T.C. Memo. 2007-180
UNITED STATES TAX COURT
TONI L. SARCHETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11785-06. Filed July 9, 2007.
Toni L. Sarchett, pro se.
Carolyn A. Schenck, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined a deficiency of $69,390
in petitioner’s Federal income taxes for 2004. After a
concession by respondent, the issue for decision is whether
petitioner is entitled to deduct, as alimony under section 215,
$200,000 in payments made to her former spouse. Unless otherwise
- 2 -
indicated, all section references are to the Internal Revenue
Code in effect for the year in issue.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in California at the time that she filed her
petition. Petitioner was previously married to Jon Sarchett (her
former spouse). The marriage of petitioner and her former spouse
was dissolved through proceedings commenced in the Los Angeles
County Superior Court in 2001 and concluded in 2004. Attached to
and made part of the judgment of dissolution of the marriage was
the agreement between petitioner and her former spouse, each
represented by attorneys, as to spousal support and property
division. Section I of the agreement provided for the division
of community property. After listing specifically property
awarded to petitioner or to her former spouse, the agreement
provided:
II. EQUALIZATION PAYMENT
A. In order to equalize the division of the
parties community property and debts, * * * [Toni
Sarchett] shall pay to * * * [Jon Sarchett] the sum of
two hundred twenty-five thousand * * * dollars. Said
sum shall be paid to * * * [Jon Sarchett] as set forth
in the following schedule:
1. * * * [Toni Sarchett] shall pay to * * *
[Jon Sarchett] the sum of one hundred twenty-five
thousand * * * dollars on or before May 10, 2004;
- 3 -
2. * * * [Toni Sarchett] shall pay to * * *
[Jon Sarchett] the sum of twenty-five thousand * * *
dollars on or before June 30, 2004;
3. * * * [Toni Sarchett] shall pay to * * *
[Jon Sarchett] the sum of twenty-five thousand * * *
dollars on or before September 30, 2004;
4. * * * [Toni Sarchett] shall pay to * * *
[Jon Sarchett] the sum of twenty-five thousand * * *
dollars on or before December 31, 2004; and
5. * * * [Toni Sarchett] shall pay to * * *
[Jon Sarchett] the sum of twenty-five thousand * * *
dollars on or before March 31, 2005.
In a separate section dealing with spousal support, petitioner
was ordered to pay to her former husband the sum of $4,000 per
month “continuing until death of either party, remarriage of the
supported party, or further order of Court.” Payment of the
spousal support was to be suspended “for so long as * * * [Toni
Sarchett] is in full compliance with the equalization payment
schedule set forth above in paragraph II.” The agreement further
provided that, in the event of default in any of the equalization
payments, the spousal support arrears would become due and
payable from April 1, 2004, through the date of default, and the
monthly spousal support payments would be reinstated and continue
until the death of either party, remarriage of Jon Sarchett, or
further order of Court.
During 2004, petitioner made spousal support payments to her
former spouse totaling $18,000. Petitioner also made four
equalization payments totaling $200,000, consisting of four
- 4 -
payments consistent with section II of the agreement quoted
above.
On Form 1040, U.S. Individual Income Tax Return, for 2004,
petitioner claimed a deduction for “alimony paid” in the total
amount of $218,000. Of that amount, $200,000 remains in dispute.
OPINION
Section 215(a) provides a deduction to an individual equal
to the alimony or separate maintenance payments paid during that
individual’s taxable year. Section 215(b) defines alimony as any
payment that is includable in the gross income of the payee under
section 71. Section 71(a) provides for the inclusion in income
of any alimony or separate maintenance payments received during
the taxable year. Section 71(b)(1) defines “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,
(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.
- 5 -
Under section 71(b)(1)(D), if the payor is liable for any
payment after the recipient’s death, none of the payments
required will be deductible as alimony by the payor. See Kean v.
Commissioner, 407 F.3d 186, 191 (3d Cir. 2005), affg. T.C. Memo.
2003-163. Whether a postdeath obligation exists may be
determined by the terms of the divorce or separation instrument
or, if the instrument is silent on the matter, by State law.
Morgan v. Commissioner, 309 U.S. 78, 80-81 (1940); see also Kean
v. Commissioner, supra.
Respondent argues that the payments comprising the $200,000
in dispute are clearly part of a division of property under the
settlement agreement. Petitioner relies on cases holding that
the characterization of payments in a decree as alimony or
property settlement is not controlling. See, e.g., Baker v.
Commissioner, T.C. Memo. 2000-164. She correctly states a
general rule, but the general rule does not aid her case.
Whether the payments satisfy section 71 and, in this case,
particularly section 71(b)(1)(D) is controlling. See, e.g.,
Johanson v. Commissioner, T.C. Memo. 2006-105; Berry v.
Commissioner, T.C. Memo. 2005-91.
In this case, the settlement agreement requires petitioner
to make the equalization payments until a fixed amount, $225,000,
is paid. In contrast to the spousal support awarded in the
agreement, the obligation to make the equalization payments would
- 6 -
continue without regard to the death of petitioner’s former
spouse. Thus the payments are not deductible as alimony.
Petitioner argues that the payments would terminate on death
under State law because they are alimony. There is no persuasive
evidence that the payments were alimony, however. The evidence
is to the contrary, and there is no need to resort to State law
to determine the character of the payments.
We have considered the other arguments of the parties, and
they are irrelevant to our decision. To reflect respondent’s
concession,
Decision will be entered
under Rule 155.