T.C. Summary Opinion 2007-8
UNITED STATES TAX COURT
SCOTT W. COSBY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12019-05S. Filed January 17, 2007.
Todd C. Merchant, for petitioner.
Laura A. McKenna, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for 2002 and Rule references are to the
Tax Court Rules of Practice and Procedure. The decision to be
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entered is not reviewable by any other court, and this opinion
should not be cited as authority.
Respondent determined a $4,536 deficiency in petitioner’s
2002 Federal income tax. The issue for decision is whether
petitioner is entitled to an alimony deduction for amounts paid
as family support to his former spouse pursuant to the California
Family Code.
Background
All of the facts have been stipulated and are so found. At
the time the petition was filed, petitioner resided in Fullerton,
California.
Petitioner’s marriage to Michelle Lea Cosby (petitioner’s
former spouse) was dissolved by judgment dated November 18, 1997
(the divorce decree), which was issued by the Superior Court of
California, County of Los Angeles (the divorce court). The
divorce decree obligates petitioner to pay $1,400 per month to
his former spouse as family support for her and their three
children. According to the divorce decree, petitioner’s
obligation to make the family support payments is to continue
until further order of the divorce court.
Petitioner began making the family support payments in
December 1997. During 2002, those payments totaled $16,800
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(the family support payments). As best can be determined from
the manner in which the parties have presented this case,
petitioner and his former spouse did not live together at any
time during that year.
According to the stipulation of facts, the terms of the
divorce decree were “negotiated” between petitioner and his
former spouse. The details of those negotiations, however, have
not been made part of the record.
The divorce decree does not specifically allocate
petitioner’s family support obligation between petitioner’s
former spouse and their children. While the divorce decree is
silent on this matter, the term “family support” by definition
precludes such an allocation. Under the California Family Code,
“family support” is defined as “an agreement between the parents,
or an order or judgment, that combines child support and spousal
support without designating the amount to be paid for child
support and the amount to be paid for spousal support.” Cal.
Fam. Code sec. 92 (West 2004). The divorce decree is also silent
with respect to whether the family support payments are
includable in the income of petitioner’s former spouse or
allowable as a deduction to petitioner.
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As relevant here, on his timely filed 2002 Federal income
tax return petitioner claimed an alimony deduction for the family
support payments. Respondent disallowed that deduction in the
notice of deficiency. An explanation for the disallowance is not
provided in the copy of the notice of deficiency placed in the
record.
Petitioner’s former spouse did not include the family
support payments in her 2002 income.
Discussion
It is well settled that deductions are a matter of
legislative grace and that the taxpayer must establish
entitlement to any deduction claimed. Rule 142(a); INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
In the case of an individual, section 215(a) “[allows] as a
deduction an amount equal to the alimony * * * payments paid
during such individual’s taxable year.” The definition of
“alimony”, for purposes of section 215(a), is found in section
71. Sec. 215(b).
In general and as relevant here, section 71(b)(1) defines
the term “alimony” as any cash payment if: (1) The payment is
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received by a spouse1 under a divorce decree; (2) the divorce
decree does not state that the payment is neither includable in
gross income nor allowable as a deduction; (3) the payor and
payee spouses are not members of the same household when the
payment is made; and (4) the payment obligation terminates at the
death of the payee spouse and there is no liability to make
either a cash or a property payment as a substitute for the
payment after the death of the payee spouse.
The parties agree with respect to the principles just
stated, but they disagree as to whether the family support
payments fit within the definition of “alimony”. Petitioner
takes the position that all of the above-mentioned section
71(b)(1) requirements have been satisfied and, therefore, the
family support payments constitute “alimony” within the meaning
of sections 71 and 215. Respondent disagrees and argues that the
payments do not fit within the definition of “alimony” because:
(1) “The payments are not designated [in the divorce decree] as
includable in income to the payee and deductible by the payor”
(the designation argument); (2) petitioner has failed to
establish that the family support payments would terminate upon
the death of his former spouse (the termination argument); and
1
For purposes of sec. 71, the term “spouse” includes a
former spouse. Sec. 71(d).
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(3) petitioner’s former spouse did not include the family support
payments in her income (the inclusion argument).
Respondent’s designation argument is easily dismissed.
A careful reading of the statute clearly demonstrates that the
definition of “alimony” does not include a requirement that the
divorce or separation instrument “designate” the payment as
includable in the gross income of the payee spouse and allowable
as a deduction to the payor spouse.2
Respondent’s termination argument proceeds upon the premise
that petitioner’s obligation to make the family support payments
would continue after the death of his former spouse. In support
of this argument, respondent in his brief cites numerous
previously decided cases regarding whether the taxpayer’s
obligation to make family support payments under State law
2
If a payment is to be treated as alimony for purposes of
sec. 215, then, in addition to the other requirements noted
above, the divorce or separate maintenance instrument must not
designate that the payment is not includable in the income of the
recipient spouse and not allowable as a deduction to the payor
spouse. Sec. 71(b)(1)(B). Respondent’s designation argument, in
effect, converts the requirement that certain conditions not be
included in a divorce or separation instrument into a requirement
that certain conditions be included. We are aware of no
principle of statutory construction or logic (at least from an
Aristotelian standpoint) that would allow such a conversion.
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(California and others) terminated upon the death of the payee
spouse.3 We see little point in a detailed discussion of those
cases, as their holdings present no clear direction as to how
this case should be resolved. As in the prior cases, neither
party has called the Court’s attention to California law, whether
statutory or otherwise, that determinatively resolves the
question.4
3
For example, respondent cites Murphy v. Commissioner,
T.C. Memo. 1996-258, in which the Court held that it would
presume that the obligation to make the marital payments could
have survived the remarriage or death of the payee spouse and
that sec. 71(b)(1)(D) was not satisfied because there was
insufficient evidence for the Court to conclude that these
payments would not have survived the death of the payee spouse
before the children in her custody reached the age of majority.
Respondent cites Miller v. Commissioner, T.C. Memo. 1999-273,
affd. sub nom. Lovejoy v. Commissioner, 293 F.3d 1208 (10th Cir.
2002), in which the Court found that the parties intended the
payments to terminate not upon the death of the payee spouse, but
rather upon the happening of one or more specified events
pertaining to their children and, consequently, held that the
payor spouse’s payments failed to meet the sec. 71(b)(1)(D)
requirement. Respondent cites cases applying Colorado law,
Miller v. Commissioner, supra, New Jersey law, Gonzales v.
Commissioner, T.C. Memo. 1999-332, and Pennsylvania law, Gilbert
v. Commissioner, T.C. Memo. 2003-92, affd. sub nom. Hawley v.
Commissioner, 94 Fed. Appx. 126 (3d Cir. 2004), for the
proposition that payments of unallocated family support do not
satisfy the sec. 71(b)(1)(D) requirement and thus do not qualify
as deductible alimony.
4
California law, of course, would control here. See
Morgan v. Commissioner, 309 U.S. 78, 80 (1940).
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Both parties have called the Court’s attention to
Berry v. Commissioner, T.C. Memo. 2005-91, in which the Court
applied California law. The facts of Berry closely resemble the
facts in this case. In Berry, as in our case, the divorce decree
obligated the taxpayer to pay California family support to his
former spouse, and the taxpayer claimed an alimony deduction for
those payments. For the most part, the Commissioner’s denial of
the taxpayer’s alimony deduction in Berry was based upon the same
reasons advanced by respondent in denying the deduction here in
dispute, one of which was the taxpayer’s failure to establish
that California family support payments terminate upon the death
of the payee as required by section 71(b)(1)(D). After
comprehensive and careful analysis, in Berry we held that nothing
under California law, in and of itself, operated to deny the
payor spouse a deduction for amounts paid as family support.
Petitioner, of course, relies upon Berry to support his
claim to the alimony deduction here in dispute. Respondent
attempts to distinguish Berry on both factual and legal grounds;
however, the distinctions are not persuasive.
According to the stipulation of facts, petitioner and his
former spouse negotiated the terms that were ultimately included
in the divorce decree; presumably, the negotiated terms included
the amount of, and other conditions relating to, the family
support payments included in the divorce decree. The details of
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those negotiations, however, have not been made part of the
record. As in Berry, we are left to resolve the issue concerning
the payor spouse’s postdeath liability for purposes of section
71(b)(1)(D) by relying solely upon the terms expressly included
in the divorce decree. Applying California law to those terms,
we reach the same conclusion that we did in Berry, that
respondent’s termination argument must be rejected.5
Lastly, we address respondent’s inclusion argument.
According to respondent, petitioner is not entitled to an alimony
deduction for the family support payments because his former
spouse did not include those payments in her income. If a
payment meets the definition of “alimony” set forth in section
71(b)(1), then it is includable in the payee spouse’s income.
Secs. 61(a)(8), 71(a). If the payment is includable as alimony
in the payee spouse’s income, then it is allowed as an alimony
deduction to the payor spouse. Sec. 215(a). Whether the payee
actually includes the amount in income, although possibly
relevant, is hardly determinative as to whether the payor spouse
may deduct the payment. The fact that petitioner’s former spouse
did not include the family support payments neither establishes
that the payments are not includable in her income nor defeats
5
We could repeat the reasoning of Berry here, but we doubt
that we could improve upon it.
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petitioner’s claim to an alimony deduction for them. Cf. Berry
v. Commissioner, supra (finding that the fact that the payee
spouse did include the family support payments in gross income
was not relevant for purposes of determining whether they
constituted deductible alimony).
The family support payments satisfy the conditions set forth
in section 71(b)(1). It follows that petitioner is entitled to a
deduction for those payments.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for petitioner.