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EMILY LITELLA PRINCIPLE FAILS TO SWAY TAX COURT

September 09, 2004

If Tennessee state judges could decree that items were deductible, regardless of what the Internal Revenue Code says, they'd be very popular people. Alas - a Tax Court opinion issued today says such power is beyond their grasp.

The case involves a 1997 divorce decree. The decree provided for annual payments to the ex-wife for about ten years. If she died before the 10-year period ended, identical amounts would be paid for the education of two children.

The ex-husband treated the payments as alimony. Ex-husbands (or ex-wives who pay it) like alimony because they can deduct it. Some also get a subversive thrill from knowing that the recipient has to pay tax on the alimony received.

Unfortunately for ex-husband, the Code provides that a payment qualifies as alimony only if

   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.

In other words, if the payments might continue after she's dead, they aren't deductible. The divorce judge tried to finesse this mere technical problem by putting the following wording in a decree:

   Said alimony is taxable to the 
   Defendant and deductible by the
   Plaintiff...

That takes care of that, right? Well, no. At some point earlier this year, the taxpayer must have realized that he had a problem, and he got another decree from the state court. The judge invoked the principle of "if I repeat it enough, maybe it's true:"

   10. It is therefore held by this 
   Honorable Court in regard to the 
   Order of Motion for Appellate Attorney
   Fees that it was the stated intention 
   of this Court to make said alimony 
   payments, which have been paid in
   full by stipulation of the parties, 
   taxable income to Barbara Buhr 
   Okerson and tax deductible to John 
   Russell Okerson as alimony.

NEVER MIND...

The state court also ruled that the decree's provision for after-death payments was inoperative because the ex-wife hadn't actually died. This is an example of the legal docrine known as the "Emily Litella" principle (in lay terms, "never mind"):

   11. It further appeared to the Court 
   that the paragraph 2 quote above 
   contained a contingency that did not 
   occur and therefore should not be the
   basis of confusion as to the Court’s 
   intention in this cause.

It seems the ex-wife's wishes weren't given much consideration:

   12. It further appeared to the Court 
   that notwithstanding Barbara Buhr 
   Okerson’s opposition to the Court’s 
   decision in this cause that the 
   findings and holdings of this Order 
   are hereby ADJUDGED, ORDERED AND 
   DECREED.

Yet, even though the state judge used capital letters and boldface type AT THE SAME TIME , the Tax Court wasn't swayed:

   The complete termination upon the  
   death of the payee spouse of all 
   payments made as alimony or in 
   substitute thereof is an indispensable
   part of Congress’s scheme for 
   deducting a payment as alimony for 
   Federal income tax purposes, and it 
   is something that may not be overcome
   simply because the payor may establish 
   an intent that the payments be 
   deductible by the payor spouse as 
   alimony.

The moral? No matter how friendly the divorce judge is, he can't make a botched alimony provision overcome the Code.

Cite: Okerson, 123 TC No. 14

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