## Facts

- Horace Chambers was divorced and subject to a state court order requiring him to pay alimony and child support.
- To enforce those domestic-relations obligations, a court order caused part of Chambers’s wages to be garnished directly from his paycheck.
- Chambers’s employer withheld the garnished amounts and remitted them to satisfy the alimony and child-support obligations rather than paying those amounts to Chambers.
- Chambers filed returns for 1995 and 1996 but did not include the garnished portions of his wages in taxable income.
- Chambers argued that, as a cash-basis taxpayer, he should not be taxed on the garnished amounts because he never received the money and lacked control over it once it was withheld.
- The Commissioner of Internal Revenue determined income tax deficiencies for 1995 and 1996 on the ground that Chambers had to include the full amount of his wage earnings, including amounts diverted by garnishment.
- Chambers petitioned the United States Tax Court challenging the deficiency determination.

## Issues

1. Whether wage amounts garnished from a taxpayer’s paycheck to satisfy court-ordered alimony and child-support obligations must be included in the taxpayer’s gross income for the year earned.

## Decision

- The Tax Court held that Chambers had to include in gross income the wages earned in 1995 and 1996 even though part of those wages was withheld and paid over pursuant to a domestic-relations garnishment order.
- The court sustained the Commissioner’s deficiency determination based on Chambers’s failure to include the garnished wage amounts in income.

## Legal Principles

- Gross income under I.R.C. § 61 includes compensation for services; wages are generally taxed to the person who earns them.
- When a taxpayer’s earnings are diverted by legal process to satisfy the taxpayer’s own obligations (including family-support obligations), the diversion is treated as a payment made on the taxpayer’s behalf, not as a reduction in the taxpayer’s taxable wages.
- A cash-basis method of accounting does not allow a taxpayer to exclude earned wages merely because the wages were intercepted and paid to third parties to discharge the taxpayer’s liabilities.
- Under assignment-of-income principles, a taxpayer cannot avoid tax on earned compensation by arranging for, or being compelled into, payment of that compensation to someone else.

## Conclusion

Chambers v. Commissioner, T.C. Memo 2000-218 (2000), holds that wages earned by a taxpayer remain taxable to the taxpayer even when a portion is garnished under a court order and paid directly to satisfy alimony and child-support obligations, so the Tax Court sustained the IRS’s deficiency determination for the years at issue.
