T.C. Summary Opinion 2003-166
UNITED STATES TAX COURT
LAWRENCE ROBERT GAMER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19013-02S. Filed December 15, 2003.
Lawrence Robert Gamer, pro se.
Laura A. McKenna, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed.1 The decision to
be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2000,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s Federal
income tax for 2000 in the amount of $5,267.
The sole issue for decision is whether a payment of $37,000
made by petitioner to his former wife in 2000 is deductible as
alimony under section 215. We hold that it is not.
An adjustment to the amount of petitioner’s itemized
deductions is a purely mechanical matter, the resolution of which
is dependent on our disposition of the disputed issue.
Background
Some of the facts have been stipulated, and they are so
found. Petitioner resided in Loxahatchee, Florida, at the time
that his petition was filed with the Court.
At or about the time they were married in July 1997,
petitioner and his then wife, Deborah Gamer (Ms. Gamer), jointly
purchased a residence in which they lived during their marriage.
The residence was titled in the couple’s joint names as tenants
by the entireties.
Petitioner and Ms. Gamer were divorced in March 2000.
On or about February 22, 2000, petitioner and Ms. Gamer
entered into a Marital Settlement Agreement (settlement
agreement). The settlement agreement provided, in part, as
follows:
10. Alimony. Each party does hereby waive
alimony and does hereby totally, irrevocably and
completely relieve the other party of all matters and
charges whatsoever excepting as set forth in this
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instrument, each releasing the other of and from all
claims and demands for anything whatsoever in the
future, including, but not limited to, alimony and
separate maintenance, regardless of the future income
of the husband and wife.
* * * * * * *
14. Parties Bound. This Settlement Agreement
shall be binding upon the heirs, legatees, devisees,
administrators, and personal representatives of the
parties hereto and, in the event of the death of either
of the parties of this Settlement Agreement while said
Settlement Agreement is in force and effect, the estate
of said deceased party shall be obligated and
responsible for the performance of the obligations and
conditions of this Settlement Agreement.
* * * * * * *
18. Marital Residence. The parties jointly own
as tenants by the entireties a certain single family
residence * * *. Within ten days of the execution of
this Agreement, the husband shall pay to the wife in
current cash funds the sum of $37,000 representing the
wife’s interest in this residence. Contemporaneous
with the transfer of these funds, the wife shall
execute a quit-claim deed conveying to the husband all
of her right, title and interest in this property.
The provisions of the settlement agreement were incorporated
into a Final Judgment of Dissolution of Marriage.
On March 7, 2000, petitioner issued a check payable to Ms.
Gamer in the amount of $37,000. Petitioner wrote “Settlement” on
the memo section of the check.
Petitioner filed Form 1040, U.S. Individual Income Tax
Return, for the taxable year 2000. On his 2000 return,
petitioner claimed a deduction in the amount of $37,000 for
“alimony paid” to Ms. Gamer.
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On September 3, 2002, respondent issued a notice of
deficiency to petitioner determining a $5,267 deficiency in his
income tax for the 2000 taxable year. In the notice, respondent
disallowed the $37,000 deduction for alimony claimed by
petitioner on the ground that “Lump-sum cash paid as a property
settlement is not deductible as alimony.”
Discussion2
Generally, a property settlement incident to a divorce is
not a taxable event and does not give rise to a deduction. Sec.
1041; Estate of Goldman v. Commissioner, 112 T.C. 317, 322
(1999), affd. without published opinion sub nom. Schutter v.
Commissioner, 242 F.3d 390 (10th Cir. 2000). However, section
215(a) allows a deduction for the payment of alimony during a
taxable year.
Section 215(b) defines alimony as payment which is
includable in the gross income of the recipient under section 71.
Section 71(b) provides a four-step inquiry for determining
whether a cash payment is alimony. Section 71(b) provides:
SEC. 71(b). Alimony or Separate Maintenance Payments
Defined.–-For purposes of this section--
(1) In general.--The term “alimony or separate
maintenance payment” means any payment in cash if--
(A) such payment is received by (or on
2
We decide the issue in this case without regard to the
burden of proof. See sec. 7491; Rule 142(a); Higbee v.
Commissioner, 116 T.C. 438 (2001).
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behalf of) a spouse under a divorce or
separation instrument,
(B) the divorce or separation instrument
does not designate such payment as a payment
which is not includible in gross income under
this section and not allowable as a deduction
under section 215,
(C) in the case of an individual legally
separated from his spouse under a decree of
divorce or of separate maintenance, the payee
spouse and the payor spouse are not members
of the same household at the time such
payment is made, and
(D) there is no liability to make any
such payment for any period after the death
of the payee spouse and there is no liability
to make any payment (in cash or property) as
a substitute for such payments after the
death of the payee spouse.
Accordingly, if the payment made by petitioner fails to meet any
one of the four enumerated criteria, that payment is not alimony
and is not deductible by petitioner.
The parties agree that petitioner’s $37,000 payment to Ms.
Gamer satisfies the requirements set forth in section
71(b)(1)(A), (B), and (C). On the other hand, the parties
dispute whether the requirements of section 71(b)(1)(D) have been
satisfied.
The history of section 71(b)(1)(D) establishes that it was
enacted to distinguish alimony, deductible by the payor and
includable in the payee’s gross income, from payments in the
nature of property settlements, which are nondeductible by the
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payor and excludable from the payee’s gross income.
In 1984, Congress revised section 71 in an attempt to
minimize the differences in Federal tax consequences created by
differences in State laws and to establish an objective and
uniform Federal standard as to what constitutes alimony. See
sec. 422(a) of the Deficit Reduction Act of 1984 (DRA 1984), Pub.
L. 98-369, 98 Stat. 795; see also H. Rept. 98-432, Part 2, 1495,
1496 (1984), wherein the House Ways and Means Committee
articulated the purpose of the 1984 amendment as follows:
The Committee bill attempts to define alimony in a way
that would conform to general notions of what type of
payments constitute alimony as distinguished from
property settlements and to prevent the deduction of
large, one-time lump-sum property settlements.
[Emphasis added.]
* * * * * * *
In order to prevent the deduction of amounts which are
in effect transfers of property unrelated to the
support needs of the recipient, the bill provides that
a payment qualifies as alimony only if the payor * * *
has no liability to make any such payment for any
period following the death of the payee spouse. * * *
For payments to constitute alimony, section 71(b)(1)(D), as
originally enacted by DRA 1984, required the divorce or
separation instrument to state that there was no liability on the
payor spouse to make the payments after the death of the payee
spouse.3 However, under the statutory law of most States,
3
As amended by the Deficit Reduction Act of 1984, Pub. L.
(continued...)
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alimony terminates at the death of the payee spouse unless the
separation agreement or the divorce decree provides to the
contrary. Therefore, in 1986, Congress struck from section
71(b)(1)(D) the parenthetical providing for alimony treatment
only if the divorce or separation instrument stated that there
was no liability on behalf of the payor spouse to make the
payments after the death of the payee spouse. See sec. 1843(b)
of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2853.
But even after the 1986 amendment, whether an obligation to make
payments survives the death of the payee spouse “may be
determined by the terms of the applicable instrument, or if the
instrument is silent on the matter, by looking to State law.”
Kean v. Commissioner, T.C. Memo. 2003-163.
The issue before us is whether the $37,000 payment
petitioner made to Ms. Gamer pursuant to the settlement agreement
was for her support, thus constituting alimony, or in the nature
of a property settlement and therefore not deductible from his
gross income. Specifically, we must decide whether under the
3
(...continued)
98-369, 98 Stat. 795, sec. 71(b)(1)(D) provided as follows:
(D) there is no liability to make any such payment
for any period after the death of the payee spouse and
there is no liability to make any payment (in cash or
property) as a substitute for such payments after the
death of the payee spouse (and the divorce or
separation instrument states that there is no such
liability).
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terms of the settlement agreement, petitioner would have been
liable for the $37,000 payment in the event of Ms. Gamer’s prior
death.
Respondent contends that petitioner was obligated under the
terms of the settlement agreement to make the $37,000 payment to
Ms. Gamer in the event of her prior death. Petitioner primarily
argues that, because the $37,000 payment was required to be made
almost simultaneously with the execution of the settlement
agreement (i.e., within 10 days of the date of the settlement
agreement), there arose no liability that would not have
terminated at Ms. Gamer’s death.
We hold that the $37,000 payment petitioner made to Ms.
Gamer in 2000 was a property settlement and not deductible
alimony.
In reaching our conclusion, we apply the language of the
settlement agreement itself. Paragraph 10 of the settlement
agreement provides that both petitioner and Ms. Gamer waive
alimony. Paragraph 18 of the settlement agreement, however,
provides that “[petitioner] shall pay [Ms. Gamer] the sum of
$37,000" in exchange for Ms. Gamer’s interest in the marital
residence. The terms of the settlement agreement do not state
that petitioner’s liability to make the $37,000 payment would
cease upon the prior death of Ms. Gamer. Additionally, paragraph
14 of the settlement agreement provides that petitioner and Ms.
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Gamer remain bound to all obligations of the settlement agreement
in the event of the death of either individual. Petitioner also
admitted at trial that he understood that under the terms of the
settlement agreement, in the event of Ms. Gamer’s prior death, he
would still be obligated to make the $37,000 payment to Ms.
Gamer’s estate and Ms. Gamer’s estate would still be obligated to
transfer her interest in the marital residence to him.
The fact that petitioner was required to make the $37,000
payment within 10 days of the execution of the settlement
agreement is irrelevant. In Webb v. Commissioner, T.C. Memo.
1990-540, the separation agreement provided, in part, that “The
Husband shall pay, simultaneously with the execution of this
Agreement, to the Wife, the sum of [$15,000]”. We held that the
fact that the separation agreement provided that the husband
“shall pay” was sufficient to create a liability that would have
been enforceable by the ex-wife’s estate had she died after the
execution of the separation agreement but before payment by the
husband. In Webb, it was of no consequence that the husband’s
payment was made simultaneously with the execution of the
separation agreement.
We find that the terms of the settlement agreement provide
that petitioner would still be required to make the $37,000
payment in the event of Ms. Gamer’s prior death. Accordingly,
the $37,000 payment from petitioner to Ms. Gamer fails to satisfy
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the requirements of section 71(b)(1)(D) and, therefore, does not
qualify as deductible alimony. In view of the foregoing, we
sustain respondent’s determination.
We have considered all of the other arguments made by
petitioner, and, to the extent that we have not specifically
addressed them, we find them to be without merit.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.