UNITED STATES TAX COURT

T.C. Memo. 1999-243

UNITED STATES TAX COURT

JUDITH D. LAWTON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18035-97.

Filed July 27, 1999.

Thomas G. Lemons, for petitioner.

John M. Zoscak, Jr., for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

DEAN, Special Trial Judge:

This case was heard pursuant to

the provisions of section 7443A(b) of the Code and Rules 180,

181, and 182.

Unless otherwise indicated, all section references

are to the Internal Revenue Code in effect for the taxable years

in issue.

All Rule references are to the Tax Court Rules of

Practice and Procedure.

- 2 Respondent determined deficiencies in petitioner's 1994 and

1995 Federal income taxes of $3,618 and $2,848, respectively.

The issue for decision is whether any part of certain cash

payments received by petitioner from her former spouse were

amounts fixed in their divorce instrument as a sum payable for

the support of their minor child.

Petitioner's entitlement to

the earned income credit is dependent upon our resolution of the

issue for decision.

All of the facts have been stipulated and along with the

attached exhibits are incorporated herein by reference.

FINDINGS OF FACT

Petitioner resided in Houston, Pennsylvania, when she filed

the petition in this case.

Petitioner is the former spouse of Raymond Lawton.

Petitioner and Raymond Lawton were separated and living apart in

1994 and 1995.

During 1994 and 1995, petitioner and Raymond

Lawton had one minor child requiring child support.

The Court of Common Pleas of Washington County,

Pennsylvania, (court of common pleas) issued a temporary order on

July 23, 1993, in the case of Judith Lawton v. Raymond Lawton,

Case No: 1351 DR 92, directing Raymond Lawton to make monthly

payments of $1,265 plus arrearages, effective June 8, 1993, "for

support of spouse and one child."

- 3 Under support guidelines issued by the Pennsylvania Supreme

Court, Raymond Lawton would have been required to pay for the

support of petitioner and one child, $1,183 per month during 1994

and 1995.

In response to petitioner's motion, as plaintiff, to

modify its temporary order, the court issued a second temporary

order on January 21, 1994, vacating its first temporary order and

ordering Mr. Lawton to pay monthly, effective June 8, 1993, the

sum of $1,183 "for support of spouse and one child."

On March 9, 1994, the court issued an order of support

vacating the temporary order of July 23, 1993, and directing

Mr. Lawton to pay, effective June 8, 1993, the sum of $1,075 per

month "for support of spouse and one child."

Petitioner and Mr. Lawton were divorced in July of 1995 and

on August 7, 1995, the court of common pleas issued an order

requiring Mr. Lawton to pay "the sum of $500 per month for one

child, Genevieve (1/31/78) and $75 per month for Ryan (5/23/75)

for college support."

Raymond Lawton made support payments to petitioner of

$12,900 during 1994 and $6,950 in 1995.

Petitioner did not

report as income in either year the payments she received from

Raymond Lawton pursuant to the orders of the court of common

pleas issued prior to the divorce in July of 1995.

- 4 OPINION

Gross income includes payments of alimony or separate

maintenance.

See sec. 71(a).

Section 71(b)(1) defines the term

"alimony or separate maintenance payment":

(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 this 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.

Positions of the Parties

Respondent's notice of deficiency determined that petitioner

received alimony or support payments of $15,499 in 1994 and

$9,611 in 1995.

The parties have stipulated, however, that the

payments actually made by Raymond Lawton to petitioner totaled

$12,900 in 1994 and $6,950 in 1995.

Respondent argues that the

payments constitute taxable income because they are payments of

alimony or separate maintenance as described in section 71(b)(1).

- 5 -

Petitioner does not dispute that to the extent of $7,332

in 1994 and $3,666 in 1995, the amounts she received from Raymond

Lawton are alimony or separate maintenance payments.

But the

balance of the payments are not alimony or support payments,

petitioner argues, because they are described in section

71(c)(1)--amounts fixed by the divorce instrument as payable for

the support of the minor child of Raymond Lawton.

Petitioner

argues that the amount of the payment is fixed, not in the

instrument itself, but by operation of the support guidelines

contained in Pennsylvania court rules.

The text of the orders of the court of common pleas issued

in petitioner's divorce proceedings provides for the support of

"spouse and one child".

Respondent argues that this language

fails to fix any of the amounts at issue as payable for the

support of the minor child of Raymond Lawton and petitioner.

To

the extent that petitioner goes outside the language of the court

order of support to prove amounts for child support, respondent

argues that she is improperly relying on "evidence extrinsic to

the divorce or separation instrument".

We must decide, therefore, whether the support terms of the

court order under which petitioner received her payments fixed a

sum as payable for the support of the minor child of her former

spouse.

If they did not fix such an amount, we must sustain

- 6 respondent's adjustments to the extent of the payments actually

received by petitioner.

"Fixed" Amount of Child Support

Treatment as alimony:

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. [Sec. 71(c)(1).]

See also Ambrose v. Commissioner, T.C. Memo. 1996-128; sec. 1.711T(c), Q&A-16, Temporary Income Tax Regs., 49 Fed. Reg. 34456

(Aug. 31, 1984).

In addition, any payment will be treated as an amount fixed

as payable as child support if the payment specified in the

instrument is reduced upon the happening of a "contingency

specified in the instrument relating to a child" or at a time

"which can clearly be associated with a contingency".

Sec.

71(c)(2); see also section 1.71-1T, Q&A-16 through 18, Temporary

Income Tax Regs., 49 Fed. Reg. 34456-34457 (Aug. 31, 1984).

The term "divorce or separation instrument" includes a court

decree requiring a spouse to make support payments to the other

spouse.

See sec. 71(b)(2)(C).

Support amounts determined by court rule

We examine the separation instrument in this case to

determine whether it fixes a sum or part of a payment as payable

for the support of a child of the payor spouse.

The March 9,

- 7 1994, retroactive order of support of the court of common pleas

remained in effect until entry of the divorce decree of August 7,

1995.

The order of support requires petitioner's former spouse

to pay "for support of spouse and one child."

In domestic relations proceedings in the Commonwealth of

Pennsylvania, under Pennsylvania Rules of Civil Procedure (Pa. R.

Civ. P.) 1910.16, the court on its own motion, or upon the motion

of either party may make an unallocated award in favor of the

spouse and one or more children, or the court may state

separately the amount of support allocable to the spouse and to

each child.

Here, the language of the order of support does not

fix any specific amount for the payment of child support.

The

language in petitioner's order of support makes an "unallocated"

award of spousal and child support.

Petitioner's argument is that all awards of support for a

spouse, a child, or both must, nevertheless, conform to

guidelines mandated by Federal law and adopted under rules of the

Pa. R. Civ. P.

Although unallocated, the amount of child support

that she received, petitioner argues, is "easily determinable" by

reference to the support guidelines.

Federal law and State requirements

By way of the Child Support Enforcement Amendments of 1984,

Pub. L. 98-378, sec. 18(a), 98 Stat. 1321, amended by the Family

Support Act of 1988, Pub. L. 100-485, sec. 103(a) and (b), 102

- 8 Stat. 2346, 42 U.S.C. secs. 602, 667 (1994), Congress mandated

that each State "must establish guidelines for child support

award amounts".

Under 42 U.S.C. section 667(b)(2) (1994), "There

shall be a rebuttable presumption" that a judicial award of child

support in the amount that would result from application of the

guidelines is the correct amount of child support to be awarded.

Pennsylvania adopted in 1989, pursuant to the Act of

October 30, 1985, as amended, 23 Pa. Cons. Stat. Ann. section

4322 (West 1991), a support guideline formula that was in effect

during the years at issue in this case.

1910.16-1 through 3.

See Pa. R. Civ. P.

The guidelines utilize the net incomes of

both parties and are based on the assumption that a child's needs

increase as the combined net income of the parents increases.

See Pa. R. Civ. P. 1910.16-1, Explanatory Comment--1993, B.2.

(1995).

The amount of child support, spousal support, or alimony

pendente lite "shall be determined in accordance with the support

guidelines" either by using the net income formula or by using

charts derived from the formula, called "grids".

Pa. R. Civ. P.

1910.16-1(a); Pa. R. Civ. P. 1910.16-1, Explanatory Comment-1993,

C. (1995); Pa. R. Civ. P. 1910.16-3(a); and see Ball v. Minnick,

648 A.2d 1192 (Pa. 1994).

By court rule, if the court determines that there is an

obligation to pay support, "there shall be a rebuttable

presumption that the amount of the award determined from the

- 9 guidelines is the correct amount of support to be awarded."

(Emphasis supplied.)

The presumption can be rebutted if the

trier of fact makes a written finding that the guideline amount

would be either unjust or inappropriate.

See Pa. R. Civ. P.

1910.16-1(b); Ball v. Minnick, supra.

For various net income levels of the parties and the number

of their children (up to 4), the grids provide two numbers, one

amount for child support only and one amount that is combination

of spousal and child support.

Merely by consulting the grids,

petitioner insists, the portion of the total amount of support

she received that is child support can be determined.

Amounts Must Be Fixed in the Instrument

Even assuming, for the sake of argument, that a simple

reference to the grid1 would produce an accurate figure for what

portion of the amounts she received was for child support,

petitioner has not satisfied the requirements of section

71(c)(1).

The amount of child support must be fixed by the terms

of the instrument.

1

See sec. 71(c)(1).

The Supreme Court stated

Respondent appears to raise an evidentiary objection to the

use of the grids of Pa. R. Civ. P. 1910.16-2, on which petitioner

bases part of her argument. Our holding in the case moots the

objection. But see Hanley v. Donoghue, 116 U.S. 1, 6 (1885)(law

is known to the Court as law alone, needing no averment or

proof); Advisory Committee's Note on judicial notice of law, Fed.

R. Evid. 201, 56 F.R.D. 183, 207 (1973)(the rules are founded on

the assumption that law is "never a proper concern of the rules

of evidence but rather of the rules of procedure").

- 10 in Commissioner v. Lester, 366 U.S. 299, 303 (1961), that it is

the "'written instrument' that must 'fix'" the portion of the

payment that is for child support.

Petitioner replies that

Lester has been overruled by statute.

While it is true that the

result in Lester has been overruled by section 71(c)(2), the

principles of Lester still apply to cases to which the latter

provision does not.

See, e.g., Raymond v. Commissioner, T.C.

Memo. 1997-219; Ambrose v. Commissioner, T.C. Memo. 1996-128.

Of course, the statutory requirements are satisfied when an

amount is payable entirely on behalf of the child.

See Sperling

v. Commissioner, T.C. Memo. 1982-681, affd. 726 F.2d 948 (2d Cir.

1984)(college tuition payments).

But the language of the support

order in this case makes an unallocated award of support to

spouse and child.

By making an unallocated award of support, in

view of the language of Pa. R. Civ. P. 1910.16-5(f), it appears

that the court of common pleas intended that the full amount of

the periodic payments would be taxable to petitioner and

deductible by Mr. Lawton.

See Mannina v. Commissioner, T.C.

Memo. 1985-565.

We observe also that the Deficit Reduction Act of 1984

(DEFRA), Pub. L. 98-369, sec. 422(a), 98 Stat. 795-796, reenacted

as section 71(c)(1) the language of former section 71(b)(1)

requiring the divorce or separation instrument to fix the amount

of child support.

In addition, DEFRA enacted "new" section

- 11 71(b)(1)(D).

As enacted by DEFRA, section 71(b)(1)(D), as one of

the requirements a cash payment must meet to be considered

alimony, provides that the divorce or separation instrument must

state that there is no liability to make a payment after the

death of the payee spouse.

The latter requirement was altered 2

years later by the Tax Reform Act of 1986 (TRA), Pub. L. 99-514,

sec. 1843(b), 100 Stat. 2853.

As a result of the TRA, if the

other statutory requirements are met, even without language in

the instrument a payment may be alimony if State law terminates

the payor's liability at the death of the payee spouse.

Cunningham v. Commissioner, T.C. Memo. 1994-474.

See

If Congress had

intended that State law could fix the amount of child support

payments where such amounts are not fixed by the terms of the

divorce or separation instrument, it certainly could have made a

similar change in the wording of section 71(c)(1).

We conclude

from the absence of such a change that Congress did not intend

the interpretation that petitioner advocates.

Federal Policy and Pennsylvania Court Rule

Under section 215, an individual taxpayer is allowed to

deduct amounts paid as "alimony or separate maintenance" as

defined under section 71(b).

Alimony and separate maintenance

payments are includable in the gross income of the recipient

under section 71.

- 12 The purpose of the Federal tax treatment of alimony is to

relieve the payor of the burden of paying tax on the income which

is transferred to the payee spouse as alimony and to impose that

burden on the spouse receiving the alimony.

In addition to

transferring the tax burden, overall tax savings generally result

because the payor spouse is usually taxed at a higher rate than

the payee.

See Staff of Joint Comm. on Taxation, General

Explanation of the Revenue Provisions of the Deficit Reduction

Act of 1984, at 714 (J. Comm. Print 1985).

The same principles

are recognized and followed by the courts of Pennsylvania.

See

Pa. R. Civ. P. 1910.16-5(f).

Respondent argues that Pa. R. Civ. P. 1910.16-5(f) also

makes it clear that the grids already take into account the

Federal tax consequences of support payments.

We agree with

respondent.

Although an order awarding both spousal and child support

may either be allocated or unallocated, the grids assume that

such an order will be unallocated.

5(f).

See Pa. R. Civ. P. 1910.16-

Therefore, if an order is to be allocated, instead of the

grids "the formula set forth in Rule 1910.16-3(a) shall be

utilized to determine the amount of support allocable to the

spouse", making adjustments for the Federal income tax

consequences of an allocated order.

Pa. R. Civ. P. 1910.16-

- 13 5(f);2 see Holland v. Holland, 663 A.2d 768, 770 (Pa. Super.

1995) ("While the entire amount of an unallocated award is

taxable as income to the recipient spouse, the child support

portion of an allocated award is taxed instead to the payor"),

citing Coffey v. Coffey, 575 A.2d 587, 590-591 (Pa. Super. 1990);

Reisinger v. Reisinger, 471 A.2d 544, 545-546 (Pa. Super. 1984).

Were we to accept petitioner's argument, the Federal tax

results would be the same whether the State court makes an

allocated or an unallocated award of spousal and child support, a

result contrary to both Federal law and State policy and

practice.

The relief petitioner, in effect, seeks in this Court

(allocation of unallocated support payments to child support)

could have been sought directly by petitioner, by motion in the

court of common pleas.

See Pa. R. Civ. P. 1910.16; see also

Ambrose v. Commissioner, supra.

Contingency Related to the Child

Petitioner also states that the Court, applying section

71(c)(2), has treated amounts as child support where the

2

The support guidelines formula of Pa. R. Civ. P. 1910.16-3

is based in large part upon the parties' "net income". In

determining "net income" certain subtractions must be made,

including those for "federal, state, and local income taxes" and

for "alimony paid to the other party". Pa. R. Civ. P. 1910.165(b). Certain additions must also be made; one of the additions

to the net income of a party, in the discretion of the trier of

fact, is alimony. Id.

- 14 happening of a contingency related to the child causes the

support payment to be reduced.

We agree.

See Hammond v.

Commissioner, T.C. Memo. 1998-53; Fosberg v. Commissioner, T.C.

Memo. 1992-713.

Petitioner, however, fails to point out, and we

are unable to find, any contingency in the support orders in

evidence that is of the type described in section 71(c)(2).

There is accordingly no warrant for treating any portion of the

subject payments as child support.

See Heller v. Commissioner,

T.C. Memo. 1994-423.

Conclusion

Respondent's determination that amounts paid to petitioner

for support in 1994 and 1995 are alimony income is sustained.

To reflect the foregoing,

Decision will be entered

under Rule 155.