,,190

In the tax litigation, the court further noted that "[t]he temporary order failed to indicate how the payments would be treated for tax purposes, whether the payments would terminate at petitioner's death, or what portion thereof represented child support.' The final divorce decree, entered on September 21, 1995, provided for alimony payments for nine years, which would terminate if Ms. Gonzales died, remarried, or cohabited with another, of $60,000 per year, reduced by $10,000 after each three-year segment. It also provided for child support payments of $40,000 per year for nine years or until emancipation occurred under the terms of the agreement.

The government argued that Ms. Gonzales must include the entire unallocated family support payments that she received under the temporary support order because, under the background rule of Lester, no amount was "fixed" for child support in the temporary order. Ms. Gonzales argued that the payments nevertheless failed to qualify as alimony because, under state law, her husband's obligation to make the payments would have survived her death if she had died during that period. The court concluded that the dispositive issue was whether the stop-atdeath requirement was satisfied and noted that “[i]f the payor is liable to make even one otherwise qualifying payment after the recipient's death, none of the related payments required before death will be alimony."191 Because the agreement was silent in this respect, the court had to decipher New Jersey law. It had to research state law cases and make extrapolations from them to decide the case.

Although New Jersey statutes do not say whether unallocated support payments terminate on the death of the payee spouse, a New Jersey case helps reveal the unlikelihood of that result's occurring.

In Farmilette v. Farmillette ..., the New Jersey Superior Court addressed whether
unallocated support orders are modifiable. The court held that they are. The
Farmilettes... obtained a divorce judgment, and Mr. Farmilette was ordered to
pay $285 a week to support his ex-wife and their two children. Sometime after
one child became emancipated and the other child began living full time with Mr.
Farmilette, the latter sought a reduction of his unallocated support obligation,
retroactive to the time of the emancipation and change of residency. Before
deciding to what extent, if any, the support order should be modified, the court
considered its authority to do so. It pointed to a New Jersey statute prohibiting
retroactive modifications of child support. The court reasoned, however, that it
"will not be so presumptuous as to assume the legislators had in mind unallocated
support orders which clearly are not included within the statute." The court
then held unallocated support orders modifiable and agreed to review the parties'
submissions to determine whether, and to what extent, a modification is
warranted.

...

Farmilette... and the instant case present similar circumstances-albeit the
former rests on a real, and not imaginary, event. In each case, a divorced husband
(or soon-to-be ex-husband) is ordered to pay family support. And in each case, a
terminating event occurred.... In Farmilette, the court squarely faced the issue of
whether (and, if so, by how much) to vary Mr. Farmilette's family support
payment beyond the terminating event. Significant for our purposes was the
court's willingness to take on that task .... The State court's willingness to do so
leads to our affirmative response to the question posed here: Is there good reason
to believe that Dr. Gonzales's family support obligation would continue after
petitioner's death? We think so. Had petitioner died before the superior court
entered the divorce decree, Dr. Gonzales, as the noncustodial parent of three
children, could have remained liable to pay family support, whether in full or
diminished amounts.

192

Thus, the court ruled that Ms. Gonzales may exclude the temporary family support payments from her gross income because it was neither an amount "fixed" for child support nor qualified as "alimony" for Federal tax purposes. In other words, the temporary support payments were categorized, by default, as property settlement payments.

193

194

On virtually identical facts once again, the payee in Raymond v. Commissioner was required to include in full unallocated family support payments under Lester, as was Ms. Heller, but not because the court concluded that the payments would have survived her death. Indeed, unlike the Heller and Gonzales courts--both of which recognized that the determinative issue would be whether the payments would have stopped on the payee's death (even though she did not, in fact, die) under state law--the Raymond court completely ignored this issue.

Stephen and Sandra Raymond separated in 1990 and divorced in 1992. The couple had two children, one of whom was away at college and one of whom was thirteen years old and living with Sandra. The final divorce decree provided for monthly alimony payments to Sandra of $1,000 per month for two years or Sandra's earlier death or remarriage, as well as child support of $1,600 per month. The tax consequences of these payments were not in dispute. At issue were payments made by Raymond to Sandra in 1991 under a temporary support order entered by the family court in October of 1990, which provided that the children would reside with Sandra and which required Raymond to pay Sandra "his net pay less $900.00 every month on the first day every month commencing November 1, 1990, or thereabouts." During 1991, Raymond paid to Sandra $41,455 under the temporary support order. Sandra did not include these payments in gross income, while Raymond deducted them as tax "alimony."

Sandra argued that at least a portion of the payments constituted nondeductible child support since the surrounding context of the temporary support order reflected that assumption,

most of the amounts were in fact spent to support the children, and the final divorce decree ordered more child support than alimony. Like the Heller and Gonzales courts, the Raymond court rejected this inference, relying on Lester.

[S]ection 71(c)(1) nonetheless requires us to find that the terms of the temporary
order that incorporated the support stipulation do not fix either in terms of an
amount of money or a portion of the 1991 temporary order payments any part of
those payments as a sum that is payable for the support of the children of Mr.
Raymond. See Commissioner v. Lester .... Inferences, intent, or other
nonspecific designations of payments as child support are not sufficient to
override the mandate of section 71(c)(1)... except as permitted by section
71(c)(2). Section 71(c)(2) does not apply here because there is no amount
specified in the temporary order that was to be reduced, let alone upon the
occurrence of a contingency specified in that order relating to a child of Mr.
Raymond or at a time that can clearly be associated with that kind of
contingency.

195

What one would expect to find next, of course, is the inquiry made in both Heller and Gonzales regarding whether the payments nevertheless failed to qualify as tax "alimony" because the payment obligation would not have stopped under state law had Sandra Raymond died prior to receipt of the payments. Yet, the opinion is absolutely silent on this issue. Perhaps Ms. Raymond's lawyer did a bad job of lawyering by failing to raise the issue, but then one would expect the court to have raised it on its own, as the stop-at-death requirement is a prerequisite requirement of tax “alimony" that the court cannot ignore simply because the payee party failed to raise it (most likely to the relief of the payor's attorney). Rather, the Tax Court immediately concluded that, since none of the payment was "fixed" for child support, the entire payment qualified as alimony, includable by Sandra Raymond and deductible by Stephen. The Tax Court took pains to note that the more than $40,000 paid by Stephen in 1991 “constituted approximately 72 percent of the net amount of wages that Mr. Raymond received during 1991 (i.e., approximately 72 percent of his gross wages for that year reduced by Federal and State income taxes and Social Security and Medicare taxes that were withheld).' ,,196 While such numbers are the kind of numbers that first impelled the decision to make alimony includable by the payee and deductible by the payor in 1942, the modern definition takes no account of such realities. Whether the alimony amount is high or low, the stop-at-death requirement must be satisfied under the current statute if payments are to fall within the inclusion/deduction system.

The Heller and Gonzales cases also illustrate how the stop-at-death requirement often requires tax adjudicators to delve into murky state law waters to determine whether stipulated payments would stop at death--and thus whether payments constitute tax "alimony." This is one of the most-often litigated issues in these cases. Is it wise to require Federal tax adjudicators to make such state law determinations? And doesn't this involve just the sort of uncertainty and lack of uniformity from state to state that the 1984 amendments were intended to prevent?

One very common problem with respect to this issue is that family law judges often order the payor spouse, typically the husband, to pay the payee's attorneys' fees and other costs of the divorce proceedings. The order is typically silent regarding whether the payor spouse would have to make this payment if the payee should die before payment is made. If the judge adjudicating the resulting tax controversy becomes convinced that the payor would have to pay the payee's attorney fees and costs even if the payee had died in the short interim between the time that the liability accrues and the payment is made, then the payment cannot be considered an includable/deductible alimony payment for support. By default, it would be considered an excludable/nondeductible property settlement. But isn't it clear that such a payment does not really constitute a division of marital assets but rather the payment of a personal consumption expense of the payee, i.e., an expense of "support"? Yet, the tax status of these attorneys' fees and costs will hinge on the odd inquiry regarding whether state law would have stepped in and absolved the payor of paying the amount if the payee should happen to die in the short period between the divorce and the payment of the attorneys' fees and costs.

197

For example, in Smith v. Commissioner, 198 the Georgia Superior Court ordered Lawrence Smith to pay $25,000 in attorneys' fees and costs incurred by Connie Page Smith in connection with their divorce. The order was (not surprisingly) silent regarding whether Mr. Smith's obligation would disappear should Ms. Smith die before she received the payment. (What state court judge would think to address such a remote contingency?) Mr. Smith deducted the payment, but the Tax Court, after an examination of state law, concluded that Georgia law would not have absolved Mr. Smith of the payment obligation if Ms. Smith had died during that interim. 199

While it seems somewhat peculiar to discuss payment of fees made to a former spouse's attorneys for services in terms of alimony or separate maintenance payments, section 71(b) does not differentiate as to the reasons for the payment....

Petitioner contends... that the focus of section 71(b)(1)(D) is whether "the
payment was for a period which could not end after [the spouse's] death," rather
than whether the liability could survive the death of the spouse. We do not
agree.... It may be that under Georgia law, which controls here, the liability for
support or alimony payments would be extinguished by the payee's death, but the
liability here was for attorneys' fees. Petitioner points us to no authority, and we

197 See, e.g., Preston v. Comm'r, 209 F.2d 1281, 1285 (11th Cir. 2000) (holding that exhusband's payment of ex-wife's attorneys' fees under order of state court judge was not "alimony" because state law would not have absolved husband of payment obligation if ex-wife had died prior to payment). Accord Ribera v. Comm'r, 98-1 U.S.T.C. (CCH) ¶ 50,260 (9th Cir. 1998).

198

199

75 T.C.M. (CCH) 2250 (1998).

See also Human v. Comm'r, 75 T.C.M. (CCH) 1990 (1998).

71-870 2001 - 4

have discovered none, that such a debt would be extinguished by the wife's

death.

200

201

The Tax Court came to the same conclusion in Ribera v Commissioner, Zinsmeister v.

202

Commissioner, and (most recently) Berry v. Commissioner203 after examining sometimes murky and ambiguous state law regarding whether the liability would survive the payee's death.

204

Others receive different treatment with respect to precisely the same payment. In Burkes v. Commissioner, for example, the divorce decree required Mr. Burkes to pay $60,000 to his ex-wife's attorneys for their work in connection with the divorce. The provision stated: "[Mr. Burkes] shall pay to ... [Mrs. Burkes] the sum of $60,000.00 as additional alimony toward attorney fees, for which sum judgment is rendered and execution may issue."205 Once again, the document was silent regarding whether the obligation to pay would disappear if Ms. Burkes died in the short period between the entering of the divorce decree and the payment to the attorneys. Looking to Ohio law, the Tax Court concluded that the term "alimony" can comprise both support payments and property settlements. Alimony constituting support payments stop by reason of the death of the payee; alimony constituting property settlement payments do not. Therefore, the Tax Court had to determine whether the term "alimony" was used here in its "support" sense or in its "property settlement" sense under state law-again, just the kind of inquiry that the 1984 amendments were supposed to end-and it concluded that it constituted a support payment, the obligation for which would end on the payee's death. Therefore, the payment of the attorneys' fees constituted deductible alimony for Mr. Burkes, unlike in Smith, Ribera, Zinsmeister, and Berry.

Many other payments that are clearly support payments and not property divisions in the nontax senses of those terms suffer the same ambiguity. If a judge orders, for example, that the payor pay the payee's future medical expenses or car repair expenses-not unusual terms in the real world—and the agreement is silent regarding whether the payor would have to make these payments if the payee should die after receiving the medical care (or having the car fixed) but before the payor paid the bill, then whether the amount is “alimony" or a "property settlement" will be determined by the tax adjudicator's determination of whether state law would have nevertheless required the payor to pay the doctor bills or the auto mechanic bills if the payee had died (even though she didn't).