T .C. Su m m ary Op i n io n 2 01 8 -4 1

UNITED STATES TAX COURT

J E REM YADAM VANDERHAL, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 2 4 77 -1 6 S. Fi l edSep t em b er 5 , 2 0 1 8
.

J eremy Ad am Van d erh al , p ro s e. Al b ertB. Brews t er, fo r res p o nd en t .

SUM M ARY OPINION CARLUZZO, Ch i ef Sp eci al Tri al J u d g e: Th i s cas e was h eardp u rs u an tt o th e p ro v i s i o n s o f s ect i o n 7 4 6 3 o f t h e In t ern al Rev en u e Co d e i n effect wh en th e p et i t i o n was fi l ed
. 1 Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci si on t o b e en t eredi s n o t

1 Un l es s o th erwi s e i nd i cat ed , s ect io n referen ces are t o t h e In t ern al Rev en u e (co n ti n u ed ...)- 2
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rev i ewab l e b y

an y o ther co u rt , an d t h i s o p i n i o n s h al l n o tb e t reat ed as p reced en t fo r an y o th er cas e. In a n o t ice o f d efi ci en cy d at edM arch 9 , 2 0 1 6 (n o ti ce), res p o n d en t d et erm i n eda $ 1 ,7 8 7 d efi ci en cy i n p et i ti o n er’ s 2 01 3 Fed eral i n co m e t ax an d i m p o s eda $ 3 5 7 .4 0 s ect io n 6 6 6 2 (a) accu racy -rel at edp en al ty . Th e i s s u es fo r d eci si o n are: (1 ) wh et h er p aym en t s p et i t io n er m ad e t o ward s
s tud en tl o an s i n cu rredb y h i s fo rm er s p o us e qu al ify fo r d edu ct i o n as al i m o n y an d , i f n o t , (2 ) wh et h er p et it i on er i s l i ab l e fo r a s ect i o n 6 6 62 (a) accu racy -rel at ed p en al ty . Back gro u n d So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Atth e t i m e t h e p et i t i o n was fi l ed , p et i t i o ner res i d edi n Cal i fo rn ia. Pet i t i o ner m arri edh i s fo rm er s p o u s e i n 2 0 0 3 . Th ey were d i v o rcedo n Ap ri l 6 , 2 01 1 , b y

a Decree o f Di v o rce (d i v o rce d ecree) en t eredb y the Fam i l y

Di v i s i o n
o f t h e Ei g h th J u d ici al Di s tri ctCo u rto f Cl ark Co u nt y , Nev ad a. Th e d i v o rce d ecree ad dres s es i t em s ro u t in el y fo u n di n s u ch d o cu m en t s , s u ch as s p o u s al s up p o rtan d th e d i v i s i o n o f p ro p ert y . Acco rd i n g t o th e d i vo rce d ecree, p et it i on er an dh i s

1 (...co n t in u ed ) Co d e o f 1 9 8 6 , as am en d ed , i n effect fo r t h e y ear i n i s s u e.- 3
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fo rm er s p o u s e “ en t eredi n t o an equ i t ab l e ag reem en ts et t l i n g al l i s s u es reg ard i n g th e d i v i s i o n an d d i s tri b u t i o n o f as s et s an dd eb t s * * * as s etfo rth i n the Ex h i b i t

‘ A ’ ” (ag reem en t) at t ach edt o th e d i v o rce d ecree. Th e ag reem en ti n cl u d es a referen ce t o a Sal l i e M ae s tu d en t l o anacco u n t th atrel at es t o p et it i o n er’ s fo rm er s p ou s e. Th atreferen ce i s fo u n di n th e “ Di v i s i o n
o f Co m m u n i ty Deb t s” s ect i on o f t h e ag reem en tan d o bl i g at es p et i ti o n er t o “ as s u m e
an d h o l d* * * [h i s fo rm er s p o u s e] h arm les s ” fro m th atd eb t . Th e ag reem en tal s o i n cl u d es a s ect i o n t i t l ed “ Tax Free Tran s fers ” t h ats t at es th e p art i es b el i ev e an dag ree t hatthe t ran s fers o f p ro p ert y b et ween th em

req u i red b y * * * [t h e ag reem en t ] are t ax free t ran sfers o f p ro p ert y b etween th em an d are t h erefo re t ax -free t ran s fers o f p ro p ert y m ad e p u rs u an tt o Sect io n 1 0 4 1 o f t he In t ern al Rev en ue Co d e an dare n o tt ax ab l e s al es o r ex ch an g es o f p ro p ert y o r p aym en t s fo r al i m o n y , ex cep twh ere t h i s ag reem en ts p eci fi cal l y

d en o t es p aym en ts as s u ch
. As rel ev an th ere, o n h i s t i m el y fi led2 0 13 Fed eral i n co m e t ax retu rn , wh ich h e p rep ared , p et it io n er cl ai m edan al i m o n y d edu ct io n fo r t h e p aym en ts h e m ad e o n th e ab o v e-referen cedSal l i e M ae s tu d en tl o an . Res p o nd en t d is al l o wed th at d educt i o n i n th e n o t i ce b ecau s e, acco rd i ng t o res p o n den t , th e p aym en t s d o n o tfi t wi th i n th e d efi n i t i o n o f al im o n y . See s ec. 7 1 (b )(1 )(B). In s t ead , acco rd in g t o
res p o n d en t, the p aym en t s co n s ti tu t e a d i v i s i o n o f p ro p ert y .- 4
- Di s cu ss i o n Th e Fed eral t ax co n s equ en ces o f a p aym en t m ad e i n ci d en tt o d i v o rce d ep en dup o n th e ch aract eri zat io n o f s u ch p aym en t. Pro p ert y s et t lem en t s i n ci d en t t o d i v o rce, an dequ it ab l e d i v i s i o n s o f m ari t al p ro p ert y , g en eral l y are n ei ther d educt i b l e fro m th e i n co m e o f t h e p ay i n g s p o u s e n or i ncl u d ab l e i n the i n co m e o f th e recei vi n g s p o u s e. Sec. 1 04 1 ; Es t at e o f Go l d m an v . Co m m i s s i o n er, 1 1 2 T.C. 3 1 7 , 3 2 2 (1 9 9 9), aff’ dwi th ou tp ub l i s h edo p in i o n s ub n o m . Sch u tt er v . Co m m i s s i o n er, 2 4 2 F.3 d3 9 0 (1 0 th Ci r. 2 00 0 ). Onth e o ther h an d , p aym en t s m ad e
o r recei v edas al i m o n y

g en eral l y are d edu ct i b l e b y

th e p ay i n g s p o u se u n d er s ect i o n 2 1 5 (a) an dare i n cl ud ab l e i n g ro s s i n co m e b y the recei v i n g s p ou s e u nd er s ect i o n s 6 1 (a)(8 ) an d 7 1
. Sect io n 2 1 5 (b ) p ro vi d es th atth e p ay i n g s p o u s e m ay d edu cta p aym en tas al i m o n y i f t h e p aym en t i s “ i n cl u d ib l e i n the g ro s s i n co m e o f t he reci p ien tu n d er
s ect i on 7 1 .” Sect i o n 7 1 (b )(1 ) d efi nes an al im on y p aym en tas an y

cas h p aym en t
m eet i n g each o f t h e fo l l owi ng fo u r cri t eri a:

(A) s u ch p aym en ti s recei vedb y (o r o n b eh al f o f) a s p o us e u n d er a d i v o rce o r s ep arat i o n i n s tru m en t , (B) t h e d i v orce o r s ep arat i o n i ns tru m en td o es n o td es i g n at e s u ch p aym en tas a p aym en twh ich i s n o ti n cl u di b l e i n g ro s s i n co m e u n d er t h i s s ect i o n an d n o tal l o wab l e as a d edu ct i on u n d er s ect i o n 2 1 5 ,- 5
- (C) i n th e cas e o f an i n d i v i du al l eg al l y s ep arat edfro m

h i s s p o u s e u n d er a d ecree o f d i v o rce o r o f s ep arat e m ai n t en an ce, t h e p ay ee s p o us e an d th e p ay o r s p o u s e are n o tm em b ers o f t h e s am e h o u s eh o l datth e t i m e s u ch p aym en ti s m ad e, an d (D) t h ere i s n o l i ab i l i ty

t o m ak e an y

s u ch p aym en t fo r an y p eri o d aft er t h e d eat h o f th e p ay ee s p o u s e an dthere i s n o l i ab i l i ty t o m ak e an y p aym en t(i n cas h o r p ro p ert y ) as a s ub s t i tu t e fo r s u ch p aym en t s aft er t he d eat h o f t h e p ay ee s p o us e. Res p o n d en tag rees th atth e p aym en t s s at i s fy th ree o f t he ab o ve-l i s t ed req u i rem en t s . Rel y i ng o n th e l an g u ag e i n the “ Tax Free Tran s fers ” s ect i on o f t h e ag reem en t , h o wev er, res p on d en tt ak es th e p o s i t i o n th atp et i t i on er fai l s t o s at i s fy
s ub p arag rap h (B) o f s ect i o n 7 1 (b )(1 ) b ecau s e t h e d iv o rce d ecree d es i g n at es th e Sal l i e M ae s tu d en tl o an p aym en t s as n o n al i m o n y an ds ubjectt o th e p ro vi s i o n s o f
s ect i on 1 0 4 1 . Acco rd i n g t o p et i t i o n er, th ats ect i o n o f t h e ag reem en tap p l i es o n l y t o the d i v i s i o n o f p ro p ert y , n o tco m m u n i ty d eb t , an dtherefo re i td o es n o tap p l y t o th e Sal l i e M ae s tu d en t l o an p aym en t s . In d eci d i ng wh et her p aym en t s co n s t i tu t e “ al im o n y ” u nd er t h i s p ro v i s i o n , we b eg in b y ex am i n i n g th e t erm s o f t h e d i v o rce d ecree an dag reem en t. A d i v o rce o r
s ep arat i on i n s tru m en t “ co n tai n s a n o n al i m o n y d es i g n at i o n i f th e s ub s t an ce o f s u ch a d es i g n at i o n i s refl ect edi n th e i n s tru m en t .” Es t at e o f Go l d m an v . Co m m i s s i o n er, 1 1 2 T.C. at3 23 . Gen eral l y , th e d i vo rce o r s ep arat io n ag reem en t m u s tp ro v i d e a

“ cl ear, ex p l i ci t an d ex p res s d i rect io n ” t h atth e p aym en t s are n o t t o b e t reat edas- 6
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al i m o n y , b u tth e d es i gn at i o n n eedn o t m i m i c th e t ex t o f s ect i o ns 7 1 an d2 15
. Ri ch ard so n v . Co m

m i s s i o n er, 1 2 5 F.3 d5 51 , 5 56 (7 th Ci r. 1 9 97 ), aff’ g T.C. M em o . 1 9 9 5 -5 5 4 ; Es t at e o f Go l dm an v . Co m m is s i o n er, 1 1 2 T.C. at 3 23
. In th i s cas e t h e d iv orce d ecree an d the ag reem en tfreq u en t l y d i s t i n g u i s h b et ween p ro pert y

an d d eb t. Fo r ex am

p l e, t h e d i v o rce d ecree s tat es th at p et i t i o n er
an d h i s fo rm er s po u s e “ en t eredi n t o an equ i t ab l e ag reem en ts et t l i n g al l i s s ues reg ard i n g th e d i v i s i o n an dd i s tri b u t i o n o f as s et s an d d eb t s * * * as s etfo rt h i n th e” ag reem en t . Th e ag reem en tp ro v i d es s ep arat e s ect i o n s wi th res p ectt o th e d i v i s i o n
o f co m m u n i ty p ro p ert y

an dd eb t . Other p ro vi s i o n s o f th e ag reem en tm ak e referen ce t o b o th co m

m un i ty p ro p ert y an d d eb t , i n wh i ch cas e i ti s cl ear t h atth e p ro v is i o n s ap p l y

t o b ot h . No t ab l y , th e “ Tax Free Tran sfers ” p arag rap h i n th e ag reem en trefers o n l y

t o “p ro p ert y ”, wi tho u t i n cl ud i n g an y referen ce t o d eb t . As
we co n s tru e t h e d i v o rce d ecree an dag reem en t , th e referen ce t o p ro p ert y i n th e

“ Tax Free Tran s fers ” s ect i o n o f t h e ag reem en t d o es n otcl earl y en co m p as s th e d i v i s i on o f co m

m un i ty d eb t . Fu rt h erm o re, i n co n s tru i n g d i v orce o r s ep arat i o n ag reem en t s , we can fi n dn o au th o ri ty th ats u gg es t s t h at the t erm s “p ro p ert y ” an d

“ d eb t ” are i n t erch an g eab l e. Th e d i v o rce d ecree an dth e ag reem en td o n o t
o th erwi s e ad dres s o r “ s p eci fi cal l y d en o t e” th e d iv i s i o n o f d eb t s as t ax -free tran s fers o f p ro p ert y

m ad e p urs u an tt o s ect i o n 1 0 4 1. Th atb ei n g s o, we fi n dth at- 7
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n o th i n g i n th e d i v o rce d ecree o r t h e ag reem en tcl earl y , ex p li ci t l y , an dex pres s l y d es i g n at es th e Sal l i e M ae s tu den t l o an p aym en t s as n on al i m o n y p aym en t s . See Ri ch ard so n v . Co m

m i s s i o n er, 1 2 5 F.3 dat5 5 6 . Co n seq u en t l y , th e p aym en t s o n th e
s tud en tl o an acco u n tfi t wi th i n th e d efi n i t io n o f al i m o n y u n d er s ect i o n 7 1 , an d p et i t i o n er i s en t i t l edt o an al i m on y d edu ct i o n fo r t h o s e p aym en t s . It fo l l ows th atp et it i o n er i s n o tl i ab l e fo r a s ect i o n 6 6 62 (a) p en al ty . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t ered fo r p et i ti o n er.