2004 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 4-16-2004 

# H a w ley v . C ommi s sione r IR S P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 03-2663

F o l lo w thi s a nd a dd it ion al work s at : h tt p://d i g it alc ommon s .l a w . vi l l a no va . e du/thir dc ir c uit_2004

Thi s de c i sion i s br ou gh t t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sity S choo l of L a

w Di g it al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 2004 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a no va U nive r sity S choo l of L a

w Di g it al Re posit or y

. F or mor e infor m at ion, p le as e c on t a ct Be n j a min . C a rl s on@l a

w . vi l l a no va . e du . Re c omme nde d C it at ion

" H a w ley v . C ommi s sione r I R S " (2004). 2004 D e cisio n s . P ape r 821. h tt p://d i g it alc ommon s .l a

w . vi l l a no va . e du/thir dc ir c uit_2004/821NOT PRECEDE NTIAL IN THE UNITED STATES COURT OF APPEALS

FO R T HE TH IRD CIR CU IT Docket No. 03-2663 RIC HA RD C. H AW LE Y, Appellant

v. COMMISS IONE R OF INTERNAL REVENUE

_________ On Ap peal f

rom the U nited S tates T ax C ourt Tax Co urt Jud ge: T he H ono rable T hom as B . We lls

(No. 01-4178)

_________ Docket No. 03-3349 JANE GI LBERT

v. COMM ISSI ONER OF INTERNAL REVENU E, Appellant

_________ On Ap peal f

rom the U nited S tates T ax C ourt Tax Co urt Jud ge: T he H ono rable T hom as B . We lls

(No. 01-1592)

___________ Argued March 25, 20042 Be for e: F UE NT ES , SM ITH and GI BS ON , Circuit Judges * (Fil ed April 16, 2004) Charles F. Blumenstock, Jr. (argued) Mark N. Raezer Blumenstock & Blumenstock 255 Butler Avenue Suite 103 Lancaster , PA 17601 Attorneyfor Appell

ant in 03- 2663 Tere sa E. M cLa ugh lin BethanyB. Hauser (argued) United States Department of Justi ce Tax Division P.O. Box 502 Washington, D.C. 20044 Attorneyfor Appell

ee in 03-2663/

Appellant

in 03-3349 John W. Schmehl (ar gued) Dilworth Paxson 1735 Market Stree t 3200 The Mellon Bank Center Philadelphia, PA 19103 Attorneyfor Appell

ee in 03-3349

_____________________ OPINI ON OF THE COURT

_____________________ SM ITH , Circuit

Judge.

* The Honorable John R. Gibson, Senior Circuit J udge for the United States Court of Appeals for t

he Eighth Circuit, sitting by designation.1 Ha wle y ded ucte d $5 4,10 0 in 199 3, $5 4,10 0 in 199 4 an d $5 1,56 5 in 199 5.

2 The taking of inc onsiste nt po sitions b y the Co mm issione r to pre vent a gains t a “w hip saw ” is a n ac cep ted p racti ce in this a nd o ther circu its. Gera rdo v. Co mm ’r , 552 F.2d 54 9 (3d C ir. 1977). See also Preston v . Com m’r , 209 F.3d 1281 (1 1th Cir. 200 0); Centel C omm un. Co . v. Com m’r , 920 F.2d 1335 (7 th Cir. 1990 ). 3 These consoli dated t ax appe als r equire a determi nation of

whether pay

ments made pursuant to an unal locat ed support order cons tit

ute al imony fo r purpos es of the Internal R evenue Code (“I.R. C.”). Because we conclude t hat the Tax Court was co rrect in it s determi nationthat the payme nts sho uld n ot hav e bee n treate d as a limon y, we w ill affirm its decisi on. I. Richard Hawley and Jane Gilbert enteredinto an Agree ment and Orderof Support on Februa ry 4, 1992, w hich required Haw ley to pay “the sum of $ 2,077.00 b i-weekly for a n d toward the support of

wife and thr ee (3) minor children,” but

which did not a llocate the amount of that

payment

between ali mony to Gilbert and c hild s upport t o the chi ldre n. Hawley made 26 payme nts pu rsuan t to that ag reem ent an d ded ucted these p aymen ts on h is indivi dual tax ret

urns for 1993, 1994 and 1995. 1 Gilb ert did not include the pay ments in her income for those years. The Commissioner adopt ed inconsi stent posit ions ont his di screpancy by as sessi ng both Hawley andGilbert with deficiencies , 2 i.e

. , that Hawley c ould not deduc t the pa yments and that Gilbert must

include them in her

income. Haw ley and Gilbert then fi led pet iti ons in th e T ax C our t cha lleng ing the C om mis sion er’s a sses sm ents .4

The Tax Co urt consolidated t he petitions and iss ued an o pin ion , Gilbert v. Co mm is sioner , 85 T.C .M. (CC H) 10 87 (200 3), which held that the un allocated supp ort pay men ts were not al imony. Consequently , Hawley’ s payments to Gilbert were no t deductible, and did not have to be include d as income by Gilbert . Hawley a

ppeals, and the Com missioner, in order

to avoid a “w hipsaw” si tuati on, al so appeals the Tax Court’ s decis ion with respe ct to G ilbert. II. The Tax C ourt had juri sdict ion pursuant to I .R.C. §§ 6213( a), 6214 and 744 2. Th is Cou rthas juris dicti on p ursu ant to I.R.C . § 748 2(a)(1 ). The facts of these t wo cases are not in disp ute. T his C our t exe rcise s ple nar y revie w o ver ma tters o f law

. Lazore v. Com m’r , 11 F.3 d 11 80, 1 182 (3d Cir . 199 3). III. I. R.C. § 215( a) instructs that a limony payment s are deductible to the pay or and includ ible in the gross income of t he recipient. Payments are consider ed ali mony only if the y satisfy all fo ur spe cific req uirem ents se t out in C ode § 71(b )(1): (A) th e paym ents m ust be mad e pur suan t to a div orce a greem ent; (B) th e divo rce ag reem ent m ust no t specif y differe nt tax tre atme nt; (C) the s pouses must not be members of the s ame household; and (D) th e p ayo r m us t n ot ha ve an y lia bi lity t o m ak e a ny a ddition al or su bstitute paym ent a fter the p ayee s pou se d ies. The Tax Court noted, and the parties agree, that t he only requir emen t in dis pute is subsect ion (D), th at there mu st be n o ob ligati on to ma ke an y addition al or su bstitute payme nts afte r the dea th o f the paye e sp ous e. Because the 19 92 Support Order di d not5

address the effect

of Gilbert ’s deat

h on Hawley’s obligation to make t he payment s, t

he Tax Cou rtlookedto Pennsy lvania law to dete rmine whether the requirement was met. The Tax Cou rtconcluded t

hat the “Pen ns yl vania Supreme Court has not deci ded the nar row legal issue of w hether an u nallocated sup port order covering sp ousal supp ort and child su pport term inate s up on t he d eath of th e cu stod ial sp ous e.” Hawley argu es that th e Ta x C ourt erredbecause the Penn sylvania Suprem e Cou rt decidedthat t

he unall ocated suppor

t order terminates upon t

he death of t

he ex-spouse by promulgating Pen nsylvan ia Ru le of C ivil Pro ced ure 191 0.16 -4(f )(3). Subsecti on (f)( 3) was added in 2000 and Hawley ’s the orytheref ore depends upon t

he retr oacti ve appli cati on of the amendment as support

for the de ductions he took forthe unal locat ed payment s. Hawley was unable, however, to f

urnish a singl e aut horit

y which would have supporte d retr oacti ve app licatio n of

this p artic ular pro visio n. In Do mb row ski v. P hilade lphia , the Sup reme Court of Pennsylvania stat ed in a foo tnote that, “[o ]ur rule s of c ivil procedure, promulgate d under the Act of June 21, 1937, P.L. 1982, § 1, a s amended, 17 P.S. § 61, have the for ce of a st atute .” 245 A.2d238 , 241 n.4 (Pa. 1968). The Superi or Court of Penns yl vania, apply ing Dombrowski , has subs eque ntly notedthat t

here is a presumpti on against retr oacti ve appli cati on of rules in the a bsence of an express stat ement in t

he rule t hat it may be ap plied r et roa ctive ly. Maddas v. Dehaas , 816 A.2 d 23 4, 24 1 (P a. Su per . 200 3). Hawley ar gu es th at t he us e o f th e w or d “ in su re ” in an ex pl an ato ry com men t to th e rule, as opposed t o “change,” or other simila r words, demonst rates the intent of the3 That comment st ates, “The new language is intende d to ins ure alimony tax t reatment of unall ocated or ders purs uant to § 71 of the Int ernal Revenue Code. ”

4 Haw ley argues that the Tax Court erred in failing to reconcile it s decision in thi s case with the Tax Court

opinions in Lawton v. Commissioner , 78 T.C .M. (CC H) 15 3 (1999 ), and Simpson v. Commissione r , 78 T.C.M. (CCH) 191 (1999), which held that unal locat ed payment s are cons idered a limony . We agree with t he Tax Court’s di sti nguishi ng treat ment of those cases, however, in t hat nei ther ca se consi dered the applic ation of subparag raph (D ) of Co de § 71 (b)(1). 6 Pen nsylvan ia S upreme Cou rt f or th e p ro vi sio n t o b e a pp lie d r etr oa cti ve ly. 3 The Pen nsylvan ia Supreme Co urt made clear in C ommonw ealth v . Rockwell Manufacturing , however, that s uch stra inedatte mpts to key in on a particular ter

m in arguing f

or ret roactive appli cati on will not

succee d. 140 A.2d 854, 857-58 ( Pa. 1958) ( comparing Speck v. Phi lips , 51 A.2d 399 (Pa. Super. 1947), which included a di scret e clause addr essing r etroac tive a pplication) . If t

he Pe nn syl vania Supreme Court, in promulgating thi s rule of civi l procedure, had i ntended retr oacti ve applic ation it would have clear ly indicated as much through a s eparat e clause or oth er cle ar sta tem ent o f tha t des ire. Id. Bec ause Ru le 191 0.16- 4(f)(3 ) doe s not su ppo rt Ha wley’s a rgum ent tha t his ob ligati o n to mak e the p aymen ts wo uld h ave te rmina ted up on G il bert ’s death, Pen nsylvania’s longst anding public pol icy which favors a continuing obl igati on to provi de sup port for unemancipate d children poses an ins urm oun table h urdle to his ap peal. 4 Cf. Ritter v. Ritter , 518 A.2d 319, 322 (Pa. Su

per. 198 6); Bowen v. Commonwealth, De p’t of Publ

ic Welfare , 343 A.2d 690, 691 (Pa. Commw. 1975). Itis true that

death abates a div orc e ac tion and the o blig ation to p ay alim ony. See Drumheller

v. Marce llo , 516 Pa. 428, 432 (1987)); 23 Pa. Cons. St at. Ann. § 3707 ( the ri ght5 The Tax Court cit ed the Tenth Ci rcuit ’s deci sion i n Lovejoy v. Comm issi oner , 293

F.3d 1208 (10t

h Cir. 2002) , for i ts conclusion i n this case. In that opinion, a ddressing the treatm ent of

payme nts m ade p ursua nt to an unallo cated supp ort ord er un der su bstan tially si mil arlaws as th ose inPen nsylv ani a, th e Court pr edi ct ed t

hat th e Col or ado Supreme Court would hold t

hat the payment s would not aut omatical ly terminate on the death of t he paye e sp ous e, an d th at the paym ents we re n ot th erefore ded uctib le by th e pa yor. W e reach the same conclus ion with r espect to Pennsylvania l aw in this case and re ject Haw ley’s argument fo r retroactive application o f Penn sylvania Rule of Civil Proce dure 191 0.16 -4(f

)(3). 7 to receive alimo ny terminates autom atically at t he death o f the payee). Yet the ob ligation to paychild suppo rt remains. Co urts are bou nd to pro mo te the bes t inte rests of th e ch ildre n. See Oelerv. Oeler , 594 A .2d 64 9, 651 (Pa. 1 991 ). Eve n if the techn ical ob lig atio n to make payme nts under the order to Gilbert would have ended upon herdeath, the obli gation to make substitut e payments would have continued because Hawley would st illhave been requi red to support his children. 23 Pa. Cons. Stat. Ann. § 4321(2) (“Parents are liable for the supp ort of th eir ch ildre n w ho a re u nem anc ipate d an d 18 years o f ag e or youn ger .”). Hawley ha s n ot

pr ovi de d, nor

ha ve we found, any

authori ty

to support

his posi tion t

hat he properl y t ook deducti ons in 1993, 1994 and 1995 for the payment s made pursuant to the unalloc atedsupport ord er. 5 We will the refor e aff irm the decisio n of

the T ax C ourt w ith respect to Hawley. Consiste nt with t hat conclusion, we also affi rm the court ’s deci sion as to G ilbert.