T.C. Summary Opinion 2009-24
UNITED STATES TAX COURT
SARA LYNN WILLIAMSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 148-08S. Filed February 23, 2009.
Sara Lynn Williamson, pro se.
Deborah K. McKay, 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
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2005,
the taxable year at issue. All monetary amounts are rounded to
the nearest dollar.
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other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a deficiency of $6,025 in petitioner’s
Federal income tax for 2005. The sole issue for decision is
whether the payment petitioner made to her ex-husband in 2005 met
the definition of “alimony” under the Internal Revenue Code.
Because we hold that the payment was not alimony, we 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, petitioner resided in
the State of Illinois.
The marriage between petitioner and her ex-husband was
dissolved in 2005 pursuant to a Dissolution of Marriage
incorporating a Marital Settlement Agreement (MSA).
The MSA’s Article VI, Maintenance, explained very simply and
very clearly that petitioner and her ex-husband each waived
maintenance from the other.
The MSA’s Article VII, Property Settlement, provided for a
property settlement regarding, among other things, the marital
residence. According to the MSA, petitioner was to refinance the
property, pay off its outstanding mortgages (as well as one-half
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of the outstanding marital debts), and split any remaining
proceeds with her ex-husband. Petitioner explained at trial that
she paid her ex-husband $26,181 in order to extinguish his
interest in the property.
Petitioner deducted $26,181 as alimony on her 2005 Federal
income tax return.
Respondent disallowed the claimed deduction because the
payment did not constitute alimony under section 71. Mechanical
adjustments to petitioner’s Federal income tax followed, and
respondent determined a deficiency of $6,025.
Discussion2
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 amount received as alimony or
separate maintenance payments 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--
2
The issue for decision is essentially legal in nature;
accordingly, we decide it without regard to the burden of proof.
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(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
(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.
Aside from the fact that petitioner and her ex-husband each
expressly waived their right to maintenance from the other,
payments are deductible as alimony only if all four requirements
of section 71(b)(1) are met. Both parties agree that
petitioner’s payment to her ex-husband satisfied the requirements
set out in section 71(b)(1)(A), (B), and (C). The parties
disagree, however, whether the requirement to make the payment
would have terminated in the event of petitioner’s ex-husband’s
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death. See sec. 71(b)(1)(D). Because it is clear that
petitioner’s payment to her ex-husband would have been required
even in the event of his death, we agree with respondent that the
payment was not alimony.
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 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.
Hoover v. Commissioner, 102 F.3d 842, 845-846 (6th Cir. 1996),
affg. T.C. Memo. 1995-183. Accordingly, we look to Illinois
State law to resolve the issue. Morgan v. Commissioner, 309 U.S.
78, 80-81 (1940); see also, e.g., Kean v. Commissioner, 407 F.3d
186, 191 (3d Cir. 2005), affg. T.C. Memo. 2003-163; 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 that “Although 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
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State law), affd. 36 Fed. Appx. 400 (10th Cir. 2002).
Interpreting a marital settlement agreement based in
Illinois law is a matter of contract construction; unless the
agreement is incomplete or ambiguous, the language of the
agreement itself controls. See, e.g., Michaelson v. Michaelson,
834 N.E. 2d 539, 543-544 (Ill. App. Ct. 2005); Dundas v. Dundas,
823 N.E. 2d 239, 241 (Ill. App. Ct. 2005). Here, the relevant
provision of the MSA pursuant to which petitioner paid her ex-
husband was Article VII, Property Settlement. Petitioner’s
testimony at trial confirmed that the payment was made to
compensate him for his interest in the former marital residence.
There is absolutely no ambiguity here, and property settlements
are not “alimony”. See, e.g., Riley v. Commissioner, 649 F.2d
768 (10th Cir. 1981), affg. T.C. Memo. 1979-237.
Further, the MSA’s article XIV explains that the heirs and
assigns of each party are designated to take any necessary steps
to effect its provisions, making it clear that, at the very
least, the property settlement provisions were intended to
survive the death of either petitioner or her ex-husband.
Because the property settlement was intended to survive the death
of petitioner’s ex-husband, the payment made pursuant to it could
not have been alimony under section 71(b)(1)(D).
For the reasons discussed above, we sustain respondent’s
determination that petitioner’s payment to her ex-husband in 2005
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did not satisfy the statutory requirements of section 71, and,
accordingly,
Decision will be entered
for respondent.