T.C. Summary Opinion 2010-157
UNITED STATES TAX COURT
ROSEMARIE T. REYNOLDS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16554-08S. Filed October 25, 2010.
Elan R. Kaney, for petitioner.
James R. Bamberg, for respondent.
KROUPA, Judge: This case was heard pursuant to the
provisions of section 74631 of the Internal Revenue Code in
effect when the petition was filed. Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
1
All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure, unless otherwise indicated.
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and this opinion shall not be treated as precedent for any other
case.
Respondent determined an $8,250 deficiency in petitioner’s
Federal income tax for 2005. The sole issue for decision is
whether the $30,000 petitioner received from her ex-husband is
alimony and therefore includable in gross income.2 We hold the
payments are not alimony and therefore not includable in gross
income.
Background
This case was submitted fully stipulated pursuant to Rule
122, and the facts are so found. The stipulation of facts and
the accompanying exhibits are incorporated by this reference.
Petitioner resided in Holly Hill, Florida at the time she filed
the petition.
Petitioner and her ex-husband divorced after an 11-year
marriage and signed a marital settlement agreement (the marital
settlement) in August 1998. Petitioner was college educated, and
her ex-husband was an educated businessman who earned $350,000
annually from several business interests he owned. They intended
the marital settlement to fully settle their rights and
obligations relative to one another and with respect to their
2
Petitioner’s marital settlement agreement labels the
payments as rehabilitative alimony. Accordingly, we will refer
to them as such.
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son, WAC, who was ten at the time.3 The marital settlement
required petitioner’s ex-husband to make payments for
distribution of their marital assets, monthly child support and
rehabilitative alimony. Petitioner’s ex-husband was to make
fixed payments at specified times in equitable distribution of
the marital assets, which were listed in the relevant section of
the agreement. He also was obligated to pay monthly child
support. Child support would terminate in specified
circumstances, including upon the noncustodial parent’s death.
Petitioner’s ex-husband agreed to make specified monthly
payments of rehabilitative alimony to petitioner for eight years
and one month pursuant to the terms of the marital settlement.
He agreed to pay $2,250 per month during 2005. He also agreed to
maintain a life insurance policy, designating petitioner as
beneficiary, with a death benefit sufficient to cover the total
amount of rehabilitative alimony due to petitioner.4 The marital
settlement did not require specific use of the funds but did note
petitioner’s enrollment in a PhD program in 1998, the time of
execution. The parties included language specifying that the
payments of rehabilitative alimony could not be modified or
3
The Court uses the initials of minor children. See Rule
27(a)(3).
4
The marital settlement quantifies the total rehabilitative
alimony payments as $306,000, failing to account for an
additional $2,250 mandated payment.
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terminated, regardless of whether circumstances changed. The
marital settlement also bound petitioner’s and her ex-husband’s
successors, heirs and assigns. A Florida circuit court granted a
final judgment of dissolution of marriage that incorporated by
reference the marital settlement and increased the amount of
rehabilitative alimony due in 2005 to $2,500 per month, totaling
$30,000 for the year.
Petitioner received the $30,000 from her ex-husband in 2005
as prescribed in the marital settlement. Petitioner and her ex-
husband were not members of the same household during 2005.
Petitioner did not report any alimony income on her Federal
income tax return for 2005. Her ex-husband, however, claimed
alimony deductions for the $30,000 he paid to petitioner in 2005.
Respondent issued the deficiency notice to petitioner
determining that petitioner failed to report the alimony she
received in 2005. Respondent already resolved this issue in
petitioner’s favor for the 2002 taxable year but raised it again
for 2005. Petitioner timely filed a petition.
Discussion
We must decide whether the $30,000 petitioner received in
2005 is alimony and therefore includable in her gross income.
Petitioner claims it is a property settlement or a lump-sum
payment, not alimony, and therefore not taxable to her.
Respondent argues that the $30,000 is includable as alimony.
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We begin with the burden of proof. Where, as here, the key
facts are fully stipulated and we are faced with a question of
law, our holding does not depend on the burden of proof we impose
or the standard of review we apply. Instead, we must reject
erroneous views of the law. See Kendricks v. Commissioner, 124
T.C. 69, 75 (2005) (and the cases cited thereat); McCorkle v.
Commissioner, 124 T.C. 56, 63 (2005).
We now review the Federal income tax law regarding alimony.5
Property settlements incident to a divorce generally are not
taxable and do not give rise to income. Sec. 1041; Estate of
Goldman v. Commissioner, 112 T.C. 317, 322 (1999), affd. without
published opinion sub nom. Schutter v. Commissioner, 242 F.3d 390
(10th Cir. 2000). Conversely, alimony payments generally are
taxable to the recipient and deductible by the payor in the year
paid. Secs. 61(a)(8), 71(a), 215(a). The label assigned to a
payment by the parties or the divorce court is not dispositive
for Federal income tax purposes. See, e.g., Beard v.
Commissioner, 77 T.C. 1275, 1283-1284 (1981); Sroufe v.
Commissioner, T.C. Memo. 1995-256. Instead, alimony is defined
as a cash payment received by or on behalf of a spouse meeting
specified requirements. Sec. 71(b)(1). The parties agree that
5
Property interests of divorcing parties are determined by
State law, yet Federal law governs the Federal income tax
treatment of that property. Green v. Commissioner, 855 F.2d 289,
292 (6th Cir. 1988), revg. on other grounds T.C. Memo. 1986-269.
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petitioner satisfies all of the conditions except the requirement
that the payor not be obligated to make any payments for any
period after the death of the payee spouse. Sec. 71(b)(1)(D).
The language of the marital settlement does not specifically
provide that petitioner’s ex-husband would be obligated to make
payments after petitioner died. The Court must look to State
law, in the absence of specific agreement language, to determine
whether petitioner’s estate would have a right to payments of
rehabilitative alimony. See Kean v. Commissioner, T.C. Memo.
2003-163, affd. 407 F.3d 186 (3d Cir. 2005); Notice 87-9, 1987-1
C.B. 421, 422. We therefore look to Florida law to determine
whether it would terminate the rehabilitative alimony payments at
petitioner’s death.
Florida family law provides that the characterization of
alimony and other payments is determined by their function, not
their title. Boyd v. Boyd, 478 So. 2d 356, 357 (Fla. Dist. Ct.
App. 1985) (citing Underwood v. Underwood, 64 So. 2d 281 (Fla.
1953)); Karch v. Karch, 445 So. 2d 1077, 1078 (Fla. Dist. Ct.
App. 1984); Zuccarello v. Zuccarello, 429 So. 2d 68, 69 (Fla.
Dist. Ct. App. 1983). Alimony may be either periodic or lump
sum. Fla. Stat. Ann. sec. 61.08(1) (West 2006); Canakaris v.
Canakaris, 382 So. 2d 1197, 1200 (Fla. 1980); Borchard v.
Borchard, 730 So. 2d 748, 751 (Fla. Dist. Ct. App. 1999). Lump-
sum alimony is a fixed, non-modifiable monetary obligation that
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is immediately vested and therefore does not terminate upon the
death of the payor or the payee. Boyd v. Boyd, supra at 357; see
also Canakaris v. Canakaris, supra at 1201; Borchard v. Borchard,
supra at 751. Lump-sum alimony, despite its name, may be paid in
installments. See Borchard v. Borchard, supra at 751.
Respondent argues that the $30,000 paid in 2005 was
rehabilitative in nature, as it was intended to pay for
petitioner’s PhD program and other rehabilitation. Respondent
concludes, therefore, that this amount would not have been
payable to petitioner’s estate had she died during 2005 because
the rehabilitative purpose of the funds would have lapsed. We
disagree.
Florida law provides that the rehabilitative intent of the
funds is not dispositive. Id. Similarly, lump-sum alimony may
be rehabilitative in nature under Florida law. Id.
The marital settlement obligations due to petitioner as
rehabilitative alimony were fixed and certain in the number of
payments and the amount of each payment. They were not subject
to modification and termination by their terms. This certainty
was further clarified with language specifying that
rehabilitative alimony could not be modified or terminated
regardless of whether circumstances changed. These payments met
the requirements for lump-sum alimony in Florida and therefore
would remain payable to petitioner’s estate if she were to die.
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See Human v. Commissioner, T.C. Memo. 1998-106; Stokes v.
Commissioner, T.C. Memo. 1994-456.
We find further support for our holding by looking to
language in the marital settlement.6 Nothing in the marital
settlement indicated that the rehabilitative alimony payments
would terminate on petitioner’s death. Indeed, the marital
settlement language emphasized that the obligation could not be
modified or terminated under any circumstances. This language is
in stark contrast to the language requiring child support
payments and specifying that the child support obligation would
end upon the death of the noncustodial parent. The ex-husband’s
obligation to pay rehabilitative alimony was not contingent on
any factor or event, such as petitioner’s attending school.
Indeed, petitioner is the irrevocable beneficiary of her ex-
husband’s life insurance policy, required by the marital
settlement to ensure payment of the total sum of the
rehabilitative alimony. Petitioner and her ex-husband also bound
6
When State family law is ambiguous regarding termination of
payments upon payee’s death, a Federal court will base its
decision on the divorce instrument’s language, rather than engage
in complex State law inquiries. Hoover v. Commissioner, 102 F.3d
842, 846 (6th Cir. 1996), affg. T.C. Memo. 1995-183; see also
Webb v. Commissioner, T.C. Memo. 1990-540. But see Cunningham v.
Commissioner, T.C. Memo. 1994-474 (considering State contract law
and extrinsic evidence to determine the parties’ intent where
State family law did not terminate husband’s liability to make
payments after wife’s death); Berry v. Commissioner, T.C. Memo.
2005-91 (considering extrinsic evidence of parties’ intent
regarding post-death liability to the extent permitted under
State law principles).
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their successors, heirs and assigns to the terms of the marital
settlement. We have no reason to conclude that rehabilitative
alimony payments, as described in the marital settlement, would
terminate upon petitioner’s death. See Hoover v. Commissioner,
102 F.3d 842, 848 (6th Cir. 1996), affg. T.C. Memo. 1995-183;
Webb v. Commissioner, T.C. Memo. 1990-540. Accordingly, we hold
that the rehabilitative alimony payments are not alimony for
Federal income tax purposes and therefore not includable in gross
income.
We note that respondent is not bound by his previous
resolution of this issue in petitioner’s favor for the 2002
taxable year. See Auto. Club of Mich. v. Commissioner, 353 U.S.
180, 183-184 (1957); Demirjian v. Commissioner, 457 F.2d 1, 6-7
(3d Cir. 1972), affg. 54 T.C. 1691 (1970).
We have considered all arguments made in reaching our
decision and, to the extent not mentioned, we conclude that they
are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for petitioner.