Are Unallocated Support Payments Alimony?

R and G entered into an agreement and order of support, which required R to pay the sum of $2,077.00 bi-weekly for and toward the support of wife and three (3) minor children, but which did not allocate the payment between alimony to G and child support to the children. R made 26 payments under the agreement and deducted them on his 19931995 returns. The Tax Court held that the unallocated support payments were not alimony and, thus, neither deductible by R nor includible in income by G; see Gilbert, TC Memo 2003-92. R appealed to the Third Circuit.

Law and Analysis

Payments are considered alimony only if they satisfy all four requirements in Sec. 71(b)(1). The only requirement in dispute is Sec. 71(b)(1)(D)that there must be no obligation to make any additional or substitute payments after the payee spouses death. Because the support order did not address the effect of Gs death on Rs obligation to make the payments, the Tax Court looked to Pennsylvania law to determine whether the requirement was met. It concluded, the Pennsylvania Supreme Court has not decided the narrow legal issue of whether an unallocated support order covering spousal support and child support terminates upon the death of the custodial spouse.

R contends that the Tax Court erred, because the Pennsylvania Su-preme Court decided that an unallocated support order terminates on the ex-spouses death by amending Pennsylvania Rule of Civil Procedure 1910.16-4(f)(3) in 2000. Thus, Rs theory depends on whether the amended rule applies retroactively to the deductions he took for the unallocated payments.

Retroactive Application

In Dombrowski, 245 A2d 238 (PA 1968), the Pennsylvania Supreme Court stated in footnote 4, [o]ur rules of civil procedure, promulgated under the Act of June 21, 1937, P.L. 1982, 1, as amended, 17 P.S. 61, have the force of a statute. The Pennsylvania Superior Court, in applying Dombrowski, has subsequently noted a presumption against retroactively applying rules in the absence of an express statement in the rule to that effect; see Maddas, 816 A2d 234 (PA Super. 2003). However, R argues that the use of the word insure in an explanatory comment to the rule, as opposed to change, or other similar words, demonstrates the Pennsylvania Supreme Courts intent to apply the provision retroactively. That comment simply states, [t]he new language is intended to insure alimony treatment of unallocated orders pursuant to 71 of the Internal Revenue Code. The Pennsylvania Supreme Court made clear that such strained attempts to key in on a particular term in arguing for retroactive application will not succeed; see Commonwealth v. Rockwell Manufacturing, 140 A2d 854 (PA 1958), comparing Speck v. Philips, 51 A2d 399 (PA Super. 1947), which included a discrete clause addressing retroactive application. If the Pennsylvania Supreme Court, in promulgating this rule, had intended it to apply retroactively, it would have clearly indicated as much through a separate clause or other clear statement.

Because Rule 1910.16-4(f)(3) does not support Rs argument that his payment obligation would have terminated on Gs death, Pennsylvanias longstanding public policy favoring a continuing obligation to provide support for unemancipated children poses an insurmountable hurdle to Rs appeal. Even if the technical obligation to make payments under the order to G would have ended on her death, the obligation to make substitute payments would have continued because R would still have been required to support his children; see 23 Pa. Cons. Stat. Ann. 4321(2) (parents are liable for the support of their children who are unemancipated and 18 years of age or younger). Thus, the payment obligation is not alimony.

Richard C. Hawley, 3d Cir., 4/16/04