Attorney-at-Law

THE MAGIC PAPER SAVES THE DEDUCTION

In Uncategorized on 04/07/2011 at 13:43

I wish Tim Micek had not opted for small tax case, the ever-to-be-deplored Section 7463 treatment, in Timothy Owen Micek, T.C. Sum Op, 2011-45, filed 4/6/11. This case would be great precedent for an alimony fight in Third Circuit (and when will we get a single Federal tax Circuit, to end the case-shopping and forum-shopping, and different results on a national issue in places separated by a few miles, a State line, and the lines on the Court of Appeals map?).

IRS assessed deficiencies for four years’ worth of Tim’s alimony payments to Karen, starting from two years after they separated after 31 years of marriage. At the split, Tim lived in New Jersey and Karen in Pennsylvania. Two years after they split, Tim agreed to pay Karen $1250 bi-weekly, and to prove it, he executed and acknowledged before a New Jersey notary public a “spousal support affidavit”,  so stating. And pay he did, in accordance with the affidavit, for all the years at issue, except the last, when Tim was diagnosed with MS and had to quit work.  Karen promptly divorced him but the spousal support affidavit was not mentioned in the divorce decree (nor in an amendment to the decree). And Karen waived any support or alimony payments in the divorce decree.

In issuing the deficiency, IRS said, “No, not a proper Section 215 deduction, as what Tim paid were not proper Section 71 payments. The spousal support affidavit is none of  ‘a decree of divorce or a written instrument incident to such a decree, a written separation agreement, or a decree requiring a spouse to make payments for the support or maintenance of the other spouse.’” T.C. Sum. Op. 2011-45, at p. 5.

IRS does not dispute the spousal support affidavit meets Section 71(b) tests: (a) doesn’t say not includible in payee’s income; (b) payor and payee not in same household; and (c) no liability to pay after payee spouse’s death, T.C. Sum. Op. 2011-45, at p. 4, footnote 2. And IRS concedes Tim made all payments claimed.

Judge Haines disposes of IRS’ key objection, that the spousal support affidavit is not a proper divorce or separation instrument, thus:  “The issue before us is whether the spousal support affidavit qualifies as a written separation instrument as defined by section 71(b)(2). The spousal support affidavit is a written instrument, signed by petitioner, promising to pay Ms. Micek $1,250 every 2 weeks. As discussed above, a separation instrument does not require a specific medium or form and does not have to be signed by both husband and wife. Further, even though Ms. Micek did not sign the spousal support affidavit, petitioner testified that he reached an oral agreement with Ms. Micek with respect to support payments during their separation. This meeting of the minds not only is memorialized by the spousal support affidavit, but also is supported by the letter from Ms. Micek’s attorney received by petitioner’s attorney on April 21, 2003, describing the payments she had been receiving from petitioner as alimony payments. Accordingly, the spousal support affidavit qualifies as a written separation instrument as defined by section 71(b)(2), and petitioner is entitled to his claimed alimony deductions for the years at issue.” T. C. Sum. Op. 2011-45, at pp.5-6.

Unhappily, this case is not precedent. But I would hardly suggest we ignore it for that reason. Judge Haines has given us a useful template for drafting a written separation agreement that will pass muster–at least as to deductibility.

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