T.C. Summary Opinion 2007-137
UNITED STATES TAX COURT
MICHELE K. GARNER AND ROGER ALLEN GARNER, JR., Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6291-06S. Filed August 6, 2007.
Michele K. Garner and Roger Allen Garner, Jr., pro sese.
Sara J. Barkley, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 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.
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2003.
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Respondent determined a deficiency in petitioners’ Federal
income tax for 2003 of $2,400 on the basis of the disallowance of
an alimony deduction for payments made to petitioner husband’s
ex-wife. The sole question presented in this case is whether
those payments met the definition of “alimony” under the Internal
Revenue Code. As we are required to hold that the payments at
issue were not alimony, we must sustain respondent’s
determination.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time the petition was filed, Michele K. Garner and
Roger Allen Garner, Jr. (Mr. Garner), jointly referred to herein
as petitioners, resided in Colorado. They moved there from
Georgia in 2004.
Mr. Garner and Lisa B. Garner (ex-wife) were married in
Georgia in December 1983. They were divorced there in November
2002. The section of the marital Settlement Agreement labeled
“ALIMONY” provides that Mr. Garner will pay his ex-wife “$800 per
month as alimony” for 10 years. That section of the Settlement
Agreement goes on to use the phrase “lump sum alimony” without
further explanation or qualification. The Settlement Agreement
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also provides for the division of real and marital property, as
well as child support and child custody.
Mr. Garner credibly testified that he did not have legal
representation through the completion of the divorce proceedings,
and that his ex-wife’s attorney assured him that his monthly
payments would be tax deductible. Petitioners also credibly
testified that, at the last minute, the ex-wife’s attorney added
the words “lump sum” into the final draft of the Settlement
Agreement; although suspicious of the change, petitioners could
not, without independent representation, foresee its impact.
Pursuant to the Settlement Agreement, Mr. Garner paid his
ex-wife $9,600 in 2003, and petitioners claimed a deduction in
that amount on their tax return.2 Respondent denied the
deduction and determined a deficiency of $2,400 on the ground
that the payments made in 2003 did not meet the definition of
alimony under the Internal Revenue Code.
2
The fact that this amount was paid through an Income
Deduction Order (wage garnishment) has no impact on the current
proceedings. We note, however, that there appears to be a
discrepancy between the number of payments required under the
terms of the Settlement Agreement and those being enforced via
the wage garnishment.
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Discussion3
Section 71(a) provides the general rule that alimony
payments are included in the gross income of the payee spouse;
section 215(a) provides the complementary general rule that
alimony payments are tax deductible by the payor spouse in “an
amount equal to the alimony or separate maintenance payments paid
during such individual’s taxable year.”
The term “alimony” means any alimony as defined in section
71, the relevant provision of which explains:
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--
(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 * * * 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
3
As the issue for decision is essentially legal in nature,
we decide the instant case without regard to the burden of proof.
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(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.
Both parties agree that Mr. Garner’s payments to his ex-wife
satisfied the requirements set out in section 71(b)(1)(A), (B),
and (C). The parties do not agree, however, whether the
requirement to make payments would have terminated in the event
of the ex-wife’s death. See sec. 71(b)(1)(D).
Although section 71(b)(1)(D) originally required that a
divorce or separation instrument affirmatively state that
liability for payments terminate upon the death of the payee
spouse in order for the payments to be considered alimony, the
statute was retroactively amended in 1986 so that such payments
now qualify as alimony as long as termination of such liability
would occur upon the death of the payee spouse by operation of
State law.4 Hoover v. Commissioner, 102 F.3d 842, 845-846 (6th
Cir. 1996), affg. T.C. Memo. 1995-183. If the payor is liable
for any qualifying payment after the recipient’s death, none of
the related payments required will be deductible as alimony by
the payor. See Kean v. Commissioner, 407 F.3d 186, 191 (3d Cir.
4
Other amendments to sec. 71 also removed rules applicable
to deducting payments when the period for payments is more than
10 years. See Deficit Reduction Act of 1984, Pub. L. 98-369 sec.
422(a), 98 Stat. 795.
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2005), affg. T.C. Memo. 2003-163. Here, as the Settlement
Agreement itself does not provide any conditions for the
termination of Mr. Garner’s payments to his ex-wife, we look to
Georgia State law to resolve the issue. Morgan v. Commissioner,
309 U.S. 78, 80-81 (1940); see also, e.g., Kean v. Commissioner,
supra; Sampson v. Commissioner, 81 T.C. 614, 618 (1983), affd.
without published opinion 829 F.2d 39 (6th Cir. 1987); Berry v.
Commissioner, T.C. Memo. 2000-373 (stating “[a]lthough Federal
law controls in determining [the taxpayer’s] income tax liability
* * *, State law is necessarily implicated in the inquiry
inasmuch as the nature of [the payor’s] liability for the
payment” was based in State law), affd. 36 Fed. Appx. 400 (10th
Cir. 2002).
Under Georgia law, alimony is defined as an allowance out of
one party’s estate, made for the support of the other party when
living separately. Ga. Code Ann. sec. 19-6-1(a) (LexisNexis
2004). It may be either temporary or permanent. Id. Permanent
alimony is further characterized as either “periodic” alimony or
“lump sum” alimony. Winokur v. Winokur, 365 S.E.2d 94, 95 (Ga.
1988). Lump sum alimony may be paid in installments. See id.
The difference between the two under Georgia law is that the
obligation to pay periodic alimony terminates at the death of
either party, yet the obligation to pay lump sum alimony in
installments over a period of time does not. Id.
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The Georgia Supreme Court has explained that the obligation
to pay lump sum alimony does not terminate upon the death of
either party because lump sum alimony is in the nature of a
property settlement, regardless of whether it is designated as
alimony. Id. The fact that there may be an actual property
settlement apart from any payments is irrelevant. See Hopkinson
v. Commissioner, T.C. Memo. 1999-154 (stating that the inquiry is
not whether the payments were alimony or a property settlement
based on the facts and circumstances of the case but only whether
the requirements of section 71 are met).
The Georgia Supreme Court has also established the following
test to be used in determining whether particular payments are
lump sum alimony payable in installments, as opposed to periodic
alimony: “If the words of the documents creating the obligation
state the exact amount of each payment and the exact number of
payments to be made without other limitations, conditions or
statements of intent, the obligation is one for lump sum alimony
payable in installments.” Winokur v. Winokur, supra at 96; see
also Hopkinson v. Commissioner, supra.
Unfortunately for petitioners, the combination of the ex-
wife’s attorney’s addition of the words “lump sum” and the fact
that the episodic payments are for an exact amount and for a
fixed period of time (i.e., $800 per month for 10 years) changed
the nature of the payments from periodic alimony to something
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entirely different: Lump sum alimony which is not, despite what
petitioners may have been assured, deductible from petitioners’
income as alimony. Thus, we hold that the $9,600 paid to Mr.
Garner’s ex-wife in 2003 pursuant to the Settlement Agreement
does not qualify to be deducted as alimony paid by petitioners
under section 215. Sec. 71(b)(1)(D); see Mukherjee v.
Commissioner, T.C. Memo. 2004-98.
Petitioners have asked us to reform the Settlement Agreement
to more properly reflect the Federal tax intentions of the
parties, particularly given the circumstances under which the
Settlement Agreement was entered into. As a court of limited
jurisdiction, we are unable to do so. See, e.g., Commissioner v.
McCoy, 484 U.S. 3, 7 (1987); Hays Corp. v. Commissioner, 40 T.C.
436, 442-443 (1963), affd. 331 F.2d 422 (7th Cir. 1964); see also
Woods v. Commissioner, 92 T.C. 776, 784-787 (1989); Hopkinson v.
Commissioner, supra. We do note, however, that the Georgia State
courts may have jurisdiction over changes to the Settlement
Agreement and would be the proper forum for such disputes.
In sum, we found petitioners to be very straightforward and
honest, as well as well prepared for trial. Unfortunately, the
Internal Revenue Code is very specific in its requirements, and
Mr. Garner’s payments to his ex-wife in 2003 did not meet the
requirement outlined in section 71(b)(1)(D) by virtue of Georgia
State law. Accordingly, we must hold that, in the instant case,
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Mr. Garner’s payments made to his ex-wife in 2003 did not satisfy
all of the conditions set forth in section 71 and are thus not
properly deductible as alimony for the taxable year in issue.
To reflect our disposition of the disputed issue,
Decision will be entered
for respondent.