TAX CASES OF INTEREST TO FAMILY LAW LITIGANTS:
FACTS: In 1995, Husband was ordered to pay Wife’s attorney $112K in fees and costs pursuant to Fam. Code Section 2030, payable $1,000/mo. from Husband’s Civil Service Retirement benefits directly going to Wife. The Order was silent as to whether payments terminated upon her death. Husband claimed a $12,000 alimony deduction on his tax return, which IRS disallowed. Tax Court agreed with IRS and affirmed.
HELD: Since an order to pay attorney fees survives the death of the payee, the payments do not qualify as deductible alimony.
FACTS: in 1998, LA Superior Court ordered Husband to pay Wife $20K/mo temporary support for Wife and 3 children, "until further order of court, death of either party, or remarriage." Per this order, Wife received $240K in 1999. In 2000, Court amended 1998 order to provide that Husband pay Wife "the sum of $7,507 and for spousal support the sum of $26,850, retroactive to May 1, 1998.
Wife did not report any of the $240K as income of her 1999 tax return, but did report it along with 2000 income in 2000. Parties’ divorce became final in 2006. IRS assessed Wife a $73,524 tax deficiency plus a $14,705, for 1999. Tax Court agreed with IRS.
HELD: 2000 order cannot modify the income tax effect of the 1999 payments.
"The January 12, 2000 minute order of the superior court does not retroactively change the character of the $240,000 petitioner received in 1999.
Alternatively, Wife argued that because the $240,000 she received from Husband in 1999 also was reported on her 2000 Federal tax return, she should not be taxed on the $240,000 again in 1999.
"As a cash basis taxpayer, Wife for 1999 must report and pay taxes on the alimony she received in 1999. She should have filed an amended 2000 Federal income tax return to correct the over reporting for 2000 of alimony she received in 2000." [Johnson v C.I.R. (9th Cir.2008) 541 F 3d 973 (9/3/08)]
FACTS: In 1996, couple divorced in CA after 30-year marriage, executing MSA that obligated Husband to make monthly "spousal support" payments of $5,250 to Wife until 10/31/10. In 2002, Husband paid Wife $63,000 per spousal support provision. Wife filed 2002 tax return jointly with her new husband and did not include the $63,000 in spousal support payments as part of their gross income. IRS notified Wife of tax deficiency of $20,475 and a penalty of $4,095, explaining the $63,000 was alimony includible in taxable gross income.
Under CA law, Wife bore burden of proving, by clear and convincing evidence there was a written agreement to continue spousal support payments beyond her death. Tax Court did not clearly err in holding that the extrinsic evidence proffered by Wife failed to meet this standard. That language explicitly providing for termination for spousal support payments at "the death of either party" was deleted from a prior version of MSA did not clearly and convincingly establish parties agreed in writing the payments would continue past Wife’s death. That parties obtained life insurance to secure the spousal support payments did not shed any light on what the parties agreed to in the event of Wife’s death. The fact that Husband continued to pay spousal support after Wife remarried did not constitute a written agreement re status of payments in the even of Wife’s death.
AN ORDER BASING SUPPORT ON THE RECEIPT OF ONE YEAR'S BONUS IS A MISCARRIAGE OF JUSTICE.
In In re Marriage of Mosley, 165 Cal. App. 4th 1375 (2008), the husband earned a fixed salary that was half of what he previously earned, with a possible discretionary bonus up to 150% of that amount. The support order in question required him to pay nearly all his take-home pay in support payments and borrow for living expenses, based on the assumption that he would earn a six-figure bonus each year, as evidenced by husband's one year history with employer. The court held that such an order was an abuse of discretion.
