Simpson v. Commissioner

T.C. Memo. 1999-251

UNITED STATES TAX COURT

RENEE B. SIMPSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16789-97. Filed July 29, 1999.

Frederich Earl Liechti, for petitioner.

John M. Zoscak, Jr., for respondent.

MEMORANDUM OPINION

DEAN, Special Trial Judge: This case was heard pursuant to

section 7443A(b)(3) and Rules 180, 181, and 182.1

1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 2 -

Respondent determined deficiencies of $3,063 and $2,750 in

petitioner's Federal income taxes for 1994 and 1995,

respectively.

The issue for decision is whether petitioner must include

payments from her former husband in income under section 71.

Some of the facts were stipulated and are so found. The

stipulation of facts and annexed exhibits are incorporated herein

by reference. Petitioner resided in Burgettstown, Pennsylvania,

at the time her petition was filed.

Petitioner separated from her former husband, Barry Simpson,

in January of 1990 and was divorced on September 30, 1993.

During their period of separation, the Family Division of the

Court of Common Pleas for Washington County, Pennsylvania (family

court) entered an order requiring Mr. Simpson to make payments to

petitioner in the following manner:

AND NOW, this AUGUST 13, 1992, it is hereby ordered
that the Payor pay to the Family Division, Court of
Common Pleas SEVEN HUNDRED EIGHTEEN Dollars ($718.00) a
month payable as follows: One half thereof on the 28TH
day of AUGUST and the other half thereof on the 13TH
day of SEPTEMBER and like and equal amounts on the 28TH
and 13TH days of each and every month thereafter.
Arrears are set at $2,154.00, as of 8-13-92 due in full
IMMEDIATELY. Contempt proceedings will not be
initiated as long as payor pays $25.00 per month on
arrears, one half on each of the above dates. For the
support of: SPOUSE AND TWO CHILDREN, SHANNON AND
JEFFREY. ARREARS SET ABOVE ARE RETROACTIVE TO 5-8-92.
(BASE ORDER AMOUNT IS CONSIDERED TO BE $1,287 MINUE
[sic] $569 (REPRESENTING DEBTS PAYMTS TOWARDS: $70/MO
DELINQ UTILITIES. $357/MO DIRECT PAYMT FOR MARITAL
MORT AND $142/MO FOR PRO-RATED HOME EQUITY LOAN FOR
 - 3 -

MARITAL DEBTS = $718/MO (MONEY ORDER AMT). PARTIES TO
SHARE EQUALLY PAROCHIAL SCHOOL TUITION FOR SON WITH
BOTH PAYING TUITION DIRECTLY TO SCHOOL. PLTF TO
MAINTAIN MED INS ON SELF AND CHILDREN AVAILABLE THROUGH
HER EMPLOYER AT REASONABLE COST. * * *

As stated in the order, Mr. Simpson was to make a monthly

payment of $718 through the family court towards the support of

his spouse and two children, Shannon and Jeffrey. No specific

amount of the payment was allocated to either spousal support or

child support.

The family court order also stated that Mr. Simpson was to

make monthly payments in the amounts of $70 towards delinquent

utilities, $357 towards the marital mortgage, and $142 towards a

home equity loan taken out during the marriage. To the extent

these debts were still outstanding, Mr. Simpson made the required

payments directly to the third party creditors throughout 1994

and 1995. Both the delinquent utility liability and the home

equity loan were paid off prior to 1995.

On her 1994 and 1995 Federal income tax returns, petitioner

excluded from income the monthly $718 payments she received from

Mr. Simpson, as well as the amounts he paid directly toward the

delinquent utilities, marital mortgage, and home equity loan.

Respondent determined, however, that because the court order

did not fix any part of the monthly payments specifically as

child support, the entire amount of Mr. Simpson's payment,

including the amounts paid to third parties for outstanding
 - 4 -

debts, was includable in petitioner's income as alimony or

separate maintenance under section 71.

Gross income includes amounts received as alimony. See

secs. 71(a), 61(a)(8). Alimony is defined by section 71(b)(1) as

any cash payment meeting the following four criteria:

SEC. 71(b)(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 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.

These requirements are limited by section 71(c), which

provides that alimony shall not include any part of a payment

which the terms of the divorce instrument fix as a sum payable

for the support of the children of the payor spouse. Thus, if

the payments made by Mr. Simpson to petitioner meet the

requirements of the four enumerated criteria and are not fixed as

child support, the payments are alimony and are includable in
 - 5 -

petitioner's income. We shall address each portion of the total

monthly payment by Mr. Simpson separately.

Payment Through the Family Court

Mr. Simpson paid $718 each month to the family court

pursuant to the court order entered into during his and

petitioner's marital separation. Although not made directly to

petitioner, the payments were made on her behalf pursuant to a

court order. See sec. 71(b)(1)(A).

The court order states that Mr. Simpson's payments are for

the support of his wife and children. The award is not allocated

in any way between spousal support and child support. Petitioner

argues that despite the unallocated award, the entire $718 should

be attributable to child support because under the Pennsylvania

Support Guidelines (guidelines), Mr. Simpson was required to pay

$789 each month for the support of his two children. The $789

required by the guidelines, petitioner argues, exceeds the amount

ordered by the family court and therefore the entire $718 payment

should be considered child support under section 71(c) for

Federal income tax purposes.

We begin by examining the origin of the State-required

guidelines. In 1988, Congress mandated that each State establish
 - 6 -

child support guidelines.2 The Federal law contains a rebuttable

presumption that the amount of child support awarded from

application of the guidelines is correct. See 42 U.S.C. sec.

667(b)(2) (1994).

In Pennsylvania, the requirement of statewide guidelines was

established by 23 Pa. Cons. Stat. sec. 4322 (1991). Rule

1910.16-5 of the Pennsylvania Rules of Civil Procedure sets forth

the applicability of the guidelines in establishing child

support, and provides that if a recommendation for support

departs from the guidelines, the trial court is required to

provide an explanation for the deviation. The guidelines utilize

the net incomes of both parents and are based on the assumption

that a child's needs increase as the combined net income of the

parents increases. See Pa. R. Civ. Proc. 1910.16-1, Explanatory

Comment B.2. Although the guidelines contemplate both allocated

and unallocated awards, rule 1960.16-5(f) of the Pennsylvania

2
See Child Support Enforcement Amendments of 1984, Pub. L.
98-378, sec. 18(a), 98 Stat. 1305, 1321, amended by the Family
Support Act of 1988, Pub. L. 100-485, tit. I, sec. 103(a) and
(b), 102 Stat. 2346.
 - 7 -

Rules of Civil Procedure states that the grids3 assume that an

order will be unallocated.

Under Federal tax law, there are tax consequences resulting

from an award's being classified as alimony or child support.

Under section 215, an individual taxpayer is allowed to deduct

amounts paid as alimony. Alimony payments are includable in the

gross income of the recipient under section 71. Child support

payments, on the other hand, are nondeductible by the payor and

are specifically excluded from the definition of alimony and thus

not includable in the gross income of the payee parent under

section 71(c).

To determine whether any portion of the payment is child

support, we look solely to the language contained in the court

order itself. See sec. 71(c)(1). The language of section

71(c)(1) is clear that for payments to be child support, the

written divorce instrument by its terms must fix a sum which is

payable as child support. It is inappropriate, in light of this

clear statutory language, to look beyond the written instrument

3
The amount of child, spousal support, or alimony pendente
lite "shall be determined in accordance with the support
guidelines" either by using the net income formula or by using
charts derived from the formula, called "grids". Pa. R. Civ.
Proc. 1910.16-1(b); Pa. R. Civ. Proc. 1910.16-1, Explanatory
Comment C.2; Pa. R. Civ. Proc. 1910.16-3; see also Ball v.
Minnick, 648 A.2d 1192 (Pa. 1994).
 - 8 -

to examine what effects, if any, are made by operation of State

law.

If Congress had intended for us to look beyond the written

instrument, it would have amended section 71(c)(1) to so reflect.

Indeed, Congress has addressed the issue of whether alimony can

be determined through operation of law. Section 71(b)(1)(D), as

originally enacted, provided that for a payment to be considered

alimony, the divorce instrument must state that there was no

liability to make a payment after the death of the payee spouse.4

This language was deleted in 1986, and section 71(b)(1)(D) now

provides that if the other requirements are met, a payment may be

alimony if State law terminates the payor's liability at the

death of the payee spouse. See Cunningham v. Commissioner, T.C.

Memo. 1994-474. If Congress had intended that child support

payments be fixed by operation of law, it certainly could have

amended the language of section 71(c)(1) to accomplish this goal

much like it did with the language of section 71(b)(1)(D).

We conclude, therefore, that because the court order does

not specifically fix a portion of the $718 monthly payment as

4
See Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369,
sec. 422(a), 98 Stat. 793, 795-796. DEFRA also enacted sec.
71(c)(1) which required the divorce or separation instrument to
fix the amount of child support. This provision was formerly
contained in sec. 71(b).
 - 9 -

child support, the entire amount of such payments received by

petitioner in 1994 and 1995 is alimony and includable in income.

Delinquent Utilities

The family court order required Mr. Simpson to pay $70 per

month toward the delinquent utilities debt. These payments were

not fixed as child support by the court order, and therefore do

not represent child support. See sec. 71(c).

Petitioner's argument that these payments were not made on

her behalf is twofold. First, she claims that no payments were

made at all to the utilities companies because the debt was

completely paid off prior to 1994. Second, she claims that even

if the $70 payments were made, they were made only in 1994, and

the utilities were listed in Mr. Simpson's name, not hers.

Therefore, petitioner argues, the delinquent payments were made

for Mr. Simpson's own benefit, not on her behalf.

But petitioner and her children were the only members of the

household at the time the delinquent utilities were accrued, so

she and the family were the beneficiaries of the payments. Such

payments made on behalf of a former spouse represent alimony if

paid pursuant to a divorce decree or separation agreement not

specifically fixing a portion of the payments as child support.

See Graham v. Commissioner, 79 T.C. 415 (1982) (payments by

former husband for utilities on a family home were alimony when
 - 10 -

divorce decree did not fix certain portion of payments as child

support).

Here, Mr. Simpson made payments toward the delinquent

utility bill that accrued after he left the marital residence.

The utility payments were for expenses incurred for the family

home. We have held that payments by a former husband for

utilities on a family home, which he made in support of his

former wife and children, were alimony. See Graham v.

Commissioner, supra. This is true even if the husband was

contractually obligated to the utility companies to make the

payments. See Zampini v. Commissioner, T.C. Memo. 1991-395.

Accordingly, to the extent Mr. Simpson actually made the $70

monthly payments for delinquent utilities, they are includable in

petitioner's income as alimony. The record reflects that the

total delinquent utility liability was paid off sometime before

1995. Thus, there were no payments made to petitioner or on her

behalf for delinquent utilities in 1995.

As for 1994, petitioner could not establish the number of

months for which Mr. Simpson paid the $70 to the utilities

companies. She did, however, through her own testimony and the

testimony of Mr. Simpson, provide a reasonable estimate of the

number of payments made in 1994. Based on the information

contained in the record, we conclude that Mr. Simpson made three
 - 11 -

monthly payments of $70 in 1994, totaling $210. This amount

shall be included in petitioner's income for 1994.

Marital Mortgage

Mr. Simpson paid $357 each month during 1994 and 1995 to the

bank for the mortgage on the family home pursuant to the court

order. Petitioner argues that 100 percent of this amount is

excludable from her income. Petitioner bases this argument on

her contention that Mr. Simpson did not inform her upon making

these payments what portion was attributable to her liability on

the debt, and what portion was for his own liability on the debt.

She argues that Mr. Simpson's payments toward the mortgage were

therefore not made on her behalf.

Whether petitioner received notice from Mr. Simpson of what

he intended the payments to be bears no relevance to petitioner's

tax liability for 1994 and 1995. Petitioner knew from the court

order that Mr. Simpson was to make the monthly $357 mortgage

payments. Petitioner's duty to report these payments on her own

return does not depend on how Mr. Simpson treated the payments or

what he otherwise believed the nature of these payments to be.

The payments were subject to a contingency, petitioner's

death, which is reflected in the terminable upon death provision

contained in the court order. The court order also specified

that Mr. Simpson make the payments "For the support of" his wife

and children.
 - 12 -

The record reflects that petitioner and Mr. Simpson owned

their home as tenants by the entirety during the taxable years at

issue. A tenancy by the entirety vests in each spouse a present

interest in the jointly held property. See Mirsky v.

Commissioner, 56 T.C. 664, 672-673 (1971). Typically, where

there is joint ownership of property, the husband and wife are

each personally liable for the mortgage payments. See Taylor v.

Commissioner, supra. A payment by one spouse discharges the

legal obligation of the other spouse to the mortgage lender and

each spouse is entitled to a contribution of one-half for each

payment from the other spouse. See id.; Zampini v. Commissioner,

supra.

Generally, where an agreement or court order imposes the

obligation for the entire mortgage payment on the husband, he no

longer has a right of contribution from his wife. See Taylor v.

Commissioner, supra. Thus, when the husband makes a mortgage

payment, he confers a current benefit upon the wife by

discharging her legal obligation to the mortgage lender and

relieves her of her obligation to contribute. See id.

In 1994 and 1995, Mr. Simpson and petitioner were jointly

liable to the lender for the mortgage on the marital home.

Accordingly, with respect to the $357 mortgage payments, half the

payments Mr. Simpson made conferred a benefit on petitioner and

thus are alimony includable in petitioner's income. The other
 - 13 -

half reduced Mr. Simpson's own obligation and were not made on

petitioner's behalf.

Home Equity Loan

We now turn to the issue of whether the $142 monthly

payments toward the home equity loan constitute alimony to

petitioner. The full home equity loan monthly payment was $474,

which Mr. Simpson paid in full each month. Out of this amount,

the court order required Mr. Simpson to allocate a portion of the

total amount due, or $142, to be paid on petitioner's behalf.

A portion of the loan proceeds was used to finance the

purchase of a Buick Regal by Mr. Simpson in 1989 and retained by

him after he and petitioner separated. The remaining portion of

the loan proceeds was attributable to joint credit card debt

accrued before he and petitioner separated in 1990. It is for

this portion of the debt that the family court ordered

Mr. Simpson to pay $142 on petitioner's behalf.

As previously stated, payments are alimony to the extent

they satisfy an obligation of petitioner. See Taylor v.

Commissioner, supra. We find no significant difference between

the payments made on petitioner's behalf toward the marital

mortgage and the payments made on petitioner's behalf toward the

home equity loan. In both instances, the debt was secured by the

marital home, and petitioner and Mr. Simpson are jointly liable

to the lender for the payment due each month. Mr. Simpson made
 - 14 -

the entire home equity loan payment of $474 each month and

therefore had a right of contribution from petitioner of one-

half, or $237. See Taylor v. Commissioner, supra. The family

court ordered that Mr. Simpson pay, on petitioner's behalf, a

lesser amount of $142 each month toward this obligation, and we

find that amount to be alimony to her.

The record reflects that the home equity loan was paid off

before 1995. Petitioner offered no evidence to show how many

payments were made in 1994. Accordingly, we find that the $142

alimony payments were made through the entire taxable year 1994.

To reflect the foregoing,

Decision will be entered

under Rule 155.