The opinion
T.C. Summary Opinion 2015-25
UNITED STATES TAX COURT
JOSHUA HENRY WISH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25726-12S. Filed April 6, 2015.
Joshua Henry Wish, pro se.
Emerald G. Smith, for respondent.
SUMMARY OPINION
GERBER, Judge: This case was heard pursuant to the provisions of section
7463 of the Internal Revenue Code in effect when the petition was filed.1
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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Pursuant to section 7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent for any other case.
Respondent determined a $5,593 deficiency and a $1,118.60 accuracy-
related penalty with respect to petitioner’s Federal income tax for 2009. After
concessions, the issues remaining for our consideration are: (1) whether petitioner
may deduct, as alimony, amounts paid to his former wife during 2009 and (2)
whether petitioner is liable for an accuracy-related penalty under section 6662(a).
Background
Petitioner, who is a schoolteacher by profession, resided in California at the
time his petition was filed. He was formerly married and has one child. During
the marriage his family moved to Arizona where petitioner taught school on an
Indian reservation. Petitioner and his family also resided on the reservation, and
he and his former wife decided to homeschool their child as an alternative to the
child’s attending the school on the reservation. Because of their decision to
homeschool their child, petitioner’s former wife was not able to work.
One year after the homeschooling began, petitioner obtained a teaching
position in Oceanside, California, and he and his family moved from the
reservation. Their child had learning disabilities, and petitioner and his former
wife decided to continue the homeschooling in California. When petitioner and
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his former wife decided to divorce, they agreed that their child should continue to
be homeschooled, and they understood that petitioner’s former wife was making a
financial sacrifice by not working. With that understanding, they agreed that
petitioner would, in addition to paying child support, pay alimony to his former
wife until such time as she could resume working.
On January 12, 2009, petitioner’s former wife filed an action for dissolution
of their marriage in California superior court, which petitioner consented to and
did not contest. Neither party was represented by an attorney. Petitioner began
paying spousal and child support in January 2009. The superior court entered a
judgment dissolving the marital relationship on May 24, 2009. Among other
things, the superior court ordered separate amounts of spousal and child support as
per the stipulated agreement of petitioner and his former wife. Petitioner and his
former wife drafted the stipulated agreement upon which the superior court based
its order.
The stipulated agreement provided that petitioner would “pay $1,200 a
month in child support until May 31, 2013 [and at] that time child support [would]
be reduced to $600, with a $100 reduction each year with support ending upon the
18th birthday of the child.” In accord with petitioner and his former wife’s
understanding that spousal support would give her financial independence, they
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stipulated that his former wife would receive $3,800 per month until May 31,
2013. If his former wife discontinued homeschooling their child, then her spousal
support would be reduced 50%, or to $1,900. Finally, if the former wife
remarried, then her spousal support would be discontinued.
Under the May 24, 2009, judgment, petitioner was required to pay $5,000
per month ($1,200 child support and $3,800 spousal support). The superior court
ordered that the support payments be withheld from petitioner’s earnings. Under
Federal law, generally, no more than a percentage of an employee’s disposable
income may be withheld for support. Because of that limitation, petitioner made
the remainder of the support payments by check or in cash.
On his 2009 Form 1040, U.S. Individual Income Tax Return, petitioner
reduced his gross income by $39,9002 by claiming an alimony deduction. The
amount of spousal support was reduced by half (to $1,900) beginning September
2009 because petitioner’s former wife decided to go back to work and, as a result,
she could no longer homeschool their child. Petitioner’s former wife decided to
2
The $39,900 deduction that petitioner claimed was overstated by $1,900.
His calculation was based on $3,800 for the first eight months ($30,400), leaving
four months at $1,900 ($7,600) for a total of $38,000. Petitioner apparently used a
multiple of five times the $1,900 ($9,500) to arrive at $39,900 as his alimony
deduction.
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return to work after petitioner had refused to increase her spousal support during
July 2009.
During respondent’s audit examination petitioner was able to substantiate
$39,300 of payments for support, which included alimony and child support
payments. Respondent determined on the basis that the payments were
conditional on the child’s being homeschooled that only $9,700 of the spousal
support delineated in the superior court order was alimony. On that basis,
respondent disallowed $30,200 of the deduction.3
Discussion4
The primary issue we consider is whether the amounts petitioner paid to his
former wife were alimony or child support. If they were alimony, the payments
are deductible, but if child support, they are not.
3
There is no explanation in the notice of deficiency of how respondent
determined that only $30,200 of the claimed alimony deduction of $39,900 should
be disallowed, so that presumptively $9,700 would be deductible as alimony.
Respondent’s explanation in his brief is discussed infra.
4
Generally, the Commissioner’s determinations are presumed correct, and
the taxpayer bears the burden of proving otherwise. Rule 142(a); see Welch v.
Helvering, 290 U.S. 111, 115 (1933). The burden of proof may shift to the
Commissioner if the taxpayer proves that he or she has satisfied certain
requirements. Sec. 7491(a); see Baker v. Commissioner, 122 T.C. 143, 168
(2004). The parties have not raised the question of the burden of proof.
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Section 215(a) and (b) allows as a deduction to the payor an amount equal
to the alimony or separate maintenance payments made during the payor’s taxable
year that are includible in the recipient's gross income under section 71(a).
Whether a payment constitutes alimony or separate maintenance within the
meaning of sections 71(a) and 215(a) is determined by reference to section 71(b).
Section 71(b) defines an alimony or separate maintenance payment as follows:
SEC. 71(b). Alimony or Separate Maintenance Payments
Defined.--For purposes of this section--
(1) In general.--The term “alimony or separate
maintenance payment” means any payment in cash if--
(A) such payment is received by (or on behalf of) a
spouse under a divorce or separation instrument,
(B) the divorce or separation instrument does not
designate such payment as a payment which is not
includible in gross income under his section and not
allowable as a deduction under section 215,
(C) in the case of an individual legally separated
from his spouse under a decree of divorce or of separate
maintenance, the payee spouse and the payor spouse are
not members of the same household at the time such
payment is made, and
(D) there is no liability to make any such payment
for any period after the death of the payee spouse and
there is no liability to make any payment (in cash or
property) as a substitute for such payments after the
death of the payee spouse.
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Section 71(c), relating to payments to support children, provides in relevant part:
SEC. 71(c). Payments To Support Children.--
(1) In general.--Subsection (a) 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.
(2) Treatment of certain reductions related to
contingencies involving child.--For purposes of paragraph (1),
if any amount specified in the instrument will be reduced--
(A) on the happening of a contingency specified in
the instrument relating to a child (such as attaining a
specified age, marrying, dying, leaving school, or a
similar contingency), or
(B) at a time which can clearly be associated with
a contingency of a kind specified in subparagraph (A),
an amount equal to the amount of such reduction will be treated
as an amount fixed as payable for the support of children of the
payor spouse.
Thus, under section 71(c), if under the terms of the divorce or separation
instrument any amount specified in the instrument will be reduced on the
happening of a contingency relating to a child, including the child’s attaining a
specified age, an amount equal to the amount of the reduction will be treated as
child support and will not qualify as alimony.
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Therefore we must consider whether, under the circumstances of this case,
the contingency related to the former wife or to the child. If it related to the
former wife, then it is alimony. If it related to the child, it is child support.
Respondent contends that the contingency in the spousal support agreement
relates to the child. Petitioner contends that the contingency relates to the time
when his former wife would decide to return to work and to no longer homeschool
the child. In support of his position, respondent references cases where this Court
has held that the contingencies related to the child. In particular, respondent cites
Hammond v. Commissioner, T.C. Memo. 1998-53, where the spousal support
ended when the child reached 18 years of age, and Johnson v. Commissioner, T.C.
Memo. 2014-67, where the spousal support ended when the last child graduated
from school. In those cases, as well as the many other cases on the subject, the
language was clear and unambiguous and caused the cessation of the payments
upon a specific and ascertainable event relating to a child or children.
Petitioner and his former wife entered into the agreement that she would
homeschool their child with the explicit understanding that their decision would
cause financial hardship for her because she would not be able to work while
performing the schooling. Under the terms of the written agreement and their
understanding, it was solely within his former wife’s discretion as to whether she
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would go back to work or continue homeschooling their child. During the seventh
month of the agreement under the divorce order, the former wife requested
increased spousal support payments from petitioner, but he was unable or
unwilling to pay more. Hence, petitioner’s former wife decided to return to work,
and therefore the child was no longer homeschooled. That did not mean that the
child was not schooled, because the child continued to be schooled, albeit at a
different location, i.e., public school. Accordingly, the contingency was not
whether the child discontinued school, but whether petitioner’s former wife was
willing to make financial sacrifices by not working so as to provide the schooling.
Petitioner agreed to pay $1,200 per month of child support and $3,800 of
spousal support with the understanding that his former wife would homeschool
their child. The amount of spousal support was to be reduced to $1,900 (one-half)
if his former wife choose to return to work and no longer homeschooled their
child. There is a clear and direct relationship between the amount of spousal
support payments and his former wife’s choice to work. There was no
contingency that depended on the child, who continued to go to school, albeit a
different school. Under these circumstances the reduction in payments to his
former wife was a reduction in alimony. We note that the child support remained
at $1,200 both before and after the situs of the child’s school changed. We also
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note that the spousal support went from $3,800 to $1,900 after petitioners’ former
wife went back to work. Finally, we note that respondent agrees that the $1,900
paid to petitioner’s former wife, both before and after the child changed schools
was “alimony”.
We now consider the amount of petitioner’s alimony deduction. Petitioner
claimed a deduction of $39,900 for alimony on his 2009 income tax return.
Respondent disallowed $30,200 and, accordingly, allowed $9,700 as an alimony
deduction. Although the notice of deficiency does not explain the derivation or
computation of these numbers, on brief respondent provides the following chart to
show the differences:
Total payments 2009 $39,300
Payments designated child support (14,400) (1,200 x 12)
Other child support (13,300) (1,900 x 7)
1
Deductible alimony 9,700
1
Respondent’s calculation does not result in the $9,700 amount
shown in the calculation. Instead, the difference between the
numbers should have been $11,600. Respondent made this error
because of petitioner’s $1,900 error in calculating alimony for the
year. Respondent’s error is also $1,900 off ($11,600 is $1,900 more
than $9,700). Respondent’s error occurred because he used a number
that was based on the overstated annual amount of alimony and
subtracted amounts based on the actual monthly amounts that did not
include the additional $1,900 by which petitioner overstated the
amount of alimony on his return. In any event, respondent allowed
$9,700 of alimony by disallowing $30,200 of the $39,900 that
petitioner deducted.
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The $39,300 is the amount respondent contends that petitioner was able to
substantiate. The child support payments are self-explanatory, and there is no
disagreement about the amount. The “Other Child Support” is based on
respondent’s interpretation of the circumstances of this case, i.e. that one-half of
the spousal support payments for the first seven months was child support.
Respondent’s position is out of sync with the facts, as the superior court approved
the reduction from $3,800 to $1,900 late in August in accordance with petitioner
and his former wife’s agreement filed with the superior court.
Disregarding for the moment the substantiation question, under
respondent’s theory and position, petitioner would have been entitled to $1,900
times 12 months or $22,800. Under petitioner’s position he would have been
entitled to alimony of $3,800 for eight months ($30,400) and $1,900 for four
months ($7,600) or total alimony of $38,000. We note that petitioner made an
error in claiming a $39,900 alimony deduction by calculating one additional
month at $1,900 to reach the $39,900 amount instead of $38,000.
The documents in the record show that, as far as the withholding of support
payments from petitioner’s wages, he was current in his payments through the time
the superior court order was issued in May 2009, and petitioner’s wage statements
reflect that his payments after August 2009 were being withheld at the rate of
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$3,100 per month, which included $1,200 of child support and the $1,900 of
reduced alimony as per the agreement.
These public records, however, fall short of the total amount of support paid
for the year because there are Federal withholding percentage limitations on the
amount that can be withheld. The reduced amount of $3,100 was below that
limitation, and therefore the full amount of support was withheld for September
through December 2009. Before that time petitioner’s total support payment was
$5,000 per month ($1,200 of child support and $3,800 of spousal support), which
exceeded the Federal withholding limitations. During those months that the
withholding was less than $5,000, petitioner made payments in cash and by check.
In that regard, petitioner provided sufficient evidence to show that his support
payments were up to date and not in arrears. See Cohan v. Commissioner, 39 F.2d
540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985).
We accordingly hold that petitioner is entitled to a $38,000 alimony
deduction for 2009. Because respondent allowed $9,700, petitioner would be
entitled to deduct an additional $28,300 in alimony. Therefore respondent’s
determination that $30,200 of petitioner’s alimony deduction should be disallowed
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is sustained only to the extent of $1,900, the amount by which petitioner
overstated the $39,900 alimony claimed on his 2009 return.
Accuracy-Related Penalty
Respondent also determined a 20% accuracy-related penalty under section
6662(a) and (b)(2) on the underpayment for 2010 because it was attributable to a
substantial understatement of income tax. Because of our holding that petitioner
was entitled to all but $1,900 of the claimed alimony deduction, his
understatement of income tax for 2009 will be less than 10% of the tax required to
be shown on the return and less than $5,000. Accordingly, petitioner is not liable
for an accuracy-related penalty. In addition, the accuracy-related penalty is not
imposed with respect to any portion of the underpayment of tax if the taxpayer can
establish that he acted with reasonable cause and in good faith with respect to that
portion. Sec. 6664(c)(1). Considering the pertinent facts and circumstances, we
hold that petitioner acted with reasonable cause and in good faith.
To reflect the foregoing,
Decision will be entered
under Rule 155.