Heffron v. Commissioner
| Decision Date | 12 June 1995 |
| Docket Number | Docket No. 14944-93.,Docket No. 14766-93. |
| Parties | Ruthann M. Heffron, f/k/a Ruthann M. Newsom v. Commissioner. Christopher and Suz Ann Murley v. Commissioner. |
| Court | U.S. Tax Court |
Donald J. Meyer, Jr., Harrison, Oh., for the petitioner Ruthann M. Heffron, f/k/a Ruthann M. Newsom. Robert F. Barnes, Jr., Cincinatti, Oh., for the petitioners Christopher Murley and Suz Ann Murley. John J. Boyle, for the respondent.
GOLDBERG, Special Trial Judge:
These consolidated cases were heard pursuant to section 7443A(b)(3) and Rules 180, 181, and 182.1
By separate notices of deficiency, respondent determined deficiencies in petitioner Ruthann M. Heffron's, f.k.a. Ruthann M. Newsom's (Ms. Heffron), 1989 and 1990 Federal income taxes in the respective amounts of $6,457 and $5,292, and in petitioners Christopher and Suz Ann Murley's 1989 and 1990 Federal income taxes in the respective amounts of $8,351 and $3,240. These cases have been consolidated for purposes of trial, briefing, and opinion.
The sole issue for decision is whether payments made by Christopher Murley (Mr. Murley) to Ms. Heffron were alimony as defined by section 71. Some of the facts have been stipulated and are so found. The stipulations of facts and attached exhibits are incorporated herein by this reference. At the time the petitions were filed in these cases, Ms. Heffron resided in Cincinnati, Ohio, and Mr. Murley resided in Harrison, Ohio.
Mr. Murley and Ms. Heffron were married on August 10, 1985. During their marriage, Mr. Murley owned and operated Better Telephone & Technology, Inc. Ms. Heffron was an active member of the military stationed in Germany from 1979 until 1987. Upon her return to the United States, she obtained employment as an officer with the City of Harrison Police Department. Ms. Heffron and Mr. Murley lived in a home titled in Mr. Murley's father's name at 180 Countryview Drive, Harrison, Ohio. They had no children.
On February 14, 1989, Mr. Murley filed for divorce. In September of that year, the Court of Common Pleas, Division of Domestic Relations, Hamilton County, Ohio, approved an agreement (the agreement) between Mr. Murley and Ms. Heffron "designed to amicably resolve all issues of property incident to" their pending divorce. The agreement provided:
I. REAL PROPERTY
The parties own no real estate of any kind. Parties acknowledge that the marital residence at 180 Countryview Drive, Harrison, Ohio 45030 is leased property in which they hold no interest.
II. PERSONAL PROPERTY
A. The parties will divide all personal property located at their marital residence at 180 Countryview Drive, Harrison, Ohio 45030 on Friday, September 8, 1989 at 9:00 a.m.
B. Christopher Murley is to receive all interest in Better Telephone & Technology, Inc., an Ohio Corporation, and Ruthann Murley explicitly waives any interest in Better Telephones & Technology, Inc. which she may have in said company.
C. Christopher Murley agrees to pay to Ruthann Murley the sum of Ten Thousand Dollars and .00/100 ($10,000.00), payable as follows:
i. $1,000.00 upon signing of this agreement;
ii. $3,000.00 upon Ruthann Murley vacating the premises at 180 Countryview Road, Harrison, Ohio 45030 on September 8, 1989 and returning said premises to Christopher Murley in good condition.
iii. $3,000.00 payable one year from date of decree.
iv. $3,000.00 payable two years from date of decree.
It is expressly understood by the parties that these foregoing sums payable to Ruthann Murley are considered alimony and said obligations shall not be dischargeable in any bankruptcy proceeding of any nature by Christopher Murley. [Emphasis added.]
D. Both parties agree that each waives any interest he/she may have in properly [sic] held by the other after September 8, 1989.
III. DEBTS
i. Sears in the amount of $2,590.48;
ii. Citibank Mastercard in the amount of $1,874.32;
iii. USAA Mastercard in the amount of $2,439.91;
iv. Discover Card in the amount of $1,331.23;
v. Gem Visa in the amount of $1,336.23;
vi. First Atlantic Visa and Mastercard in the amount of $317.63;
vii. Bank One Visa in the amount of $1,286.64;
viii. Citibank Visa in the amount of $1,941.48;
ix. Jewish Hospital in the amount of $2,436.65;
x. J. B. Plunkett, M.D. in the amount of $4,445.00;
xi. Better Telephone & Technology, Inc. in the amount of $21,060.31;
xii. Mary K. Murley in the amount of $29,630.69;
xiii. Provident Bank in the amount of $1,778.99;
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An addendum regarding the debts assumed by Mr. Murley was later added to the agreement. This addendum provided:
If these are not the current balances on these obligations, Christopher Murley shall be liable for the current balances. Christopher Murley's obligation to hold Ruthann Murley harmless on these debts shall constitute additional alimony to her and shall be nondischargeable in bankruptcy.
Both Ms. Heffron and Mr. Murley, as well as their attorneys, signed the addendum. When the divorce decree was entered by the Court on November 13, 1989, the entire agreement was incorporated therein.
Each of the credit card accounts listed in the agreement was under the name of Mr. Murley and most of the debt was incurred on behalf of Better Telephone and Technology, Inc. Ms. Heffron incurred only the obligations to J.B. Plunkett, M.D., the Jewish Hospital, and a small portion of the credit card balances.
Pursuant to section II.C. of the agreement, Mr. Murley paid Ms. Heffron $4,000 in 1989 and $2,677 in 1990. Ms. Heffron reported these amounts as alimony income on her 1989 and 1990 Federal income tax returns. On his 1989 and 1990 Federal income tax returns, Mr. Murley claimed deductions for alimony payments in the amounts of $27,031 and $21,613, respectively. Mr. Murley contends that the difference in each year between the amount paid to Ms. Heffron and the amount deducted on his return reflects the debts he paid each year on behalf of Ms. Heffron pursuant to section III.A. of the agreement. Ms. Heffron did not report the difference as alimony income on her returns.
In her notices of deficiency, respondent challenged both Mr. Murley's and Ms. Heffron's treatment of the debt payments. Respondent determined that Mr. Murley failed to establish that the payments were deductible as alimony under section 215, or that he actually made the payments during the taxable years at issue.2 With regard to Ms. Heffron, respondent determined that the difference in each year ($23,031 for 1989 and $18,936 for 1990) between the amount reported by Mr. Murley and the amount reported by Ms. Heffron was alimony, and, therefore, was includable in Ms. Heffron's gross income under section 71. At trial, respondent took no position on the issues in these cases other than to request consistent treatment for both parties.3
Under section 215, payments are deductible as alimony or separate maintenance if those payments are includable in the recipient's gross income under section 71. Yoakum v. Commissioner [Dec. 40,950], 82 T.C. 128, 134 (1984). Section 71(b) provides a four-step inquiry for determining whether a cash payment under a written agreement is alimony. The payments made by Mr. Murley to, or on behalf of, Ms. Heffron will be considered alimony only if all four criteria are satisfied.
The first criterion is that the payment must be received by, or on behalf of, a spouse or former spouse under a divorce or separation instrument. Sec. 71(b)(1)(A). The term "divorce or separation instrument" includes a decree of divorce. Sec. 71(b)(2)(A). Ms. Heffron does not dispute that this requirement is satisfied; however, she does argue that the majority of the debts allegedly paid were incurred by Mr. Murley on account of his business.
The second criterion is that the agreement cannot designate that the payment is not includable by the payee spouse or deductible by the payor spouse. Sec. 71(b)(1)(B). The agreement in this case does not so designate.
The third criterion is that the payee and payor spouses cannot be members of the same household when the payment is made. Sec. 71(b)(1)(C). The parties in the instant case also concede that this requirement is satisfied.
The fourth criterion is that the payor spouse must not be liable for the payment under the agreement after the death of the payee spouse. Sec. 71(b)(1)(D). The divorce decree in this case does not indicate whether Mr. Murley's liability to pay the debts on behalf of Ms. Heffron would terminate in the event of her death or remarriage. Thus, the Court must look to State law for guidance. Sampson v. Commissioner [Dec. 40,479], 81 T.C. 614, 618 (1983), affd. without published opinion 829 F.2d 39 (6th Cir. 1987).
Under the applicable State law, i.e., the law of Ohio as in effect before 1991, an award of "alimony" can include two components: one reflecting a division of marital assets, the other consisting of payments for sustenance and support. See Kaechele v. Kaechele, 35 Ohio St. 3d 93, 95, 518 N.E.2d 1197 (1988); Cherry v. Cherry 66 Ohio St. 2d 348, 352, 421 N.E.2d 1293, 1297 (1981). To make such an award, a court may divide up the marital property and then consider the factors under Ohio Rev. Ann. Code (Anderson 1989) section 3105.18(B) to determine the...
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Altmann v. U.S., No. 4:00 CV 669 DDN (E.D. Mo. 9/30/2001)
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