T.C. Memo. 2006-116
UNITED STATES TAX COURT
WILLIAM E. JOHNSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20357-04. Filed June 6, 2006.
William E. Johnson, pro se.
Mary A. Waters, for respondent.
MEMORANDUM OPINION
WELLS, Judge: Respondent determined a $1,110 deficiency in
income tax for petitioner’s taxable year 2002. The issue we must
decide is whether certain expenses claimed by petitioner are
deductible as alimony under sections 71 and 215. Unless
otherwise indicated, all section references are to the Internal
Revenue Code, as amended.
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Background
At the time of filing the petition in the instant case,
petitioner resided in Chesapeake, Virginia. Petitioner and his
former spouse were under an order pendente lite of the Circuit
Court of the City of Chesapeake, Virginia (divorce court), from
February 2, 2000, until the final divorce decree was issued on
March 22, 2002. The order pendente lite provided, inter alia, as
follows:
2. That William Edmund Johnson, the defendant,
[petitioner] shall pay the sum of $250.00 to the
plaintiff [his former spouse], commencing February 1,
2000, and continuing in a like sum on the first and
fifteenth of each month thereafter, as temporary child
support, the total sum being $500.00 per month.
* * * * * * *
4. That the defendant shall have exclusive possession
of the marital premises * * * during the pendency of
this cause and the defendant shall be responsible for
all mortgage payments due on said premises during the
pendency of this cause.
5. That plaintiff and defendant be and each hereby are
restrained from selling, conveying, transferring,
mortgaging or otherwise disposing of any of their
property without further order of this Court in order
that said property may be forthcoming to meet any
decree which the court may enter herein.
The order pendente lite further ordered: “Temporary spousal
support is reserved”, and that “Defendant shall continue existing
medical insurance coverage.”
Pursuant to a divorce decree entered March 22, 2002 (divorce
decree), petitioner was ordered to pay $360 per month in child
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support and to maintain medical insurance for the minor children.
The divorce decree did not order petitioner to maintain medical
insurance for his former spouse. Pursuant to Virginia law, the
divorce decree designated the marital residence, petitioner’s
Thrift Savings Plan, valued at $63,445.46,1 and petitioner’s
Civil Service Retirement Plan as marital property and granted
petitioner’s former spouse a 50-percent interest in the marital
property.
The divorce decree further ordered that $31,722.73 was to be
transferred immediately from petitioner’s Thrift Savings Plan
into the sole name of petitioner’s former spouse. Regarding
petitioner’s Civil Service Retirement Plan, the divorce decree
ordered the following:
7. The plaintiff is hereby awarded fifty percent of the
marital share of the defendant’s [petitioner’s] pension
acquired through his employment with the United States
Government, Civil Service, Department of the Navy. The
plaintiff [sic] share of retirement shall be calculated
using a fraction where the numerator shall be 22.5,
representing the number of years of the marriage, and
the denominator shall be the total number of years
during which creditable retirement benefits were
acquired by the defendant, times fifty percent.
Petitioner timely filed a tax return for his taxable year
2002, characterizing on that return $6,724 as deductible alimony
1
The Thrift Savings Plan had a gross value of $88,487.21,
less $10,902.22 (borrowed from the plan to pay off the mortgage
on the marital residence), less $14,139.53 (borrowed from the
plan to pay off the mortgage on other marital property), for a
net value of $63,445.46.
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expenses. In a letter dated January 30, 2004, respondent
informed petitioner that respondent was examining petitioner’s
2002 tax return and requested that petitioner provide additional
documentation to support the claimed $6,724 alimony deduction.
During February 2004, petitioner sent respondent a letter in
which he stated that the following payments were deductible
alimony expenses:
Payment to Amount
Thrift Savings Plan $3,868.42
Government Pension Plan $1,977.93
Medical Insurance $933.53
Homeowner’s Insurance $344.00
$7,123.881
1
We note that this amount is greater than the
$6,724 deduction claimed by petitioner on his 2002
tax return. This inconsistency is of no consequence
because we find, for reasons stated below, that
petitioner is not entitled to deduct any of the
claimed expenses as alimony.
On August 6, 2004, respondent sent petitioner a notice of
deficiency disallowing petitioner’s $6,724 alimony deduction,
resulting in a $1,110 deficiency for taxable year 2002.
Respondent did not determine any additions to tax or penalties.
Petitioner timely petitioned this Court.
Discussion
Whether a payment is characterized as a property settlement
or alimony determines whether such payment is deductible by the
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payor spouse. Payments representing a division of marital
property are not deductible by the payor spouse and are not
includable in income by the payee spouse. See sec. 1041. On the
other hand, individuals are allowed a deduction equal to alimony
or separate maintenance payments made during the taxable year.
Sec. 215(a). Alimony or separate maintenance payments are
defined in section 71(b) and must be included in the gross income
of the recipient under section 71. Sec. 215(b). An alimony or
separate maintenance payment is any payment in cash if: (a) Such
payment is received by, or on behalf of, a former spouse under a
divorce or separation instrument;2 (b) the divorce or separation
instrument does not state that the payment is not includable in
income under section 71 and not allowable as a deduction under
section 215; (c) the payee and payor spouses are not members of
the same household at the time of the payment; and (d) there is
no liability to make any such payments 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. Sec. 71(b)(1)(A)-(D). The test under
section 71(b)(1) is conjunctive; a payment is deductible as
2
A divorce or separation instrument means: (a) A decree of
divorce or separate maintenance or any written instrument
incident to such decree, (b) a written separation agreement, or
(c) a decree (not described in (a)) requiring a spouse to make
payments for the support or maintenance of the other spouse.
Sec. 71(b)(2)(A)-(C).
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alimony only if all four requirements of section 71(b)(1) are
present. See Jaffe v. Commissioner, T.C. Memo. 1999-196.
Payments not made under a divorce or separation instrument may
not be deducted by the payor spouse. See Taylor v. Commissioner,
55 T.C. 1134, 1138 (1971). We decide the instant case on the
record without regard to the burden of proof or section 7491.
Petitioner contends that his payments to his thrift savings
plan are deductible for the following reasons:
From the divorce instrument, the Thrift Savings Plan
(TSP) portion of petitioner’s retirement was composed
of a deferred compensation of $88,487.21 with a loan
payoff debt of $25,041.75. The court allotted fifty
percent interest [sic] in the deferred compensation
plan to spouse/former spouse. Clearly this represents
$44,243.60 of deferred compensation with $12,520.88 of
loan payoff debt that are spouse/former spouse’s
interest.
* * * * * *
When deferred compensation is withdrawn from a deferred
compensation plan it is taxable income in the year it
is withdrawn. * * * $44,243.60 being deferred
compensation, when withdrawn must be reported on former
spouse’s tax return. $12,520.88 going to pay a loan
would be considered a withdrawal of deferred
compensation for income tax purposes. The divorce
instrument does direct petitioner to pay off the loan
portion. The petitioner is the only person eligible to
payoff the debt according to TSP rules. Therefore
transfer of the former spouse’s portion of the loan is
only accomplished through payments of the petitioner.
The former spouse’s debt is being paid off and these
payments are a form of income to the former spouse.
I.R.C. Section 71(b)(1) provides that “the term
‘alimony or separate maintenance payment’ means ‘any
payment’ in cash if such payment is received by (or on
behalf of) a spouse under a divorce or separation
instrument.” Were it not for the divorce instrument
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this circumstance would not occur. Note that I.R.C.
Section 71(b)(1) provides nowhere therein that the
payment actually be “required.”
We understand petitioner to be contending that, even though the
divorce court designated petitioner’s Thrift Savings Plan as
marital property and awarded petitioner’s former spouse a 50-
percent interest in the Thrift Savings Plan, petitioner is the
only person who can pay off a loan against the plan pursuant to
the Thrift Savings Plan rules,3 and therefore, because petitioner
is paying off his former spouse’s 50-percent interest in the loan
against the Thrift Savings Plan, that payment is deductible
alimony.
Respondent contends that the interest in the Thrift Savings
Plan allotted to petitioner’s former spouse is merely a property
settlement, not deductible alimony. We agree with respondent.
The divorce decree stated that the Thrift Savings Plan was
marital property and granted petitioner’s former spouse a 50-
percent interest. By repaying the loan, petitioner does not make
alimony payments. Petitioner’s former spouse received her share
of the Thrift Savings Plan through an outright transfer. What
remains in the plan is petitioner’s and is burdened with the
whole of the outstanding loans. As petitioner pays down these
loans the net value of his share increases and inures to his
3
Contrary to petitioner’s assertions, we found no specific
order in the divorce decree directing petitioner to pay off the
loan against the Thrift Savings Plan.
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benefit, not his former spouse’s. Accordingly, we hold that
petitioner’s payments to his Thrift Savings Plan are not
deductible alimony.
Similarly, petitioner contends that his contributions to his
retirement plan are deductible alimony payments. Petitioner
contends that, because he must contribute to his retirement plan,
and because creditable benefits continue to accrue after the
marriage, he essentially is being forced to make alimony
payments. Petitioner further contends that the formula set forth
in the divorce decree is incorrect because it does not fix the
number of years of creditable benefits and that wages are not
property. Respondent argues that the interest in the retirement
plan allotted to petitioner’s former spouse is part of the
property settlement. We agree with respondent.
Petitioner fails to understand the function of the formula
set forth in the divorce decree. The divorce decree provides as
follows:
The plaintiff [sic] share of retirement shall be
calculated using a fraction where the numerator shall
be 22.5, representing the number of years of the
marriage, and the denominator shall be the total number
of years during which creditable retirement benefits
were acquired by the defendant, times fifty percent.
The total number of years of creditable benefits (years of
service) does not have to be fixed; that is the purpose of
numerator, 22.5 years, the duration of the marriage. The
numerator in the equation limits the percentage of the funds to
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be paid to petitioner’s former spouse when distributions are made
from the plan in the future. The formula merely fixes the share
of retirement funds that is to be allotted to petitioner’s former
spouse. Accordingly, we hold that petitioner’s contributions to
his Government retirement plan are not deductible alimony
payments.
Additionally, petitioner contends that he may deduct medical
insurance payments because the order pendente lite directed him
to maintain medical coverage which was in effect during the
entire taxable year 2002. Petitioner contends that he elected
his coverage during the open enrollment period at the end of 2001
and that his election was effective for 2002. At trial,
petitioner testified as follows regarding the manner in which he
calculated the amount of the deduction for medical insurance:
When I determined my taxes I went ahead and put in half
of what I paid for medical insurance because I figured
I am half, she’s half. She also had custody of the
children, so I looked at that as making the difference
between family plan and single plan would have given me
a bigger value, but at the time I didn’t pay attention
to the difference. I just took half, prorated it for
the year. I put that in as alimony per the example in
the IRS publication. I was under court order to
provide the insurance.
Respondent contends that, while the order pendente lite
ordered petitioner to maintain existing medical coverage, the
order was superseded by the March 22, 2002, divorce decree which
ordered petitioner to maintain medical insurance for the minor
children but did not mention petitioner’s former spouse.
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Respondent further contends that petitioner could have purchased
separate insurance for the children without violating the divorce
decree and that it was petitioner’s voluntary decision to
continue existing coverage which included his former spouse.
We believe petitioner’s testimony that he could not change
his insurance coverage after he elected his 2002 plan during the
open enrollment period in late 2001. The fact that he could not
elect another plan, however, does not mean half of all the
medical insurance payments made by petitioner during taxable year
2002 is deductible alimony. There still must be an order
directing petitioner to make the payments. See Taylor v.
Commissioner, supra at 1138 (stating alimony is confined to
situations where there is a written agreement or court decree
requiring certain payments to be made). The February 2, 2000,
order pendente lite provided that the “Defendant shall continue
existing medical insurance coverage.” The March 20, 2002,
divorce decree stated: “This decree supplants the provisions of
all prior decrees or orders entered in this cause, and all
obligations imposed thereby which are still executory are hereby
discharged”. The divorce decree did not order petitioner to
maintain medical insurance for his former spouse. The divorce
decree only stated: “Defendant shall maintain medical insurance
for the use and benefit of the minor children of the parties.”
Accordingly, petitioner would be entitled to a deduction for only
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medical insurance payments covering his former spouse made during
the first 3 months of taxable year 2002; i.e., the period covered
by the order pendente lite. Although we conclude that petitioner
would be entitled to deduct a portion of his medical insurance
payments made during the first 3 months of taxable year 2002 as
alimony, petitioner did not produce any documentary evidence
substantiating the amounts paid for his former spouse’s medical
insurance. Petitioner’s testimony at trial regarding how he
calculated his deduction for medical insurance was a rough
estimate of what petitioner believed his deduction should be.
Petitioner, however, did not substantiate the payments made on
behalf of his former spouse. Accordingly, we hold that
petitioner may not deduct the amounts he claimed for his former
spouse’s medical insurance.
Petitioner contends that he may deduct the homeowner’s
insurance payments because, under the order pendente lite, he was
obligated to make all mortgage payments on the marital home that
petitioner and his former spouse were each restrained from
selling, conveying, mortgaging, or otherwise disposing of so that
the property would be available to satisfy any decree the divorce
court might later enter. In essence, petitioner argues that the
order pendente lite’s direction not to sell, mortgage, or dispose
of any marital property is tantamount to an order to insure the
marital home so that the home would remain available to satisfy
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any later divorce decree. Respondent contends that the language
in the order pendente lite is not an express directive to make
homeowner’s insurance payments. We agree with respondent.
A taxpayer may not deduct specific payments as alimony
absent a divorce or separation instrument requiring such
payments. See Taylor v. Commissioner, supra at 1138.4
Petitioner invites us to read a command into the order pendente
lite that is not contained in the order. While we agree that a
prudent homeowner might purchase insurance to protect his
residence, that does not automatically qualify the homeowner’s
insurance payments as deductible alimony expenses. Because the
order pendente lite did not expressly direct petitioner to make
homeowner’s insurance payments, we hold that petitioner may not
deduct the payments as alimony.
Based on the foregoing, we hold that petitioner’s payments
to his Thrift Savings Plan, retirement plan, medical insurance
carrier, and homeowner’s insurance carrier were not deductible
alimony expenses for taxable year 2002. We have considered all
4
We note that the regulations permit cash payments to a
third party on behalf of the other spouse to qualify as alimony,
provided such payments are “under the terms of the divorce or
separation instrument”. Sec. 1.71-1T(b), Q&A-6, Temporary Income
Tax Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984).
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of petitioner’s contentions. To the extent not addressed herein,
those contentions are without merit or unnecessary to reach.
To reflect the foregoing,
Decision will be entered
for respondent.