GILMORE v. COMMISSIONER

T.C. Summary Opinion 2004-50

UNITED STATES TAX COURT

KENNETH E. GILMORE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5326-01S. Filed April 29, 2004.

Kenneth E. Gilmore, pro se.

Mary T. Klaasen, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
 - 2 -

Respondent determined a deficiency and additions to tax in

petitioner’s Federal income tax as follows:

Additions to Tax1
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)

1996 $6,918 $1,557 $1,384 $368
1
The following figures are rounded to the nearest dollar.

After concessions,1 the issues for decision are: (1) Whether

petitioner may deduct, as alimony under section 215, military

retirement pension payments made to his former wife; (2) if the

payments are not deductible under section 215, whether petitioner

may nevertheless exclude from his income any portion of his

military retirement pension paid to his former wife; (3) whether

petitioner is liable for the addition to tax under section

6651(a)(1) for failure to file a Federal income tax return; and

(4) whether petitioner is liable for the addition to tax under

section 6654(a) for an underpayment of estimated tax.

Background

Some of the facts are stipulated, and they are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time of filing his

petition, petitioner resided in Palmer Lake, Colorado.

1
Petitioner concedes that he received $39,900 of military
retirement pension income and $18 of interest income and that he
is not entitled to deductions claimed on Schedule E, Supplemental
Income and Loss, and Schedule K-1, Partner’s Share of Income,
Credits, Deductions, etc. Respondent concedes the addition to
tax under sec. 6651(a)(2) for failure to pay Federal income tax.
 - 3 -

Petitioner is a retired military officer of the United

States Air Force. Petitioner and Mary Alice Warriner (Ms.

Warriner) married on September 10, 1981, and separated in

September 1993. The District Court, El Paso County, State of

Colorado (Colorado court) entered a Temporary Order on October

26, 1995. The same court entered Final Orders and Decree of

Dissolution on February 1, 1996. The Final Orders were a part

of, and incorporated into, the Decree of Dissolution.

The Final Orders provide, in pertinent part:

4. The parties had accumulated several pieces of real
property in Colorado during this marriage. Over the
course of the last years of the marriage, * * *
[petitioner] wasted the marital estate by failing to
pay mortgages and bills when due from the proceeds of
rent checks, allowing several foreclosures, not
responding to creditor summons, converting assets into
investments outside the marital estate, and then not
informing * * * [Ms. Warriner] of these actions until
default or judgment entered. The Court finds that the
total loss amounted to $454,150.00 in assets, costs,
and judgments accumulated over the last years of the
marriage.

5. The real property presently titled in the name of
* * * [Ms. Warriner], acquired during the marriage has
a net asset value of $111,000.

6. The total net loss of marital assets is therefore
is [sic] $343,150.00. * * * [Ms. Warriner] is entitled
to recover one half of this amount, or $171,575.00 as a
property settlement from [Ms. Warriner] [sic].

7. There exist [sic] a military retirement which is a
part of the marital estate and is marital property
subject to equitable division.

8. [Petitioner’s] ability to pay on debt, satisfy
financial obligations, or otherwise act in a financial
 - 4 -

[sic] responsible manner is problematic and highly
unlikely in view of past history.

* * * * * * *

17. [Petitioner] is a retired military officer with 23
years total commissioned active duty. His military
retirement is an asset of the marital estate. * * *
[Ms. Warriner] has no retirement fund. As a
consequence of the waste of marital assets,
specifically the loss of accumulated investment
property and the marital home, and considering the
unlikely cooperation of * * * [petitioner] to repay * *
* [Ms. Warriner] her losses, and the overall division
of property in this case, this Court therefore makes an
equitable division of the military retirement as
follows:

a. Based upon the current amounts of annual and
monthly military retirement pay, and for the next 15
years, * * * [Ms. Warriner] shall receive a total
63.31% of the current military retirement as her
equitable division of the marital property. At present
known monthly rates, this amount equals $2,065.17 per
month. This amount includes the 13.04% division of the
pension ordered in Temporary Orders; this amount
continus [sic] indefinitely. The addtional [sic]
50.27% represents the dollar amount of property
settlement owed [to] * * * [Ms. Warriner] by * * *
[petitioner], amortized over 15 years at the statutory
rate of 8% interest, an amount she is entitled by law.

b. Payments should be made monthly directly to *
* * [Ms. Warriner]. The Court orders a Wage Assignment
or Garnishment or any other instrument required by the
Cleveland Military Pay Center to execute this Order.

c. At the termination of 15 years of payment at
the above noted rate, or 180 monthly payments, the
percent of military retirement awarded to * * * [Ms.
Warriner] changes to 13.04%.

* * * * * * *

f. If possible and pursuant to the rules and laws
governing the Cleveland Military Pay Center, this
division of military retirement is Ordered to be
apportioned into a separate account on behalf of * * *
 - 5 -

[Ms. Warriner], with separate tax withholding,
statements, and correspondence sent to her independent
of any third party or the Court.

* * * * * * *

20. Neither party is awarded maintenance.

Subsequent to the Colorado court’s entering the Final

Orders, Ms. Warriner’s counsel discovered that direct payments to

Ms. Warriner from petitioner’s military retirement pension, as

directed by paragraph 17b of the Final Orders, were not permitted

pursuant to the Uniformed Services Former Spouses’ Protection Act

(USFSPA), 10 U.S.C. sec. 1408 (2000).2

Ms. Warriner submitted a Motion to amend Final Orders to the

Colorado court, and an Amended Order (“Amended Order”), issued on

May 9, 1996, was incorporated into and amended the Decree of

Dissolution and Final Orders entered on February 1, 1996. The

Amended Order provided in pertinent part:

2. [Ms. Warriner] is entitled to a [sic] equitable
division of the marital estate yet there are no known
additional assets in possession of * * * [petitioner]
that are readily discoverable and the Court finds * * *
[petitioner] has failed to comply with any disclosure
requirements.

THEREFORE THIS COURT ORDERS:

3. That * * * [Ms. Warriner] is entitled to an award
of spousal maintenance as follows:

2
USFSPA does not allow for direct payments to Ms.
Warriner because she and petitioner were not married for 10 years
or more during which petitioner performed at least 10 years of
military service. See 10 U.S.C. sec. 1408(d)(2) (2000).
 - 6 -

a. Permanent spousal maintenance is Ordered paid
by * * * [petitioner] to * * * [Ms. Warriner] in the
amount of $452.00 per month. This amount continues
regardless of the future marital status of * * * [Ms.
Warriner]. * * *[Ms. Warriner] is further entitled to
collect as part of this spousal maintenance award that
statutory interest of 8% per annum on unpaid
installments of this amount previously Ordered and not
paid by [petitioner].

b. Additional spousal maintenance is ordered in
the amount of $1,300 per month until a total amount of
$171,575.00, plus statutory interest (per annum) on any
unpaid balance accruing from 1 February 1996 is paid in
full. The amount Ordered in this subparagraph shall
not be effected [sic] by marriage or death of either
party. * * * [Petitioner] may pay this amount in other
monthly payments or in full with a lump sum payment to
include all interest accrued from 1 February, 1996 to
date of final payment. At such time principal of
$171,575.00 is paid in full, with accrued interest, the
Order for spousal maintenance payments for this
subparagraph will be satisfied and payments will cease.

c. Total spousal maintenance to be paid monthly
by this order is $1,752 per month pursuant to the terms
noted above.

Pursuant to the Amended Order and 42 U.S.C. section 659

(2000),3 the Defense Finance and Accounting Service, Cleveland

Center, Garnishment Operations, paid Ms. Warriner $1,752 per

month of petitioner’s military retirement pension between June

3
The United States is required to withhold moneys due from
the United States to any individual, including members of the
Armed Forces, to enforce the legal obligations of any individual
to provide alimony or child support. 42 U.S.C. sec. 659(a)
(2000). Pursuant to 42 U.S.C. sec. 659(i)(3)(B)(ii), alimony
does not include “any payment or transfer of property or its
value by an individual to the spouse or former spouse of the
individual in compliance with any community property settlement,
equitable distribution of property, or other division of property
between spouses or former spouses.”
 - 7 -

and December 1996, the total being $12,264, as required by

paragraph 3c.

Petitioner timely filed, and respondent granted, an

extension of time to file his 1996 Federal income tax return

until August 15, 1997. On September 14, 1998, respondent

prepared a “Proposed Individual Income Tax Assessment” based on

1996 Form 1099-R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,

etc., which reflected that petitioner received $39,900 of

retirement proceeds. Petitioner filed his 1996 return on

December 19, 2001. In that return, petitioner reported $39,900

of pension income and claimed a deduction in the amount of

$12,264 as alimony payments to Ms. Warriner. Respondent

disallowed the deduction for the alimony payments.

Discussion

1. Payments to Ms. Warriner

We must decide the proper characterization of the $12,264 of

petitioner’s military retirement pension paid to Ms. Warriner.

Petitioner argues these payments constitute deductible alimony,

and respondent claims these payments constitute a division of

marital property.4 Respondent maintains the payments represent a

4
The record is silent as to the position Ms. Warriner took
in regard to the payments on her 1996 Federal income tax return.
Additionally, the record is silent as to whether the Defense
Finance and Accounting Service prepared a separate account and
(continued...)
 - 8 -

property settlement, and as such, the payments do not give rise

to an alimony deduction.5

Section 7491(a) provides that the burden of proof shifts to

respondent under certain specified conditions. Petitioner has

not established that the burden of proof has shifted, and in any

event, the resolution of the issue of the nature of the payments

in question does not depend upon who has the burden of proof.

Alimony or separate maintenance payments generally are

deductible by the payor spouse. Sec. 215. Alimony or separate

maintenance payments are defined by section 71(b), which provides

in part:

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--

4
(...continued)
separate tax withholding for payments to Ms. Warriner.
5
Respondent argues that a property settlement was
“clearly intended by the divorce court”. The intended purpose
behind the payments is not controlling. Nelson v. Commissioner,
T.C. Memo. 1998-268. Further, “labels attached to payments
mandated by a decree of divorce or marriage settlement agreement
are not controlling”. Benedict v. Commissioner, 82 T.C. 573, 577
(1984). A payment must satisfy all the requirements of sec.
71(b) to qualify as alimony. See Jaffe v. Commissioner, T.C.
Memo. 1999-196. Congress amended sec. 71 in the Deficit
Reduction Act of 1984, Pub. L. 98-369, sec. 422(a), 98 Stat. 494.
The purpose behind the amendment was to “eliminate the subjective
inquiries into intent and the nature of payments that had plagued
the courts in favor of a simpler, more objective test.” Hoover
v. Commissioner, 102 F.3d 842, 845 (6th Cir. 1996), affg. T.C.
Memo. 1995-183.
 - 9 -

(A) such payment is received by
(or on 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.

It is clear the requirements of subparagraphs (A) and (C) of

section 71(b) are satisfied. Ms. Warriner received the cash

payments pursuant to the Amended Order and Decree of Dissolution

issued by the Colorado court, and she and petitioner were not

members of the same household.

We now consider section 71(b)(1)(B), which provides that a

payment will not be alimony if the divorce or separation

instrument designates the payment as not includable in gross

income and not allowable as an alimony deduction. The

designation in the divorce or separation instrument “need not

specifically refer to sections 71 and 215”. Estate of Goldman v.
 - 10 -

Commissioner, 112 T.C. 317, 323 (1999), affd. without published

opinion 242 F.3d 390 (10th Cir. 2000). However, the “instrument

must contain a clear, explicit and express direction” that the

payments are not to be treated as alimony. Richardson v.

Commissioner, 125 F.3d 551, 556 (7th Cir. 1997), affg. T.C. Memo.

1995-554. The Amended Order does not contain such language, and

section 71(b)(1)(B) is satisfied.

We now consider section 71(b)(1)(D). To qualify as alimony,

petitioner’s obligation must terminate at the death of Ms.

Warriner. In order to determine whether an obligation exists,

the terms of the applicable instrument must be considered, or if

the instrument is silent on the matter, we look to State law.

Kean v. Commissioner, T.C. Memo. 2003-163, supplemented by T.C.

Memo. 2003-275.

Paragraphs 3a and 3b of the Amended Order provide for two

categories of payments to Ms. Warriner. First, paragraph 3a

provides that the “amount of $452.00 per month * * * continues

regardless of the future marital status of * * * [Ms. Warriner].”

The Amended Order does not address whether payments are to

continue after the death of Ms. Warriner.

Under Kean, we continue our analysis by looking to Colorado

law. In 1971, Colorado enacted the Uniform Dissolution of

Marriage Act (UDMA), Colo. Rev. Stat. secs. 14-10-101 through 14-

10-133 (2003). The UDMA provides that unless “otherwise agreed
 - 11 -

in writing or expressly provided in the decree, the obligation to

pay future maintenance6 is terminated upon the death of either

party”. Colo. Rev. Stat. sec. 14-10-122(2) (2003); see also

Menor v. Menor, 391 P.2d 473, 477 (Colo. 1964). The Amended

Order does not expressly provide the payments would continue

after the death of Ms. Warriner, and thus without such language,

those payments will terminate at her death. We conclude that

section 71(b)(1)(D) is satisfied for the payments provided for in

paragraph 3a of the Amended Order, and petitioner is entitled to

a deduction under section 215 for such payments.

Turning to paragraph 3b of the Amended Order, the

“Additional spousal maintenance [which] is ordered in the amount

of $1,300 per month until a total amount of $171,575.00 * * *

shall not be effected [sic] by marriage or death of either

party.” Under the analysis of Kean, the Amended Order

specifically provides that the payments would continue after the

death of Ms. Warriner, thus disqualifying the payment under

section 71(b)(1)(D).7 Petitioner is not entitled to a deduction

6
For purposes of the tax laws of the State of Colorado or
of any other jurisdiction, the term “maintenance” includes the
term “alimony”. Colo. Rev. Stat. sec. 14-10-103(1) (2003).
7
In general, payments to a former spouse terminate upon
the death of the former spouse. See Colo. Rev. Stat. sec. 14-10-
122(2) (2003). However, if agreed in writing or expressly
provided in the decree, payments to a former spouse may continue
after his or her death under Colorado law. See id.
 - 12 -

under section 215 for the payments made under paragraph 3b of the

Amended Order.

2. Exclusion of Military Retirement Pension Paid to Ms. Warriner

Having concluded that the amounts paid to Ms. Warriner

pursuant to paragraph 3b of the Amended Order are not deductible

under section 215 as alimony, we now turn to whether these

amounts are excludable from petitioner’s income. Gross income

includes payments from military retirement pensions. Sec.

61(a)(11). However, it “is axiomatic in Federal tax law that

income is taxable to the legal owner of the * * * property

producing the income.” Miles Prod. Co. v. Commissioner, T.C.

Memo. 1969-274, affd. 457 F.2d 1150 (5th Cir. 1972); see also

Helvering v. Clifford, 309 U.S. 331 (1940). Military retirement

payments are “gross income to the party who owns the right to

those payments pursuant to the division of property in a

divorce.” Pfister v. Commissioner, T.C. Memo. 2002-198, affd.

359 F.3d 352 (4th Cir. 2004); see also Weir v. Commissioner, T.C.

Memo. 2001-184; Eatinger v. Commissioner, T.C. Memo. 1990-310;

Lowe v. Commissioner, T.C. Memo. 1981-350. Thus, we must

determine whether petitioner or Ms. Warriner owns the right to

the payments of petitioner’s military retirement pension.

Pursuant to the USFSPA, State courts “may treat disposable

retired pay payable to a member * * * either as property solely

of the member or as property of the member and his spouse in

accordance with the law of the jurisdiction of such court.” 10
 - 13 -

U.S.C. sec. 1408(c)(1) (2004). Under Colorado law, “vested and

matured military retirement pay, which has accrued during all or

part of a marriage, constitutes marital property subject to

equitable division in a dissolution proceeding.” In re Marriage

of Gallo, 752 P.2d 47, 54 (Colo. 1988).

Turning to the Amended Order, the Colorado court did not

divide petitioner’s military retirement pension, but rather

awarded Ms. Warriner “spousal maintenance”. The Colorado court

clearly contemplated the division of petitioner’s military

retirement pension, as first effectuated in the Final Orders.

Additionally, paragraph 6 of the Final Orders awarded Ms.

Warriner a $171,575 property settlement as a recovery of wasted

marital assets, notably the same amount the Colorado court

ultimately awarded Ms. Warriner as alimony in gross8 in paragraph

3b of the Amended Order. However, as expressed in paragraphs 4

and 8 of the Final Orders, the Colorado court found it necessary

to provide for direct payments to Ms. Warriner from petitioner’s

military retirement pension. The only method available for

direct payments to Ms. Warriner was pursuant to 42 U.S.C. section

8
The Colorado court has the discretion to award periodic
alimony or alimony in gross (lump-sum alimony). Alimony in gross
can only be awarded when special circumstances or a compelling
reason necessitates such an award. Carlson v. Carlson, 497 P.2d
1006, 1010 (Colo. 1972). Alimony in gross is not unacceptable
per se. Moss v. Moss, 549 P.2d 404, 406 (Colo. 1976). The
Colorado court presumably considered the special circumstances of
petitioner’s problematic financial history, as explained in
paragraphs 4, 8, and 17 of the Final Orders.
 - 14 -

659(a), which does not provide for the actual transfer of

petitioner’s military retirement pension. Without a property

division pursuant to a dissolution proceeding, petitioner is the

sole owner of his military retirement pension. See Pfister v.

Commissioner, supra (former wife “shall be owner of, and receive,

one-half of husband’s disposable retired or retainer pay”);

Porter v. Commissioner, T.C. Memo. 1996-475 (former wife received

“as her sole and separate property” one-half “of the Air Force

Retiree Monthly Pay”); Lowe v. Commissioner, supra (former wife

awarded portion of military retirement pension “as a property

interest” with full “property interest(s) * * * permissible by

law”). We hold petitioner may not exclude from income the

amounts paid to Ms. Warriner pursuant to paragraph 3b of the

Amended Order.

3. Addition to Tax Under Section 6651(a)(1) for Failure To File

If a Federal income tax return is not timely filed, an

addition to tax will be assessed “unless it is shown that such

failure is due to reasonable cause and not due to willful

neglect”. Sec. 6651(a)(1). A delay is due to reasonable cause

if “the taxpayer exercised ordinary business care and prudence

and was nevertheless unable to file the return within the

prescribed time”. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.;

see also United States v. Boyle, 469 U.S. 241, 243 (1985).

Respondent’s records reflect petitioner filed his return on

December 19, 2001, and we conclude petitioner filed on that date.
 - 15 -

Petitioner testified he “filed a return every year”, including

one for tax year 1996, which he mailed on August 15, 1997.

However, he did not provide any supporting documentary evidence,

such as a certified mail receipt,9 to establish he filed the

return on that date. Nor did petitioner provide any evidence to

establish he had reasonable cause for the failure to timely

file.10 Respondent’s determination as to the addition to tax

under section 6651(a) is sustained.

4. Addition to Tax Under Section 6654(a) for Failure To Pay

Estimated Tax

Section 6654(a) provides for an addition to tax “in the case

of any underpayment of estimated tax by an individual”. This

addition to tax is mandatory unless petitioner shows that one of

the statutorily provided exceptions applies. See sec. 6654(e);

Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980). There is

no exception for reasonable cause or lack of willful neglect.

Estate of Ruben v. Commissioner, 33 T.C. 1071, 1072 (1960).

Petitioner did not remit any estimated tax payments for 1996

9
If a taxpayer sends a return “by registered mail or
certified mail, proof that the * * * [return] was properly
registered or that a postmark certified mail sender’s receipt was
properly issued * * * shall constitute prima facie evidence that
the * * * [return] was delivered”. Sec. 301.7502-1(d), Proced. &
Admin. Regs.
10
Respondent has the burden of production. Sec. 7491(c).
The burden of showing reasonable cause under sec. 6651(a) remains
on petitioner. Higbee v. Commissioner, 116 T.C. 438, 446-448
(2001).
 - 16 -

and has not shown that any of the statutory exceptions are

applicable.11 Respondent’s determination as to the addition to

tax under section 6654(a) is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.

11
The burden remains upon petitioner to establish the
applicability of any exceptions. Higbee v. Commissioner, supra
at 446; Spurlock v. Commissioner, T.C. Memo. 2003-248.