STATE OF WISCONSIN
TAX APPEALS COMMISSION
316 6th Avenue, Box 447
Shell Lake, WI 54871,
LYNN R. AND SANDRA R. LINTON
8603 230th Avenue
New Auburn, WI 54757,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708-8907,
|DOCKET NO. 00-I-154
DOCKET NO. 00-I-226
DECISION AND ORDER
DON M. MILLIS, COMMISSION CHAIRPERSON:
These matters came before the Commission for trial on May 24, 2001 in Eau Claire. All parties have submitted briefs with respect to the issues raised in these dockets. Petitioner Verdell Linton is represented by Robert W. Watkins, Jr., CPA. Petitioners Lynn R. and Sandra R. Linton are represented by Pamela R. Branshaw, CPA. Respondent is represented by Attorney Veronica Folstad.
FINDINGS OF FACT
Based upon the testimony and exhibits 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. Petitioners Lynn R. Linton ("Lynn") and Verdell Linton ("Verdell") were divorced by the Judgment of Divorce of the Washburn County Circuit Court effective March 7, 1985.
2. There are three children of the marriage: (1) Kimberly, who was born on December 24, 1971; (2) Kelly, who was born on May 8, 1975; and (3) Kyle, who was born on April 6, 1981.
3. The Judgment of Divorce awarded custody of the three children to Verdell.
4. The Judgment of Divorce provided the following with respect to family support:
As and for family support, for the support, welfare and maintenance of [Verdell] and the minor children of the parties hereto, [Lynn] shall pay the sum of $500.00 per month, with payments of $250.00 on the 5th and 25th day of each month, first payment to be due and payable on July 5, 1985; . . .
5. The Judgment of Divorce contained no other material terms concerning family support, child support, or maintenance.
6. Lynn paid Verdell $500 per month pursuant to the Judgment of Divorce from July of 1985 until June of 1999.
7. On her Wisconsin income tax returns for the years 1995 through 1998, Verdell did not report the payments she received from Lynn as income.
8. On their Wisconsin income tax returns for the years 1995 through 1998, Lynn and Sandra Linton deducted the amounts Lynn paid to Verdell as alimony or separate maintenance.
9. Under the date of February 7, 2000, respondent issued assessments in the alternative against Verdell and against Lynn and Sandra Linton based on their inconsistent reporting of Lynn's payments from 1995 through 1998.
10. Petitioners filed timely petitions for redetermination objecting to the assessments. Respondent denied the petitions for redetermination. Petitioners 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.
* * *
(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.
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
Family support paid by Lynn to Verdell from 1995 through 1998 constituted alimony or other maintenance under section 71 of the Internal Revenue Code (as incorporated by section 71.06 of the Wisconsin Statutes) and, as such, was deductible in these years by Lynn and Sandra Linton and includable in Verdell's income.
The sole issue in these dockets is whether Lynn's payments to Verdell from 1995 through 1998 were deductible by him and includable in her taxable income. Section 71(b) of the Internal Revenue Code defines "alimony or separate maintenance" as (1) cash payments (2) received by a spouse under a divorce or separation instrument provided the (3) divorce or separation instrument does not designate the payment as not includable under section 71 and not deductible under section 215, and (4) there is no liability to make any payment after the death of the payee spouse. The first three elements of this definition are met by the Judgment of Divorce. The last element is met by Wisconsin law. Alimony ceases upon the death of the payee spouse. Kuether v. State, 174 Wis. 538, 540 (1921).(1) Based on the Judgment of Divorce, it is clear that the payments at issue constitute alimony or separate maintenance.
Verdell argues that we must look beyond the words of the Judgment of Divorce to the actions and intent of the parties. The problem with this argument is that definitions of "alimony or separate maintenance" and "child support" in the Internal Revenue Code both specifically refer only to a divorce or separation instrument, not to the intent or actions of the parties. Verdell points out that Lynn ceased making payments in June of 1999, two months following the 18th birthday of the youngest child of the marriage. The implication is that under section 71(c), the payments stopped upon a contingency related to the age of a child (i.e., the youngest child turned 18) and, therefore, the payments are child support. However, section 71(c) applies only when such contingencies are contained in a divorce or separation instrument, and nothing in the Judgment of Divorce provides for these payments to cease once the youngest child reaches age 18.
Verdell relies on Miller v. Commissioner, 78 T.C.M 1999-273 (1999). Miller involved, in part, the allocation of unallocated family support between child support and maintenance. Id. at 309. In reaching its conclusion, the Court acknowledged that while the family support contained elements of both child support and maintenance, the allocation for purposes of the income tax depended upon the requirements of section 71. Id. at 309-10. In that case, the sole reason why the family support could not be considered maintenance was that neither the divorce or separation instrument nor Colorado law provided for family support payments to cease upon the death of the payee spouse. Id. at 311. The result in Miller had nothing to do with the actions or intent of the parties and, therefore, has no bearing in the instant matter.
Verdell also cites Beale v. Commissioner, 79 T.C.M 2000-158 (2000). Beale involved family support payments to two ex-spouses, with at least one of the divorces granted under Wisconsin law. With respect to family support paid to one ex-spouse, the Court held that the entire amount was deductible by the payor and includable by the payee because the divorce judgment provided as much. Id. at 2005. With respect to family support paid to the other ex-spouse, the payor received no deduction because he failed to supply copies of the divorce judgment and related documents for the record. Id. at 2006. Nothing in Beale has a bearing on the instant matter.
1. Respondent's action on the petition for redetermination in Docket No. 00-I-154 is affirmed.
2. Respondent's action on the petition for redetermination in Docket No. 00-I-226 is reversed.
Dated at Madison, Wisconsin, this 2nd day of April, 2002.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Commission Chairperson
Thomas M. Boykoff, Commissioner
Richard F. Raemisch, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
1 Notwithstanding the fact that Kuether is more than 80 years old, it appears to be good law. Nothing in the statutes or subsequent case law suggests otherwise. Kuether was most recently cited for a related holding in 1963. Estate of Rooney, 19 Wis. 2d 89, 93 (1963). Moreover, Verdell does not argue that Wisconsin law provides otherwise.