Consolidated Appeals from Decisions of the United States Tax Court. (Docket Nos. 8966-00 & 9144-00). Tax Court Judge: Honorable Arthur L. Nims, III.
Before: Scirica, Chief Judge, and Roth and Van Antwerpen, Circuit Judges
The opinion of the court was delivered by: Van Antwerpen, Circuit Judge
These consolidated tax appeals arise from the Commissioner of Internal Revenue's tax treatment of payments made by Robert Kean, pursuant to a series of support orders issued pendente lite during a divorce proceeding. The recipient of those payments, Patricia Kean, argues that the Commissioner and Tax Court erred in concluding that those payments were "alimony or separate maintenance payments" (hereinafter "alimony") as defined by I.R.C. § 71(b).
I. FACTUAL AND PROCEDURAL HISTORY
Patricia P. Kean (Ms. Kean) and Robert W. Kean, III (Mr. Kean) were married on September 12, 1970 and have three children. In October 1991, Ms. Kean brought an action for divorce from Mr. Kean in the Superior Court of New Jersey, Chancery Division-Family Part, Somerset County. On April 7, 1992, while the action was pending, Judge Graham T. Ross, J.S.C., P.J.F.P., issued an order (the "April 7, 1992 Order") which required Mr. Kean to deposit $6,000 each month into a joint checking account maintained by Mr. and Ms. Kean. Ms. Kean was instructed to use the funds from the joint checking account to maintain herself, the children and the household. The court also required Mr. Kean to pay all household expenses, including the mortgage, taxes and utilities; pay all expenses for the children, including private school tuition; and maintain health insurance coverage and pay all unreimbursed medical expenses for Ms. Kean and the children.
On November 25, 1992, the court issued an order denying the parties' separate applications for physical custody of the children and required them to continue with the existing custodial arrangement. The order also instructed the parties to share equally in the legal authority and responsibility for major decisions concerning the children.
On March 5, 1993, the court stated that Ms. Kean had exclusive use of the $6,000 deposited in the joint checking account for the support of herself, the children, and the household (the "March 5, 1993 Order"). On April 23, 1993, the court further explained that the monthly $6,000 was to be used to pay for all shelter, transportation, and personal expenses of Ms. Kean and the children. On January 30, 1995, the court ordered Mr. Kean to make all future payments to Ms. Kean through the applicable probation department (the "January 30, 1995 Order").
On January 9, 1996, the court issued an order which continued the Kean's joint legal custody of the children and specified how physical custody of the children should be shared. On April 11, 1996, the court reduced Mr. Kean's pendente lite support obligation from $6,000 to $1,600 and required him to pay all of the household bills and expenses of the children. The court issued a Final Judgment of Divorce on February 19, 1997.
Pursuant to the applicable court orders, Mr. Kean paid Ms. Kean $54,000 for the taxable year 1992, $57,388 for the taxable year 1993, and $71,500 for the taxable year 1994.
From January 1 through February 10, 1995, Mr. Kean paid Ms. Kean $9,000 pursuant to the applicable court orders. From March 6 through December 7, 1995, Mr. Kean continued his obligation by paying Ms. Kean $61,200 through the Somerset County Probation Department as required by the January 30, 1995 Order. Ms. Kean reported no alimony income on her 1995 U.S. Individual Income Tax Return. Mr. Kean claimed a $72,000 deduction for alimony paid on his 1995 U.S. Individual Income Tax Return.
For the taxable year 1996, Mr. Kean paid Ms. Kean $32,400 pursuant to the applicable court orders, through the Somerset County Probation Department. Ms. Kean reported $14,400 in alimony income on her 1996 U.S. Individual Income Tax Return. Mr. Kean claimed a $37,715 ...