Opinion ID: 886038
Heading Depth: 2
Heading Rank: 5

Heading: Allowable deductions.

Text: ¶ 35 Keith contends that the District Court erred by manipulating the amount of federal tax, state tax, and Social Security payments deductible on Line 2 of Worksheet A. The program used by the court to reach Keith's child support obligation takes into account an estimated amount of tax and deducts it from the total income entered in Line 1 of Worksheet A. Mr. Bourdeau entered the average taxes paid by Keith over the four preceding years rather than using the taxes he would pay on income of $93,987.00. ¶ 36 As discussed above, the District Court ascertained that Keith's actual income was $93,987.00 based upon an audit of Keith's business records from 1999. The court did not base its actual income upon an average of three years consistent with the Guidelines' preference. However, when determining the deductions available to Keith for taxes, the court chose to average the income tax due for Keith in 1995, 1996, 1997, and 1998. The District Court found tax returns for these years applicable for Line 2 of Worksheet A despite its finding that they were inaccurate for income purposes. Mr. Bourdeau entered the average of taxes paid rather than the taxes due on $93,987.00 because he felt it more accurately reflected disposable income for child support purposes. Keith paid an average of $1,596.00 in federal taxes, $53.00 in state taxes and nothing for Social Security during the years considered by the court. The total allowable deductions based upon these numbers is $1,649.00 for an income of $93,987.00. After deductions, Keith's yearly income on Line 3 of Worksheet A is $92,338.00. His child support obligation based upon these calculations is $2,412.00. ¶ 37 Keith argues that the court erred by using the four-year average of actual taxes paid in calculating his allowable deductions. Specifically, he contends that the Guidelines allow deductions for the federal tax, state tax and Social Security payments that he would be required to pay on income of $93,987.00. The allowable deductions on a $93,987.00 yearly income are $17,144.00 for federal income tax, $4,660.00 for state income tax and $11,966.00 for Social Security payments. The total allowable deductions according to Keith's calculations are $33,770.00, giving Keith an income of $60,217.00 on Line 3 of Worksheet A. Keith maintains his child support payment will be reduced by $1,000.00 per month if the taxes due on $93.987.00 are used on Line 2 of Worksheet A. ¶ 38 We are asked to determine whether a district court can use the average taxes paid from previous years for determining allowable tax deductions when it did not rely upon those tax returns to determine income, and relied upon only one year to determine income. Rule 37.62.110, ARM, provides: allowable deductions from income include: .... (d) the actual income tax liability based on tax returns. If no other information is available, use the tax tables which show the amount of withholding for a single person with one exemption; (e) the actual social security paid.... ¶ 39 The Instructions for Completing Child Support Worksheets provide for the allowable deductions on Line 2. With respect to federal and state income tax deductions, the Instructions provide that the total amount of tax due from tax returns, the average tax liability if income was averaged, or the amount of tax due according to state and federal rules if tax returns are not available, may be deducted. The amount of Social Security withheld from gross pay according to the parent's W-2 forms should be entered if available, otherwise the amount due should be calculated based upon the federal regulations. ¶ 40 According to the Instructions, taxes for the purposes of allowable deductions may only be determined by using an average of taxes from previous years where the court averaged that parent's income in calculating the income figures used in Line 1. The court did not average Keith's income. Therefore, it was improper for the court to use the average tax liability from previous years on Line 2 of Worksheet A. ¶ 41 Next we address whether it was proper for the court to determine tax liability for Line 2 based upon reported taxes rather than the amount due on the court's income figures according to IRS Circular E. The Guidelines and legal precedent on the issue of child support emphasize one fundamental principle. Child support should be sufficient to maintain the standard of living a child enjoyed before dissolution after his or her parents have separated. Rule 37.62.101(2), ARM. This is determined by reviewing each parent's ability to support the children of the dissolved marriage based upon that parent's disposable income. In re Marriage of Murphy, 268 Mont. at 6, 885 P.2d at 443. In the present case, the court has determined Keith's disposable income to be considerably greater than the income he reported and paid taxes on in 1999. This Court has subsequently affirmed the District Court's calculations for 1999 using Mr. Bourdeau's audit with some exceptions. To allow a deduction for an expense that was not paid would result in an inaccurate picture of disposable income. Keith's disposable income, as determined by the District Court, is his actual income less taxes and Social Security due according to tax returns. In this case, Keith only paid taxes on $37,747.00 of income. Therefore, it would be inappropriate to allow him to deduct over $30,000.00 of expenses he did not incur. We conclude that the District Court did not abuse its discretion when it relied on the actual tax paid during the years in question. ¶ 42 The final determination of allowable deductions will depend on those years the District Court relies on to determine the average of Keith's actual income. Only the taxes and Social Security payments made during those years should be averaged to arrive at the deductions allowed on Line 2.