Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-16-2004

Hawley v. Commissioner IRS
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-2663




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"Hawley v. Commissioner IRS" (2004). 2004 Decisions. Paper 821.
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                                         NOT PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT

            Docket No. 03-2663

         RICHARD C. HAW LEY,

                                 Appellant

                     v.

 COMMISSIONER OF INTERNAL REVENUE


                   _________

    On Appeal from the United States Tax Court
  Tax Court Judge: The Honorable Thomas B. Wells
                   (No. 01-4178)
                    _________

               Docket No. 03-3349

                 JANE GILBERT


                          v.

   COMM ISSIONER OF INTERNAL REVENUE,

                                             Appellant

                   _________

    On Appeal from the United States Tax Court
  Tax Court Judge: The Honorable Thomas B. Wells
                   (No. 01-1592)
                   ___________

              Argued March 25, 2004
           Before: FUENTES, SMITH and GIBSON, Circuit Judges*

                              (Filed April 16, 2004)

Charles F. Blumenstock, Jr. (argued)
Mark N. Raezer
Blumenstock & Blumenstock
255 Butler Avenue
Suite 103
Lancaster, PA 17601

Attorney for Appellant in 03-2663

Teresa E. M cLaughlin
Bethany B. Hauser (argued)
United States Department of Justice
Tax Division
P.O. Box 502
Washington, D.C. 20044

Attorney for Appellee in 03-2663/Appellant in 03-3349

John W. Schmehl (argued)
Dilworth Paxson
1735 Market Street
3200 The Mellon Bank Center
Philadelphia, PA 19103

Attorney for Appellee in 03-3349
                            _____________________

                           OPINION OF THE COURT
                            _____________________


SMITH, Circuit Judge.




* The Honorable John R. Gibson, Senior Circuit Judge for the United States Court of
Appeals for the Eighth Circuit, sitting by designation.

                                       2
        These consolidated tax appeals require a determination of whether payments made

pursuant to an unallocated support order constitute alimony for purposes of the Internal

Revenue Code (“I.R.C.”). Because we conclude that the Tax Court was correct in its

determination that the payments should not have been treated as alimony, we will affirm its

decision.

                                                 I.

        Richard Hawley and Jane Gilbert entered into an Agreement and Order of Support on

February 4, 1992, which required Hawley 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

amount of that payment between alimony to Gilbert and child support to the children.

Hawley made 26 payments pursuant to that agreement and deducted these payments on his

individual tax returns for 1993, 1994 and 1995.1 Gilbert did not include the payments in her

income for those years.

        The Commissioner adopted inconsistent positions on this discrepancy by assessing

both Hawley and Gilbert with deficiencies,2 i.e., that Hawley could not deduct the payments

and that Gilbert must include them in her income. Hawley and Gilbert then filed petitions

in the Tax Court challenging the Commissioner’s assessments.



  1
      Hawley deducted $54,100 in 1993, $54,100 in 1994 and $51,565 in 1995.
  2
    The taking of inconsistent positions by the Commissioner to prevent against a
“whipsaw” is an accepted practice in this and other circuits. Gerardo v. Comm’r, 

(3d Cir. 1977). See also Preston v. Comm’r, 

(11th Cir. 2000);
Centel Commun. Co. v. Comm’r, 

(7th Cir. 1990).
                                             3
       The Tax Court consolidated the petitions and issued an opinion, Gilbert v.

Comm issioner, 

(2003), which held that the unallocated support

payments were not alimony.        Consequently, Hawley’s payments to Gilbert were not

deductible, and did not have to be included as income by Gilbert. Hawley appeals, and the

Commissioner, in order to avoid a “whipsaw” situation, also appeals the Tax Court’s decision

with respect to Gilbert.

                                                  II.

       The Tax Court had jurisdiction pursuant to I.R.C. §§ 6213(a), 6214 and 7442. This

Court has jurisdiction pursuant to I.R.C. § 7482(a)(1). The facts of these two cases are not

in dispute. This Court exercises plenary review over matters of law. Lazore v. Comm’r, 

, 1182 (3d Cir. 1993).

                                                  III.

       I.R.C. § 215(a) instructs that alimony payments are deductible to the payor and

includible in the gross income of the recipient. Payments are considered alimony only if they

satisfy all four specific requirements set out in Code § 71(b)(1):

       (A) the payments must be made pursuant to a divorce agreement;
       (B) the divorce agreement must not specify different tax treatment;
       (C) the spouses must not be members of the same household; and
       (D) the payor must not have any liability to make any additional or substitute
       payment after the payee spouse dies.

       The Tax Court noted, and the parties agree, that the only requirement in dispute is

subsection (D), that there must be no obligation to make any additional or substitute

payments after the death of the payee spouse. Because the 1992 Support Order did not

                                              4
address the effect of Gilbert’s death on Hawley’s obligation to make the payments, the Tax

Court looked to Pennsylvania law to determine whether the requirement was met. The Tax

Court concluded that 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.”

       Hawley argues that the Tax Court erred because the Pennsylvania Supreme Court

decided that the unallocated support order terminates upon the death of the ex-spouse by

promulgating Pennsylvania Rule of Civil Procedure 1910.16-4(f)(3). Subsection (f)(3) was

added in 2000 and Hawley’s theory therefore depends upon the retroactive application of the

amendment as support for the deductions he took for the unallocated payments. Hawley was

unable, however, to furnish a single authority which would have supported retroactive

application of this particular provision.

       In Dombrowski v. Philadelphia, the Supreme Court of Pennsylvania stated in a

footnote that, “[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.” 

, 241 n.4

(Pa. 1968). The Superior Court of Pennsylvania, applying Dombrowski, has subsequently

noted that there is a presumption against retroactive application of rules in the absence of an

express statement in the rule that it may be applied retroactively. Maddas v. Dehaas, 

, 241 (Pa. Super. 2003).

       Hawley 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 intent of the

                                              5
Pennsylvania Supreme Court for the provision to be applied retroactively. 3 The Pennsylvania

Supreme Court made clear in Commonwealth v. Rockwell Manufacturing, however, that such

strained attempts to key in on a particular term in arguing for retroactive application will not

succeed. 

, 857-58 (Pa. 1958) (comparing Speck v. Philips, 

(Pa.

Super. 1947), which included a discrete clause addressing retroactive application). If the

Pennsylvania Supreme Court, in promulgating this rule of civil procedure, had intended

retroactive application it would have clearly indicated as much through a separate clause or

other clear statement of that desire. 

1910.16-4(f)(3) does not support Hawley’s argument that his obligation

to make the payments would have terminated upon Gilbert’s death, Pennsylvania’s

longstanding public policy which favors a continuing obligation to provide support for

unemancipated children poses an insurmountable hurdle to his appeal. 4 Cf. Ritter v. Ritter, 

, 322 (Pa. Super. 1986); Bowen v. Commonwealth, Dep’t of Public Welfare, 

,

691 (Pa. Commw. 1975).

       It is true that death abates a divorce action and the obligation to pay alimony. See

Drumheller v. Marcello, 

, 432 (1987)); 23 Pa. Cons. Stat. Ann. § 3707 (the right


  3
    That comment states, “The new language is intended to insure alimony tax treatment
of unallocated orders pursuant to § 71 of the Internal Revenue Code.”
  4
     Hawley argues that the Tax Court erred in failing to reconcile its decision in this case
with the Tax Court opinions in Lawton v. Commissioner, 

(1999),
and Simpson v. Commissioner, 

(1999), which held that unallocated
payments are considered alimony. We agree with the Tax Court’s distinguishing
treatment of those cases, however, in that neither case considered the application of
subparagraph (D) of Code § 71(b)(1).
                                               6
to receive alimony terminates automatically at the death of the payee). Yet the obligation to

pay child support remains. Courts are bound to promote the best interests of the children. See

Oeler v. Oeler, 

, 651 (Pa. 1991). Even if the technical obligation to make

payments under the order to Gilbert would have ended upon her death, the obligation to make

substitute payments would have continued because Hawley would still have been required

to support his children. 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.”).

       Hawley has not provided, nor have we found, any authority to support his position that

he properly took deductions in 1993, 1994 and 1995 for the payments made pursuant to the

unallocated support order.5 We will therefore affirm the decision of the Tax Court with

respect to Hawley. Consistent with that conclusion, we also affirm the court’s decision as

to Gilbert.




  5
       The Tax Court cited the Tenth Circuit’s decision in Lovejoy v. Commissioner, 

(10th Cir. 2002), for its conclusion in this case. In that opinion, addressing the
treatment of payments made pursuant to an unallocated support order under substantially
similar laws as those in Pennsylvania, the Court predicted that the Colorado Supreme
Court would hold that the payments would not automatically terminate on the death of the
payee spouse, and that the payments were not therefore deductible by the payor. We
reach the same conclusion with respect to Pennsylvania law in this case and reject
Hawley’s argument for retroactive application of Pennsylvania Rule of Civil Procedure
1910.16-4(f)(3).
                                              7