Finally, the
special referee found that petitioner owed $25,000 to a financial account held by
one of his daughters.
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[*5] D. 2012 Order
By order dated February 12, 2012 (2012 order), the Supreme Court of New
York found petitioner to be in contempt and sentenced him to 150 days in jail
unless he paid $25,000 to his daughter’s account and $225,000 to his former
spouse. The order also confirmed all of the findings of the special referee. In this
order, the court stated that it is
ORDERED and ADJUDGED, that Defendant, Jeffrey Siegel, is
found to be in contempt for his wilful violations of the terms of orders
of the court * * *. Having the opportunity to be fully heard on the
issue at hearing, the Defendant, Jeffrey Siegel, is sentenced to
incarceration in the Nassau County Correctional Facility for a period
of one hundred and fifty (150) days. The court hereby stays this
provision for Defendant’s incarceration and permits the contemnor to
purge his contempt by the payment of $25,000 to the 529 Account of
* * * [daughter] and naming the Wife the Trustee of this Account and
the payment of $225,000 to Plaintiff. Both of these purge provisions
shall be made on or before May 30, 2012. Payment to the Plaintiff of
the sum of $225,000 shall be by bank or certified check, delivered to
Plaintiff’s attorney. The failure to make the payments directly to the
Plaintiff and to the * * * [daughter’s account] and to name the wife as
Trustee as directed herein on or before May 30, 2012 shall result in
the issuance of a warrant of arrest for the contemnor, Jeffrey Siegel.
Petitioner submitted a check for $250,000 to the attorneys for his ex-spouse
on June 6, 2012. The Office of Child Support Enforcement applied $225,000 of
this payment to arrearages petitioner owed to his ex-spouse.
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[*6] E. Petitioners’ Tax Return for 2012
On their jointly filed Form 1040, U.S. Individual Income Tax Return, for tax
year 2012, petitioners deducted $242,137 for alimony paid.
OPINION
The sole issue for decision is whether petitioners may deduct alimony paid
of $242,137 (as petitioners contend) or only $17,137 (as respondent contends),
i.e., whether $225,000 that petitioner paid in response to the 2012 order is
deductible.
A. Burden of Proof
The Commissioner’s determinations in a notice of deficiency are generally
presumed correct, and the taxpayer bears the burden of proving them erroneous.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). However, if the
Commissioner raises a new issue or seeks an increase in the deficiency, the
Commissioner has the burden of proof as to the new issue or the increased
deficiency. Rule 142(a)(1). Petitioners contend that the burden of proof on all
amounts in dispute shifts to respondent under section 7491(a). We need not
consider the burden of proof further because no fact is in dispute relating to
petitioners’ claim.
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[*7] B. Section 71(b)
“Alimony or separate maintenance payment” is defined in section 71(b) as
any payment in cash if (1) such payment is received by a spouse under the divorce
decree, (2) the divorce or separation agreement does not designate such payment
as a payment which is not includible in gross income under section 71 and not
allowed as a deduction under section 215, (3) the spouses are not living in the
same household at the time of the payment, and (4) there is no liability to make the
payments 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. The parties agree that the payments
made pursuant to the 2012 order meet the first three criteria, but they dispute
whether petitioner would have remained liable for making the payments after his
ex-spouse’s death.
C. The Parties’ Primary Contentions
Petitioners contend that they may deduct $225,000 because the amount was
payment of alimony arrearages pursuant to petitioner’s maintenance obligations
and lump-sum payments of alimony arrearages retain their character as alimony
paid.
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[*8] Respondent contends that the 2012 order should be treated as a money
judgment because the New York court which issued it was authorized only to
issue a money judgment to enforce the payment of alimony arrearages. Petitioners
respond to that contention by citing authority under New York law for the
issuance of a contempt order to achieve the payment of alimony arrearages.
D. Discussion
1. Whether Alimony Arrearages Petitioner Paid Retain Their Character
as Alimony Paid
Petitioner paid $250,000 of arrearages relating to the termination of his
prior marriage to avoid imposition of a 150-day jail term under the 2012 order. Of
that amount, $225,000 was arrearages in alimony payments. Lump-sum payments
of alimony or child support arrearages generally retain their character as alimony
or child support for Federal tax purposes. Barrett v. United States, 74 F.3d 661(5th Cir. 1996); Bernard v. Commissioner, 87 T.C. 1029, 1036 (1986); Davis v.
Commissioner, 41 T.C. 815, 820 (1964); Berry v. Commissioner, T.C. Memo.
2005-91; see also Rev. Rul. 55-457, 1955-2 C.B. 527.
2. Whether the 2012 Order Is a Money Judgment
The 2012 order found petitioner in contempt and provided a choice to
petitioner: go to jail for 150 days or pay $250,000 in arrearages relating to his
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[*9] divorce. It did not require any payment if petitioner decided to accept the jail
term.
The 2012 order can be contrasted with the 2007 money judgment. The 2007
money judgment states that “judgment be entered in favor of * * * [petitioner’s ex-
spouse] against * * * [petitioner] in the amount of $216,625”. The 2007 money
judgment also states that “a certified copy of said judgment may be filed in the
county clerk’s office in accordance with [s]ection 460 of the Family Court Act”.
Under New York law, a “certified copy of the order directing the entry of a money
judgment shall be entered in the office of the clerk of the county in which the
proceeding was commenced.” N.Y. Fam. Ct. Act (FCA) sec. 460(2) (McKinney
2018). In contrast with the 2007 money judgment, the 2012 order enters no
judgment in favor of petitioner’s ex-spouse and by its terms provided her with no
means of enforcing the judge’s order. By its terms the 2012 order clearly is not a
money judgment. The 2012 order is a contempt order to achieve the payment of
alimony arrearages, as petitioner contends.
3. Whether the 2012 Order Should Be Treated as a Money Judgment
Respondent contends that the 2012 order was (or should be treated as) a
money judgment because FCA sec. 454(2)(a) (McKinney 2018) provides that the
judge, upon a finding of failure by a party to comply with a lawful support order,
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[*10] “shall” enter a money judgment under FCA sec. 460. FCA sec. 454 provides
in pertinent part:
1. If a respondent is brought before the court for failure to
obey any lawful order of support and if, after hearing, the court is
satisfied by competent proof that the respondent has failed to obey
any such order, the court may use any or all of the powers conferred
upon it by this part. The court has the power to use any or all
enforcement powers in every proceeding brought for violation of a
court order under this part regardless of the relief requested in the
petition.
2. Upon a finding that a respondent has failed to comply with
any lawful order of support:
(a) the court shall enter a money judgment under section four
hundred sixty of this article; and
* * * * * * *
3. Upon a finding by the court that a respondent has willfully
failed to obey any lawful order of support, the court shall order
respondent to pay counsel fees to the attorney representing petitioner
pursuant to section four hundred thirty-eight of this act and may in
addition to or in lieu of any or all of the powers conferred in
subdivision two of this section or any other section of law:
(a) commit the respondent to jail for a term not to exceed six
months. * * *
FCA sec. 460 provides in pertinent part:
1. Where the family court enters an order:
(a) requiring any party to provide for the support of another
party, or child, or both; or
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[*11] (b) providing for the support or maintenance of a spouse or
former spouse, or child, or both, on a referral from the supreme court
in an action for divorce, separation, annulment or a proceeding for the
determination of the custody of a minor by writ of habeas corpus or
by petition and order to show cause; or
(c) enforcing or modifying an order or decree of a court of
competent jurisdiction not of the state of New York providing for the
support of the petitioner and/or child support; or
(d) awarding support under article five-B of this Act; or
(e) awarding counsel fees under this act; and the party defaults
in paying any sum of money due as required by the order directing the
payment thereof, the court, without regard to the amount due, shall
make an order directing the entry of judgment for the amount of child
support arrears, together with costs and disbursements. The court
shall make an order directing the entry of judgment for the amount of
arrears of any other payments so directed, together with costs and
disbursements, unless the defaulting party shows good cause for
failure to make application for relief from the judgment or order
directing such payment prior to the accrual of such arrears. * * *
Thus, respondent contends, in essence, that because FCA sec. 454 provides that
the judge “shall” enter a money judgment, the 2012 order is (or should be treated
as) a money judgment.
We disagree. First, as just discussed, by its terms the 2012 order is not a
money judgment. Second, and more fundamentally, beyond the authority provided
by FCA sec. 454, a judge of the Supreme Court of the State of New York, which
issued the 2012 order, also has authority to find a party in contempt under the
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[*12] circumstances present here and to impose a jail sentence if a mandated
payment is not made. N.Y. C.P.L.R. 5210 (McKinney 2018) provides that
“[e]very court in which a special proceeding to enforce a money judgment may be
commenced, shall have power to punish a contempt of court committed with
respect to an enforcement procedure.” N.Y. Jud. Law sec. 753 (McKinney 2018)
provides:
A. A court of record has power to punish, by fine and
imprisonment, or either, a neglect or violation of duty, or other
misconduct, by which a right or remedy of a party to a civil action or
special proceeding, pending in the court may be defeated, impaired,
impeded, or prejudiced, in any of the following cases:
* * * * * * *
3. A party to the action or special proceeding, an attorney,
counselor, or other person, for the non-payment of a sum of money,
ordered or adjudged by the court to be paid, in a case where by law
execution can not be awarded for the collection of such sum except as
otherwise specifically provided by the civil practice law and rules; or
for any other disobedience to a lawful mandate of the court.
As a court of record with the authority to enforce a money judgment, the Supreme
Court of the State of New York, Nassau County, had contempt authority under
both N.Y. C.P.L.R. 5210 and N.Y. Jud. Law sec. 753.4
4
Respondent relies on Iglicki v. Commissioner, T.C. Memo. 2015-80, which
involved a payment made pursuant to a money judgment. Having decided that the
2012 order was not a money judgment, see supra pp. 8-13, we need not consider
(continued...)
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[*13] 4. Conclusion
On the basis of the foregoing, we hold that petitioners may deduct alimony
paid of $242,137 for 2012.
Decision will be entered
for petitioners.
4
(...continued)
Iglicki.