T.C. Summary Opinion 2006-92
UNITED STATES TAX COURT
JEFFREY ERCOLINO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14127-04S. Filed May 30, 2006.
Eugene F. Crowe (specially recognized), for petitioner.
William C. Bogardus, for respondent.
CARLUZZO, Special Trial Judge: This case for the
redetermination of a deficiency was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
at the time the petition was filed. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for 2002. The decision to be entered is not reviewable by
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any other court, and this opinion should not be cited as
authority.
Respondent determined a $2,146 deficiency in petitioner’s
2002 Federal income tax and imposed a $429.20 section 6662(a)
penalty.
The issues for decision are: (1) Whether petitioner is
entitled to an alimony deduction; and (2) whether the
underpayment of tax required to be shown on petitioner’s 2002
Federal income tax return is due to negligence or intentional
disregard of rules or regulations.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed, petitioner resided in Fresh
Meadows, New York.
Petitioner and Constanza E. Ercolino (petitioner’s former
spouse) married on June 10, 1995. They have at least one child,
who was born in July 1997. Petitioner and his former spouse
separated in December 1997; their marriage was terminated by
decree of divorce dated December 4, 2002. Relevant provisions of
the divorce decree (including documents adopted by reference and
incorporated into that decree): (1) Refer to the counterclaim
filed in the divorce proceeding by petitioner’s former spouse in
which she requested, among other things, an award of alimony
pendente lite and permanent alimony, (2) note that petitioner and
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his former spouse were advised by counsel; (3) establish that
pre-existing child support orders remain in effect; and (4)
provide that petitioner and his former spouse “mutually remise,
release, quit claim and forever discharge the other * * * from
any and all rights * * * including * * * any rights * * * which
either party may have for future spousal support or maintenance,
alimony, [or] alimony pendente lite”. Furthermore, in a document
incorporated into the divorce decree, petitioner and his former
spouse agreed that it was the “sole responsibility of each * * *
to sustain themselves without seeking any support from the
other”.
During their marriage and prior to their separation,
petitioner and his former spouse resided together in Stroudsburg,
Pennsylvania, in a house owned by petitioner, but subject to a
mortgage (the marital residence). Petitioner, the sole mortgagor
on the mortgage, apparently defaulted on the mortgage payments
prior to the year in issue. As a result, pursuant to foreclosure
proceedings the marital residence was sold on November 16, 2000.
Following the foreclosure sale, petitioner’s former spouse and
child moved to a rented residence.
According to the stipulation of facts, on October 27, 1998,
petitioner’s former spouse “made a request for child support and
spousal support” of $250 per week. The record does not reveal to
whom the request was made or provide the outcome of the request.
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By order dated May 28, 1999 (the May order), petitioner was
obligated to pay biweekly child support of $318.46, plus the
“entire mortgage” on the marital residence. As best can be
determined from the record, the reference to the “entire
mortgage” in the May order did not require petitioner to pay
completely the then-outstanding balance on the mortgage; rather
it required him to continue to make the then-in-effect $1,200
monthly mortgage payments (plus any arrearage). The May order
suggests that $600 (one-half) of the monthly mortgage payment is
attributable to petitioner’s former spouse and child, and he is
given credit for this amount against his “CSSA obligation” of
$1,290 per month support obligation otherwise determined in that
order.
Taking into account various relevant factors under New York
law, petitioner’s monthly support obligation is expressly
calculated in the May order as follows: “$600 for payment of
mortgage [on the marital residence] for spouse and child --
leaving his support obligation of $690 per month or $318.46 bi-
weekly”.
At the time the May order was issued petitioner was
apparently making the mortgage payments directly to the
mortgagee. This changed at some point, and petitioner became
obligated to pay to his former spouse the $600 described above.
This change is reflected in an order dated February 10, 2000 (the
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February order), that supersedes the May order and establishes
petitioner’s support obligation at “$593.38 bi-weekly for one
child”. Mortgage payments are not referenced in the February
order. The biweekly payments totaling $15,4801 were withheld
from petitioner’s wages during the year in issue.
Although the terms of the May order differ from the terms of
the February order, simple mathematics establishes that
petitioner’s support obligation as stated in terms of dollars and
cents did not change from one order to the next. The manner in
which petitioner treated support payments (including mortgage
payments made directly to the mortgagee or indirectly to his
former spouse) on his Federal income tax returns for years after
he separated from his former spouse, but prior to the year in
issue, has not been made part of the record.
As relevant here, on his timely filed 2002 Federal income
tax return petitioner claimed a $7,800 alimony deduction. In the
notice of deficiency, respondent disallowed that deduction
because petitioner had “not provided verification * * * [he was]
entitled to the credit”.2 Respondent further determined that the
underpayment of tax required to be shown on petitioner’s 2002
return is due to negligence or intentional disregard of rules or
1
This amount is rounded, as $595.38 multiplied by 26 equals
$15,479.88.
2
Following the parties’ lead, we ignore respondent’s misuse
of the term “credit”.
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regulations and imposed a section 6662(a) accuracy-related
penalty. Other adjustments made in the notice of deficiency are
computational and need not be addressed.
Discussion
1. Alimony Deduction
Petitioner claimed a $7,800 alimony deduction on his 2002
return. As best can be determined from the record, this amount
represents petitioner’s estimate of how much of the $15,480
withheld from his wages and presumably paid to his former
spouse is allocable to other than child support, which
petitioner recognizes is not deductible as alimony. See secs.
71(c), 215. According to respondent, the entire amount
represents child support, and no portion is deductible as
alimony.
It appears that the amount petitioner deducted as alimony
in some way or another is traceable to mortgage payments on the
marital residence that petitioner was required to make directly
to his former spouse after he separated from her.3 Although we
fail to fully comprehend petitioner’s position, we do not
hesitate to reject it for the simple reason that he made no
mortgage payments, directly or indirectly, on the marital
residence during 2002. The marital residence was foreclosed
3
For a discussion on this point, see, e.g., Grutman v.
Commissioner, 80 T.C. 464 (1983).
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upon and sold in 2000. Petitioner attempts to avoid the
unavoidable consequence of this fact by suggesting that a
portion of the support obligation imposed in the February order
should be attributable to his obligation to pay a portion of
the rent incurred by his former spouse after moving from the
marital residence. See Marinello v. Commissioner, 54 T.C. 577
(1970). The terms of the February order, however, impose no
such obligation upon him.
Furthermore, petitioner’s position ignores the reality
that the February order expressly establishes petitioner’s
child support obligation at $1,290 per month. The May order
allowed him to offset $600 per month from this amount on
account of the mortgage payments made directly to the
mortgagee; the February order requires him to pay the full
amount directly to his former spouse, albeit through
withholding from his wages. Petitioner’s child support
obligation as established by the February order totals $15,480
per year, the amount withheld from his wages.
The February order apparently remained in effect as of the
beginning of 2002, and it continued in effect pursuant to the
divorce decree entered later that year. Neither the February
order, nor the divorce decree provide for any form of spousal
support or alimony to be paid by petitioner to his former
spouse during the year in issue.
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The $15,480 petitioner paid to his former spouse during
the year in issue constitutes child support; no portion of that
payment is allocable to alimony. Sec. 71(c). It follows that
petitioner is not entitled to an alimony deduction for 2002,
and respondent’s disallowance of that deduction is sustained.
2. Negligence Penalty
According to respondent, the underpayment of tax required
to be shown on petitioner’s 2002 return is due to negligence or
intentional disregard of rules or regulations. See sec.
6662(a), (b)(1), and (c). Respondent bears the burden of
production with respect to the imposition of the penalty. Sec.
7491(c).
In this case the “underpayment of tax” equals the
deficiency, which except for derivative computational
adjustments, results from the disallowance of the alimony
deduction discussed above. Secs. 6211, 6664(a); sec. 1.6664-
2(a), Income Tax Regs. Respondent argues that petitioner, by
deducting as alimony a portion of child support payments made
during the year in issue, was “negligent” within the meaning of
section 6662(a).
Because the parties are well-versed in the controlling
principles, we see little point in burdening this summary
opinion with a detailed discussion of negligence, as that term
is used in the Internal Revenue Code. Suffice it to note that
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some of the facts in this case support the imposition of the
penalty. For example, the February order refers only to child
support, and the above-quoted portion of the divorce decree
establishes that petitioner’s former spouse waived any right to
alimony or spousal support. We assume that petitioner was well
aware of this as the divorce decree expressly states that he
was advised by counsel during the divorce proceedings. Be that
as it may, he claimed an alimony deduction.
On the other hand, we do not view the deduction here in
dispute to be one that “would seem to a reasonable and prudent
person to be ‘too good to be true’ under the circumstances”.
Sec. 1.6662-3(b)(1)(ii), Income Tax Regs. Furthermore, other
than the nature of petitioner’s employment, the record contains
nothing about his “knowledge, experience and education”, sec.
1.6664-4(b), Income Tax Regs., that would have relevance to the
imposition of the penalty.
Similarly, the record fails to disclose how petitioner
treated support payments made in prior years on his Federal
income tax returns for those years. The absence of such
information, coupled with references to “child and spousal
support” (emphasis added) in the stipulation of facts and May
order, undermines respondent’s position that the imposition
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of the section 6662(a) negligence penalty is appropriate in
this case.
On balance, we find that petitioner is not liable for the
section 6662(a) penalty.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent with respect to
the deficiency and for petitioner
with respect to the section
6662(a) penalty.