Iglicki v. Comm’r, T.C. Memo. 2015-80, 2015 WL 1886010 (2015)
(a) Facts: A Maryland separation agreement required a husband to pay $735 per month in child support to a wife. If the husband defaulted on child support, he would immediately become liable for $1,000 per month in spousal support. Liability would continue until the wife died, the husband died, or the husband made 36 payments. The agreement was incorporated into a Maryland divorce decree.
The husband defaulted on child support and thereby became liable for spousal support. The husband’s wages were eventually garnished by a Colorado court. He took an alimony deduction for the total amount paid. The IRS disallowed the alimony deduction and assessed a deficiency
(b) Issue: Was the husband entitled to an alimony deduction?
(c) Answer to Issue: No.
(d) Summary of Rationale: The court focused, not upon the Maryland alimony obligation, but upon the Colorado judgment finding the husband liable for arrears. A money judgment for spousal support arrears is an absolute obligation that must be paid, even if the payee later dies. Because the judgment for arrears was not conditional upon the husband’s death, the court held that the amount payable under that judgment could not be treated as alimony.
Observation: The Maryland agreement and order clearly stated that liability for alimony stopped upon the death of either spouse. If support had been paid on time, the requirements of § 71(b)(1)(D) would clearly have been met.
The IRS argued and the court agreed that § 71(b)(1)(D) was not met, because the payments were made on the judgment for arrears and not the original obligation. If this reasoning is correct, the entry of the judgment for arrears converted the obligation from alimony to not-alimony. It seems odd that the time of payment should cause such a fundamental change in the nature of the obligation.
And if the rationale of Iglicki is extended, an alimony obligation might cease to be alimony whenever it is past due. The obligation to pay past-due alimony arrears does not terminate upon the payee’s death, regardless of whether an actual judgment for arrears has been issued. The author can easily see the IRS arguing under Iglicki that any payment of past-due alimony is not alimony for tax purposes, because the payor would still be liable for the arrears even if the payee died.
Obvious Lesson: Pay your spousal support obligations on time if you intend to claim an alimony deduction.
Question: Was Iglicki correctly decided? Did Congress truly intend that an alimony obligation cease to be an alimony obligation merely because a judgment for arrears is entered? The termination-upon-death inquiry in § 71(b)(1)(D) should focus upon the initial obligation, not upon the obligation to pay arrears. The initial obligation in Iglicki expressly terminated upon the death of either spouse. That fact should have been sufficient to meet the requirements of § 71(b)(1)(D). The court reached the wrong result.
Nothing in the § 71 regulations, Treas. Reg. §§ 1.71-1 and 1.71-1T, suggests that an obligation that is otherwise alimony ceases to be alimony when the obligation is past due.
Caution: Until the law is more settled, it is possible that the IRS will try to take the position that other payments on judgment for arrears are not alimony, because the judgment for arrears does not terminate upon death—even if the original alimony judgment clearly does terminate upon death. After Iglicki, there is an unfortunate element of risk to taking an alimony deduction based upon any past-due payment.