Opinion ID: 430887
Heading Depth: 2
Heading Rank: 1

Heading: College Expenses

Text: 29 26 U.S.C. Sec. 215(a) (1976) 3 permits a husband 4 to deduct from his gross income payments made to his former wife which are includable in her gross income as alimony pursuant to 26 U.S.C. Sec. 71(a) (1976). 5 A husband is not entitled to deduct from his gross income child support payments as defined in 26 U.S.C. Sec. 71(b) (1976) 6 and the wife is not required to include such payments in her gross income. 30 Section 71(b) dictates that the college expense payments were child support. They were made under the express provisions of the separation stipulation and judgment, which required Sperling to pay for his children's college tuition and expenses. Such payments were made for and in behalf of the children, Mandel v. Commissioner, 229 F.2d 382, 388 (7th Cir.1956), and thus do not constitute alimony. See Emmons v. Commissioner, 36 T.C. 728, 738 (1961), aff'd mem., 311 F.2d 223 (6th Cir.1962). 31 Sperling relies on Commissioner v. Lester, 366 U.S. 299, 81 S.Ct. 1343, 6 L.Ed.2d 306 (1961), for the argument that section 71(b) does not control because the parties did not specifically designate or fix a sum certain to be paid on behalf of the children. In Lester the Supreme Court stated that where alimony payments are made [t]he agreement must expressly specify or 'fix' a sum certain or percentage of the payment for child support before any of the payment is excluded from the wife's income. 366 U.S. at 303, 81 S.Ct. at 1346 (emphasis added). 32 There, the husband agreed to supply a periodic, fixed payment which would be reduced by a percentage upon the death, marriage or emancipation of minor children. The Court, interpreting the predecessor to section 71(b), specified the strict rule quoted above. Here, however, the issue is not whether a portion of a static payment should be deemed child support. The judgment of separation provides for fixed periodic payments for the support and maintenance of the [wife] and the support, maintenance and education of the infant children and additionally and separately requires Sperling to pay for his children's college expenses. The dispute centers around not the general payment for the support and maintenance of wife and children (and education of children) but the nature of the college expense payments. The tax court determined that: 33 Resort to the rule of Lester ... is not necessary when an amount is payable in its entirety (or 100 percent) on behalf of the child, and totally bypasses any right of participation or control by the non-paying parent. 34 45 T.C.M. (CCH) at 196. 35 The rationale of Lester is that the wife must declare income where she in her discretion may use the money she receives. Such is not the case here. The payments in question here were made directly to Northwestern University. Even if they had been made to the former wife, she would not have had indiscriminate use of the money. Cf. Helvering v. Horst, 311 U.S. 112, 118, 61 S.Ct. 144, 147, 85 L.Ed. 75 (1940) (The power to dispose of income is the equivalent of ownership of it.); Corliss v. Bowers, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916 (1930) (The income that is subject to a man's unfettered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not.). She would have been required to turn the money over to the University and would have acted as a mere conduit for the transfer of the funds. Christiansen v. Commissioner, 60 T.C. 456, 461 (1973); Emmons, 36 T.C. at 738. Therefore, because the tuition and expense money was to be used for the exclusive benefit and support of the children, the fact that a precise sum or percentage was not specified in the agreement is not crucial. As noted in Abramo v. Commissioner, 78 T.C. 154, 161 (1982): 36 When the Supreme Court stated [in Lester ] a sum certain or percentage of the payment made to the wife sufficiently fixes the amount excludable from the wife's income as child support, it meant that the total payment which the husband must make is to be allocated precisely between wife and children, not that the total payment be numerically fixed. 37 Similarly, Sperling's reliance on Van Oss v. Commissioner, 25 T.C.M. (CCH) 403 (1966), aff'd, 377 F.2d 812 (2d Cir.1967), is misplaced. In Van Oss, the separation agreement provided that the husband would reimburse his former wife for tuition costs in excess of $1,000 per child per year. Since she had three children, the wife argued that $3,000 of the total fixed annual payment of $24,000 made by the husband to her constituted child support. The tax court rejected this contention since the wife had complete and unfettered control of the money received from her former husband and was not obligated to spend the money on behalf of her children. As such, the wife was not a conduit for the payments. 25 T.C.M. (CCH) at 406. 38 This case factually is closer to Marshall v. Commissioner, 35 T.C.M. (CCH) 138 (1976), than to either Lester or Van Oss. In Marshall, the order of support required the husband to pay a fixed sum for the support of the wife and children and required him to pay in addition ... all college expenses. 35 T.C.M. (CCH) at 139. The court held that the husband's obligation to pay the college expenses of his children above and beyond the fixed payment was sufficiently designated as child support. Id. at 141. In so doing, the court considered and distinguished both Lester and Van Oss, stating: 39 Both Lester ... and Van Oss ... focus on a wife's receipt of an aggregate sum which she was free to apply to whatever purposes she so chose. In other words, mere contractual or judicial suggestion that a portion of a payment should be applied to the children's benefit does not detract from the wife's freedom to spend it as she sees fit. This freedom does not inhere in payments to cover expenses incurred on behalf of the ... children. 40 Id. 41 Sperling contends that an affirmance here will erode the Lester Court's rejection of any loose standard that can only lend itself to numerous inconsistent court determinations in similar factual patterns. Lester is not implicated in this decision and it applies, as ever, in situations where a general payment is made between spouses. The instant decision applies to cases where a separate payment is called for by the parties' agreement or by court order and is earmarked for specific, support-related purposes. 42 Sperling also contends that the college expense payments constitute alimony because they conferred an economic benefit on Phyllis by relieving her of her share of the legal obligation to provide a college education for her children. The point is meritless. It is not clear whether New York law at the time of the Sperlings' separation and divorce required parents to pay for the college education of their children. However, whether or not this obligation existed is irrelevant to the resolution of this issue. On the one hand, if New York law did not give rise to such a duty on Phyllis' part, then it cannot be said that Sperling's payments relieved her of a legal obligation. On the other hand, even if Phyllis were required to provide for her children's college education, section 71(b) precludes Sperling's payments in satisfaction of this obligation from being included in Phyllis' gross income. Payments by the husband to the custodial wife to relieve her of her obligation to support her children generally confer an economic benefit on the wife since they obviate the need for her to expend a like amount. However, the purpose of section 71(b) is to exclude these otherwise includable payments from the custodial wife's income. Therefore, it makes no difference whether Phyllis received an economic benefit from Sperling's tuition payments. 43 Sperling also argues that the tax court improperly excluded evidence offered by him to show that Phyllis affirmatively assumed the obligation of sending her children to college, thus rendering his payments thereto a form of economic benefit to her. The court excluded this evidence on the basis of the rule in Lester, as interpreted, that extrinsic evidence will not be permitted to alter the language of a divorce decree or separation agreement specifying payments as alimony or child support where the decree or agreement specifically and unambiguously fixes the character of the payments. See Estate of Craft v. Commissioner, 68 T.C. 249, 263-64 (1977), aff'd, 608 F.2d 240 (5th Cir.1979) (per curiam); Giordano v. Commissioner, 63 T.C. 462, 465-67 (1975); Grummer v. Commissioner, 46 T.C. 674, 678-80 (1966). The rule is grounded on the statutory interpretation in Lester that the instrument or decree itself must express a clear intent to designate payments or portions thereof as child support. Sperling seeks to evade the rule by arguing that the evidence was offered not to establish the intent of the parties to designate the payments as child support but rather to show that Phyllis received an economic benefit as a result of these payments, i.e., that Phyllis acknowledged her responsibility to educate her children and sought payments from Sperling in order to satisfy this obligation. Because economic benefit analysis is inappropriate to the proper characterization of the payments in question any evidence that Phyllis acknowledged her obligation to provide her children with a college education is irrelevant. 44 Furthermore, the language in the separation stipulation and judgment of separation is clear and unambiguous. The separation stipulation states in section 9 that husband agrees to pay to the wife as alimony for her support and for the support, maintenance and education of the children, except as hereinafter set forth, the sum of ... $644.23 per week. (emphasis added). The agreement then adds that [i]n addition to the foregoing payment the ... husband is to pay for the following items ... tuition, laboratory fees, books and residence fees for each child for four years at college. (emphasis added). The judgment of separation also calls for payment of college expenses by Sperling separately from his general obligation to pay a weekly lump sum for the support and maintenance of Phyllis and the support, maintenance and education of the children. This language specifically excludes college expenses from the general payment of alimony. We believe that both the stipulation and the judgment specifically and unambiguously fix the character of the college expense payments. Extrinsic evidence, therefore, was properly excluded.