STATE OF WISCONSIN
TAX APPEALS COMMISSION
MELVIN O. SEAMANS,
MELVIN O. SEAMANS AND
W5879 Arbor Road
Fort Atkinson, WI 53538
LEAH H. SEAMANS
215 Water Street, Apt. 105
Lodi, WI 53555,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708-8907,
|DOCKET NO. 00-I-120 |
DOCKET NO. 00-I-121
DOCKET NO. 00-I-122
DECISION AND ORDER
DON M. MILLIS, ACTING CHAIRPERSON:
This matter came before the Commission for trial on July 12, 2001. The parties have also submitted a partial stipulation of facts, and all parties have filed post-hearing briefs. Petitioners Melvin O. Seamans and Tatyana Vedyasheva are represented by Vance, Wilcox, Short & Short, S.C., by Attorney John H. Short. Petitioner Leah H. Seamans is represented by Attorney James T. Hublou. Respondent Wisconsin Department of Revenue is represented by Attorney Sheree Robertson.
Based on the partial stipulation of facts, the evidence received at trial, the submissions of the parties, and the record in this matter, the Commission hereby finds, concludes, and orders as follows:
FINDINGS OF FACT
1. Melvin O. Seamans and Leah H. Seamans were divorced on March 2, 1994, by a judgment of divorce of the Columbia County Circuit Court. The judgment of divorce incorporated the terms and conditions of a marital settlement agreement entered into by Melvin and Leah.
2. As to maintenance, the marital settlement agreement provided:
Maintenance to both parties is waived and shall be denied pursuant to sec. 767.32, Stats.
3. The marital settlement agreement included the following provision for Leah in the property division:
Cash settlement payment in the amount of $900.00 per month commencing with the first month after the date of the trial of this action, and payable until [Leah's] death or remarriage or the death of [Melvin] whichever occurs first.
4. Nothing in the judgment of divorce or marital settlement agreement--both of which are divorce or separation instruments under section 71(b)(2) of the Internal Revenue Code--provides that the payments made by Melvin will not be includible in Leah's gross income and not be deductible by Melvin.
5. During the years at issue here--1995 through 1998--Melvin paid $900 per month to Leah.
6. Leah did not report any of the payments from Melvin during the years at issue as income on her Wisconsin income tax returns.
7. Melvin claimed the amounts he paid to Leah as a deduction on his Wisconsin income tax returns for 1995 and 1996 and on the joint returns filed by he and his wife, Tatyana Vedyasheva, for 1997 and 1998.
8. On January 31, 2000, respondent issued assessments in the alternative against petitioners with respect to the payments made by Melvin during the years at issue. The assessment against Leah is based on the premise that the payments from Melvin were alimony or separate maintenance and, therefore, should have been reported as income for the years at issue. The assessments against Melvin for 1995 and 1996 and against Melvin and Tatyana for 1997 and 1998 are based on the premise that the payments for these years are not properly deductible as alimony or separate maintenance.
9. Petitioners filed timely petitions for redetermination with respondent, all of which were denied. Petitioners then filed timely petitions for review with the Commission.
APPLICABLE INTERNAL REVENUE CODE
Sec. 71(a) GENERAL RULE.Gross income includes amounts received as alimony or separate maintenance payments.
(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,
* * *
(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.
Sec. 215 (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.
CONCLUSION OF LAW
The cash payments at issue constitute alimony or separate maintenance under I.R.C. section 71 because (1) they were paid under a divorce or separation instrument, (2) which did not designate them as not includible in Leah's gross income and non-deductible to Melvin, and (3) will terminate upon Leah's death.
The parties agree that Wisconsin income tax treatment of alimony is the same as the federal income tax treatment of alimony. Moreover, while state law governs the interests of divorcing parties, federal law governs the federal tax treatment of property division and alimony. Green v. Commissioner, 855 F.2d 289, 292, 88-2 USTC ¶ 9473 (6th Cir. 1988). The terms used in a divorce decree do not necessarily determine the federal tax treatment. See, Hoover v. Commissioner, 102 F.3d 842, 97-1 USTC ¶ 50,111 at 87,046 (6th Cir. 1996); Sroufe v. Commissioner, 69 TCM (CCH) 2870, 2874 (1995).
Section 71 of the Internal Revenue Code provides an objective three-part(1) test to determine whether cash payments between divorced spouses are alimony or separate maintenance. If the payments qualify under the test, the payments are included in the gross income of the payee (as required in section 71) and deductible by the payor (as allowed by section 215 of the Internal Revenue Code). Otherwise, the payments are not included in the payee's gross income and not deductible by the payor. In order to qualify as alimony or separate maintenance, the cash payments must meet the following criteria:
Payments must be received under a divorce or separation instrument;
The divorce or separation instrument does not designate the payment as not includible in the payee's gross income and not deductible by the payor; and
The liability to make the payments must terminate upon the death of the payee, and there is no liability to make any payment as a substitute for such payments after the death of the payee.
The payments at issue fall clearly within the definition of alimony or separate maintenance set forth in section 71(b). The parties agree that the marital settlement agreement is a divorce or separation instrument. The payments terminate upon Leah's death. Finally, nothing in the judgment of divorce or marital settlement agreement designates the payments as not includible in Leah's gross income or not deductible to Melvin.
Leah cites Green v. Commissioner, supra, for the proposition that the intent of the parties governs whether payments are property division or alimony. Green involved a 1975 divorce. 88-2 USTC at 85,301. The Deficit Reduction Act of 1984 revised section 71 effective with divorces on or after January 1, 1985, to "eliminate the subjective inquiries into intent and the nature of payments that had plagued the courts in favor of a simpler, more objective test." Hoover, 97-1 USTC at 87,047. Thus, the intent of the parties is not controlling. In fact, had the parties truly intended to elect the treatment favored by Leah, they could have provided for this in the marital settlement agreement and it would have been respected. Unfortunately for Leah, such a provision was not included.
1. Respondent's action on the petition for redetermination in Docket No. 00-I-122 is affirmed.
2. Respondent's actions on the petitions for redetermination in Docket Nos. 00-I-120 and 00-I-121 are reversed.
Dated at Madison, Wisconsin, this 2nd day of January, 2002.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Acting Chairperson
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"