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For federal tax purposes, any payment made in the initial phase of a divorce under a pendente lite support order that does not allocate between alimony and child support is considered the income of the spouse who receives the payment, the 3d U.S. Circuit Court of Appeals has ruled. Kean v. Commissioner of Internal Revenue, nos. 04-2931 and 04-3018. Ordinarily, alimony is deductible from the paying spouse’s income and must be claimed as income by the receiving spouse, but child support is neither deductible nor transferred. However, a 3d Circuit panel has found that where an interim court order combines the alimony and child support into a single, unallocated support payment, the funds are treated as “alimony” under the federal tax code. “Child support payments may be separated out of alimony payments for tax purposes, but only if the amount intended for child support is sufficiently identifiable,” U.S. Circuit Judge Franklin S. Van Antwerpen wrote on behalf of the panel. “Where support payments are unallocated . . . the entire amount is attributable to the payee spouse’s income.” The ruling upholds a decision by the U.S. Tax Court against Patricia Kean that affirmed an Internal Revenue Service notice of deficiency for nearly $75,000 in unpaid taxes over five years. Van Antwerpen found that Section 71(b) of the Internal Revenue Code-which defines “alimony”-was enacted to “provide a uniform definition of alimony so that alimony payments could be distinguished from property settlements which receive different tax treatment. “Congress specifically intended to eliminate the subjective inquiries into intent and the nature of payments that had plagued the courts in favor of a simpler, more objective test,” Van Antwerpen wrote. Van Antwerpen also found that the law can help families reduce their tax burden by shifting income to the spouse who is in a lower tax bracket. “By ordering the payor spouse to make an unallocated support payment taxable in full to the payee spouse, the couple may be able to shift a greater portion of their collective income into a lower tax bracket,” Van Antwerpen wrote. “Consequently, an unallocated payment order . . . may allow the parties to enjoy a tax benefit at a time when they face increased expenses as they establish independent homes. This advantage would be lost by taxing all unallocated payments to the payor spouse.” The ruling creates a split in the federal circuits because the 3d Circuit refused to follow the 10th Circuit’s 2002 decision in Lovejoy v. Commissioner of Internal Revenue, which held that, under Colorado law, support payments made during divorce proceedings do not fit Section 71′s definition of “alimony.” Patricia and Robert Kean were married in 1970 and have three children. In 1991, Patricia Kean filed for divorce in New Jersey superior court. While the case was pending, the court ordered Kean to deposit $6,000 per month into the couple’s joint checking account, and she was told to use the funds to support herself, the children and the household. During the years that the pendente lite order was in place, Kean paid his wife more than $250,000. On their tax returns, Kean was deducting all of the payments, but his wife was not claiming the payments as income. In 2000, the IRS issued a notice of deficiency to both of the Keans. In 2003, the tax court ruled that payments made to the wife met the tax code’s definition of “alimony.” Now the 3d Circuit has upheld that decision, finding that “pendente lite support payments should be considered ‘alimony or separate maintenance payments’ for federal taxation purposes.” Van Antwerpen found that, under the tax code, such payments are considered alimony unless the divorce or separation instrument “fixes a sum of money as child support, or provides that the payments are reduced on the happening of an event related to the child.”

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