T.C. Summary Opinion 2007-97
UNITED STATES TAX COURT
RAYMOND AND CYNTHIA DALEY ZAKRZEWSKI, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9623-05S. Filed June 18, 2007.
Raymond and Cynthia Daley Zakrzewski, pro sese.
Julie A. Jebe, for respondent.
GOLDBERG, 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. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
section references are to the Internal Revenue Code in effect for
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the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Respondent determined a $4,224 deficiency in petitioners’
2002 Federal income tax. The sole issue before the Court is
whether petitioners are entitled to an alimony deduction for
amounts they paid in the year in issue.
Background
Some of the facts are stipulated and so found. At the time
the petition in this case was filed, petitioners resided in
Elmhurst, Illinois.
Raymond Zakrzewski (petitioner) and his ex-wife, Pamela
Zakrzewski (Ms. Zakrzewski), were married in 1975. Although the
record is silent as to when the couple separated, it is known
that they did physically separate and remained separated for at
least 2 years before petitioner initiated divorce proceedings
against Ms. Zakrzewski sometime in 1995. On December 14, 1995,
the Circuit Court of Cook County, Illinois, Domestic Relations
Division (circuit court) entered a judgment for dissolution of
marriage between petitioner and Ms. Zakrzewski.
The judgment provides, in pertinent part, the following:
ARTICLE V.
MAINTENANCE
1. The Husband shall pay to the Wife the sum of
$300.00 per month in maintenance based on an approximate
$3,100.00 net take home pay. Said sum shall be paid until
the end of March 2000.
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2. Said maintenance payments shall be includable in
the gross income of Wife and deductible from the gross
income of Husband for Federal and State income tax purposes,
within the meaning and intendment of the provisions of
Section 71 and 215 of the United States Internal Revenue
Code of 1954, as amended, or of any identical or comparable
provision of any revenue code or amendment thereto which may
be hereinafter enacted.
3. So long as Wife is receiving maintenance payments
from Husband, she shall be entitled to claim TRACY LYNN as a
dependency exemption on her Federal and State income tax
returns.
ARTICLE VI.
LUMP SUM SETTLEMENT OF PROPERTY RIGHTS
A. At the end of the sixth year from the date of this
Judgment, and in full settlement of all claims to property
and maintenance, Husband shall pay to Wife the sum of
$30,000.00 in cash.
B. Husband shall pay to wife one-half of any Christmas
bonus received for ten years from the date of this Judgment
while he is an employee of UPS as a lump sum settlement of
property rights and not as maintenance and further
consideration for covenants herein contained.
* * * * * * *
ARTICLE XIV.
GENERAL PROVISIONS
* * * * * * *
C. BINDING ON HEIRS
1. All of the provisions of this Agreement shall be
binding upon the respective heirs, next-of-kin, executors,
assigns and administrators of the parties hereto.
D. ILLINOIS LAW TO APPLY
2. This Agreement shall be construed in accordance
with the laws of the State of Illinois, entirely independent
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of the forum in which this Agreement or any part thereof may
come up for construction and/or enforcement.
Petitioners drafted two checks payable to Ms. Zakrzewski
during taxable year 2002. The first check (No. 1964), in the
amount of $13,579.91, was dated January 15, 2002. The memo line
of this check reads: “property settlement.” This check was
deposited by Ms. Zakrzewski on February 4, 2002. The second
check (No. 2101), in the amount of $693, was dated June 19, 2002.
The memo line of this check reads: “CHRISTMAS - BONUS; final
settlement payment.” This check was deposited by Ms. Zakrzewski
on August 6, 2002. A third check (No. 1963), in the amount of
$2,500, was dated January 30, 2002. This check was made payable
to a law firm (“Sotiras & Mannix”). The memo line of this check
reads: “retainer.”
On January 17, 2002, Ms. Zakrzewski initiated postmarital
decree proceedings against petitioner by filing a Petition For
Rule To Show Cause And Other Relief. He responded with a Motion
to Dismiss on February 5, 2002. Petitioner then filed a Petition
to Enforce Settlement, Or Alternatively, To Set Hearing Date On
Previously Filed Motion To Dismiss, For Declaratory Judgment And
Other Relief, on November 22, 2002. Before these pleadings were
resolved, but after the close of the 2002 taxable year, the
formerly married couple entered into a Settlement Agreement on
March 17, 2003.
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On line 33(a) of their Federal income tax return,
petitioners claimed a deduction for alimony paid in the amount of
$16,773. In the notice of deficiency, respondent disallowed the
alimony deduction because petitioners did not prove either that
this amount was for alimony or that it was actually paid.
Discussion
The Commissioner’s determinations are presumed correct, and
taxpayers generally bear the burden of proving otherwise. Welch
v. Helvering, 290 U.S. 111, 115 (1933). Petitioners did not
argue that section 7491 is applicable in this case, nor did they
establish that the burden of proof should shift to respondent.
Moreover, the issue involved in this case, alimony, is a legal
one and will be decided on the record without regard to the
burden of proof. Petitioners, however, bear the burden of
proving that respondent’s determination in the notice of
deficiency is erroneous. See Rule 142(a); Welch v. Helvering,
supra at 115.
Taxpayers may deduct from their gross income payments made
during a taxable year for alimony or separate maintenance. Sec.
215(a).
Section 71(b)(1) defines an “alimony or separate maintenance
payment” as any payment in cash if:
(A) such payment is received by (or on behalf of)
a spouse under a divorce or separation instrument,
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(B) the divorce or separation instrument does not
designate such payment as a payment which is not
includable 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.
The test under section 71(b)(1) is conjunctive; a payment is
deductible as alimony only if all four requirements of section
71(b)(1) are present. See Jaffe v. Commissioner, T.C. Memo.
1999-196.
Characterization of 2002 Payments
Petitioners argue that they are entitled to deduct $16,773
from their 2002 gross income pursuant to section 71(b)(1) as
alimony paid to Ms. Zakrzewski. They claim that they have
substantiated payments through the three checks received into
evidence. Respondent disagrees and contends that the payments
made by petitioners to Ms. Zakrzewski in 2002 do not qualify as
alimony under section 71(b). Respondent argues that the payments
previously discussed were made pursuant to a divorce instrument
that did not explicitly designate the payments as not allowable
as an alimony deduction in compliance with section 71(b)(1)(A)
and (B). Respondent also maintains that the two checks at issue
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were made pursuant to a lump-sum settlement agreement wherein the
liability of the payor spouse to make such payments would extend
to the payee’s estate had the payee spouse died before such
payments were due. For the foregoing reasons, we agree with
respondent.
Check No. 1964, in the amount of $13,579.91, and check No.
2101, in the amount of $693, were paid by petitioners pursuant to
“Article VI, Lump Sum Settlement of Property Rights, section A”,
of the marital settlement agreement between Mr. Zakrzewski and
Ms. Zakrzewski. At trial, petitioners and, in particular,
petitioner wife, fervently argued that this Court should hold the
payments petitioners made to Ms. Zakrzewski in 2002 to be alimony
since a settlement agreement entered into between petitioner and
Ms. Zakrzewski on March 13, 2003, “dismissed with prejudice the
marital settlement agreement of 1995, [and also] it invalidates
the clause that any payments would be binding on the heirs.” We
note, however, that the payments at issue were made in taxable
year 2002. The payments were made before the 2003 settlement
agreement was reached. There is nothing in the 2003 settlement
agreement or, more importantly, the law, which permits us to
apply the terms of the 2003 settlement agreement retroactively to
characterize these payments petitioners made to Ms. Zakrzewski in
2002. Gordon v. Commissioner, 70 T.C. 525, 531 (1978).
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Accordingly, it is the marital settlement agreement of 1995 that
we look to as the sole, operative document at issue in this case.
First, we note that the payments at issue were not included
in “Article V, Maintenance,” which expressly provided that the
payments were allowed as an alimony deduction in accordance with
section 71(b)(1)(A) and (B). Rather, these payments were made
pursuant to a provision of the marital settlement agreement
segregated from those payments that were clearly indicated as
alimony. Second, “Article XIV, General Provisions, section C,
provides that “All of the provisions of this Agreement shall be
binding upon the respective heirs, next-of-kin, executors,
assigns and administrators hereto.” This conflicts directly with
section 71(b)(1)(D), and therefore, leads us to the holding that
these payments are not deductible by petitioners as alimony or
separate maintenance.
Petitioners next argue that the terms of the marital
settlement agreement should not be construed in accordance with
Illinois law, and that we should look only to the parties’
intent, which would undoubtedly then lead us to the holding that
these payments were, in fact, alimony or separate maintenance
because petitioners intended them to be for that purpose. As
evidence of this intent, petitioners testified that had they
known that they would not be entitled to deduct the payments from
their gross income, they would not have made them.
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First, “Article XIV, General Provisions, Section D”
unequivocally applies Illinois law irrespective of the fact that
the case is before this Court. Second, we note that under
section 504(a) of the Illinois Marriage and Dissolution of
Marriage Act, the court may grant maintenance payments (alimony)
only if it finds that the spouse seeking maintenance lacks
sufficient property to provide for her reasonable needs and is
unable to support herself otherwise. 750 Ill. Comp. Stat. Ann.
5/504(a) (West 1999); see also In re Marriage of Lees, 587 N.E.2d
17, 20 (Ill. App. Ct. 1992). In this case, there was no evidence
presented that the circuit court made such a finding with respect
to the payments defined in “Article VI.”
Lastly, and with respect to petitioners’ argument that we
should disregard the language of the operative marital settlement
agreement and Illinois law in favor of their intent that the
payments at issue be alimony or maintenance of the type for which
a deduction under section 71 applies, petitioners provided no
factually credible evidence to support that these payments were
nothing more than their attempt to comport with Mr. Zakrzewski’s
legal obligations then-existing under the terms of the marital
settlement agreement. As previously stated, we believe that the
payments under the marital settlement agreement do not comport
with the requirements of section 71(b)(1).
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With regard to the third check, No. 1963, payable to the law
firm of Sotiras & Mannix, the memo line of this check reads:
“retainer.” This check was drafted and deposited only 2 weeks
after Ms. Zakrzewski initiated postdecree proceedings against
petitioner. We believe, given that petitioner was obligated,
pursuant to the operative settlement agreement, to make a cash
payment of $30,000 to Ms. Zakrzewski no later than December 31,
2001, and that he made a payment of only $13,579.91 to Ms.
Zakrzewski 2 weeks after that deadline, that this check
represents his personal outlay to retain counsel in defense of
Ms. Zakrzewski’s subsequent suit against him. There is nothing
in the record to suggest that this amount was ever sent to Ms.
Zakrzewski, let alone for her support. There is nothing in the
record, or, moreover the law, that allows us to entertain the
possibility that the cash paid by petitioners in their retention
of legal counsel might be construed as an alimony payment to Ms.
Zakrzewski.
Accordingly, and based on the foregoing facts and
discussion, we hold that the disputed payments made by
petitioners in 2002 were not alimony pursuant to section 71.
Decision will be entered
for respondent.