GAMSE v. Commissioner, Docket No. 25352-82.
| Decision Date | 28 November 1984 |
| Docket Number | Docket No. 25352-82. |
| Citation | 1984 TC Memo 618,49 TCM (CCH) 171 |
| Parties | Sonya G. Gamse v. Commissioner. |
| Court | U.S. Tax Court |
Richard C. Fox and Robert E. Chernicoff, 2320 N. 2nd Street, Harrisburg, Pa., for the petitioner. Russell K. Stewart, for the respondent.
FEATHERSTON, Judge: Respondent determined the following deficiencies in petitioner's Federal income taxes:
Year Amount
1977............. $2,595
1978............. 3,897
The issue for decision is whether amounts received by petitioner from her former husband in 1977 and 1978 pursuant to a written separation and property settlement agreement, which was filed in a State court incident to their divorce, are includible in petitioner's gross income under section 71.1
At the time her petition was filed, petitioner was a legal resident of Harrisburg, Pennsylvania. Petitioner filed her Federal income tax returns for 1977 and 1978 as a single person claiming a dependency exemption only for herself.
Petitioner received $17,000 in 1977 and $20,400 in 1978 from Gamse pursuant to the separation agreement. On her Federal income tax return for each of those years, petitioner reported alimony income of $5,100. In the notice of deficiency, respondent determined that petitioner had additional alimony income in the amounts of $11,900 in 1977 and $15,300 in 1978.
OpinionAs a general rule, periodic payments in discharge of legal marital obligations pursuant to a divorce decree are taxable to the recipient spouse under section 71(a)2 and deductible by the payor spouse under section 215. Under section 71(b), however, any portion of any such payment "which the terms of the decree, instrument, or agreement fix, in terms of an amount of money or a part of the payment" which is "payable for the support of minor children" of the payor spouse is neither taxable to recipient nor deductible by the payor.
Respondent contends that the separation agreement signed by petitioner and Gamse does not "fix" the sum payable by Gamse for child support within the meaning of section 71(b) and that, therefore, petitioner is taxable on the full amount of the payments she received from him, citing Commissioner v. Lester 61-1 USTC ¶ 9463, 366 U.S. 299 (1961), affg. 60-2 USTC ¶ 9501 279 F. 2d 354 (2d Cir. 1960), revg. Dec. 23,746 32 T.C. 1156 (1959). Petitioner contends that the separation agreement, read as a whole, does "fix" the amount of the child support payable by Gamse at three-fourths (or $1,275 per month) of the $1,700 monthly payments and, therefore, she is only taxable under section 71(b) on one-fourth of such payments. To support her position, petitioner cites Gotthelf v. Commissioner Dec. 28,571, 48 T.C. 690 (1967), affd. 69-1 USTC ¶ 9208 407 F. 2d 491 (2d Cir. 1969); West v. United States 69-2 USTC ¶ 9549, 413 F. 2d 294 (4th Cir. 1969); and Abramo v. Commissioner Dec. 38,746, 78 T.C. 154 (1982). We are compelled to hold for respondent.
In Commissioner v. Lester, supra, the Supreme Court held that, in order to relieve the recipient spouse of tax on support payments, the predecessor of section 71(b) requires that the operative instrument fix as child support a definite percentage or a sum certain of the contemplated payments; otherwise, the payments are deductible by the payor spouse and includable in the recipient spouse's gross income. The Lester agreement provided for certain payments to the wife "for the support and maintenance of herself and the children of the parties"; the payments were keyed to the husband's gross income, Lester v. Commissioner, 32 T.C. at 1157. The agreement further specified (366 U.S. at 300):
In the event that any of the three children of the parties hereto shall marry, become emancipated, or die, then the payments herein specified shall * * * be reduced in a sum equal to one-sixth of the payments which would thereafter otherwise accrue * * *.
The Government contended that the agreement sufficiently identified one-half of the payments as having been made for the support of the three children and that such one-half was not deductible by the husband. The Supreme Court rejected the argument stating with respect to the language of section 71(b) (366 U.S. at 303):
This language leaves no room for doubt. The agreement must expressly specify or "fix" a sum certain or percentage of the payment for child support before any of the payment is excluded from the wife's income. The statutory requirement is strict and carefully worded. It does not say that "a sufficiently clear purpose" on the part of the parties is sufficient to shift the tax. It says that the "written instrument" must "fix" that "portion of the payment" which is to go to the support of the children. Otherwise, the wife must pay the tax on the whole payment. We are obliged to enforce this mandate of the Congress.
See also sec. 1.71-1(e), Income Tax Regs.
We think the Lester rule requires us to reject petitioner's argument. The separation agreement signed by Gamse and petitioner provides for a monthly payment of $1,700; for a reduction by the sum of $425 per month when each child reaches the age of 18, marries, dies, or becomes self-supporting; and for a reduction by the sum of $425 per month whenever the wife remarries or dies. It is not enough under Lester, however, that there be "a sufficiently clear purpose" as to the amount or portion of the payment allocable to child support; the decree or written instrument incident to the divorce must "specifically designate" or "fix" the amount or portion which is to be applied to the support of the children. 366 U.S. at 303, 305. In the words of section 71(b), the instrument must fix "in terms of an amount of money or a part of the payment" the sum payable for child support. The separation agreement signed by petitioner and Gamse does not do so.
Petitioner cites numerous other provisions of the separation agreement, summarized or quoted in our findings, which refer to payments by Gamse in support of the children, including the provisions on medical insurance, Gamse's right to claim dependency exemption deductions for the children,3 and Gamse's obligation to maintain life insurance "until his child support obligations cease." Petitioner argues that these provisions support the inference that $1,275 of the monthly payments constituted child support. Of course, the cited provisions of the separation agreement must be read along with the one dealing with permanent alimony and child support; the agreement must be read as a whole. When all of the provisions are read together, however, they do not meet the Lester standard. Lester makes clear that an inference is not sufficient; to qualify an amount as child support, it must be fixed or specifically designated as such, either as a sum certain or as a definite percentage of the total payment.
Petitioner also argues on brief that the Lester decision is explained by an ambiguity in the agreement in that case as follows:
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