So the Alimony Deduction Stands

Back after “Snowquester”, Tax Court is busy today (3/11/13; happy palindrome day) with four T. C. Memos and a full-dress T.C. opinion. Two of the Memos are protesters, and one is the last chapter in a twenty-year running battle, finally put to bed by STJ Lew Carluzzo; I leave these for your light reading. I’ll get to the T. C. in a separate posting.

But for now, let’s look at Brendon James DeLong, 2013 T. C. Memo. 70, filed 3/11/13, Judge Kroupa on the case.

BJ’s loved-once, Tamsin, gives him the shove, keeps the kids, and he moves out. The California divorce court gives Tamsin $3K per month “family support”, per court order. The court order did not distinguish between alimony and child support, so BJ takes the whole thing as alimony, and IRS says no.

Unlike Indiana (see my blogpost “Esmiss Esmoore, Esmiss Esmoore”, 8/16/11), California law does provide that family support terminates on death of the supported one, so IRS’ boilerplate Section 71(b)(1)(D) argument bites the dust.

But IRS has one remaining argument. The court order doesn’t say what’s alimony and what’s child support. And child support is separate from alimony and not deductible under Section 215, nor is it income to the recipient under Section 71(a).

Now the magic word for child support is “fix”. Section 71(c)(1): “Subsection (a) [the taxable subsection] shall not apply to that part of any payment which the terms of the divorce or separation instrument fix (in terms of an amount of money or a part of the payment) as a sum which is payable for the support of children of the payor spouse.” (Emphasis added).

Judge Kroupa: “The statutory directive that child support payments be ‘fixed’ is generally taken literally and child support cannot be inferred from intent, surrounding circumstances or other subjective criteria.” 2013 T. C. Memo. 70, at p. 9 (Citations omitted).

“The support orders make an unallocated award of spousal and child support. Consequently, they do not ‘fix’ any portion of the family support payments as a sum that is payable for the support of petitioner’s children for purposes of section 71(c)(1).” 2013 T. C. Memo. 70, at p. 9.

IRS wants an accuracy penalty, but that goes by the boards as BJ was completely accurate.

Bottom line, divorce lawyers: Make sure that the fix is in–or not.