T.C. Summary Opinion 2011-75
UNITED STATES TAX COURT
MARTIN FRANCIS GROSJEAN, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3426-10S. Filed June 27, 2011.
Howard O. Bernstein and Arlene M. Cress French, for
petitioner.1
Michael T. Garrett, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
1
Mr. Bernstein and Ms. French entered their appearances
after this case had been tried and then filed a brief on
petitioner’s behalf.
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effect when the petition was filed.2 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.
Respondent determined a deficiency in petitioner’s Federal
income tax for 2007 of $14,241 and an accuracy-related penalty
under section 6662(a) and (b)(1) of $2,848.3 The deficiency
stems from the disallowance of a deduction for alimony paid.
After a concession by respondent,4 the sole issue for decision is
whether petitioner properly deducted a $50,000 mortgage principal
reduction payment (the $50,000 payment) as alimony paid to his
ex-wife in 2007.
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
Colorado.
2
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
3
All dollar amounts are rounded to the nearest dollar.
4
Respondent concedes the accuracy-related penalty under
sec. 6662(a).
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Petitioner and Manju Nilsson Grosjean (Ms. Grosjean), were
married in June 1997. Shortly thereafter petitioner and Ms.
Grosjean jointly purchased a home subject to a mortgage.
Petitioner and Ms. Grosjean had two children together: twin sons
born in 1998.
After separating in August 2002, petitioner and Ms. Grosjean
were divorced in March 2003. Petitioner and Ms. Grosjean entered
into a Separation Agreement (the agreement), which was attached
to the divorce decree. With respect to alimony, and as relevant
herein, the agreement states:
1.2. Martin and Manju hereby state that the
purpose of a maintenance award is to enable Manju to
stay in the marital home with the minor children. The
goal of the support payment is to enable Manju with the
maintenance payment and the child support payment to
pay the house payment and meet the child care expenses.
Martin agrees to provide enough funds to Manju, as
contractual, non-modifiable maintenance, to enable
Manju to meet the mortgage payment on the present
marital home. Martin further agrees as and for child
support to minimally meet the child care expenses for
the two minor children. Martin agrees to pay
maintenance to Manju until the children reach the age
of 19 years of age or are otherwise emancipated. To
accomplish this goal, Martin agrees to pay to Manju as
maintenance the sum of $2,333.46 per month which
represents the house payment on the present mortgage on
the marital home * * *.
The agreement states that the maintenance ceases, inter alia,
upon Ms. Grosjean’s death or if the children are no longer living
with Ms. Grosjean and that the maintenance payments are
deductible by petitioner pursuant to sections 71 and 215. The
agreement further states that Ms. Grosjean will refinance the
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home within 5 years of signing the agreement and have
petitioner’s name eliminated from the loan, but that petitioner
will continue to make the mortgage payment on the refinanced
mortgage. The agreement also provides for a proportional
reduction of maintenance with any increase in Ms. Grosjean’s
income, but states that maintenance is contractual and may not be
modified by any court for any reason. Finally, the agreement
provides for monthly child support of $2,436, which amount may be
modified by petitioner and Ms. Grosjean as needed.
During 2007, petitioner made all of the monthly mortgage
payments on the marital home for a total of $29,583. That same
year Ms. Grosjean informed petitioner that she was unable to
fulfill her obligation to refinance the mortgage because she
“could not qualify for a mortgage at the principal level”.
Petitioner and Ms. Grosjean orally agreed that petitioner would
make the $50,000 payment so that Ms. Grosjean could qualify to
refinance the mortgage. As a result, petitioner made the $50,000
payment in October 2007.
On his 2007 Federal income tax return, petitioner claimed an
alimony deduction of $79,583 for the amounts paid on the mortgage
in 2007. Although petitioner advised Ms. Grosjean to include the
$50,000 payment in her income as alimony, she did not do so;
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rather, she reported receiving $29,582 as alimony payments on her
2007 Federal income tax return.5
In an Arbitration Award dated March 15, 2010, the arbitrator
found that the $50,000 payment was maintenance and not child
support.
In a notice of deficiency respondent determined that the
$50,000 payment was not alimony and therefore disallowed the
claimed deduction to that extent. Respondent also determined
that petitioner was liable for the accuracy-related penalty based
on negligence or disregard of rules or regulations.
Discussion6
Section 215(a) allows a deduction for alimony payments paid
during the payor’s taxable year. Alimony means any “payment (as
defined in section 71(b)) which is includible in the gross income
of the recipient under section 71.” Sec. 215(b). An alimony
payment is defined as any payment in cash that satisfies the four
requirements listed under section 71(b)(1). The first such
requirement is that the payment be received by or on behalf of a
5
Ms. Grosjean rounded down the amount of mortgage payments
received. The difference is not at issue in this case.
6
The issue for decision under these facts is essentially
legal in nature; therefore, we decide this case without regard to
the burden of proof.
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spouse under a divorce or separation instrument.7 Sec. 71(b)(1)(A).
Section 71(b)(2) defines a divorce or separation instrument
as a decree of divorce or a written instrument incident to such a
decree, a written separation agreement, or a decree requiring a
spouse to make payments for the support or maintenance of the
other spouse. A divorce or separation agreement must be made in
writing. Herring v. Commissioner, 66 T.C. 308, 311 (1976);
Leventhal v. Commissioner, T.C. Memo. 2000-92; Ellis v.
Commissioner, T.C. Memo. 1990-456. A payment made pursuant to an
oral agreement is not a payment made pursuant to a divorce or
separation instrument unless there is some type of written
instrument memorializing the agreement. Herring v. Commissioner,
supra at 311; Osterbauer v. Commissioner, T.C. Memo. 1982-266.
Although a payment may be made pursuant to a divorce or
separation instrument, section 71(c)(1) provides that alimony
does not include payments fixed by a divorce instrument that are
payable for the support of children of the payor spouse. A
7
In addition to requiring that payments be received by or
on behalf of a spouse under a divorce or separation instrument,
sec. 71(b)(1) generally requires that: (1) The divorce or
separation instrument not designate a payment as one that is not
includable in gross income under sec. 71 and not allowable as a
deduction under sec. 215; (2) the payee spouse and the payor
spouse must not be members of the same household at the time the
payments are made; and (3) there be no liability to make payments
for any period after the death of the payee spouse. Respondent
does not dispute that these requirements have been met.
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payment is treated as payable for the support of the children of
the payor spouse if the amount of the payment will be reduced on
the happening of a contingency specified in the divorce
instrument relating to a child, such as attaining a specific age,
marrying, dying, leaving school, or other similar contingency.
See sec. 71(c)(2)(A); see also sec. 1.71-1T(c), Q&A-17, Temporary
Income Tax Regs., 49 Fed. Reg. 34456 (Aug. 31, 1984).
Respondent argues that the $50,000 payment is not alimony
because it was not made pursuant to a divorce or separation
instrument. Respondent further argues that even if the $50,000
payment were made pursuant to the agreement, the $50,000 payment
is not deductible as alimony because petitioner’s maintenance
payments under the agreement are tied to conditions related to
petitioner’s twin sons.8
Petitioner contends that the $50,000 payment is deductible
as alimony under the agreement and the arbitration award.
It is well settled that labels assigned to payments by the
parties or a divorce court are not determinative for Federal
income tax purposes. Beard v. Commissioner, 77 T.C. 1275, 1283-
1284 (1981). Moreover, State court adjudications retroactively
8
Although it is respondent’s position that sec. 71(c)(2)
and the conditions in the agreement preclude petitioner from
deducting the $50,000 payment and that such argument is equally
applicable to the remaining portion of petitioner’s deduction for
alimony, respondent did not contest at trial or on brief the
$29,583 in monthly mortgage payments allowed in the notice of
deficiency.
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designating payments as alimony and not child support (or vice
versa) are generally disregarded for Federal income tax purposes.
See Gordon v. Commissioner, 70 T.C. 525, 530 (1978). Thus, we
disregard the retroactive designation by the arbitration award,
and it is the express terms of the agreement that dictate the
Federal income tax consequences of the $50,000 payment.
It appears that the $50,000 payment was made pursuant to an
oral agreement between petitioner and Ms. Grosjean in order to
facilitate the refinance of the home mortgage. Therefore, it
would appear that the $50,000 payment was not made under a
divorce or separation instrument as required by section
71(b)(1)(A).
But even if the $50,000 payment was a maintenance payment
made pursuant to the agreement as required in section
71(b)(1)(A), the agreement contains an explicit contingency
related to the children with respect to the maintenance payments;
i.e., petitioner agrees to pay maintenance to Ms. Grosjean “until
the children reach the age of 19 years of age or are otherwise
emancipated.” See sec. 1.71-1T(c), Q&A-16, Temporary Income Tax
Regs., supra. The existence of the contingency triggers the
application of section 71(c)(1) and makes petitioner’s
maintenance payments not deductible under section 215. See,
e.g., Hammond v. Commissioner, T.C. Memo. 1998-53; Fosberg v.
Commissioner, T.C. Memo. 1992-713. Therefore, even if the
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$50,000 payment were considered a maintenance payment made
pursuant to a divorce or separation instrument, it would not be
deductible. See sec. 71(c)(2)(A).
Accordingly, we hold that petitioner is not entitled to
deduct as alimony the $50,000 payment made in 2007.
Conclusion
We have considered all of the arguments made by petitioner,
and, to the extent that we have not specifically addressed them,
we conclude that they do not support a holding contrary to that
reached herein.
To reflect the foregoing,
Decision will be entered
for respondent as to the
deficiency in tax and for
petitioner as to the accuracy-
related penalty.