Attorney-at-Law

SWIFT, LIGHT AND UNATTACHED

In Uncategorized on 12/19/2012 at 21:27

Some of my fellow Vietnam alumni may remember the colloquial motto of the 199th Light Infantry Brigade. Billy Edward Armstrong will regret that his modified divorce decree wasn’t attached to his Form 1040 for the year at issue, and didn’t state that the former Mrs. Billy “will not claim their child as a dependent” on her tax return.

See Billy Edward Armstrong and Phoebe J. Armstrong,  139 T. C. 18, filed 12/19/12.

This is the usual sad tale of a father who pays his child support, and is entitled under an amended divorce decree to the dependent tax exemption and the child tax credit, but who doesn’t get a current Form 8332 or the equivalent. Billy’s case comes from the last year that divorce decrees could be treated as equivalents of a Form 8332. I’ve blogged a number of such cases.

Billy didn’t attach the modification of the divorce decree to his Form 1040, but provided it at audit. No good, says IRS, the statute says “attached”, and it wasn’t, so Section 152(e)(2)(B) rules it out.

And anyway, the modified divorce decree said Billy would get the exemption and credit, and former Mrs. Billy would sign a Form 8332, if Billy was current on child support. Billy was current, but that’s not the point: former Mrs. Billy’s obligation was conditional, not unconditional.

And IRS is not required to enforce divorce decrees or child support orders.

Too bad for Billy; but he avoids the negligence penalty because he acted in good faith and could reasonably have believed that the modified divorce decree would serve in lieu of the Form 8332 the former Mrs. Billy didn’t sign.

Simple enough, and twelve Tax Court Judges agree.

Judge Goeke concurs and gets wrapped up in lexicography, namely and to wit, the meaning of the word “attach”. Judge Goeke says it means physically attached, and the ambiguity relied upon in the dissent tortures the plain meaning of the word. “We must be both circumspect and judicious in avoiding a manufactured ambiguity in our tax laws. The deliberate use of the word ‘attached’, in the context of section 152(e)(2)(A), was intended to prescribe a contemporaneous affixation requirement; we have so held before.” 139 T. C. 18, at p. 24. Seven Tax Court Judges agree.

Now there’s a dissent. Guess who writes it? No prize of course for the correct answer. It’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Judge Mark V. Holmes, the same who bailed out Gary L. Scalone and Sandra Vieira Scalone; see my blogpost “Get The Years Right”, 5/2/12. But that was a 7463 throwaway.

Now Judge Holmes ransacks Webster’s Third and the American Heritage dictionaries (descriptive and prescriptive), and comes up with a meaning of “attach” that says to adhere, belong or relate, and would let in the amended divorce decree.

Judge Holmes delves exhaustively (and exhaustingly) into the legislative and administrative antecedents of the attachment rule.

“I would hold that ‘attaches’ in section 152(e) means ‘associates with’ or ‘connects to by attribution.’ I am convinced that this is the most reasonable way to read the section in light of the regulations contemporaneous with the amendment that suggest that attachment to a later filed amended return would suffice, the current administrative practice that encourages IRS agents to ask taxpayers for missing Forms 8332 when those forms are not physically fastened to the original return, and the practical impossibility of such a narrow reading in an era where the IRS is publicly and successfully encouraging taxpayers to file electronically. This construction of ‘attaches’ goes against nothing either Congress or the Secretary has said. If either wishes to clarify through amendment to the Code or by regulation what ‘attaches’ means, either is free to do so. Until then, I would understand the term to mean providing a Form 8332 or similar declaration to the Commissioner or this Court within the time for submitting materials that can be ‘associated with’ a given return in a case before us.

“It is one of the great theorems of law that if all sides are rational actors with perfect knowledge and zero transaction costs, the allocation of resources–even including exemptions, child tax credits, and the like–would be the same regardless of the rules we choose. See Ronald H. Coase, “The Problem of Social Cost”, 3 J.L. & Econ. 1 (1960). But in our fallen world, there are few stages on which rational actors are more outpeopled by the children of wrath than in domestic-relations law.” 139 T. C. 18, at pp. 68-69.

Moreover, several States require that tax benefits be included in the calculation of child support payments, but the ability of a noncustodial parent to claim these must be based upon that parent making the required payments.

Judge Holmes’ peroration is worth reading: “…maybe the Secretary, Congress, or our reviewing courts will decide that the more reasonable course is to read the Code to ensure that conditions on allocating the tax benefits of parenthood–conditions that Congress expected to continue when it enacted section 152(e), conditions that several states require as part of their family law, and conditions that parents assume in good faith are enforceable and effective will, if a parent like Mr. Armstrong fulfills them, be honored. I would have held that the Armstrongs attached the 2007 state-court order–a declaration that, in my view, conformed to the substance of Form 8332–to their return and would have allowed them to take the dependency exemption….” 139 T. C. 18, at p. 70.

And Judges Vasquez and Halpern agree. Amazing, considering Judge Wherry’s lecture to Judge Holmes about grammar in Tigers Eye Trading, LLC, Sentinel Advisers, LLC, Tax Matters Partner; see my blogpost “The Great Dissenter – Part Deux”, 2/15/12.

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