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SCHILLING v. COMMISSIONER OF INTERNAL REVENUE
T.C. Memo. 2012-256
United States Tax Court.
Filed September 5, 2012.
On her 2006 Federal income tax return petitioner reported zero taxable alimony income. On audit respondent treated as taxable alimony income the portion of the monthly support payments petitioner received each month that was not subject to a reduction depending on the age or departure for college of any of her children—namely, $1,925. For 2006 respondent treated a total of $23,100, or 12 times $1,925, as taxable alimony income to petitioner. Respondent treated the $1,600 balance, or $24,700 minus $23,100, as nontaxable child support. DiscussionGenerally, cash payments a taxpayer receives from a spouse or ex-spouse under a separation agreement or a divorce decree are to be treated as taxable alimony income unless the payments are designated as nontaxable child support or unless the payments are to continue after the death of the taxpayer. See sec. 71(a), (b)(1)(D), (c)(1). Petitioner cites the Commissioner's temporary regulations, see sec. 1.71-1T, Q&A-11 and 12, Temporary Income Tax Regs., 49 Fed. Reg. 34451, 34457 (Aug. [*6] 31, 1984), and asserts that the failure in the separation agreement or divorce decree to expressly state that the spousal support payments were to terminate on her death precludes the payments from being treated as taxable alimony. Petitioner overlooks the fact that in 1986 Congress amended section 71 to provide that alimony treatment is not limited to situations where a separation agreement or a divorce decree expressly states that the support payments are to terminate upon the death of the payee spouse. See Tax Reform Act of 1986, Pub. L. No. 99-514, sec. 1843(b), 100 Stat. at 2853; see also Hoover v. Commissioner, 102 F.3d 842, 846 (6th Cir. 1996), aff'g T.C. Memo. 1995-183; IRS Notice 87-9, 1987-1 C.B. 421. Under the 1986 amendment, payments received under a written agreement—such as the separation agreement between petitioner and her ex-husband—generally are also to be treated as taxable alimony for Federal income tax purposes if under State law the payor's obligation to make the payments terminates upon death of the payee spouse. See Rood v. Commissioner, T.C. Memo. 2012-122 (noting that "the court first looks for an unambiguous termination provision in the divorce decree * * * [and] if there is no unambiguous termination provision, then * * * to whether the payments would terminate at the payee's death by operation of State law"). Here, neither the separation agreement nor the divorce decree states clearly whether the spousal support payments are to terminate upon petitioner's death. However, Ohio law so provides, and accordingly under the above general rule the payments petitioner received from her ex-husband would be treated as alimony income. See Ohio Rev. Code Ann. sec. 3105.18(B) (LexisNexis 2008); see also Hoover v. Commissioner, 102 F.3d at 844-847; Heffron v. Commissioner, T.C. Memo. 1995-253, aff'd without published opinion sub nom. Murley v. Commissioner, 104 F.3d 361 (6th Cir. 1996); Meeks v. Meeks, 2006 WL 328685 (Ohio Ct. App. Feb. 14. 2006). Section 71(c), however, goes on to provide that alimony treatment under section 71(a) will not apply to the portion of a spousal support payment which under a separation agreement or divorce decree is payable for the support of children of the marriage. Further, section 71(c)(2) provides that if the amount of spousal support to be paid under a separation agreement or divorce decree is to be reduced either on the happening of a contingency specified in the agreement relating to a child (e.g., attaining a specified age or leaving for school), see sec. 71(c)(2)(A), or at a time that can clearly be associated with such a contingency, see sec. 71(c)(2)(B), an amount equal to the amount of the reduction will be treated as child support. Sec. 71(c)(2)(A) and (B); Berry v. Commissioner, T.C. Memo. 2005-91.
1. Petitioner's first two children are older and are not involved in any way in this case. Although the parties stipulated that child A was a minor at the time of petitioner's divorce from her ex-husband, the record indicates that child A had reached Ohio's age of majority of 18 years. See Ohio Rev. Code Ann. sec. 3109.01 (LexisNexis 2008). This distinction is immaterial for our purposes herein.
2. Petitioner argues the application of the so-called taint test under the Commissioner's temporary regulations—described in some detail in the BNA "Separation and Divorce" Tax Management portfolio—supports the applicability of sec. 71(c)(2)(B) to the "fourth reduction in spousal support" at issue herein. See Cindy Lynn Woffard, Divorce and Separation, 515-2d Tax Mgmt. (BNA), at A-18-A-20. That portfolio, however, notes in particular that "[i]t is not clear how the * * * [taint test] is to be applied if there are three or more reductions due to the existence of three or more children." As respondent notes on brief, in the examples of the taint test found in the BNA portfolio, the number of reductions that are tested under the above-cited temporary regulations always matches the number of minor children of the taxpayer. It appears that the amount of spousal support payments remaining after all child-related reductions are taken into account is not considered to be child support, and the so-called taint test is not applicable to that amount.
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