T.C. Summary Opinion 2005-119

T.C. Summary Opinion 2005-119

UNITED STATES TAX COURT

GERALYN M. RANDICH, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

STEVEN M. RANDICH, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 2641-03S, 21861-03S.

Filed August 11, 2005.

Geralyn M. and Steven M. Randich, pro sese.

Sean R. Gannon, for respondent.

GOLDBERG, Special Trial Judge:

These consolidated cases

were heard pursuant to the provisions of section 7463 of the

Internal Revenue Code in effect at the time each petition was

filed.

The decisions to be entered are not reviewable by any

other court, and this opinion should not be cited as authority.

Unless otherwise indicated, subsequent section references are to

- 2 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.

In separate notices of deficiency, respondent determined

that petitioners are liable for the following deficiencies in

Federal income taxes:

Docket No. 2641-03S

Geralyn M. Randich

Taxable Year

Deficiency

2000

$6,091

Docket No. 21861-03S

Steven M. Randich

Taxable Year

Deficiency

2000

$6,683

The issues for decision are:

(1) Whether $28,800 received

by petitioner Geralyn M. Randich pursuant to a judgment for

dissolution of marriage is includable in her income under section

71 as alimony income; and (2) whether petitioner Steven M.

Randich may deduct as alimony, pursuant to section 215, $28,800

that he paid to petitioner Geralyn M. Randich pursuant to the

judgment for dissolution of marriage.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

At the time the

- 3 respective petitions were filed, petitioners resided in New

Lenox, Illinois.

During taxable year 2000, petitioner Geralyn M. Randich (Ms.

Randich) was gainfully employed in “student services”.

For the

year in issue Ms. Randich reported wage income of $46,549.

During taxable year 2000, petitioner Steven M. Randich (Mr.

Randich) was gainfully employed as a union pipefitter.

For the

year in issue Mr. Randich reported wage income of $62,524 from

his employment with the union and some part-time jobs.

Petitioners were married on March 6, 1985.

During their

relationship, petitioners, together, had four children:

CR, born

in 1982; LR, born in 1983; SR, born in 1986; and AR, born in

1988.

Before March 25, 1998, Mr. Randich filed a petition with the

Circuit Court of the Twelfth Judicial Circuit, Will County,

Illinois (circuit court), to commence divorce proceedings.1

On

March 25, 1998, an order for temporary maintenance and support

(temporary order) was entered by the circuit court with respect

to petitioners’ divorce case.

The temporary order provides, in

pertinent part:

1

The caption of this matter was: In re: The Marriage of

Steven M. Randich, Plaintiff and Geralyn M. Randich, Defendant,

Case No. 98 D 0286.

- 4 It is ordered:

(1) * * * [Mr. Randich] shall pay by agreement * * * for

unallocated temporary maintenance and support, by Order for

Support, the sum of $2,350 per month.

Petitioners were legally divorced in 2000.

A judgment for

dissolution of marriage pertaining to petitioners’ divorce was

entered in the circuit court on April 12, 2000.

The judgment for

dissolution of marriage provides, in pertinent part:

The Respondent [Ms. Randich] shall be the residential

custodian of the three children of the Parties, * * * [CR],

[AR], and * * * [SR].

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IT IS HEREBY ORDERED:

A. CUSTODY OF * * * [LR]: The custody of minor child * * *

[LR] is at issue in this cause

The Court considered the criteria set forth in Section

602 of the Illinois Marriage and Dissolution of Marriage

Act. The Court acknowledges that both parents wish to have

custody of the child. The Court conducted an in camera

interview of the child and her siblings and took into

consideration * * * [LR’s] request to remain with her Father

[Mr. Randich]. The Court further considered the the [sic]

relationship and interaction of * * * [LR] with her siblings

and her parents. The Court finds that the minor children

get along with each other very well and they love and care

for each other.

The Court considered the relationship between the

parents and finds that the Mother was the primary care giver

for a great period of time and was * * * [LR’s] care giver

until September, 1999. * * * [LR] has ended up residing

with her Father as a result of her running away a couple of

times and she has lived with him since September, 1999.

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Therefore, after weighing all the considerations, it is

in the best interest of the minor child * * * [LR] that she

be placed in the custody of her Mother [Ms. Randich].

- 5 *

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Respondent [Ms. Randich] is awarded unallocated family

support in the amount of $1,200 per paycheck. Said

unallocated family support shall commence immediately upon

entry of the Judgment for Dissolution and shall be

reviewable at the end of two years. Petitioner’s [Mr.

Randich’s] obligation to pay unallocated family support

terminates upon Respondent’s [Ms. Randich’s] death, her

remarriage or cohabitation with another person on a

resident, continuing conjugal basis. Respondent [Ms.

Randich] shall be entitled to claim the children as her tax

exemptions as long as she is receiving unallocated family

support. Thereafter, the issue of tax exemptions shall be

presented to the Court.

On April 12, 2000, a separate order for the modification of

maintenance and support was entered by the circuit court with

respect to petitioners’ divorce case.

This order for the

modification of maintenance and support gave credit to Mr.

Randich for the sum of $376 to offset an obligation for a joint

furnace bill and left a balance of $424.

This offset was the

result of petitioners’ daughter, LR, staying with Mr. Randich for

several months.

The offset was to compensate for an amount

previously provided to Ms. Randich from Mr. Randich for the

support of their daughter, LR, during these months in which LR

was supposed to be residing with Ms. Randich.

On or about September 2000, Mr. Randich filed a motion for

modification of support with the circuit court.

The motion for

modification of support states, in pertinent part:

3.

That pursuant to the Judgment [for Dissolution of

Marriage] Petitioner [Mr. Randich] was ordered to pay

Respondent [Ms. Randich] the sum of $1,200 per paycheck,

equivalent to $2,400 per month as unallocated support.

- 6 4.

That subsequent to the entry of the Judgment For

Dissolution Of Marriage there has been a substantial change

of circumstances in:

A.

That the eldest child * * * [CR] is emancipated.

B.

That there has been a change of custody from

Respondent [Ms. Randich] to Petitioner [Mr. Randich] as

to the minor child * * * [LR] pursuant to an Order

entered July 20, 2000.

WHEREFORE, Petitioner, [Mr. Randich] and by his attorney,

BRUCE D. FALK, respectfully request this Honorable Court as

follows:

A.

For an Order modifying the unallocated support

obligation commensurate with the change of

circumstances of the parties.

D.

For such other and further relief as the Court may

deem appropriate.

On March 5, 2001, an order relating to the September 2000

motion for modification of support was entered by the circuit

court.

In this order, the circuit court found that the “change

of custody of minor child * * * [LR] constitutes a change of

circumstances regarding support”.

However, the circuit court did

not modify the unallocated family support in this order.

On March 14, 2001, Mr. Randich filed with the circuit court

a letter addressed to the judge presiding over petitioners’

divorce case and a brief and argument on behalf of petitioner

Steven Randich in support of the September 2000 motion for

modification of support.

The brief states, in pertinent part:

Petitioner [Mr. Randich] has filed a motion for

modification of child support. Respondent [Ms. Randich] has

filed a motion concerning payment of college expenses. The

- 7 underlying factual situation involved in this case is that

the eldest child attends college, the next eldest resides

with Petitioner [Mr. Randich] and that the two youngest

reside with Respondent [Ms. Randich].

The Court has ordered that the Petitioner [Mr. Randich]

pay to Respondent [Ms. Randich] one-half of the loan

obligation she incurred on behalf of the minor child * * *

[CR] for college expenses. It should be noted that the

listed college expenses for the child include all costs

associated with education, being not only room, board,

tuition, and fees but also transportation, and living

expenses. Respondent’s [Ms. Randich’s] loans are based upon

a cost of attendance for the minor child at Illinois State

University not merely the cost of room, board, and tuition.

It is Petitioner’s [Mr. Randich’s] position that since by

assuming one-half of the parental cost for the child’s

attendance at college as opposed to one-half of the costs

merely for tuition, room, and board that Petitioner [Mr.

Randich] should no longer have to pay any additional

expenses on behalf of the minor child. Petitioner [Mr.

Randich] further notes that he still maintains health

insurance for the benefit of the child and that Respondent

[Ms. Randich] has submitted no specific expenses for the

child other than those associated with attendance at

college.

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In summary it is Petitioner’s [Mr. Randich’s] position

that child support pursuant to the statutory guidelines can

include only three children since the eldest is now

emancipated and attending college. It is within the Trial

Court’s discretion to order the monies paid for education

expenses for the eldest child. Since the educational

expenses sought by Respondent [Ms. Randich] included living

expenses for which the parties are equally sharing the costs

Petitioner [Mr. Randich] requests that no further support be

ordered concerning the eldest child.

As to the remaining three children, considering the

split-custody situation and the fact that both parties are

employed on a full-time basis Petitioner [Mr. Randich]

requests that the award be based on Petitioner [Mr. Randich]

paying 25% of his net income to Respondent [Ms. Randich]

after reducing that amount by 20% of Respondent’s [Ms.

Randich’s] net income that would be paid to Petitioner

[Mr. Randich]. * * *

- 8 On April 3, 2001, Ms. Randich filed with the circuit court a

response to brief and argument on behalf of petitioner Steven

Randich.

The response states, in pertinent part:

In response to Mr. Falk’s (Mr. Randich’s attorney)

petition for modification of child support, I must first

address Mr. Falk’s statement in his brief, that “the listed

college expenses for the child include all costs associated

with education, being not only room, board, tuition, and

fees but also transportation, and living expenses.” Your

Honor, this assertion is false. I am including a copy of

Illinois State University’s “Award Letter” from the

Financial Aid Office, which clearly states that the

student’s financial aid package is based on the ACADEMIC

YEAR at the university. Also, the financial package is, to

quote Financial Aid, “based on tuition and fees and oncampus room and board costs set by the University’s Board of

Trustees”. The Financial Aid Office explains further

regarding OFF-CAMPUS students, stating that the cost of

attendance is based on “off-campus room and board, book,

transportation and miscellaneous costs determined from a

survey of average student expenses and adjusted for class

standing, living arrangement and (if appropriate) family

size.” * * * In any case, * * * [CR] is a full-time, oncampus student.

The second crucial fact to note is that the Academic

Year at ISU began August 21, 2000 and will end May 11, 2001.

This is approximately 8½ months. It must also be noted that

there is a 1 week “Fall Break”; and 5 week Christmas Break;

which brings the school year down to a total of

approximately 7 months in length. This does not count the

numerous weekends that * * * [CR] returns home. Therefore,

you can see that my son is indeed NOT emancipated and still

needs a home and support for the 5 months remaining in the

year (again not counting the weekends he is at home). * * *

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It is my position, Your Honor, that the educational

expenses most certainly do NOT include living expenses for

my eldest child, * * * [CR], and that his father should

continue to contribute to his support for the time of

approximately 5 months and also the numerous weekends that

* * * [CR] resides at his home with me and his siblings.

- 9 The next issue which the Court must address is the

issue of the change of support which is currently paid to me

for our second child, * * * [LR], who is currently 17 years

old and will turn 18 years of age in 3 and one-half months.

First, I make it clear, Your Honor, that I am now receiving

“unallocated family support” and although both Your Honor

and Mr. Falk referred several times to the figure of 40% for

child support, I do not even receive that percentage from my

former husband. I receive 35.5% which Judge Kuhar based on

[Mr. Randich’s] W-2 income of $75,000 plus his side-job

earnings (from heating and air-conditioning jobs) of $6,000

which totals $81,000 in earnings.

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It is agreed on all of our parts that the “Temporary

Change of Custody” of * * * [LR] constitutes a change of

circumstances regarding support. I stated in court, Your

Honor, that 1 year ago, in April 2000, after our Divorce

Judgment was entered, Mr. Falk also asked for a modification

of support due to the fact that * * * [LR] had been staying

with [Mr. Randich] for about 4 months. It was ordered that

I reimburse [Mr. Randich] for this time. * * *

On April 18, 2001, a decision was entered by the circuit

court with respect to the September 2000 motion for modification

of support.

The decision provides, in pertinent part:

This cause coming on to be heard on the Defendant’s

[Mr. Randich’s] Petition for Reduction of Unallocated

Support due to the change of physical custody of * * * [LR],

and the attendance at college of * * * [CR], and the Court

having considered the facts, affidavits and arguments, finds

that a substantial change of circumstances has occurred

warranting a review of Unallocated Family Support.

THEREFORE, the Court orders that Unallocated Family

Support be reduced from its current level to $25,200 per

year retroactive to October 1, 2000. The Court further

allocates the Dependent Deductions as follows: beginning in

the year 2001, [Ms. Randich] will claim the deduction for

* * * [CR, SR, and AR]. [Mr. Randich] will claim the

deduction for * * * [LR] if allowable under the Tax Code.

IT IS FURTHER ORDERED that any credits due [Mr.

Randich] because of retroactivity of this order is to be

- 10 offset against the sum of $3,812.95 which is currently due

to [Ms. Randich] and the net balance is to be paid in six

equal installments with the first to be paid on June 1, 2001

and the first of each succeeding month until paid. * * *

On or about February 2002, an affidavit for wage deduction

order and interrogatories/answer to wage deduction proceedings

was filed with the circuit court.

On March 14, 2002, Mr. Randich filed with the circuit court

a motion to adjust child support and a notice of motion.

On April 3, 2002, Mr. Randich filed with the circuit court a

motion to adjust child support and to address non payment issues

and a notice of motion.

On August 30, 2002, Mr. Randich filed with the circuit court

a motion for modification of support.

On September 11, 2002, Mr. Randich again filed with the

circuit court a motion to adjust child support and a notice of

motion.

On October 30, 2002, an order relating to Mr. Randich’s

motion to adjust child support was entered by the circuit court.

The order provides, in pertinent part:

This matter coming before the Court on motion of

Petitioner [Mr. Randich] to set child support and the Court

hearing arguments and representations and being fully

advised in the premises and based on the Court’s finding of

Petitioner’s [Mr. Randich’s] gross income of approximately

$78,000, it is hereby ordered as follows:

1. That child support is set in the sum of $525.86 biweekly as of June 22, 2002. * * *

- 11 On February 5, 2004, an order with respect to a petition for

rule to show cause was entered by the circuit court.2

The order

provides, in pertinent part:

That this Matter coming on to be heard on the Petition

for Rule to Show Cause previously entered against GERALYN M.

RANDICH on January 8, 2004, for failure to include

unallocated support on her 2000 tax return as ordered in the

judgment for dissolution of marriage; Petitioner [Mr.

Randich] present and represented by counsel and respondent

Geralyn M. Randich appearing pro se:

The Court finds:

1. That GERALYN M. RANDICH is found to be in indirect

civil contempt for failure to characterize the unallocated

support as maintenance on her 2000 Federal and State tax

return, as ordered by the Court on April 12, 2000, in the

judgment for dissolution of marriage.

2. That GERALYN M. RANDICH shall have the opportunity

to purge herself from contempt by filing an appropriate

amended Federal and State tax return for 2000 properly

characterizing the payments received in 2000 as maintenance

or unallocated support.

3. That sentencing is stayed for 60 days pending the

filing of the amended 2000 Federal and State tax returns.

2

Ms. Randich objects to this document’s being entered into

evidence on the grounds of relevance, in that the information

contained therein is not related to the matter at issue, is

unfair and prejudicial, and promotes confusion of the matter at

issue. A ruling on Ms. Randich’s objection was delayed for

consideration. This document will be received into evidence

subject to Ms. Randich’s objection noted in the record.

- 12 On April 5, 2004, an order with respect to a petition for

rule for contempt of court was entered by the circuit court.3

The order provides, in pertinent part:

This Matter coming on to be heard on the Petition for

Rule for Contempt of Court previously entered against

Geralyn Randich on February 5, 2004, and the purge of that

contempt; Geralyn Randich appearing in open Court and

producing her amended 2000 Federal and State Income Tax

Return filed with the Internal Revenue Service on March 27,

2004, the Court being fully advised in the matter:

It is Hereby Ordered:

1. That Geralyn Randich having filed the Amended 2000

Federal and State Tax Return the contempt of Court

previously entered is hereby held for naught.

2. That Geralyn Randich is Ordered to pay $750 as and

for attorney’s fees to Theresa M. Malysa in monthly

installments as follows: May 1, 2004, $150 to be paid and

thereafter on the first day of the month $100 until the

balance is paid in full; and judgment is entered against

Geralyn Randich in said amount.

On April 15, 2001, Ms. Randich timely filed her Federal

income tax return for taxable year 2000.

On her return, Ms.

Randich did not report as income the $28,800 in payments made to

her by Mr. Randich pursuant to the judgment for dissolution of

marriage in petitioners’ divorce because she considered the full

amount to be nontaxable child support.

3

Ms. Randich objects to this document’s being entered into

evidence on the grounds of relevance, in that the information

contained therein is not related to the matter at issue, is

unfair and prejudicial, and promotes confusion of the matter at

issue. A ruling on Ms. Randich’s objection was delayed for

consideration. This document will be received into evidence

subject to Ms. Randich’s objection noted in the record.

- 13 On April 15, 2001, Mr. Randich timely filed his Federal

income tax return for taxable year 2000.

On his return, Mr.

Randich claimed a deduction of $28,800 as alimony paid during tax

year 2000 to his former spouse, Ms. Randich, pursuant to the

judgment for dissolution of marriage in petitioners’ divorce.

Following the examination by the Internal Revenue Service

(IRS) of Ms. Randich’s and Mr. Randich’s 2000 Federal income tax

returns, Ms. Randich took the position that the payments made by

her former spouse, Mr. Randich, to her are nondeductible child

support for the taxable year 2000 and are not includable in her

income pursuant to section 71(c)(2).

Mr. Randich, however, took

the position that the payments made to his former spouse, Ms.

Randich, constitute alimony paid during taxable year 2000, which

he is entitled to deduct pursuant to section 215 and which is

taxable to Ms. Randich pursuant to section 71.

As a result, respondent issued notices of deficiency to both

Ms. Randich and Mr. Randich to avoid the possibility of being in

a whipsaw position.

On December 4, 2002, respondent issued Ms.

Randich a notice of deficiency for taxable year 2000.

In the

notice of deficiency, respondent determined Ms. Randich had

unreported alimony income of $28,800 and was liable for a

deficiency of $6,091.

On October 15, 2003, respondent issued Mr.

Randich a notice of deficiency for taxable year 2000.

In the

notice of deficiency, respondent disallowed Mr. Randich’s claimed

- 14 deduction of $28,800 for alimony paid during tax year 2000,

determining that the payments were nondeductible child support

and that Mr. Randich was liable for a tax deficiency of $6,683.

Discussion4

In the present circumstance, respondent is caught in a

potential “whipsaw” position.

A whipsaw occurs when different

taxpayers treat the same transaction involving the same items

inconsistently, thus creating the possibility that income could

go untaxed or two unrelated parties could deduct the same

expenses on their separate returns.

In such circumstances, the

Commissioner is fully entitled to defend against inconsistent

results by determining in notices of deficiency that both parties

to the transaction are liable for the deficiency.

Estate of

Dooley v. Commissioner, T.C. Memo. 1992-557; Moore v.

Commissioner, T.C. Memo. 1989-306.

The deductibility of alimony is governed by sections 71 and

215.

The Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369,

sec. 422, 98 Stat. 795, applicable to divorce instruments

executed after December 31, 1984, amended both sections.

The

parties have stipulated that the judgment for dissolution of

marriage was entered by the circuit court on April 12, 2000.

4

We decide the issues in this case without regard to the

burden of proof. Accordingly, we need not decide whether the

general rule of sec. 7491(a)(1) is applicable in this case. See

Higbee v. Commissioner, 116 T.C. 438 (2001).

- 15 Consequently, sections 71 and 215, as amended by DEFRA, govern

the payments in issue.

Section 215(a) allows an individual, in computing adjusted

gross income, to deduct amounts paid during the year if those

amounts are includable in the gross income of the recipient under

section 71(a).

SEC. 215.

Section 215 provides in relevant part:

ALIMONY, ETC., PAYMENTS.

(a) General Rule.--In the case of an individual, there

shall be allowed as a deduction an amount equal to the

alimony or separate maintenance payments paid during such

individual’s taxable year.

(b) Alimony or Separate Maintenance Payments Defined.-For purposes of this section, the term “alimony or separate

maintenance payment” means any alimony or separate

maintenance payment (as defined in section 71(b)) which is

includible in the gross income of the recipient under

section 71.

Therefore, any disqualification from inclusion by the recipient

spouse under section 71 will automatically preclude deduction by

the payor under section 215.

Consequently, the recipient of

alimony payments must include those payments when calculating his

or her gross income.

Sec. 61(a)(8).

However, payments to

support children generally are not deductible.

Sec. 71(c)(1).

Therefore, a determination that a payment is or is not “alimony”

is also a determination of who must shoulder the tax burden of

that payment.

Section 71(a) provides that “Gross income includes amounts

received as alimony or separate maintenance payments.”

As

- 16 previously stated, alimony or separate maintenance payments are

defined by section 71(b), which provides in part:

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 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.

It is clear that in this case both the temporary order for

maintenance and support and the judgment for dissolution meet the

criteria of section 71(b), and payments made therefore are

alimony.

However, section 71(c)(1) provides that section 71(a) “shall

not apply to that part of any payment which the terms of the

divorce or separation instrument fix * * * as a sum which is

payable for the support of children of the payor spouse.”

- 17 In general, child support cannot be inferred from intent,

surrounding circumstances, or other subjective criteria for

purposes of section 71.

Rather, the statutory directive that

child support payments be “fixed” is taken literally.

The

inflexibility of this requirement was recognized by the Supreme

Court in Commissioner v. Lester, 366 U.S. 299 (1961).

In that

case, the Court refused to find by inference that the statutory

requirement was met where the parties’ agreement provided for

percentage reduction of payments by a husband to a wife upon the

marriage, emancipation, or death of any of their three children.

The Court examined the legislative history of the statutory

predecessor of section 71(c)(1) and quoted from the report of the

Office of the Legislative Counsel to the Senate committee which

said:

“If an amount is specified in the decree of divorce

attributable to the support of minor children, that amount

is not income of the wife .... If, however, that amount

paid the wife includes the support of children, but no

amount is specified for the support of the children, the

entire amount goes into the income of the wife ....” * * *

Commissioner v. Lester, supra at 303 (quoting Hearings before

Senate Committee on Finance on H.R. 7378, 77th Cong., 2d Sess.

48) (emphasis supplied)).

The Court went on to conclude:

This language leaves no room for doubt. The agreement must

expressly specify or “fix” a sum certain or percentage of

the payment for child support before any of the payment is

excluded from the wife’s income. The statutory requirement

is strict and carefully worded. It does not say that “a

sufficiently clear purpose” on the part of the parties is

sufficient to shift the tax. It says that the “written

- 18 instrument” must “fix” that “portion of the payment” which

is to go to the support of the children. Otherwise, the

wife must pay the tax on the whole payment. We are obliged

to enforce this mandate of the Congress.

Id.

Consequently, in the case of unallocated or undifferentiated

support for a wife and children, none of the amount is treated as

child support under section 71(c)(1).

In applying the principle of Lester, this Court has

repeatedly refused to allow inference, intent, or other

nonspecific designations of payments as child support to override

the clear rule of section 71(c)(1).

See, e.g., Mass v.

Commissioner, 81 T.C. 112, 123 (1983); Blakey v. Commissioner, 78

T.C. 963 (1982); Giordano v. Commissioner, 63 T.C. 462 (1975);

Grummer v. Commissioner, 46 T.C. 674 (1966).

DEFRA changed the portion of the Lester decision that held

that no amount would be considered child support unless it was

specifically designated as such in the divorce or separation

agreement.

Under the current statute, if any amount specified in the

instrument will be reduced:

(1) Upon the happening of a

contingency related to a child of the payor, or (2) at a time

which can clearly be associated with such a contingency, then the

amount of the specified reduction will be treated as child

support rather than alimony.

Sec. 71(c).

The above principle

was recognized in Berry v. Commissioner, T.C. Memo. 2005-91,

where we stated:

- 19 While the exception (to the general rule of inclusion)

for amounts “fixed” as child support remained

essentially unchanged, see sec. 71(c)(1), Congress did

overturn the result in Commissioner v. Lester, supra,

see sec. 71(c)(2) (reduction in support that is clearly

associated with a contingency, specified in the divorce

or separation instrument, that relates to a child will

be treated as an amount fixed as payable for child

support). Lester continues, however, to stand for the

proposition that, subject to section 71(c)(2), amounts

will not be treated as child support for purposes of

section 71 unless specifically designated as such in

the governing divorce document.* * *

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

temporary order and the judgment for dissolution of marriage,

under which Ms. Randich received the payments at issue for the

2000 taxable year, fixed a sum as payable for the support of

petitioners’ minor children.

Neither the temporary order entered on March 25, 1998, nor

the judgment for dissolution of marriage entered on April 12,

2000, provided for a fixed amount payable for the support of

petitioners’ children.

Ms. Randich was awarded unallocated

family support of $1,200 per paycheck, or $2,400 per month.

Furthermore, the provision for unallocated family support did not

contain any of the contingencies set forth in section 71(c)(2).

Therefore, normally we would hold that all of the $28,800

annual payment made by Mr. Randich to Ms. Randich would be

considered alimony deductible by Mr. Randich, the payor, and

taxable to Ms. Randich, the payee.

- 20 However, in September 2000, Mr. Randich filed a motion for

modification of support.

The grounds for his motion were that

after the divorce judgment entered on April 12, 2000, the oldest

son, CR, became emancipated, and there was a change of custody

for a minor child, LR, from Ms. Randich to Mr. Randich.

The

circuit court, having jurisdiction over this matter, entered an

order on March 5, 2001, finding that “the change of custody of

the minor child, CR, constitutes a change of circumstances

regarding support.”

At that time, the circuit court did not

modify the amount of the unallocated family support set forth in

the April 12, 2000, judgment of divorce.

The circuit court, on April 18, 2001, entered a decision and

order with respect to the motion for modification of support and

found that after consideration of the facts, affidavits, and

arguments of the parties, a substantial change of circumstances

had occurred warranting a review of unallocated family support.

The circuit court ordered that unallocated family support be

reduced from its then-current level of $28,800 to $25,200 per

year retroactive to October 1, 2000.

reduced to $2,100.

The monthly amount was

Because of the retroactive effect of the

order, Mr. Randich was due an offset of $3,812.95.

Because of the circuit court’s order of April 18, 2001,

retroactively reducing the unallocated family support to $25,200

effective October 1, 2000, we hold that for the taxable year

- 21 2000, Ms. Randich must include $27,900 (9 months x $2,400 =

$21,600 + 3 months x $2,100 = $6,300) as alimony income under

section 71, and Mr. Randich is entitled to a deduction for

alimony pursuant to section 215 in the like amount.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decisions will be entered

under Rule 155.