Preston v. Commissioner

T.C. Memo. 1999-49

UNITED STATES TAX COURT

FOREST R. PRESTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19597-97. Filed February 23, 1999.

Robert R. Lomax, for petitioner.

Eric B. Jorgensen, for respondent.

MEMORANDUM OPINION

LARO, Judge: The parties submitted this case to the Court

without trial. See Rule 122. Petitioner petitioned the Court to

redetermine deficiencies in his 1992, 1993, and 1994 Federal

income tax and an accuracy-related penalty for 1994 under section

6662(a). Following concessions, the only issue left to decide is
 - 2 -

whether petitioner may deduct $47,482, $40,089, and $24,340 of

alimony1 for the respective years. We hold that his alimony

deductions for the respective years are $1,878, $5,014, and zero.

Unless otherwise stated, section references are to the Internal

Revenue Code in effect for the subject years. Rule references

are to the Tax Court Rules of Practice and Procedure. Dollar

amounts are rounded to the nearest dollar.

Background

All facts were either stipulated or found by the Court from

exhibits accompanying the stipulation of facts. The stipulations

of fact and accompanying exhibits are incorporated herein by this

reference. Petitioner is a cash method taxpayer who resided in

Hamilton, Georgia, when he petitioned the Court.

Petitioner claimed alimony deductions of $60,102, $34,946,

and $24,202 on his 1992, 1993, and 1994 Federal income tax

returns, respectively. Respondent disallowed these deductions,

determining that the payments were not alimony. Petitioner

concedes that some of the reported amounts did not constitute

alimony. Petitioner argues that his alimony deductions for the

respective years are $47,482, $40,089, and $24,340.

Petitioner married Dianne Sowell (Ms. Sowell) in 1974, and

they had two children (collectively, the children) during their

marriage. The older child, Ashley Denise Preston (Ashley), was

born October 19, 1976. The younger child, Martin Barron Sowell

Preston (Barron), was born October 3, 1984. For most of 1991,

1
We use the term "alimony" to include "separate maintenance
payments".
 - 3 -

petitioner lived with his family in Columbus, Georgia, in a house

(the Columbus house) that he owned jointly with Ms. Sowell.

Petitioner moved out of the Columbus house in December 1991, and

he moved into a cabin that he owned in Harris County, Georgia.

In March 1992, Ms. Sowell petitioned the Superior Court of

Muscogee County, Georgia, for a divorce from petitioner. One

month later, on April 3, 1992, the superior court issued a

temporary order nunc pro tunc to March 19, 1992. The temporary

order stated:

1.

Plaintiff [Ms. Sowell] shall have the temporary
custody of the two (2) minor children of the parties,
and the Defendant [petitioner] shall have the right to
visit said children and have said children visit with
him at all reasonable times and places.

2.

Plaintiff shall have the temporary exclusive use
of the [Columbus] house and premises and all household
furniture and furnishings located therein * * * and the
Cadillac automobile in her possession. The Defendant
shall have the temporary exclusive use of all marital
property now in his possession and the property located
in Harris County, Georgia known as the house or cabin
in the backwater.

* * * * * * *

4.

Defendant shall pay for the support of Plaintiff
and the two (2) minor children of the parties and the
following household and family expenses until further
Order of the Court:

(a) The mortgage payments, ad valorem taxes and
insurance on the * * * [Columbus house] * * *;

(b) All utility expenses at the * * * [Columbus
house], including electricity, water, garbage and
 - 4 -

sewer, telephone, gas, pest control, cable television
and lawn care;

(c) Wife's automobile expenses, including gasoline
and oil, repairs, automobile tags, licenses and
insurance;

(d) The medical and dental expenses of Wife and
the children and prescription drug expenses;

(e) The children's school tuition, supplies and
activities;

(f) The cost of clothing for Wife and the children
* * *.

In addition to making the payments above
enumerated, Defendant shall pay to Plaintiff the sum of
ONE THOUSAND DOLLARS ($1,000) per month, commencing
April 1, 1992, with a payment of FIVE HUNDRED DOLLARS
($500.00), and the payment of an additional FIVE
HUNDRED DOLLARS ($500.00) on the 15th of April, 1992,
and continuing with like payments during each calendar
month thereafter until further Order of the Court; with
the provision, however, that Defendant may at his
option pay the monthly sum on the 1st day of each
calendar month rather than in two (2) installments; and
Defendant shall pay to Plaintiff immediately an amount
so that the total sum given to her for support of
herself and the children during the month of March,
1992 will equal the sum of ONE THOUSAND DOLLARS
($1,000).

On June 3, 1993, the superior court held petitioner in

contempt of the temporary order because he had failed to pay

certain bills covered by the order. The court ordered him to pay

these bills and to pay $350 of attorney's fees at the rate of $50

per month commencing with June 1993.

On September 4, 1993, the superior court entered a final

judgment and decree (the final decree) granting Ms. Sowell a

divorce from petitioner. The final decree provided in relevant

part:
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FINAL JUDGMENT AND DECREE

* * * it is the judgement of the Court that a
total divorce be granted. * * * Each party is awarded
their personal property and other property which is in
their possession.

1.

The Plaintiff is awarded permanent custody of the
two minor children of the parties * * *

* * * * * * *

4.

Defendant shall pay to the Plaintiff the sum of
$800.00 per month per child as child support and
Defendant shall commence said payments of child support
on August 1, 1993, with a payment of $800.00 and an
equal payment of $800.00 on August 15, 1993 and said
payments shall continue on the 1st and 15th of each
calendar month until each child attains the age of 18,
marries, dies, becomes fully self-supportive or
otherwise emancipated, whichever event shall first
occur the child support shall terminate. * * *

* * * * * * *

6.

The Plaintiff is awarded the * * * [Columbus
house], and the Plaintiff is to make payments on the
indebtedness secured by said real property and shall
hold the Defendant harmless therefrom for payments due
on said property.

7.

The Defendant shall pay to the Plaintiff a lump
sum award of alimony total of $180,000.00 with
$120,000.00 payable at $1,000.00 per month for ten (10)
years, beginning on August 1, 1993, and then in five
(5) years, due on the 14th day of July, 1998, the
Defendant shall pay to the Plaintiff a lump sum of
$10,000.00 and then in ten (10) years, due on the 14th
day of July, 2003, the Defendant shall pay to the
Plaintiff $50,000.00. * * *

* * * * * * *
 - 6 -

10.

The Defendant is ordered to pay and be responsible
for tuition at Brookstone School for the minor child,
Barron, for 1993-1994 school year.

11.

The Defendant shall pay the insurance for the
minor child, Ashley's, car until she reaches 18 years
of age.

* * * * * * *

13.

The Defendant is ordered to buy the Plaintiff a
car not to exceed $17,000.00 within the next ninety
(90) days. Defendant may finance said purchase and he
shall be responsible and make the payments as due.

14.

The Defendant shall pay the sum of $5,000.00 as
attorney fees to be divided among the law firms HARP &
JOHNSON, P.C. and GROGAN, JONES, RUMER & GUNBY, P.C.
for their legal representation of Plaintiff. Said sum
shall be payable at $200.00 per month for 25 months
beginning on August 1, 1993 until said sum is paid in
full.

* * * * * * *

16.

The Defendant shall maintain and pay the premiums
for major health, hospitalization and dental insurance
for the minor children for as long as he is obligated
to pay child support. The Defendant shall be
responsible for all medical expenses which are not
covered by insurance for the benefit of the minor
children. * * *

Pursuant to the temporary order, petitioner paid Ms. Sowell

monthly payments totaling $10,000 in 1992 and $7,000 in 1993.

Pursuant to the final decree, petitioner paid Ms. Sowell monthly

payments totaling $5,000 in 1993 and $12,000 in 1994. Petitioner
 - 7 -

claims an alimony deduction for the amount of these monthly

payments, and for other amounts that he paid or incurred during

the subject years for the benefit of Ms. Sowell and/or the

children. Each amount that petitioner paid or incurred during

the subject years, and for which he claims an alimony deduction,

is listed below by year, payee, amount, and purpose.2 These

amounts are as follows:

1992

Payee Amount Purpose

Ms. Sowell $10,000 Monthly payments
Ms. Sowell 2,232 Clothes for children
Pacelli High 1,109 Ashley's tuition
Southern Bell 783 Telephone--Columbus house
Sears 375 Pest control--Columbus house
Ms. Sowell 212 Clothes for Ms. Sowell
Ms. Sowell 350 Barron's school picture
CB&T 1,525 Barron's tuition
N. C. Pharmacy 447 Drug bill
Galaxie 210 Satellite T.V.--Columbus house
Dr. Hudson 406 Children's physician
Telecable 514 Cable T.V.--Columbus House
Un. Cities Gas 470 Gas Heat--Columbus House
Dr. Allison 443 Ms. Sowell's dentist
Brookstone School 2,373 Barron's tuition/related exp.
Dr. Helms 665 Ms. Sowell's dentist
Associates 533 Satellite T.V.--Columbus house
Georgia Power 2,125 Electric bill--Columbus house
Columbus Water 524 Water bill--Columbus house
C. Wilson 86 Children's piano activities
Columbus Ledger 116 Newspaper--Columbus house
Ms. Sowell 166 Activities for Barron
R. Waters 385 Tree removal--Columbus house
Grasshopper 685 Lawn care--Columbus house
Ms. Sowell 666 Miscellaneous expenses
Bob's Pool 1,408 Pool liner--Columbus house

2
Petitioner paid all these amounts, but for the $2,204 and
$566 amounts shown with Preston Oil for 1992 and 1993,
respectively. Ms. Sowell charged the $2,204 and $566 amounts to
petitioner's account at Preston Oil. Preston Oil is a
corporation owned and operated by petitioner.
 - 8 -

J.P Lanier Co. 548 Homeowner ins.--Columbus house
Ms. Sowell 136 Children's dental bill
Ms. Sowell 130 Ms. Sowell's medical bill
Ms. Sowell 200 Barron's birthday party
CB&T 10,000 Buy automobile for Ashley
D.J. Ins. 428 Insurance--Ms. Sowell's car
D.J. Ins. 340 Insurance--Ashley's car
Ms. Sowell 468 Misc. activities of children
World Book 200 Encyclopedia for children
S. Chemical 100 Pool chemicals--Columbus house
Preston Oil 2,204 Ms. Sowell's car expenses
Preston Oil 187 Ashley's car expenses
GAO Ins. 3,133 Ms. Sowell/children health ins
Ms. Sowell 600 Children's Christmas
47,482

1993

Payee Amount Purpose

Ms. Sowell $7,000 Monthly payments
Harp & Johnson 1,150 Legal fees
Ms. Sowell 5,000 Monthly payments
Barnett Bank 669 Buy automobile for Diane
Lee Grogan 400 Diane's attorney fees
Hirsch, et al. 900 Children's clothing allowance
Brookstone 4,838 Barron's tuition
Ms. Sowell 22 Reimbursement
Southern Bell 1,191 Telephone--Columbus house
Sears 510 Pest control--Columbus house
Ms. Sowell 95 Ms. Sowell's bills
Ms. Sowell 148 Children's activities
Ms. Sowell 46 Children's activities
Un. Cities Gas 788 Gas Heat--Columbus House
Associates 599 Satellite T.V.--Columbus house
Georgia Power 2,492 Electric bill--Columbus house
Columbus Water 478 Water bill--Columbus house
N. C. Pharmacy 209 Drug bill--Ms. Sowell
N. C. Pharmacy 142 Drug bill
Dr. Allison 746 Ms. Sowell's dentist
Telecable 403 Cable T.V.--Columbus House
S. Chemical 319 Pool Chemicals--Columbus house
Dr. Aranas 65 Children's doctor bill
Dr. Helms 1,312 Ms. Sowell's dentist
Brookstone 423 Barron's school related exp.
Dr. Thomason 139 Children's dentist
Gayfers 54 Clothes for Barron
Dr. Phelts 40 Ashley's doctor bill
Columbus Ledger 70 Newspaper--Columbus house
Dr. Hutchins 378 Children's eye doctor bill
World Book 857 Encyclopedia for children
 - 9 -

Telecom 193 Telephone--Columbus house
Josten's 347 Ring for Ashley
Ms. Sowell 116 Tire for Ashley's car
Grasshopper 630 Lawn care--Columbus house
Pastoral Inst. 290 Counseling for Ashley
Prem Collections 296 Ashley's medical bill
Olan Mills 22 Children's pictures
Ms. Sowell 28 School supplies
Ms. Sowell 11 Children's activities
Ms. Sowell 30 Ms. Sowell's automobile bill
D.J. Ins. 60 Insurance--Columbus house
Dr. Chhokar 454 Ms. Sowell's medical bill
Dr. Hudson 164 Children's doctor bill
Auto Owners Ins. 585 Insurance on Ms. Sowell's car
Fuller Auto 437 Ms. Sowell's car repair
St. Fran. Hosp. 110 Ashley's medical bill
St. Fran. Hosp. 30 Ms. Sowell's medical bill
Radiology 9 Ashley's doctor bill
Prof. College 464 Ms. Sowell's medical bill
Path Em Re 86 Ms. Sowell's bill
Columbus College 75 Children's camp and karate
Muscogee County 701 Tax on Ashley's car
Jeane Teaster 60 Ashley's tutor bill
Ms. Sowell 468 Misc. expenses of children
GAO Ins. 2,222 Ms. Sowell/children health ins.
Preston Oil 566 Ms. Sowell's car expenses
Preston Oil 152 Ashley's car expenses
40,089

1994

Payee Amount Purpose

Dr. Helms $1,647 Ms. Sowell's dentist
Ms. Sowell 12,000 Monthly payments
Barnett Bank 2,692 Purchase of car for Ms. Sowell
Harp & Johnson 1,100 Ms. Sowell's legal fees
Lee Grogan 1,100 Ms. Sowell's legal fees
Lane's 128 Portrait of Barron
South Trust Bank 755 Purchase of car for Ms. Sowell
Brookstone 2,588 Barron's tuition
Gen. Amer. Ins. 2,048 Pay loan on Ms. Sowell's
insurance policy
Auto Owner Ins. 282 Ashley's automobile insurance
24,340
 - 10 -

Discussion

We must determine whether petitioner may deduct any of the

disputed payments as alimony. Respondent determined that he

could not. Petitioner bears the burden of proving respondent's

determination wrong. See Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).

An individual may generally deduct a payment made during the

taxable year to a spouse3 to the extent it is alimony that is

includable in the spouse's gross income. See sec. 215(a) and

(b). A payment is alimony that is includable in a spouse's gross

income when: (1) The payment is made in cash, (2) the payment is

received by (or on behalf of) the spouse under a divorce or

separation instrument, (3) the divorce or separation instrument

does not provide that the payment is not reportable as alimony,

(4) the spouses reside in separate households at the time the

payment is made, (5) the spouses do not file a joint return, and

(6) the liability for payment does not continue for any period

after the spouse's death. See sec. 71 (b)(1), (e). Each of

these requirements must be met before a payor may deduct a

payment as alimony. We concern ourselves only with the three

requirements in dispute.

First, the need for a cash payment requires that alimony be

paid in cash or a cash equivalent. A check or money order that

is payable on demand is a cash equivalent. A debt instrument

3
We use the term "spouse" to refer to a present or former
spouse.
 - 11 -

that is issued or transferred is not. See sec. 71(b)(1); sec.

1.71-1T(b), Q&A-5, Temporary Income Tax Regs., 49 Fed. Reg. 34455

(Aug. 31, 1984).

Second, only those payments that are received by or on

behalf of a spouse pursuant to a divorce or separation instrument

may qualify as alimony. Amounts that are paid as child support

do not qualify as alimony. See sec. 71(c)(1). Payments made

under a divorce or separation instrument are considered child

support to the extent that they will be reduced upon the

happening of a contingency related to a child, e.g., the child's

reaching a specified age. See sec. 71(c)(2).

Third, alimony does not include amounts that must continue

to be paid after the payee's death. See sec. 71(b)(1)(D).

Whether an obligation to make a payment ceases upon the payee's

death may be determined by the terms of the applicable documents.

If the documents are silent on this matter, the answer lies in

State law. See Sampson v. Commissioner, 81 T.C. 614, 618 (1983),

affd. without published opinion 829 F.2d 39 (6th Cir. 1987); see

also Cunningham v. Commissioner, T.C. Memo. 1994-474.

Turning to the instant facts, we find that few of the

disputed payments qualify as alimony. Most of these payments are

either payments of child support or payments for which petitioner

would remain liable if Ms. Sowell were to die.4 As to the latter

category of payments, nothing in the applicable documents

4
Some of these amounts also were not paid pursuant to the
temporary order or final decree.
 - 12 -

conditions these payments on the fact that Ms. Sowell is living.

Nor can we find such a condition in applicable State (Georgia)

law. Under Georgia law, alimony is either periodic or lump sum,

see Winokur v. Winokur, 365 S.E.2d 94, 95 (Ga. 1988), and the

mere fact that alimony is payable in installments does not mean

it is periodic, see Stone v. Stone, 330 S.E.2d 887, 889 (Ga.

1985). Lump-sum alimony is payable in installments if the

applicable documents "state the exact amount of each payment and

the exact number of payments to be made without other

limitations, conditions or statements of intent". See Winokur v.

Winokur, supra at 96; see also Stone v. Stone, supra at 889. An

obligation to pay lump-sum alimony in installments does not

terminate upon the payee's death. See Winokur v. Winokur, supra

at 95; see also Human v. Commissioner, T.C. Memo. 1998-106.

As to the non-child-support amounts which would cease upon

Ms. Sowell's death--namely, $212 spent in 1992 for Ms. Sowell's

clothes, $443 spent in 1992 for Ms. Sowell's dentist, $665 spent

in 1992 for Ms. Sowell's dentist, $130 spent in 1992 for Ms.

Sowell's medical bill, $428 spent in 1992 for Ms. Sowell's car

insurance, $2,204 spent in 1992 for Ms. Sowell's car expenses,

$95 spent in 1993 for Ms. Sowell's bills, $209 spent in 1993 for

Ms. Sowell's drug bill, $746 spent in 1993 for Ms. Sowell's

dentist, $1,312 spent in 1993 for Ms. Sowell's dentist, $30 spent

in 1993 for Ms. Sowell's automobile, $454 spent in 1993 for Ms.

Sowell's medical bill, $585 spent in 1993 for Ms. Sowell's car

insurance, $437 spent in 1993 for Ms. Sowell's car repair, $30
 - 13 -

spent in 1993 for Ms. Sowell's medical bill, $464 spent in 1993

for Ms. Sowell's medical bill, $86 spent in 1993 for Ms. Sowell's

bill, $566 spent in 1993 for Ms. Sowell's car expense, and $1,647

spent in 1994 for Ms. Sowell's dentist--we hold that these

amounts, but for the $2,204, $566 and $1,647 amounts, are

deductible as alimony.5 The deductible amounts, which aggregate

$1,878 and $5,014 for 1992 and 1993, respectively, were paid to

(or for the benefit of) Ms. Sowell's maintenance, and, naturally,

petitioner's obligation to make these payments would have ceased

upon Ms. Sowell's death.6 The $2,204 and $566 amounts are not

deductible because petitioner did not pay these amounts in cash,

as is required by section 71(b)(1). Petitioner "paid" these

amounts to Ms. Sowell by agreeing to pay these charges in the

future. The $1,647 amount is not deductible because we are

unable to find that it was paid pursuant to a divorce or

5
There are other amounts--$447 spent in 1992 for a drug
bill, $666 spent in 1992 for miscellaneous expenses, $3,133 spent
in 1992 for health insurance for Ms. Sowell and the children, $22
spent in 1993 for reimbursement, $142 spent in 1993 for a drug
bill, $2,222 spent in 1993 for health insurance for Ms. Sowell
and the children, and $2,048 spent in 1994 to pay a loan on Ms.
Sowell's insurance policy--for which we are unable to determine
what, if any, amount was paid with respect to Ms. Sowell. (We
also note that the $2,048 amount was not required by either the
temporary order or the divorce decree.) As petitioner bears the
burden of proof, we must sustain respondent's disallowance of
these amounts.
6
Whereas petitioner's payments for Ms. Sowell's car
expenses are deductible as alimony, petitioner's payments in
satisfaction of his obligation to buy her a car are not. As we
read the final decree, petitioner's obligation to buy the car
would not have terminated upon Ms. Sowell's death. If Ms. Sowell
had died before petitioner had bought her the car, petitioner
would have had to buy the car for the benefit of her estate.
 - 14 -

separation instrument. Although the temporary order stated that

petitioner must pay Ms. Sowell's medical and dental expenses, the

final decree, which did not contain a similar provision, replaced

the temporary order as of September 4, 1993.

We hold that petitioner's alimony deductions in the

respective years are $1,878, $5,014, and zero. In so holding, we

have carefully considered all remaining arguments made by the

parties for a result contrary to that expressed herein, and, to

the extent not discussed above, find them to be irrelevant or

without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.