T.C. Memo. 2008-239
UNITED STATES TAX COURT
JACK R. STEDMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10802-05. Filed October 27, 2008.
Jack R. Stedman, pro se.
Michael W. Bitner, for respondent.
MEMORANDUM OPINION
THORNTON, Judge: Respondent determined a $1,928 deficiency
in petitioner’s 2002 Federal income tax and a $386 accuracy-
related penalty under section 6662.1 The issues for decision
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as in effect for the taxable year at
issue.
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are: (1) Whether petitioner is entitled to deduct as alimony
court-ordered payments of attorney’s fees to his ex-wife; and (2)
whether petitioner is liable for the section 6662 accuracy-
related penalty.
Background
The parties have stipulated some facts, which are so found.
When he petitioned the Court, petitioner resided in Nebraska.
Petitioner is a retired postal inspector and certified
public accountant (C.P.A.). In 1980 petitioner and Ivadelle L.
Stedman divorced. There ensued protracted litigation between
them over her right to a portion of petitioner’s Civil Service
Retirement System (CSRS) benefits.
By finding of facts and order on attorney’s fees dated June
28, 1995, pursuant to Cal. Fam. Code sec. 2030 (West 1994), the
Superior Court of California, County of Santa Clara, ordered
petitioner to pay his former wife’s attorney $112,075,
representing $102,000 in fees and $10,075 in costs. By the
Superior Court’s amended order dated August 31, 1995, these
attorney’s fees and costs were to be paid in monthly installments
from petitioner’s CSRS benefits. For the year at issue, the
monthly installments were $1,000 per month. The U.S. Office of
Personnel Management (OPM) was ordered to make these payments
directly to petitioner’s former wife. The order and amended
order were silent as to whether the obligation to pay attorney’s
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fees and costs would terminate if she died before they were paid
in full.
On his 2002 Federal income tax return, petitioner claimed a
$12,000 deduction for alimony paid with respect to the award of
attorney’s fees and costs. Petitioner did not consult a tax
professional about this claimed deduction. In the notice of
deficiency, respondent disallowed the deduction and imposed an
accuracy-related penalty pursuant to section 6662(a) and (b)(1).
Discussion
Alimony Deduction
Section 215(a) allows a deduction for the payment of alimony
as defined in section 71(b), which provides:
(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 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
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a substitute for such payments after the
death of the payee spouse.
The parties agree that the requirements of subparagraphs
(A), (B), and (C) have been satisfied. They disagree solely
about whether the payments satisfy subparagraph (D); i.e.,
whether the obligation to pay the court-ordered attorney’s fees
and costs would have terminated in the event of the death of
petitioner’s former wife.
Under section 71(b)(1)(D), the payor must have no liability
to continue payments after the recipient’s death; otherwise the
payor may not deduct any required related payments. See Johanson
v. Commissioner, 541 F.3d 973, 976-977 (9th Cir. 2008), affg.
T.C. Memo. 2006-105; Kean v. Commissioner, 407 F.3d 186, 191 (3d
Cir. 2005), affg. T.C. Memo. 2003-163. If the divorce instrument
is silent as to the existence of a postdeath obligation, the
requirements of section 71(b)(1)(D) may still be satisfied if the
payments terminate upon the payee spouse’s death by operation of
State law. Johanson v. Commissioner, supra at 977. If State law
is ambiguous in this regard, however, a “‘federal court will not
engage in complex, subjective inquiries under state law; rather,
the court will read the divorce instrument and make its own
determination based on the language of the document.’” Id.
(quoting Hoover v. Commissioner, 102 F.3d 842, 846 (6th Cir.
1996), affg. T.C. Memo. 1995-183).
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Because the Superior Court order is silent as to whether the
obligation to pay attorney’s fees and costs to petitioner’s
former wife would terminate in the event of her death, we
consider whether California law provides a clear answer to this
question.
Petitioner was ordered to pay his former wife’s attorney’s
fees and costs pursuant to Cal. Fam. Code sec. 2030. That
provision authorizes a court in a marriage dissolution proceeding
to order one party to pay reasonably necessary attorney’s fees
and costs to the other party or to the other party’s attorney.
There is no provision in Cal. Fam. Code sec. 2030 terminating the
payor’s obligation upon the death or remarriage of the other
spouse. By contrast, with respect to court-ordered awards of
spousal “support” made pursuant to Cal. Fam. Code sec. 4337 (West
2004), the statute specifically provides that, unless the parties
to a marriage dissolution agree otherwise in writing, the payor’s
obligation “terminates upon the death of either party or the
remarriage of the other party.” Cal. Fam. Code sec. 4337.
Differentiating attorney’s fees from spousal support, one
California court has held that under the statutory predecessor to
Cal. Fam. Code sec. 2030, the remarriage of a former spouse does
not preclude her right to attorney’s fees in a postdissolution
proceeding. Newport v. Newport, 201 Cal. Rptr. 647, 648 (Ct.
App. 1984). Respondent contends that since remarriage does not
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terminate the right to attorney’s fees, neither would the death
of a former spouse. See Adamoli v. Drake, 62 Cal. Rptr. 2d 466
(Ct. App. 1997) (in a postdissolution proceeding involving a
former husband’s continuing obligation to support a disabled
child, the former wife’s cause of action for attorney’s fees
under Cal. Fam. Code sec. 2030 did not abate with her death); cf.
Johanson v. Commissioner, supra at 977 n.1 (following California
case law which holds that the death and remarriage provisions of
Cal. Fam. Code sec. 4337 should be interpreted “in a similar
fashion”).
We find respondent’s contentions persuasive. Indeed,
without expressly analyzing the particulars of California family
law, this Court has held that an award of attorney’s fees in a
California domestic relations proceeding survived the death of
the spouse to whom the fees were awarded. Ribera v.
Commissioner, T.C. Memo. 1997-38, affd. without published opinion
139 F.3d 907 (9th Cir. 1998); see also Berry v. Commissioner,
T.C. Memo. 2000-373 (under Oklahoma law, obligation to pay
attorney’s fees arising from a temporary order issued by the
divorce court pendente lite would not have terminated if the
payee spouse died before entry of a final decree), affd. 36 Fed.
Appx. 400 (10th Cir. 2002); Zinsmeister v. Commissioner, T.C.
Memo. 2000-364 (under Minnesota law, payment of attorney’s fee
award did not qualify as alimony where the payor’s obligation to
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pay survived the payee’s death), affd. 21 Fed. Appx. 529 (8th
Cir. 2001). But even if we were to conclude that California law
were unclear or ambiguous in this regard, it would not avail
petitioner, for then we would be required to make an independent
determination on the basis of the Superior Court orders as to
whether petitioner’s attorney’s fee obligation would end at the
death of his former wife. See Johanson v. Commissioner, supra at
977. Because the Superior Court orders are silent in this
regard, and because there is no other evidence to support a
contrary conclusion, we would still conclude that petitioner’s
obligation to make the payments in issue would not terminate upon
the death of his former spouse. Hence the payments do not
satisfy the requirements of section 71(b)(1)(D).
At trial and on brief petitioner has attacked the State
judgment awarding attorney’s fees and costs to his former wife.
He contends that the State court exceeded its authority in
ordering OPM to pay attorney’s fees and costs from his CSRS
benefits. There is no indication, however, that any State court
has overturned the judgments in question. Principles of
collateral estoppel and full faith and credit counsel that we
respect them. See Stark v. Commissioner, T.C. Memo. 2003-47;
Calhoun v. Commissioner, T.C. Memo. 1992-246, affd. without
published opinion 993 F.2d 1533 (2d Cir. 1993).
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Accuracy-Related Penalty
Section 6662(a) imposes a 20-percent penalty on any portion
of an underpayment that is attributable to, among other things,
negligence or disregard of rules or regulations. See sec.
6662(b)(1). For this purpose, negligence includes any failure to
make a reasonable attempt to comply with the tax code; the term
“disregard” includes “careless, reckless, or intentional
disregard.” Sec. 6662(c).
We find that petitioner’s understatement, resulting from his
improper attempt to deduct as alimony the court-ordered payments
of attorney’s fees, is attributable to negligence and disregard
of rules and regulations. Accordingly, respondent has carried
his burden of production under section 7491(c) with respect to
the accuracy-related penalty under section 6662(a).
The accuracy-related penalty does not apply with respect to
any portion of the underpayment if it is shown that the taxpayer
had reasonable cause and acted in good faith. Sec. 6664(c)(1).
Petitioner, a retired C.P.A., has offered no separate arguments
in this regard. He professes to be familiar with the provisions
of the Internal Revenue Code. He did not consult a professional
tax adviser in preparing his 2002 Federal income tax return.
Particularly in the light of his experience and professed
knowledge, we conclude that petitioner has not shown that he had
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reasonable cause or acted in good faith with respect to the
disallowed alimony deduction.
To reflect the foregoing,
Decision will be entered
for respondent.