T.C. Summary Opinion 2008-46
UNITED STATES TAX COURT
MARILYN L. RAGA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 821-07S. Filed April 29, 2008.
Jeffrey W. Brend and Gregory A. Papiernik, for petitioner.
Karen L. Baker, for respondent.
COHEN, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed. Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case. Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
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Respondent determined a deficiency of $5,097 in petitioner’s
Federal income tax for 2004. The sole issue for decision is
whether $21,450 petitioner received in 2004 is includable in her
gross income as alimony.
Background
All of the material facts have been stipulated. Petitioner
resided in Illinois at the time she filed her petition.
Petitioner was married to Dennis Raga (Mr. Raga) in 1992 and
had two children during that marriage. She filed for divorce on
December 31, 2003. A temporary order was entered in the divorce
action on February 2, 2004, directing Mr. Raga to pay petitioner
$450 per week until further notice. On March 10, 2004, orders of
continuance were entered in the divorce action ordering Mr. Raga
to “continue to pay $450.00 per week as unallocated maintenance
and child support”. A judgment for dissolution of marriage
(divorce decree) was entered in June 2004. The divorce decree
provides in relevant part:
ARTICLE III
MAINTENANCE
3.1 Dennis agrees to waive any claim for
maintenance from Marilyn and further acknowledges that
he forever waives any right to maintenance from
Marilyn.
3.2 Dennis further agrees to pay to Marilyn as
and for unallocated support and maintenance the sum of
$450.00 per week for a period of 30 months following
the entry of an order for the Dissolution of their
Marriage in the Circuit Court of Cook County, Illinois.
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3.3 Marilyn agrees to accept the unallocated
support referred to in paragraph 3.2 above and further
agree [sic] that unallocated support shall terminate at
the expiration of 30 months as described above, that
the issue of maintenance shall not be reviewable as to
Marilyn and that after the 30 month period, that Dennis
shall thereafter pay child support in the statutory
amount then in effect with regard to his actual income
at that time.
ARTICLE IV
SUPPORT
4.1 Dennis shall pay to Marilyn as and for
unallocated support for Marilyn and the children the
sum of $450.00 per week for a period of 30 months
following the entry of an order for the Dissolution of
their Marriage in the Circuit Court of Cook County,
Illinois. This unallocated support shall terminate at
the expiration of 30 months following the entry of an
order for the dissolution of their marriage.
Thereafter, Dennis shall pay child support in the
statutory amount then in effect.
4.2 Dennis’ obligation to pay child support as
described herein shall terminate upon the emancipation
of [the younger child]. * * *
The divorce decree does not state whether Mr. Raga’s
payments are includable in petitioner’s gross income under
section 71. It does not state that the unallocated support
payments from Mr. Raga will terminate upon the death of
petitioner or Mr. Raga. The divorce decree grants petitioner and
Mr. Raga joint legal custody of their children.
During 2004 petitioner received payments from Mr. Raga
totaling $21,450. The Illinois State Disbursement Unit
classified the payments as child support. Petitioner did not
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report receipt of any alimony on her 2004 Federal income tax
return.
Discussion
The parties dispute whether the payments petitioner received
from Mr. Raga in 2004 are alimony or child support. Section
71(a) provides for the inclusion in income of any alimony or
separate maintenance payments received by an individual during
his or her taxable year. Section 71(b)(1) defines “alimony or
separate maintenance payment” as 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
includable 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.
Section 71(c)(1) provides that the general inclusion rule under
section 71(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.”
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Amounts payable under a divorce decree will not be treated as
child support for purposes of section 71(c) unless specifically
designated as such in the document. See, e.g., Berry v.
Commissioner, T.C. Memo. 2005-91.
Under section 71(b)(1)(D), if the payor is liable for any
qualifying payment after the recipient’s death, none of the
related payments required will be alimony deductible by the payor
and includable in income by the payee. See Kean v. Commissioner,
407 F.3d 186, 191 (3d Cir. 2005), affg. T.C. Memo. 2003-163.
Whether a postdeath obligation exists may be determined by the
terms of the divorce or separation instrument or, if the
instrument is silent on the matter, by State law. Morgan v.
Commissioner, 309 U.S. 78, 80-81 (1940); see also Kean v.
Commissioner, supra.
The divorce decree does not explicitly state that payments
terminate upon the death of petitioner. Thus, we look to
Illinois State law to determine whether the payments would
terminate upon petitioner’s death by operation of law. Illinois
law does not specifically address whether an obligation to pay
unallocated maintenance and support terminates upon the death of
the payee spouse. However, section 510(c) of the Illinois
Marriage and Dissolution of Marriage Act provides that, in the
absence of a written agreement approved by the court, “the
obligation to pay future maintenance is terminated” upon the
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death, remarriage, or cohabitation of the recipient. 750 Ill.
Comp. Stat. Ann. 5/510(c) (West 1999).
The parties dispute whether the payments at issue meet the
requirement of section 71(b)(1)(D). Petitioner contends that
because Mr. Raga was required to make unallocated support and
maintenance payments to her for a definite period of 30 months
and because an undefined portion of those payments was child
support, those payments would not cease under Illinois State law
upon her death. Petitioner contends further that, although
Mr. Raga was awarded joint custody, upon petitioner’s death a
child custody proceeding would be necessary to determine the
children’s future residence because their primary residence under
the divorce decree is with petitioner, not Mr. Raga. Petitioner
contends that the Ragas’ eldest daughter, not Mr. Raga, would
most likely be granted custody of the minor children upon
petitioner’s death, and that Mr. Raga would be responsible for
continuing to make payments under the divorce decree to the
daughter instead of petitioner. To support her position that
Mr. Raga would be required to continue payments as delineated in
the divorce decree upon petitioner’s death, petitioner cites an
Illinois appellate case, In re Marriage of Semonchik, 733 N.E.2d
811, 817 (Ill. Ct. App. 2000), which held, in the context of a
modification of unallocated support and maintenance payments due
to one spouse’s unemployment, that “where a marital settlement
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agreement contains an unallocated combination of child support
and taxable maintenance payment, that payment is subject to the
statutory right to modification contained in the Marriage Act”.
Respondent argues that the payments to petitioner under the
divorce decree do not fail to qualify as alimony under section
71(b)(1)(D) merely because the unallocated support and
maintenance contains an element of child support. Respondent
also contends that, contrary to petitioner’s belief regarding
their residence upon her death, the children would reside with
Mr. Raga, their joint custodian, under Illinois law. Thus, the
payments for unallocated support and maintenance would cease upon
petitioner’s death because Mr. Raga would not need to make
payments to himself for support of the children. Regardless of
the resolution of hypothetical custody issues upon petitioner’s
death, respondent argues that the maintenance portion of the
payments constitutes alimony and would cease upon her death.
Additionally, respondent argues that the child support portion of
the payments, if it could be separated from the maintenance
portion, does not qualify for the child support exclusion from
gross income under section 71(c), which requires that the divorce
instrument “fix a sum payable for the support of the children”.
We agree with respondent. See Berry v. Commissioner, supra,
in which we rejected “the notion that the applicability of
section 71(b)(1)(D) to an unallocated support obligation is to be
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determined by invariably assuming that a third party would take
custody of the children upon the payee spouse’s death, thereby
ensuring the existence of a substitute payment obligation.”
Petitioner has cited no Illinois law providing that the children,
upon her death, would not reside with Mr. Raga, their father and
joint custodian, absent a legal proceeding to establish physical
custody in a sibling, as petitioner desires. Petitioner’s
reliance on In re Marriage of Semonchik, supra, is relevant only
to the extent that any new custody arrangement would entail
potential modification of the level of support that Mr. Raga
could be required to pay. We agree with petitioner only to the
extent that we cannot know whether the Ragas’ children would
reside with Mr. Raga or someone else upon petitioner’s death.
However, the unallocated maintenance portion of the payments to
petitioner under the divorce decree would terminate upon her
death pursuant to the above-quoted section 510(c) of the Illinois
Marriage and Dissolution of Marriage Act. Any other person
seeking and receiving physical custody would then have to seek
support payments as well.
Because the terms of the divorce decree do not fix any
portion of the payments as payable for the support of the Ragas’
children, the payments do not satisfy section 71(c). Thus, the
unallocated payments are includable in petitioner’s gross income
as alimony under section 71(a).
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In reaching our decision, we have considered all arguments
presented and, to the extent not mentioned, we conclude that they
are irrelevant, moot, or without merit.
Decision will be entered
for respondent.