Miller v. Commissioner, Docket No. 8094-97, 8158-97.
| Decision Date | 12 August 1999 |
| Docket Number | Docket No. 8094-97, 8158-97. |
| Citation | 78 T.C.M. 307 |
| Parties | Cheryl J. Miller v. Commissioner. John H. Lovejoy v. Commissioner. |
| Court | U.S. Tax Court |
William C. Waller, Jr., for the petitioner in Docket No. 8094-97. Thomas G. Hodel, for the petitioner in Docket No. 8158-97. Sara J. Barkley, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined deficiencies in the Federal income tax of petitioner Cheryl J. Miller, formerly Cheryl J. Lovejoy (Ms. Miller), for the taxable years 1993 and 1994 of $8,863 and $2,766, respectively. Respondent also determined deficiencies in the Federal income tax of petitioner John H. Lovejoy (Mr. Lovejoy) for the taxable years 1993 and 1994 of $12,018 and $5,905, respectively.
These cases have been consolidated for purposes of trial, briefing, and opinion because they involve common questions of fact and law arising from the separation and divorce of petitioners. After concessions,1 the issues addressed in this opinion are:
(1) Whether any part of "unallocated child support and maintenance" payments made pursuant to a State court decree is alimony deductible by the payor spouse under section 2152 and includable in the income of the payee spouse under section 71; and
(2) whether any part of "unallocated child support and maintenance" payments made pursuant to a State court decree constitutes child support under section 71(c).3
Some of the facts and certain exhibits have been stipulated pursuant to Rule 91. The parties' stipulations of fact are incorporated herein by reference and are found as facts in these cases.
Petitioners Cheryl J. Miller and John H. Lovejoy resided in Colorado during the years in issue and when the petitions in these consolidated cases were filed.
Petitioners were married on August 30, 1970. They had two children during their marriage — Krista Holly Lovejoy (Krista), born on January 8, 1977, and Dean Ross Lovejoy (Dean), born on May 10, 1980 (the children).
In May 1992, petitioners separated. Ms. Miller remained in the family home, and Mr. Lovejoy moved into a separate residence. Mr. Lovejoy and Ms. Miller maintained separate residences throughout 1993 and 1994 and were not members of the same household at any time during those years.
Shortly after petitioners separated, Ms. Miller filed a "Petition for Dissolution of Marriage" seeking, inter alia, a divorce, temporary and permanent maintenance, and child support (the divorce case). On August 13, 1992, nunc pro tunc July 27, 1992, the Denver (Colorado) District Court (the State court) signed Temporary Orders4 in the divorce case that incorporated stipulations of the parties. The relevant portions of the Temporary Orders provided:
1. The parties shall share the joint custody of their children, Krista Holly Lovejoy and Dean Ross Lovejoy, with * * * [Ms. Miller] designated as the primary residential custodian for the children. * * *
* * * * * * *
3. As temporary support, * * * [Mr. Lovejoy] shall pay * * * [Ms. Miller] unallocated child support and maintenance in an amount equal to fifty-five percent (55%) of his net income * * *. * * * Payments shall be due on each bi-weekly pay day of * * * [Mr. Lovejoy] commencing immediately after the hearing herein and continuing until further Order of Court.
4. * * * [Mr. Lovejoy's] temporary support payments herein shall include his contributions toward the son's attendance at Denver Academy and toward the skating activities of the daughter. * * *
The Temporary Orders did not state how petitioners were to treat the payments for Federal income tax purposes. The Temporary Orders did not specify what portion, if any, of the "unallocated child support and maintenance" payments (unallocated family support payments) constituted child support. The Temporary Orders did not include any contingencies related to the children that would reduce or terminate the payments or any portion thereof.
On January 24, 1994, nunc pro tunc November 12, 1993, the State court entered orders (the Permanent Orders) granting Ms. Miller sole custody of the children. The Permanent Orders also provided:
CHILD SUPPORT
For purposes of calculating child support according to the guidelines, the Court finds that * * * [Mr. Lovejoy's] gross income is $8,500.00 per month.
* * * * * * *
The Court further finds that * * * [Ms. Miller's] gross income is $571.00 per month, with her net monthly income being $404.00. * * * [Ms. Miller's] income for 1987 was over $60,000, for 1988, $51,000, for 1989, $74,000, for 1990 $28,000, 1991, $6,000, and 1992, $12,000. The Court also finds that * * * [Ms. Miller] received for each of those years, except 1992, a director's fee of $3,000.00.
The Court further finds that * * * [Ms. Miller's] health problems and those of the minor child, Dean, have affected her ability to work more hours and increase her income, and the Court believes that the conclusion of this divorce action will aid in improving her health problems and those of the minor child, thereby freeing up * * * [Ms. Miller's] time to work more hours and increase her income * * *. The Court, accordingly, imputes income to * * * [Ms. Miller] of $2,000.00 per month, such income to begin, for purposes of computation of child support, March 1, 1994.
* * * * * * *
The Court orders * * * [Mr. Lovejoy] to continue to pay the sum of $3,127.00 per month as ordered under Temporary Orders until March 1, 1994. This amount shall be paid in equal installments on the 15th and 30th days of the month. There shall be no gap in payments between Temporary Order [sic] and these Permanent Orders. Thereafter, child support shall be calculated according to the guidelines.
The Court orders * * * [Mr. Lovejoy] to pay to * * * [Ms. Miller] the sum of $1,900.00 as and for child support, plus 69.5% of work related day care, net of federal tax credit, commencing March 1, 1994. * * *
* * * * * * *
The Court finds that * * * [Ms. Miller], at this time, is not self-supporting * * *. * * * The Court orders * * * [Mr. Lovejoy] to pay * * * [Ms. Miller] an additional $200.00 as maintenance, in addition to the $3,127.00 paid under Temporary Orders, and that such $200.00 be effective commencing December 1, 1993 until March 1, 1994.
The Court orders that there will be no permanent maintenance. Commencing March 1, 1994, * * * [Mr. Lovejoy] shall pay to * * * [Ms. Miller] as maintenance the sum of $1,200.00 for a period of two years. Then maintenance will be reduced by 50%. If child support for some reason should decrease during that two years, the maintenance amount will not change. * * * at the end of six years, maintenance terminates.
The Court orders that maintenance shall be taxable to * * * [Ms. Miller] and deductible by * * * [Mr. Lovejoy].
Neither the Temporary Orders nor the Permanent Orders provided for any payment as a substitute for the unallocated family support payments in the event of Ms. Miller's death.
From January 1 to November 11, 1993, Mr. Lovejoy paid unallocated family support to Ms. Miller of $32,789 pursuant to the Temporary Orders. From November 12 to December 31, 1993, Mr. Lovejoy paid $5,203 in unallocated family support and $200 in maintenance to Ms. Miller pursuant to the Permanent Orders. On his 1993 Federal income tax return, Mr. Lovejoy claimed alimony deductions for his payments of $37,992. On her Federal income tax return for 1993, Ms. Miller included only the $200 of maintenance required by the Permanent Orders in her gross income.
From January 1 to February 28, 1994, Mr. Lovejoy made payments to Ms. Miller of $6,654. Under the terms of the Permanent Orders, $400 of this amount was maintenance, and $6,254 was unallocated family support. From March 1 to December 31, 1994, Mr. Lovejoy made payments to Ms. Miller of $28,070. Of this amount, $19,000 was child support, and $9,070 was maintenance. On his 1994 tax return, Mr. Lovejoy claimed $18,656 as an alimony deduction. On her 1994 tax return, Ms. Miller reported alimony income of $9,448.5
Respondent issued separate notices of deficiency to Ms. Miller and Mr. Lovejoy. In Ms. Miller's notice, respondent proposed an adjustment increasing Ms. Miller's income by the amount of unallocated family support paid to her in 1993 and 1994. In Mr. Lovejoy's notice, respondent disallowed that part of Mr. Lovejoy's alimony deduction attributable to the unallocated family support paid by him in 1993 and 1994.
OPINIONWe must decide whether all or any part of the unallocated family support payments made by Mr. Lovejoy to Ms. Miller qualified as (1) alimony includable in the income of the payee spouse under section 71 and deductible by the payor spouse under section 215, or (2) child support excludable from the income of the payee spouse under section 71(c) and nondeductible by the payor spouse.
In this case, the Temporary Orders, incorporating the stipulation of the parties, imposed an obligation on Mr. Lovejoy to pay a percentage of his income as family support. This family support obligation was characterized as "unallocated child support and maintenance" by the State court. We are satisfied, on the basis of our review of the record, that the required payments were intended to cover both Mr. Lovejoy's obligation to support his minor children and his obligation to pay maintenance to Ms. Miller. However, whether an unallocated payment combining spousal support and child support can be allocated for Federal income tax purposes depends upon whether the requirements of section 71(b) and (c) are met. We turn first to the requirements of section 71(b) to test the unallocated family support payments for alimony.
In order for any part of an unallocated family support payment to qualify as...
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