Perlenfein and Perlenfein,
848 P.2d 604

Procedure:Petitioner wife sought review of a decision of the Court of Appeals (Oregon), which reversed a trial court decision and held that respondent husband's share of the undistributed profits of a closely held corporation in which he was a minority shareholder should not have been included in his gross income for the purpose of determining his child support obligation.

Facts: Husband is a manager and minority shareholder of Albany Rental, INC. a closely held corporation. H gets a salary of $2,000 per monthly and owns 27.5% of the shares. His mother owns 45.5% and his brothers own 25% and 2% respectively. Albany is a subchapter S corporation and its profits are treated for federal income tax purposes as income to the shareholders. The shareholders also get credit against the income for accelerated depreciation. To meet federal income tax liability, the shareholders get yearly dividends sufficient to pay the taxes owed. All other profits of the corporation are retained for reinvestment. W is the sole proprietor of an incorporated accounting business and she gets a salary of $2,000 per month. All other profits are retained by the corporation. W and H divorced in 1988 and they have two minor children. W got custody and H was ordered to pay $250 per month in support. W moved for modification of that amount contending that Albany's profits and accelerated depreciation credits in the amount of $4,792 per month should be used to
calculate gross income for child support obligations.

Issue: Does the child support statute include for the purpose of determining a child support obligation undistributed income that is attributed to a minority shareholder of a closely held corporation for income tax purposes?

Holding:The Court of Appeals, found that mother's interest as sole shareholder in her corporation's retained profits was includable in her gross income, and mother petitioned for review. Moreover, The Supreme Court, held that: (1) calculation of wife's gross income was proper, and (2) undistributed income of closely held corporation that is attributed to minority shareholder of that corporation for income tax purposes is attributable to shareholder for purpose of determining child support obligation.


AnalysisThe statute defines income for the determination of the child support obligation in a closely held corporation as gross receipts minus costs of goods sold minus ordinary and necessary expenses and specifically excludes the accelerated component of depreciation. Gross receipts refers to those of the closely held business and not to D's gross receipts from the corporation. The statute does not require that he receive the income. The statute is not unfair because the income is not available to him because of his minority status. The guidelines allow a deviation if the amount is unjust or inappropriate. Undistributed income is included in the determination of gross income, but the child support obligation based on this amount may be deviated from if including gross income requires a deviation.