Siegel, TC Memo 2019-11
The Tax Court has held that an ex-husband’s payment of alimony arrearages resulted from a contempt order by a Family Court, not a money judgment, and therefore met the not-liable-after-death alimony deduction criterion.
Background—alimony deduction. With respect to divorce instruments executed before Jan. 1, 2019, amounts received as alimony or separate maintenance payments are taxable to the recipient (Former Section 71(a)) and deductible by the payor in the year paid. (Former Section 215(a))
An alimony or separate maintenance payment is one that meets the following requirements:… the payment must be made under a divorce or separation instrument (Former Section 71(b)(1)(A));… the instrument must not designate the payment as not includible in the recipient spouse’s gross income under Former Section 71 and not deductible by the payor spouse under Former Section 215 (Former Section 71(b)(1)(B));… legally separated spouses under a decree of divorce or separate maintenance must not be members of the same household when the payments are made (Section 71(b)(1)(C)); and… the payor’s obligation to make the payment must end at the death of the payee spouse. (Section 71(b)(1)(D))
Background—money judgment. A money judgment is a document issued by a court stating that the creditor (or other plaintiff) has won a lawsuit and is entitled to a certain amount of money.
Facts. The taxpayer, Mr. Siegel, was required to pay alimony to his ex-wife. He fell behind in making his alimony payments. In 2007, the New York Family Court issued a money judgment to his ex-wife in the amount of $216,000 with respect to the unpaid alimony.
Thereafter, Siegel made alimony payments but again fell behind.
By order dated February 12, 2012 (2012 order), the Supreme Court of New York found Siegel to be in contempt and sentenced him to 150 days in jail unless he paid $225,000 to his former spouse. Siegel paid the $225,000 later in 2012. He claimed a 2012 alimony deduction.
Issue and the parties’ positions. The issue was whether Siegel’s payment met the “payor’s obligation to make the payment must end at the death of the payee spouse” requirement for alimony deductions.
Siegel contended that he could deduct the $225,000 because the amount was payment of alimony arrearages pursuant to his maintenance obligations and lump-sum payments of alimony arrearages retain their character as alimony paid.
IRS contended that the 2012 order should be treated as a money judgment because the New York court which issued it was authorized only to issue a money judgment to enforce the payment of alimony arrearages. Siegel responded to that contention by citing authority under New York law for the issuance of a contempt order to achieve the payment of alimony arrearages.
Payment is deductible as alimony. The Tax Court ruled that the $225,000 payment qualified for the alimony deduction.
The Court first noted that lump-sum payments of alimony generally retain their character as alimony for federal tax purposes.
The Court then concluded that the 2012 order was not a money judgment. It said that the 2012 order found Siegel in contempt and provided a choice to him: go to jail for 150 days or pay $225,000 in arrearages relating to his divorce. It did not require any payment if Siegel decided to accept the jail term. In contrast with the 2007 money judgment, the 2012 order entered no judgment in favor of Siegel’s ex-spouse and by its terms provided her with no means of enforcing the judge’s order. By its terms, the 2012 order therefore was not a money judgment. The 2012 order was a contempt order to achieve the payment of alimony arrearages.
IRS then argued that, notwithstanding whether or not the 2012 order was actually a money judgment, it should be treated as a money judgment because New York Family Court Act (FCA) sec. 454(2)(a) provides that a judge, upon a finding of failure by a party to comply with a lawful support order, “shall” enter a money judgment under FCA Sec. 460.
The Court disagreed. It said that, beyond the authority provided by FCA Sec. 454, a judge of the Supreme Court of the State of New York also has authority to find a party in contempt under the circumstances present here and to impose a jail sentence if a mandated payment is not made. N.Y. Civil Practice Law and Rules (C.P.L.R.) 5210 provides that “[e]very court in which a special proceeding to enforce a money judgment may be commenced, shall have power to punish a contempt of court committed with respect to an enforcement procedure.”
As a court of record with the authority to enforce a money judgment, the Supreme Court of the State of New York had contempt authority under N.Y. C.P.L.R. 5210.
References: For alimony deductible by the paying spouse, see FTC 2d/FIN ¶K-6001 et seq., FTC 2d/FIN ¶K-6038; United States Tax Reporter ¶74.01.
