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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Wyman v. Whitson (5/4/2018) sp-7239

Wyman v. Whitson (5/4/2018) sp-7239

           Notice:   This opinion is subject to correction before publication in the P                    ACIFIC  REPORTER.  

           Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,  

                                                                                                                        

           303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email  

                                                                                                                           

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                       THE SUPREME COURT OF THE STATE OF ALASKA                                       



TODD  P.  WYMAN,                                                     )  

                                                                     )      Supreme  Court  No.  S-16082  

                                Appellant,                           )  

                                                                                                                                         

                                                                     )      Superior Court No.  1SI-11-00186 CI  

           v.                                                        )  

                                                                                                

                                                                     )     O P I N I O N  

                      

RICHELLE WHITSON,                                                    )  

                                                                                                            

                                                                     )     No. 7239 - May 4, 2018  

                                Appellee.                            )  

                                                                     )  



                                                                                                                

                      A            

                        ppeal from the Superior Court of the State of Alaska, First  

                                                                                          

                      Judicial District, Sitka, David V. George, Judge.  



                                                                                                               

                      Appearances:  Anthony M. Sholty, Faulkner Banfield, P.C.,  

                                                                                                                   

                      Juneau, for  Appellant.                 Corrie  J.  Bosman, Law Office of  

                                                                                      

                      Corrie J. Bosman, Sitka, for Appellee.  



                                                                                                           

                      Before:  Stowers, Chief Justice, Winfree, Maassen, Bolger,  

                                           

                      and Carney, Justices.  



                                                     

                      STOWERS, Chief Justice.  



I.         INTRODUCTION  



                                                                                                                                     

                      Todd Wyman and Richelle Whitson have joint legal custody over their  



                                                                                                                                     

child, and shared physical custody alternating every two years.  Each parent has a child  



                                                                                                                                        

support obligation while the child is in the primary custody of the other parent.  In the  



                                                                                                                                              

superior court, the parties resolved all aspects of the child support determination but one:  



                                                                                                                                  

whether Wyman could apply tax deductions for amortization of his commercial fishing  



                                                                                                                                    

permits and quota shares to his adjusted income as the basis for calculating his child  


----------------------- Page 2-----------------------

                                                                                                                    

support  obligation.            The  superior  court  found  that  Wyman's  assets  were  perpetual  



                                                                                                                                

intangible assets which do not decline in value over time and that Wyman had failed to  



                                                 

show that amortization of these assets would reflect an ordinary and necessary cost of  



                                                                                                                   

income.  Thus, the superior court concluded that this amortization was not deductible  



                         

from Wyman's income.  



                                                                                                                              

                    Wyman appeals, arguing that the superior court erred in not allowing the  



                                                                                                                              

amortization deduction in light of our prior decisions allowing similar deductions for  



                                                                                                                        

depreciation expenses.  We conclude, however, that because Wyman's fishing permits  



                                                                                                                           

and quota shares are perpetual assets with an indefinite useful life, amortization of these  



                                                                                                                              

assets does not reflect an ordinary and necessary cost of producing income and is not  



                                                                                                                      

deductible from income for child support purposes.  We therefore affirm the superior  



                                                                                                                          

court's child support order. However, we limit our holding to perpetual intangible assets  



                                                                                                                               

similar to those in this case and do not address the question whether amortization of an  



                                                                                                                    

intangible asset with a finite useful life can be deductible as an ordinary and necessary  



            

cost of income.  



                                 

II.       FACTS AND PROCEEDINGS  



          A.        Facts  



                                                                                                                              

                    Todd Wyman is a self-employed commercial fisherman.  As part of his  



                                                                                                                                    

business he owns several fishing permits and individual fishing quota (IFQ) shares.  



                                                                                                                

Each year Wyman makes a deduction on his federal income tax return for amortization  



                              

of these intangible assets.  



                                                                                                                      

                    Wyman and Richelle Whitson had a child in 2008.  Wyman and Whitson  



                                                                                                                        

separated in 2010. After separating, the parties negotiated a written custody and support  



                                                                                                                              

agreement which was incorporated into a Child Custody and Child Support Order by the  



                                                                                                                           

superior court in Sitka in October 2011.  In March 2013, the parties notified the court  



                                                                                                                             

that Whitson would be moving to Alabama with her husband in July of that year and  



                                                               -2-                                                        7239
  


----------------------- Page 3-----------------------

Wyman   sought to                       modify   the   custody order.                                The parties stipulated, and                                the court   



concluded,   that   Whitson's   move   constituted   a   substantial   change   of   circumstances  



requiring a custody modification.         



              B.            Proceedings  



                            After hearings in May and June 2013, the court granted primary custody  

                                                                                                                                                                   



to Whitson from July 2013 to July 2016, with custody alternating every two years  

                                                                                                                                                                        



thereafter. The court ordered both parties to pay child support, to be calculated based on  

                                                                                                                                                                               

the primary custody formula of Alaska Civil Rule 90.3,1 with each parent as the obligor  

                                                                                                                                                                     



while the child is in the custody of the other parent.  A dispute arose regarding how to  

                                                                                                             



calculate Wyman's income for child support purposes; at a hearing in April 2015, the  

                                                                                                                                                                



parties advised the court they had resolved all of their disagreements but one.   The  

                                                                                                                                                                          



remaining  issue  was  whether  Wyman  could  apply  substantial  tax  deductions  for  

                                                                                                                                                                            



amortization  of  his  commercial  fishing  permits  and  quota  shares  -  ranging  from  

                                                                                                                                                                         



$22,142 in 2012 to $26,133 in 2014 - to his income for purposes of calculating child  

                                                                                                                                           



support. Wyman argued thatthedeductions should be allowed, asserting that they reflect  

                                                                                                                                                                       



"ordinary and necessary expenses required to produce the income" as described in the  

                                                                                                                                                                             



commentary to Rule 90.3.  He also argued that the amortization deductions he sought  

                                                                                                                                                                     



"are no different than depreciation deductions" permissible under our decision in Eagley  

                                                                                                                                                                     



                     2  

v. Eagley.  

      



              1             Rule 90.3 provides that child support shall be calculated as a specified                                                            



percentage of the non-custodial parent's adjusted annual income.                                                                            Alaska R. Civ. P.                  

90.3(a).   In the case of self-employment income, the commentary to Rule 90.3 defines     

incomeas "gross receipts                            minustheordinaryand necessary                                       expenses requiredto produce                

the income."                Alaska R. Civ. P. 90.3 cmt. III.B.                          



              2             849 P.2d 777, 781 (Alaska 1993).  

                                                                                     



                                                                                       -3-                                                                               7239
  


----------------------- Page 4-----------------------

                                  The superior court concluded that amortization of intangible assets is not                                                                                   



deductible for child support purposes because it does not reflect a cost at all:                                                                                                             



                                  Amortization derives from the capital cost of an intangible                                                                     

                                  asset such as a permit or IFQ. Depreciation reflects a decline                                                                        

                                  in usefulness (value) of a tangible asset that must eventually                                                                 

                                  be replaced.                     In actuality, the annual deduction for depreci-                                                     

                                  ation   of   a   tangible   item reflects                                               a   budgeted   allocation  of  

                                  capital for a future expenditure - the replacement of the                                                                                         

                                  tangible asset at the end of its useful life.                                                  



                                                   Unlike   depreciation,   there   is   no   inherent   loss   in  

                                  usefulness or value of an intangible asset over time.                                                                               There is   

                                  no inherent need to replace an intangible asset in the future,                                                           

                                  as is the case with a tangible one.                                                      The rights conferred are                                 

                                  perpetual, though potentially volatile, in nature.  The useful  

                                                                                                                                                                          

                                  value of a limited entry permit or IFQ today, does not depend  

                                                                                                                                                                                

                                  on how many years have passed since it was issued.   The  

                                                                                                                                                                                              

                                  permit  or  IFQ  is  intangible  and  does  not  "wear  out."  

                                                                                                                                                                                       

                                  Consequently, no annual allocation of capital is necessary to  

                                                                                                                                                                   

                                  preserve the asset and no deduction for the annual allocation  

                                                            

                                  of capital justified.  



                                                                                                                                                                                                    

On that basis, the court held that Wyman "failed to prove that amortization reflects an  



                                                                                                                                                                                                           

ordinary and necessary cost of income" and ordered him to recalculate his income  



                                                                                   

without the deduction.  Wyman appeals.  



                                                                 

III.             STANDARD OF REVIEW  



                                                                                                                                                                                                               

                                  "The proper method of calculating child support is a question of law, which  



                                                                                                                                                                                                    

we review de novo, adopting the rule of law that is most persuasive in light of precedent,  

                                                   3     "Whether the superior court applied the correct legal standard to  

                                                                                                                                                                                                                         

reason, and policy." 



                 3                Swaney v. Granger, 297 P.3d 132, 136 (Alaska 2013) (citing Faulkner v.  

                                                                                                                                                                                                                          

Goldfuss, 46 P.3d 993, 996 (Alaska 2002)).  

                                                                                              



                                                                                                            -4-                                                                                                  7239  


----------------------- Page 5-----------------------

                                                                                                                                                  4  

its   child   support   determination   is   a   question   of   law   that   we   review   de   novo."   



                                                                                                                                                  5  

                                                                                                                                                      

"[I]nterpretation of the civil rules presents a question of law that we review de novo." 



"We review the superior court's factual findings regarding a party's income for purposes  

                                                                                                                                     

                                                                           6   A finding is clearly erroneous when our  

of calculating child support for clear error."                                                                                                

                                                                 



review of the entire record leaves us with a definite and firm conviction that a mistake  

                                                                                                                                    

has been made.7  

                 



IV.	       DISCUSSION  



                                                                                                                                           

           A.	         The  Parties  Do  Not  Contest  The  Superior  Court's  Finding  That  

                                                                                                                   

                       Fishing Permits And Quota Shares Are Perpetual Assets.  



                                                                                                                                                

                       The superior court denied Wyman's amortization deductions based on its  



                                                                                                                                               

finding that intangible assets like fishing permits and quota shares are "perpetual," do not  



                                                                                                                                                      

decline in value over time, and do not "wear out." Neither party challenges this finding.  



                                                                                                                                        

Both  in  the  superior  court  and  on  appeal,  Wyman  concedes  that  his  assets  do  not  



                                                                                                                                                      

inherently  lose  value  over  time,  and  argues  only  that  this  is  not  legally  relevant.  



                                                                                                                                               

Therefore, we consider it established that Wyman's fishing permits and quota shares are  



                  

perpetual assets.  



                                                                                                                                                      

                       That said, the superior court's description of intangible assets is too broad.  



It characterizes the perpetual nature of fishing permits and quota shares as common to  



           4           Limeres v. Limeres              , 320 P.3d 291, 295 (Alaska 2014) (citing                             Koller v. Reft        ,  



71 P.3d 800, 804 (Alaska 2003)).              



           5           Wolff v. Cunningham, 187 P.3d 479, 482 (Alaska 2008) (citing Miller v.  

                                                                                                                                                 

Clough, 165 P.3d 594, 599 n.8 (Alaska 2007)).  

                                                                     



           6           Limeres, 320 P.3d at 295 (citing Koller, 71 P.3d at 804); see also Swaney,  

                                                                                                                                      

297 P.3d at 136.  

                     



           7           Ronny M. v. Nanette H., 303 P.3d 392, 399 (Alaska 2013) (quoting Fardig  

                                                                                                                                         

v. Fardig, 56 P.3d 9, 11 (2002)).  

                                           



                                                                       -5-	                                                                7239
  


----------------------- Page 6-----------------------

all   intangible   assets,   and   thus   as   a   distinguishing   factor   between   depreciation   and  



amortization generally.                      This is not entirely accurate.                       Some intangible assets - such as                          



patents, copyrights, and many contractual rights - expire after a certain amount of time,                                                              

and  thus   will   gradually   lose   value   as   a   business   asset   just   as   tangible   assets   do.8  



However,  because  these  assets  are  intangible,  the  term  "amortization"  rather  than  

                                                                                                                                                       

"depreciation" is still used to account for this gradual decline.9                                                         It would be clearly  

                                                                                                                                                   



erroneous to find, for example, that a patent is "perpetual" and that its value "does not  

                                                                                                                                   



depend on how many years have passed since it was issued."  Under current patent law,  

                                                                                                                                                        

a U.S. patent has a strict lifespan of 20 years from the date it was filed,10  so that patent  

                                                                                                                                                     



will almost certainly decline in value as the expiration date draws closer and will be  

                                                                                                                                                           



entirely worthless after 20 years have passed.  As such, we limit the superior court's  

                                                                                                                                                   



finding, and the conclusions of law that follow therefrom, to the types of assets in  

                                                                                                                                                            



question here.  

                  



            B.	          The Superior Court Did Not Err In Concluding That Amortization Of  

                                                                                                                                                           

                         Perpetual Assets Is Non-Deductible From Income For Child Support  

                                                                                                                                                

                         Purposes As A Matter Of Law.  

                                                                             



                         Civil Rule 90.3 provides that child support shall be calculated as a specified  

                                                                                                                                               

percentage of "the adjusted annual income of the non-custodial parent."11   In the case of  

                                                                                                                                                            



self-employment income, the commentary to Civil Rule 90.3 defines income as "gross  

                                                                                                                                                    



            8            See  CHARLES  H. M                 EYER, A        CCOUNTING AND                   FINANCE FOR              LAWYERS IN A   



NUTSHELL   189, 194 (6th ed. 2017).                   



            9  

                                                                                                                                                            

                         In fact, outside of tax accounting, amortization generally applies only to  

                                                                                                                                          

limited-life intangible assets, as perpetual assets are neither amortized nor depreciated.  

See id.      at 195; 1 J        AN  R. W        ILLIAMS ET AL., 2017 GAAP G                             UIDE  24,012-13 (2016).   



            10           35 U.S.C.  154(a)(2) (2012).             



            11  

                                                           

                         Alaska R. Civ. P. 90.3(a).  



                                                                             -6-	                                                                     7239
  


----------------------- Page 7-----------------------

receipts minus the ordinary and necessary expenses required to produce the income" but                                                                                                                                                                       



notes that "[o]rdinary and necessary expenses do not include amounts allowable by the                                                                                                                                                                        



IRS for the accelerated component of depreciation expenses, investment tax credits, or                                                                                                                                                                          

                                                                                                                                                                                                                                      12      Wyman  

 any other business expenses determined by the court to be inappropriate."                                                                                                                                                                   



 argues that because (1) his amortization deductions are  permissible for income tax  

                                                                                                                                                                                                                                                            



purposes, (2) amortization is "closely related" to depreciation,  and (3) we have on  

                                                                                                                                                                                                                                                              



 several  occasions  allowed  deductions  for  straight-line  depreciation,  deductions  for  

                                                                                                                                                                                                                                                            



 amortization should also be permitted.  He argues that, like depreciation, amortization  

                                                                                       



 accounts  for  the  cost  of  "capital  assets  necessary  to  produce  business  income,"  so  

                                                                                                                                                                                                                                                              



 amortization deductions reflect an "ordinary and necessary business expense."  

                                                                                                                                                                                                                 



                                         Responding tothesuperior court's conclusion thatthereis "no inherent loss  

                                                                                                                                                                                                                                                           



in usefulness or value of an intangible asset over time" and "no inherent need to replace  

                                                                                                                                                                                                                                                 



 an intangible asset in the future," and that "no annual allocation of capital is necessary  

                                                                                                                                                                                                                                         



to preserve the asset,"   Wyman points out that the same objections can be made for  

                                                                                                                                                                                                                                                             



depreciation of business real estate, which "does not inherently lose value over time" and  

                                                                                                                                                                                                                                                            



"may not wear out or need to be replaced."  Thus, he argues, "[t]here is no meaningful  

                                                                                                                                                                                                                                    



difference for child support purposes between the amortization of fishing permits and  

                                                                                                                                                                                                                                  



quota shares and the straightline depreciation of business real estate." Because we have  

                                                                                                                                                                                                                                                         



on several occasions allowed depreciation deductions from income for child support  

                                                                                                                                                                                                                                               



                     12                  Alaska R. Civ. P. 90.3 cmt. III.B. Although we have not officially adopted                                                                                                                            



or approved the commentary to Rule 90.3, we have frequently relied on it for guidance.                                                                                                                                                                                    

See Caldwell v. State, Dep't of Revenue, Child Support Enf't Div.                                                                                                                                 , 105 P.3d 570, 573 n.6                                    

 (Alaska 2005) (citing                                             Eagley v. Eagley                                      , 849 P.2d 777, 779 (Alaska 1993));                                                                              Dewey v.   

Dewey, 969 P.2d 1154, 1158 (Alaska 1999);                                                                                            Marine v. Marine                                      , 957 P.2d 314, 316 & n.5                                         

 (Alaska 1998);                                Ogard v. Ogard                                   , 808 P.2d 815, 819 (Alaska 1991).                                                                          However, we have                            

not always followed the commentary's guidance.                                                                                                       See Eagley                        , 849 P.2d at 781 (rejecting                       

commentary treatment of real estate depreciation).                                                             



                                                                                                                               -7-                                                                                                                      7239
  


----------------------- Page 8-----------------------

                    13  

purposes,               Wyman argues the same deductions should be available for amortization of                                                                               



his fishing permits and quota shares.                                         For the reasons discussed below, we disagree.                                 



              1.	           Deductions arenot                        automaticallypermittedforchildsupportpurposes                                               

                            merely because they are allowed by the IRS.                                             



                            Wyman's proposed deduction is based on a tax deduction for amortization                                                       



                                                                                                                                  14  

of intangible assets contained in the Internal Revenue Code.                                                                                                               

                                                                                                                                         Wyman argues that  



                                                                                                                                                                    

"expenses shown on the parent's tax return are evidence that the expenses were actually  



                                                                                                                                                                   

incurred and were ordinary and necessary."  Wyman concedes, however, that a claimed  



                                                                                                                 

expense being listed on the parent's tax return is "not dispositive."  



                                                                                                                                                                               

                            We have previously expressed skepticism toward using tax returns as an  



                                                                                                                                                   

accurate account of income.  In Neilson v. Neilson, we acknowledged that a tax return  



                                                                                                                                                                 

serves as evidence that an expense was in fact incurred and "may support a parent's  



                                                                                                                 15  

                                                                                                                                                                            

claim that a given expense is ordinary and necessary."                                                                 However, we also noted that  



                                                                                                                                                             

"this court . . . has refrained from adopting a bright line test that all expenses recognized  

                                                                                                            16  Rather, "the determinative factor  

                                                                                                                                                                        

bythe IRS are similarly recognized under Rule 90.3." 



. . . is whether it is an 'ordinary and necessary expense[] required to produce the income'  

                                                                                                                                                                   



and whether the allowance of such an expense would defeat the goals of Civil Rule  

                                                                                                                                                                         

90.3."17  

                                                                                                                                                                             

                  We cautioned that despite "significant overlap," a parent's tax return may not  



                                                                                                                                                                           

"serve as a proxy for the necessary determination of whether a claimed expense was  



              13            See,  e.g.,  Faulkner v   . Goldfuss,  46  P.3d  993,  997  (Alaska  2002);  Nass  v.  



Seaton,  904  P.2d  412,  417  (Alaska   1995);  Eagley,  849  P.2d  at  781.  



              14            See  26  U.S.C.     197(a),  (d)(1)(D)  (2012).  



              15            914  P.2d   1268,   1274  (Alaska   1996)  (emphasis  added).  



              16           Id.  at   1273.  



              17           Id.  at   1274  (alteration  in  original).  



                                                                                       -8-	                                                                              7239
  


----------------------- Page 9-----------------------

                                            18  

ordinary and necessary."                         Similarly, the commentary to Rule 90.3 expressly states that                                        



not all deductions "allowable by the IRS" can be considered "ordinary and necessary                                                       



                   19  

                                                                                                                                                    

expenses."              On several occasions, we have denied deductions for purposes of Rule 90.3  



                                                             20  

                                                      

that would be allowed by the IRS. 



                                                                                                                                                        

                        Accordingly, we treat Wyman's tax returns only as factual evidence as to  



                                                                                                                                                    

the amount he could potentially deduct - which is not contested in this case - but give  



                                                                                                                                                

them little weight on the question whether those deductions are permissible as a matter  



      

of law.  



                                                                                                                                         

            2.	         Alaskacaselawrecognizes depreciationas an"ordinary andnecessary  

                                                                                                                                      

                        expense"             because           it     reflects         a     "real"          cost,       which          Wyman's  

                                                                              

                        amortization deductions do not.  



                                                                                                                                        

                        Whetheramortization isdeductiblefromincomeforpurposesofcalculating  



                                                                                                                                        

child support is a question of first impression in Alaska.  However, we have previously  



                                                                                                                                                    

considered  whether  to  permit  deductions  for  depreciation.                                                     As  amortization  and  



                                                                                                                                                     

depreciation are related - though distinct - concepts, and because Wyman insists that  



                                                                                                                                                      

the two should be treated the same for child support purposes, Alaska case law on  



                                                                                                                                          

depreciation deductions is instructive.  The seminal case, and the keystone of Wyman's  



                                                     21  

                                                                                                                                          

argument, is Eagley v. Eagley.                            In Eagley, the appellant was a self-employed restaurant  



                                                                                                                                              

owner who sought to deduct almost $40,000 in real estate depreciation from his income  



            18          Id.  



            19          Alaska  R.  Civ.  P.  90.3  cmt.  III.B.  



            20          See,  e.g.,  Faulkner  v.  Goldfuss,  46  P.3d  993,  998  (Alaska  2002)  (rejecting  



deduction   for   tax-deductible   "net operating   losses");   Zimin   v.   Zimin,   837   P.2d   118,  

122-23   (Alaska   1992)   (rejecting   deduction   for   tax-deductible   deposit   in   a   "Capital  

Construction  Fund").  



            21          849 P.2d 777 (Alaska 1993).  

                                                                 



                                                                           -9-	                                                                   7239
  


----------------------- Page 10-----------------------

                                                                                      22  

for purposes of calculating child support.                                                 The superior court denied the deduction,                         



relying on the commentary to Rule 90.3, which at the time stated, in relevant part, that                                                                                  



"[o]rdinary and necessary expenses do not include amounts allowable by the IRS for the                                                                                      

                                                                                                                                                                    23  The  

accelerated componentofdepreciation expenses, [and]depreciation ofreal estate."                                                                                           



court also noted that "in many cases depreciation as a tax incentive is more generous in  

                                                                                                                                                                              



                                                                                                                                             24  

'protecting' income than experience might demonstrate necessary."                                                                                  On appeal, we  

                                                                                                                                                                           



expressed agreement with the commentary's rejection of accelerated depreciation, but  

                                                                                                                                                                           



we  were  "not  persuaded  [by]  the  [c]ommentary's  categorical  disallowance  of  all  

                                                                                                                                                                           

                                                            25    Our decision in Eagley was based on our prior holding  

'depreciation of real estate.' " 

                                                                                                                                                                  



in Ogard v. Ogard that "[d]epreciation is a means of reflecting on an annual basis the  

                                                                                                                                                                           



costs of capital equipment" and that "[s]uch costs are real and should not be disregarded  

                                                                                                                                                          



unless it appears that equipment was acquired in order to avoid or reduce the obligor's  

                                                                                                                                                               

child support obligation."26                              Following our reasoning in Ogard, we held in Eagley that  

                                                                                                                                                                          



there was "no rational reason for disallowing straightline depreciation of buildings,  

                                                                                                                                                            



fixtures, and other improvements, yet allowing such depreciation costs for business  

                                                                                                                                                               

equipment."27  



              22           Id.  at  778,  780.  



              23           Id.  at  780  (citing  former  Alaska  R. Civ.  P.  90.3  cmt.  III.B  (1992)).   The  



commentary  has s   ince  been  amended  to  omit  the  reference  to  real e   state  depreciation,  

reflecting  our  decision  in  Eagley.  



              24           Id.  



              25           Id. at 781.  

                                        



              26           Id. (quoting Ogard v. Ogard, 808 P.2d 815, 819 (Alaska 1991)).  

                                                                                                                                                 



              27           Id.  



                                                                                    -10-                                                                               7239
  


----------------------- Page 11-----------------------

                              Wyman   characterizes   this   rejection   of   the   commentary   as   allowing   a  



deduction for depreciation of business real estate "even though business real estate may                                                                                                  



not decline in value over time" and argues that "amortization should be allowed for the                                                                                                     



same reasons business real estate depreciation is allowed." This is a mischaracterization                                                             



of   our   decision   in   Eagley .    In  Eagley,   we   explicitly   focused   on   "depreciation   of  



buildings, fixtures, and other improvements," which we considered equivalent to other                                                                                                  



                                                                                                                                                                                               28  

business equipment; we did not focus on depreciation of real estate or land in general.                                                                                                              



Although a parcel of land may increase rather than decrease in value, any building,  

                                                                                                                                                                              



fixture,  or  improvement  on  the  land  will  necessarily  degrade  over  time;  it  is  this  

                                                                                                                                                                                          



reduction in value that depreciation aims to capture. The same distinction is made by the  

                                                                                                                                                                                             



IRS, which allows depreciation for both business equipment and buildings, but not for  

                                                                                                                                                                                             

           29   This aspect of depreciation is reflected in Ogard's description (which we quoted  

land.                                                                                                                                                                               

in Eagley) of depreciation as a "real" cost.30                                                       Similarly, our decision in Eagley cited the  

                                                                                                                                                                                            



Delaware Supreme Court's decision in  Turner v. Turner, which explained that "[t]he  

                                                                                                                                                                                      



concept of depreciation, as an expense, is a recognition of the fact that certain fixed  

                                                                                                                                                                                       



assets, which are used in business, wear out gradually and will eventually need to be  

                                                                                                                                                                                              

replaced."31                  In subsequent cases following Eagley  and  Ogard, we applied the same  

                                                                                                                                                                                       



reasoning:                    recognizing  depreciation  as  a  "real"  cost  of  business,  we  permitted  

                                                                                                                                                                            



               28             Id.  



               29             I.R.S.   Pub.   946,   How   to   Depreciate   Property,   at   4   (Feb.   28,   2018),  



https://www.irs.gov/pub/irs-pdf/p946.pdf ("You can depreciate most types of tangible  

                                                                                                                                                                                         

property   (except   land),   such   as   buildings,   machinery,   vehicles,   furniture,   and  

                                                                                                                                                                                            

equipment."); id. at 6 ("You cannot depreciate the cost of land because land does not  

                                                                                          

wear out, become obsolete, or get used up.").  



               30             Eagley, 849 P.2d at 781 (quoting Ogard, 808 P.2d at 819).  

                                                                                                                                                       



               31             Id. at 780 n.3 (citing Turner v. Turner, 586 A.2d 1182, 1187 (Del. 1991)).  

                                                                                                                                                                                   



                                                                                             -11-                                                                                       7239
  


----------------------- Page 12-----------------------

depreciation deductions fromincome for child support purposes so long as the deduction                                                                                                  



                                                                                                                                                                                                           32  

in question was demonstrated to reflect an ordinary and necessary business expense.                                                                                                                              



However, where a particular depreciation deduction is not shown to reflect a real cost to  

                                                                                                                                                                                                           



                                                                                                                                         33  

the obligor's business, the deduction will not be allowed.                                                                                    

                                                                                                                     



                                                                                                                                          34  

                                We faced a similar issue in Zimin v. Zimin.                                                                      In that case the appellant  

                                                                                                                                                                                        



sought to deduct a deposit of almost $26,000 in a Capital Construction Fund from his  

                                                                                                                                                                                                        

adjusted income for child support purposes.35                                                                   Under federal law, certain amounts per  

                                                                                                                                                                                                       



year deposited in such a fund, to be used for construction or reconstruction of American  

                                                                                                                                                                                        

vessels, are deductible from taxable income.36   The trial court denied a deduction for the  

                                                                                                                                                                                                        

deposit.37               On appeal, we affirmed the trial court's ruling, noting that "the goal [of Civil  

                                                                                                                                                                                                   



Rule 90.3] is to obtain a realistic estimate of an obligor's adjusted annual income" and  

                                                                                                                                                                                                      



that to allow the proposed deduction, albeit one allowed by the IRS, "would severely  

                                                                                                                                                                                           

understate [the appellant's] most current income figures."38                                                                                     In short, Alaska law does  

                                                                                                                                                                                                    



not, as Wyman argues, allow a deduction for depreciation of real estate merely despite  

                                                                                                                                                                                              



                32              Neilson v. Neilson                         , 914 P.2d 1268, 1274-75 (Alaska 1996) (citing                                                                    Ogard,  



808 P.2d at 819;                          Eagley, 849 P.2d at 781);                                      see also Hilderbrand v. Hilderbrand                                                       , 962   

P.2d 887, 889 (Alaska 1998) ("Depreciation is used to account for the 'decline in value                                                                                                           

of property caused by wear or obsolescence . . . .' " (quoting                                                                                     Depreciation, B                        LACKS 'S  

LAW  DICTIONARY  (6th ed. 1990))).                               



                33              Hilderbrand, 962 P.2d at 890 ("Given the facts of this case, we conclude                                                                                 



that the superior court correctly disallowed the depreciation deductions.")                                                                      



                34              837  P.2d   118  (Alaska   1992).  



                35              Id.  at   120.  



                36              Id.  at   120  n.2;  see  also  26  U.S.C.    7518  (2012).  



                37              Zimin,  837  P.2d  at   121-23.  



                38              Id.  at   123.  



                                                                                                   -12-                                                                                            7239
  


----------------------- Page 13-----------------------

                                                                                                                                

the fact that real estate may increase in value.  Rather, our decisions have explained that  



                                                                             

we allow such deductions because we recognize that real estate depreciation reflects a  



        

real cost.  



                                                                                                                   

                     In this case, Wyman proposes to apply the tax deductions for amortization  



                                                                                                                          

of fishing permits and quota shares as deductions from his income for child support  



                                                                                                                                

purposes. As the superior court determined, these permits and shares are perpetual: they  



                                                                                                                          

do not expire, do not "wear out," and require no capital to preserve.  As with a tangible  



                                                                                                                                 

depreciable asset, Wyman may have had some initial investment cost in acquiring the  



                                                                                                                               

licences  and  shares.             However,  because  the  permits  and  shares  are  intangible  and  



                                                                                                                                   

perpetual, there is no ongoing loss in value for the amortization deduction to reflect.  If  



                                                                                                                                

Wyman were to resell his permits and quota shares, it would be irrelevant to the sale  



                                                                                                                         

price how long ago Wyman obtained them;  the same would not be the case for tangible  



                                                                                                                                  

assets such as Wyman's fishing equipment.   In this respect, Wyman's investment in  



                                                                                                                                 

quota shares more closely resembles the Capital Construction Fund in Zimin:  both the  



                                                                                                                  

purchase of a quota share or fishing permit and a deposit into a Capital Construction  



                                                                                                                          

Fund require an initial payment that reduces a business's cash reserves, but both provide  



                                                                                                                               

the business with a tax-deductible capital asset that does not decrease in value over time  



                                                                                                                          

and that can be redeemed for cash at any time, although doing so forgoes the tax benefit.  



                                                                                                                         

                    Wyman argues that because his permits and quota shares, just like business  



                                                                                                                                  

real estate, are "capital assets necessary to produce business income . . . [t]here is no  



                                                                                                                   

meaningful difference" between amortization of his permits and shares and depreciation  



                                                                                                                       

of tangible assets.  It is not disputed that fishing permits and quota shares are necessary  



                                                                                                                            

to  produce  income  as  a  commercial  fisherman.                               However,  for  an  expense  to  be  



                                                                                                                              

deductible, it is not enough that it relates to an ordinary and necessary asset; it must itself  



                                                                                                                  

be  an  ordinary  and  necessary  expense.  As  we  have  repeatedly  held,  depreciation  



                                                               -13-                                                          7239
  


----------------------- Page 14-----------------------

expenses are not deductible merely because the underlying asset is necessary to produce                                                                  

income, but because depreciation itself represents a real, tangible, and necessary cost.                                                                            39  



                          Ultimately, "courts are to consider the amount of income available for  

                                                                                                                                                                  

                                                                                                                              40   Because Wyman's  

support, and the amount of money necessary to support the child."                                                                                    

                                                                                                                  



tax deductions for amortization do not reflect actual costs, they are not equivalent to the  

                                                                                                                                                                  



deductions made permissible under Ogard and Eagley.  The deductions do not reflect  

                                                                                                                                                            



"ordinary  and  necessary  expenses  required  to  produce  .  .  .  income"  because  the  

                                                                                                                                                                 



deductions do not represent an expense at all.  Thus, the amortization deductions do not  

                                                                                                                                                                  



reflect a reduction in the amount of income available for support.  As an aside, we note  

                                                                                                                                                                



that because Wyman can deduct amortization from his taxable income, thus reducing his  

                                                                                                                                                                   



tax liability, his net income is higher - not lower - than it would be if he were  

                                                                                                                                                              



producing the same gross revenue without having invested in permits and quota shares.  

                                                                                                                                                           



                          In response to an argument by Whitson that amortization should not be  

                                                                                                                                                                   



deductible because it does not reflect an actual cash expense, Wyman points to cases  

                                                                                                                                                             



from  Illinois,  Missouri,  and  Ohio,  each  "recogniz[ing]  the  non-cash  nature  of  

                                                                                                                                                                  



depreciation."   He argues that because "both amortization expense and depreciation  

                                                                                                                                               



expense  are  non-cash  items,"  there  is  no  distinction  that  might  support  allowing  

                                                                                                                                                      



depreciation deductions but not amortization deductions. Again, we disagree. The out- 

                                                                                                                                                                



of-state cases Wyman points to are inapplicable here.  In each of those cases, the court  

                                                                                                                                                              



held  that  depreciation  was  not  deductible  because  it  did  not  reflect  an  actual  cash  

                                                                                                                                                              



             39           Hilderbrand v. Hilderbrand                            , 962 P.2d 887, 889 (Alaska 1998);                                  Neilson v.   



Neilson, 914 P.2d 1268, 1273 (Alaska 1996);                                                 Eagley v. Eagley                   , 849 P.2d 777, 781              

(Alaska 1993);                Ogard v. Ogard                  , 808 P.2d 815, 819 (Alaska 1991).                      



             40           Hilderbrand, 962 P.2d at 890.  

                                                                            



                                                                                -14-                                                                          7239
  


----------------------- Page 15-----------------------

expense.41  But the non-cash nature of depreciation is irrelevant to Alaska law.  While  



states like Missouri, Illinois, and Ohio reject deductions for depreciation because it is not  

                                                                                                                                                                                          



a cash expense - and would presumably reject amortization deductions for the same  

                                                                                                                                                                                     

                                                                                                         42  We have recognized that depreciation  

reason - Alaska has taken a different approach.                                                                                                                      

                                                                                    



reflects a decline in value of business assets over time and that "[s]uch costs are real and  

                                                                                                                                                                                        

should not be disregarded."43  As discussed above, the same is not the case for Wyman's  

                                                                                                                                                                           



amortization  deductions.                                     Although  Alaska  has  taken  a  more  permissive  view  of  

                                                                                                                                                                                          



depreciation deductions than other states, it does not follow that we must extend that  

                                                                                                                                                                                        



approach to allowWyman's amortization deductions, when doing so would conflict with  

                                                                                                                                                                                       



the original rationale for allowing depreciation deductions.  

                                                                                                          



                              In short, several other states disallow deductions for depreciation because  

                                                                                                                                                                               



it is not a cash  expense; Alaska allows such deductions because it recognizes that  

                                                                                                                                                                                       



               41             See In re Marriage of Sweet                                       , 735 N.E.2d 1037, 1044 (Ill. App. 2000)                             



("Although the deduction [for depreciation] may have been proper for tax purposes, it                                                 

represents additional funds available to respondent.");                                                                   Blevins v. Blevins                      , 249 S.W.3d     

871, 873-74 (Mo. App. 2008) (finding that depreciation "renders the income listed on                                                                                                      

the parent's individual tax return as not representative of the true amount of cash or                                                                                                     

benefit available to the parent");                                        Kamm v. Kamm                          , 616 N.E.2d 900, 902 (Ohio 1993)                                  

(citing   Ohio   Rev.   Code      3113.215(A)(4),  which   excludes   depreciation   from   its  

definition of "ordinary and necessary expenses" as a "noncash item[]").                                                                      



               42             In Asfaw v. Woldberhan , the California Court of Appeal noted that states  

                                                                                                                                                            

have taken three different approaches to the problem of depreciation in the child support  

                                                                                                                                                                                

context:  some, like Missouri, Illinois, and Ohio, disallow depreciation deductions as a  

                                                                                                                                                                                              

non-cash  expense;  others,  like  Florida,  follow  Alaska's  approach  that  depreciation  

                                                                                                                                                                    

reflects a real cost of producing income; others again, like Delaware, determine the  

                                                                                                                                                                                         

deductibility of depreciation on a case-by-case basis. 55 Cal. Rptr. 3d 323, 333-35 (Cal.  

                                                                                                                                                                                      

App. 2007).  

             



               43             Eagley,  849  P.2d  at  781  (quoting  Ogard,  808  P.2d  at  819);  see  also  

                                                                                                                                                                                      

Hilderbrand, 962 P.2d at 889; Neilson, 914 P.2d at 1273.  

                                                                                                                   



                                                                                            -15-                                                                                     7239
  


----------------------- Page 16-----------------------

depreciation reflects a real decline in an asset's value and a real cost of producing                                                                                                                                                                                                                                                                                             



income.   Wyman's tax deductions for amortization do not reflect either a cash expense                                                                                                                                                                                                                                                                                                        



or   a   decline   in   the   value   of   an   asset,   which   distinguishes   them   from   depreciation  



deductions for purposes of Alaska law.                                                                                                                                                          Accordingly, a faithful application of our prior                                                                                                                                                              



decisions   and   the   policy   underlying   them   points   to   the   conclusion   that   Wyman's  



amortization   should   not be deductible from income under                                                                                                                                                                                                                                              Rule 90.3.                                                     This  is also   



consistent with the policy underlying the law in other states which - although they may                                                                                                                                                                                                                                                                                                                          



divergefromAlaska'streatmentofdepreciation deductions -wouldlikely also disallow                                                                                                                                                                                                                                                                                                             



amortization deductions.   



                                 3.	                             Under generally accepted accounting principles, no deduction from                                                                                                                                                                                                                                                                         

                                                                 income is made for amortization of perpetual intangible assets.                                                                                                                                                                                                                                       



                                                                 The crux of this dispute is whether Wyman should be allowed to make the                                                                                                                                                                                                                                                                               



 same amortization deduction from his income for child support purposes as the Internal                                                                                                                                                                                                                                                                                                         



Revenue Code allows him to make for income tax purposes. However, because income                                                                                                                                                                                                                                                                                                                  



tax accounting is a hybrid of financial record-keeping and the economic policy of the                                                                                                                                                                                                                                                                                                                                 



federal government, we have repeatedly noted that tax accounting does not give an                                                                                                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                                                                                                                            44                Rather,  the  

accurate   picture   of   a   parent's   income   in   the   child   support   context.                                                                                                                                                                                                                                                                                                                             



                                 44                              See, e.g.,  Neilson, 914 P.2d at 1273 ("[T]his court . . . has refrained from                                                                                                                                                                                       



adopting   a   bright   line   test   that   all   expenses   recognized   by   the   IRS   are   similarly  

recognized by Rule 90.3 . . . .");                                                                                                                             Eagley, 849 P.2d at 780 (quoting the superior court's                                                                                                                                   

finding   that   "in   many   cases   depreciation   as   a   tax   incentive   is   more   generous   in  

 'protecting' income                                                                             than experience might demonstrate                                                                                                                                        necessary");  Zimin v. Zimin                                                                                                          ,837   

P.2d 118, 123 (Alaska 1992) ("[C]ertain amounts the IRS permits a taxpayer to deduct                                                                                                                                                                                                                                                                                                                 

from income . . . should not be deducted from the obligor's income when calculating                                                                                                                                                                                                                                                                                            

child support. . . .                                                        To hold otherwise would severely understate [the obligor's] most                                                                                                                                                                                                                                                                 

current income figures.");                                                                                                      Ogard, 808 P.2d at 819 ("[W]e acknowledge the [superior]                                                                                                                                                                                             

court's concern regarding the accuracy of an income tax return as a reflection of true                                                                                                                                                                                                                                                                                                                            

income . . . .");                                                                 see also                                 Alaska R. Civ. P. 90.3 cmt. III.B ("Ordinary and necessary                                                                                                                                                                                                

                                                                                                                                                                                                                                                                                                                                                                      (continued...)  



                                                                                                                                                                                                          -16-	                                                                                                                                                                                                7239
  


----------------------- Page 17-----------------------

accounting rules for child support purposes should aim to "obtain a realistic estimate of                                                                                   



                                                                                 45  

an   obligor's   adjusted   annual   income."                                                                                                                

                                                                                      For  this  reason  the  norms  of  the  financial  



                                                                                                                                                              

accounting profession, as reflected in generally accepted accounting principles (GAAP),  



                 

may be instructive.  



                                                                                                                                                                

                           Outsideoftheincometaxcontext, theamortization deductions that Wyman  



                                                                                                                           

proposes to make would generally be inappropriate.  Under GAAP, the proper way to  



                                                                                                                                                                 

account for  an  intangible asset,  such  as a patent,  a trademark,  or  a  fishing  permit,  



                                                                                                                                                                           

depends on its useful life - the period of time during which the asset is likely to  

                                                              46   Assets with a finite useful life (such as patents, which  

                                                                                                                                                                   

contribute to future cash flows. 

expire 20 years after the filing date) have their cost amortized over their life span.47  

                                                                                                                                                                                 



However, if an intangible asset has an indefinite useful life, it is not amortized at all and  

                                                                                                                                                                         



is subject to expense deductions only when an "impairment" - a reduction in the asset's  

                                                                                                                                                                   

value - can be shown.48  

                                  



              44           (...continued)  



                                                                                                                                                            

expenses do not include [certain] amounts allowable by the IRS . . . ."). See generally  

     EYER, supra  note 8, at 60-61 (distinguishing between tax accounting and general  

M                                                                                                                                                               

financial  accounting,  and  noting  that  "[m]any  of  the  rules  adopted  for  income  tax  

                                                                                                                                                                         

accounting are inappropriate for financial accounting purposes").  

                                                                                                              



              45           Zimin, 837 P.2d at 123.  

                                                                  



              46           ACCOUNTING                     STANDARDS                    CODIFICATION                     350-30-35-1                  to      -2       (Fin.  



Accounting Standards Bd. 2017).                        



              47           ASC 350-30-35-6; WILLIAMS ET AL., supra note 9, at 24,013.  

                                                                                                                                         



              48           ASC 350-30-35-15 to -20; WILLIAMS   ET   AL.,   supra   note 9, at 24,013.                                                                            

                                                                                     

We do not now need to resolve the question whether this impairment might be deductible                                                                     

as an ordinary and necessary expense required to produce income for child support                                                                               

purposes, and we do not address it.                                 



                                                                                    -17-                                                                             7239
  


----------------------- Page 18-----------------------

                                              In this case Wyman's proposed deductions are for amortization of various                                                                                                                                                         



fishing permits and quota shares. Both parties concede and the superior court found that                                                                                                                                                                                                   



these assets are perpetual; they do not expire, do not "wear out," and require no capital                                                                                                                                                                                        



to preserve.                              Thus, the period of time during which they are useful to Wyman's fishing                                                                                                                                                              



business   is   indefinite.     Therefore,   although   the   IRS   allows   Wyman   to   deduct   this  



"amortization" from his taxable income, GAAP would not allow him to amortize these                                                                                                                                                                                                    

assets for purposes of non-tax financial accounting.                                                                                                                            49  



V.                     CONCLUSION  



                                              BecauseWyman'sfishing permitsand quotashares areperpetualintangible  

                                                                                                                                                                                                                                                                       



assets with an indefinite useful life, we conclude that amortization of these assets does  

                                                                                                                                                                                                                                                                                        



not  reflect  an  ordinary  and  necessary  cost  of  producing  income.                                                                                                                                                                            Therefore,  this  

                                                                                                                                                                                                                                                                                         



amortization may not be deducted from income for child support purposes under Rule  

                                                                                                                                                                                                     



90.3.  Accordingly, the superior court's child support order is AFFIRMED.  However,  

                                                                                                                                                                                                                                                                     



we limit our holding to perpetual assets like those presented here, and do not address the  

                                                                                                                                                                                                                                                                                              



question of whether an amortization deduction might be permissible for intangible assets  

                                                                                                                                                                                                                                                                                    



that are shown to have a limited useful life.  

                                                                                                                                                      



                       49                     To clarify the point:  if Wyman's fishing business were incorporated and                                                                                                                        



required to file financial statements with the Securities and Exchange Commission, it                                                                                                                                                                                                              

could not deduct amortization for the fishing permits and quota shares from its annual   

income statement.                                                    Rather, the permits and shares would be listed as assets on the                                                                                                                                                        

business's balance sheet, subject to deductions for impairment. The fact that the IRS                                                                                                                                                                                                     

allows amortization deductions for these perpetual assets is a deviation from GAAP.                                                                                                                                                                                    



                                                                                                                                             -18-                                                                                                                                      7239
  

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