T.C. Memo. 2000-214
UNITED STATES TAX COURT
THOMAS CLARENCE AND CLAUDIA ELLEN MALONEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20568-97. Filed July 17, 2000.
Thomas Maloney and Claudia Ellen Maloney, pro sese.
Felicia L. Branch, for respondent.
MEMORANDUM OPINION
LARO, Judge: The parties submitted this case to the Court
without trial. See Rule 122. Petitioners petitioned the Court
to redetermine respondent’s determination of a $14,832 deficiency
in their 1993 Federal income tax. We must decide whether they
may deduct as alimony a $47,900 payment that Thomas Maloney
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(petitioner) made to his former wife. We hold they may not.
Section references are to the Internal Revenue Code as applicable
to the subject year. Rule references are to the Tax Court Rules
of Practice and Procedure.
Background
All facts were either stipulated or found by the Court from
exhibits accompanying the stipulations of fact. The stipulations
of fact and the accompanying exhibits are incorporated herein by
this reference, and the parties’ stipulations of fact are found
accordingly. Petitioners are cash method taxpayers who resided
in La Grange Park, Illinois, when we filed their petition
commencing this action. They filed with respondent a joint 1993
Federal income tax return on which they claimed a $47,900
deduction for alimony paid to petitioner’s former spouse, Linda
R. Maloney (Ms. Maloney).
Ms. Maloney sued petitioner for divorce in a Virginia
circuit court, and, on March 21, 1991, the court finalized the
divorce by way of a decree of final divorce (Virginia decree).
The Virginia decree provides in relevant part as follows:
THIS CAUSE came on this day to be heard upon the
bill of complaint; upon process served upon the
defendant; upon the answer and cross-bill of the
defendant; upon the report of James A. Evans,
Commissioner in Chancery, and the matter was argued by
counsel.
UPON CONSIDERATION WHEREOF, the Court finds from
the report, independently of the admissions of the
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parties in the pleadings or otherwise, the following
facts: that the parties are sui juris and neither is
incarcerated, that the defendant is a member of the
Armed Forces of the United States and is represented by
counsel; that the parties were lawfully married in New
Melle, Missouri, on July 11, 1970; that there were two
children born of this marriage * * * ; that the
complainant was both domiciled in Virginia and an
actual good faith resident of Virginia on the date that
this suit was instituted and for more than six months
next preceding said date; * * * that this Court has
jurisdiction over the subject matter; that the venue is
proper; that the written stipulation between the
parties should be affirmed by the Court and
incorporated in this decree by reference; and that the
report of said Commissioner should be confirmed in its
entirety.
WHEREFORE the Court doth ADJUDGE, ORDER and DECREE
that * * * the defendant be, and he is herewith,
divorced from the complainant from the bonds of
matrimony * * *
* * * * * * *
The Court doth further ADJUDGE, ORDER and DECREE
that the complainant and the defendant both be denied
spousal support.
The referenced stipulation (the stipulation) provides in
relevant part as follows:
21. The husband covenants and agrees that upon his
retirement from the United States Navy, he will
immediately take whatever steps are necessary to
provide for the wife thirty-seven and 50/100 (37.50)
percent of his retirement funds, in allotment form, to
be paid to her on a monthly basis at the same time he
receives his sixty-two and 50/100 (62.50) percent
portion thereof. He further covenants to participate
in the Survivor Benefit Plan in order for the wife to
be entitled to her thirty-seven and 50/100 (37.50)
percent share of his retirement until such time as she
dies. The retirement payments to wife shall continue
until her death notwithstanding the death of the
husband.
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Petitioner separated, but did not retire, from the United
States Navy on or around March 31, 1993, and he was paid a lump-
sum separation payment of $116,897.87 in lieu of his retirement
benefits from the United States Navy. At or about that time, Ms.
Maloney petitioned a court in Illinois, the State in which
petitioner then resided,1 requesting that the court either (1)
enforce the Virginia decree by requiring petitioner to pay to her
37.5 percent of the lump-sum amount or (2) modify the Virginia
decree to state explicitly that she was entitled to 37.5 percent
of any amount that petitioner received in lieu of his retirement
benefits. Later in that year, the Illinois court entered an
agreed order (Illinois order) providing in relevant part as
follows:
1. (a) That * * * [Ms. Maloney] shall keep as her
sole property the sum of $47,900.00 representing her
share and division of the net funds received by * * *
[petitioner] from the United States Navy. Such
division and transfer shall not be considered a taxable
event.
(b) * * * [Ms. Maloney] shall hold * * *
[petitioner] free, harmless and indemnified against any
state or federal income taxes due and owing in
connection with receipt by * * * [Ms. Maloney] of the
aforesaid $47,900.00.
(c) * * * [petitioner] shall keep as his sole
property the sum of $47,861.03 plus interest
representing his share and division of the net funds
received from the United States Navy.
1
Ms. Maloney resided in Florida at that time.
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(d) * * * [petitioner] shall hold * * * [Ms.
Maloney] free, harmless and indemnified against any
state or federal taxes due and owing in connection with
the gross amount paid by the United States Navy to * *
* [petitioner] less the sum of $47,900.00 which is the
responsibility of * * * [Ms. Maloney].
Petitioner paid Ms. Maloney the $47,900 in 1993.
Discussion
We must determine whether petitioners may deduct the $47,900
payment as alimony.2 Respondent determined they could not.
Petitioners must prove respondent’s determination wrong in order
to prevail. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933); see also Preston v. Commissioner, T.C. Memo. 1999-49,
affd. in part, revd. in part and remanded 209 F.3d 1281 (11th
Cir. 2000).
An individual may generally deduct a payment made during the
taxable year to a former spouse to the extent it is alimony that
is includable in the former spouse’s gross income. See sec.
215(a) and (b). A payment is alimony that is includable in a
former spouse’s gross income when: (1) The payment is made in
cash, (2) the payment is received by (or on behalf of) the former
spouse under a divorce or separation instrument, (3) the divorce
or separation instrument does not designate that the payment is
not to be treated as alimony, (4) the former spouses reside in
2
Petitioners do not dispute that this payment is includable
in their gross income, relying solely on their position that it
was paid to Ms. Maloney and is deductible as alimony.
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separate households at the time the payment is made, (5) the
former spouses do not file a joint return, and (6) the liability
for payment does not continue for any period after the former
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. The parties dispute only two of these requirements;
namely, the third and sixth requirements set forth above.
We begin our analysis with the third requirement under which
a payment is not treated as alimony if the divorce or separation
instrument designates that the payment is not includable in the
recipient’s income under section 71 or deductible by the payor
under section 215. See sec. 71(b)(1)(B). The instrument must
contain a clear and explicit designation to that effect although
it need not refer expressly to section 71 or section 215. See
Estate of Goldman v. Commissioner, 112 T.C. 317, 323-324 (1999);
see also Richardson v. Commissioner, 125 F.3d 551, 556 (7th Cir.
1997), affg. T.C. Memo. 1995-554.
Here, we construe the Virginia decree and the Illinois order
as designating the payment in question as nonalimony. The
Virginia decree provides explicitly that petitioner and Ms.
Maloney shall “both be denied spousal support.” The Illinois
order provides explicitly that petitioner’s transfer of the
$47,900 to Ms. Maloney “shall not be considered a taxable event.”
The Virginia decree and the Illinois order, therefore, designate
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that the $47,900 payment is not alimony and instead represents a
nontaxable division of marital assets.
We hold that petitioners may not deduct the $47,900 payment
as alimony. We have considered all arguments for a contrary
holding and find that it is unnecessary to reach them or that
they are without merit.
Decision will be entered
for respondent.