1 Pat's current wife, Joyce B arrett, is also a

plaintiff /appellant in this suit because he and she filed joint

income tax returns for the years in question. For simplicity, we

will refer only to Pat, who shares the same legal interests as his

wife.

1 United States Court of Appeals,

Fifth Circuit.

No. 95-60114.

Pat M. BARRETT, Jr., and Joyce Barrett, Plaintiffs-Appellants,

v.

UNITED STATES of America, Defendant-Appellee.

Feb. 9, 1996.

Appeal from the United States District Court for the Southern

District of Mississippi.

Before WISDOM, GARWOOD and JONES, Circuit Judges.

WISDOM, Circuit Judge:

The plaintiffs/appellants bring this appeal challenging the

district court's denial of their request to deduct alimony payments

from their taxable income. We AFFIRM the judgment of the district

court with respect to its over all categorization of the alimony

payments as non-de ductible and REVERSE its decision denying

deductions equal to the accrued alimony arrearages.

I.

Pat B arrett Jr. (Pat), the plaintiff/appellant, 1 and Helen

Barrett (Helen) were divorced in November 1984. The judgment of

divorce (1984 Judgment) provided that the parties had reached a

proper settlement of all property rig h ts between them.

Additionally, the 1984 Judgment required Pat to make monthly child2

support and alimony payments to Helen as follows:

(a) monthly commencing November 15, 1984, the sum of $1,900.00

until her death or remarriage;

(b) until her death or remarriage, [Pat] should provide a major medical insur a nce policy comparable to his present

medical insurance for [Helen];

(c) until her death or remarriage, [Pa t] should provide

$100,000 life insurance coverage on his life naming [Helen] as beneficiary.

In 1985, the Holmes Chancery Court entered an order (1985

Order) modifying the 1984 Judgment. It provided that the parties

were not entitled to any further division of property; terminated

Pat's child support obligation; and, because of a material change

in Helen's income and earnings capacity, reduced alimony payments

to $1400 per month.

Pat timely paid all alimony payments until March 1988, at

which time he ceased making payments and petitioned the court to

terminate the alimony obligation. Helen filed an opposition.

After negotiating, the parties settled their dispute and entered a

consent judgment of modification in the chancery court in 1989

(1989 Consent Judgment), the relevant portion of which provides:

THIS DAY THIS CAUSE came to be heard on the motion of the

plaintiff, Pat M. Barrett, Jr., to terminate the alimony

awarded to defendan t, Helen P. Barrett, based on a material

adverse change in circumstanc es of the parties, and

alternatively, on a motion to reduce the alimony being paid by

plaintiff on the grounds of a material change in the financial

circumstances of plaintiff and on the motion of defendant to

hold plaintiff in contempt of court and the court having

considered the matter, and having conferred with counsel and

being advised o f an agreement between the parties to settle

all matters in dispute between them, is of the opinion that a modification should be granted as follows:

1.3 That all obligations of plaintiff, Pat M. Barrett, Jr.,

to pay any past or future alimony or other obligations to

Helen P. Barrett pursuant to the [1984 Judg ment], and as

modified by the [1985 Order], and all further known and

unknown claims for support of defendant, Helen P. Barrett

against the plaintiff, Pat M. Barrett, Jr. be and [are] hereby

terminated. That this termination of alimony shall not be

subject to f urther revision, reinstatement or change in any

manner.

2.

That pla intiff Pat M. Barrett, Jr., as additional

property settleme nt, shall pay unto the defendant, Helen P.

Barrett the sum of $50,000 on September 8, 1989; and the sum

of $50,000 on or before September 8, 1990, said second payment

to carry interest at the rate of 8% per annum.

3.

That all other provisions of the original decree, and as

modified by the subsequent decree, and regarding the children

of the marriage, Pat M. Barrett, III and Jonathan Peeples

Barrett shall remain in full force and effect.

Pursuant to this decree, Pat paid Helen $50,000 in 1989 and $54,000

in 1990, $4000 of which constituted the required interest.

On his initial inc ome tax returns in 1989 and 1990, Pat did

not claim deductions for these payments. Subsequently, Pat filed

amended returns in which he claimed that these payments to Helen

constituted deductible alimony under Internal Revenue Code (I.R.C.)

§§ 71 and 215, thereby entitling him to a refund of $34,273.

The Internal Revenue Service (I.R.S.) disallowed Pat's

deductions, pro mpting Pat to file this suit to recover the

allegedly overpaid income taxes . The district court agreed with

the I.R.S. and granted the I.R.S.'s motion for summary judgment,

holding that the payments constituted lump sum alimony under2 Barrett v. United States, 878 F.Supp. 892, 897

(S.D.Miss.1995).

3 I.R.C. § 215(a).

4 Id. § 71(b)(1). Alimony payments are deductible if they are

paid in cash, received by the former spouse pursuant to a divorce

instrument that does not designate the payments as non-deductible,

are not made while the payor and payee spouse are part of the same household, and terminate on the death of the payee spouse. Id.

5 I.R.C. § 71(b)(1)(D). Because the parties only contest the

district court's application of Mississippi law to the agreed upon

facts, we review the issues de novo.

6 Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77, 77

L.Ed. 199 (1932).

7 While the Mississippi Supreme Court recently recognized a new

form of alimony, "rehabil itative periodic alimony", this form of

alimony is not applicable to the instant case and, therefore, is

not considered. S ee Hubbard v. Hubbard, 656 So.2d 124, 129

(Miss.1995) (en banc).

4 Mississippi law and therefore were not deductible. 2 Pat appeals

this decision of the district court.

II.

The I.R.C. allows individuals to deduct cash "alimony

p ayments" from their taxable income, 3 provided that they meet

several requirements. 4 The parties only disagree with respect to

one of the requirements: whether Pat would have been liable to

make the 1989 and 1990 payments "for any period after the death of

[Helen] ". 5 If the payments would have terminated upon Helen's

death, then the payments constitute deductible alimony. To decide

this matter, we turn to state law. 6

Applying Mississippi law, we note that our characterization

of the alimony payments as "periodic alimony" or "lump sum alimony"

determines whether the payments are deductible. 7 Periodic alimony8 Bowe v. Bowe, 557 So.2d 793, 795 (Miss.1990); W ray v. Wray,

394 So.2d 1341, 1344 (Miss.1981).

9 Armstrong v. Armstrong, 618 So.2d 1278, 1281 (Miss.1993);

Bowe, 557 So.2d at 795.

10 East v. East, 493 So.2d 927, 931 (Miss.1986).

1 1 Armstrong, 618 So.2d at 1281; C unningham v. Lanier, 589

So.2d 133, 136 (Miss.1991); B owe, 557 So.2d at 795; W ray, 394

So.2d at 1344; see also Hubbard, 656 So.2d at 130.

1 2 Bowe, 557 So.2d at 796; M axcy v. Estate of Maxcy, 485 So.2d

1077, 1078 (Miss.1986); Wray, 394 So.2d at 1345.

5 consists of periodic payments to the payee spouse that are to

continue indefinitely until the remarriage of the payee spouse or

the death of either the payor or payee spouse. 8 Upon the petition

of either spouse, the court may modify periodic alimony when the

court finds that the petitioning party had a material change in

economic circumstances. 9 The court cannot deprive itself of the

power to modify periodic alimony in the future and cannot extend

the payments past the remarriage of the payee spouse or death of

either spouse. 10 As a result, Mississippi's periodic alimony falls

within I.R.C. § 215's definition of deductible alimony.

In contrast to periodic alimony, Mississippi's lump sum

alimony is a final settlement, substituting as a divi sion of

property, between a husband and wife that cannot be subsequently

modified for any reason except fraud. 11 The death or remarriage of

the payee spouse does not effect the payor spouse's obligation;

lump sum alimony is treated like a traditional debt an d is even

chargeable to the estate of the payor spouse. 12 Due to these

limitations, lump sum alimony do es not satisfy the I.R.C.'s1 3 Creekmore v. Creekmore, 651 So. 2d 513, 518 (Miss.1995) (en

banc); S harplin v. Sharplin

, 465 So.2d 1072, 1073 (Miss.1985);

Wray, 394 So.2d at 1345; s ee also Cunningham, 589 So.2d at 137

(requiring "clear, unequivocal language" indicating that the

alimony is not periodic). Pat asserts that the district court

erred by applying a "reasonable clarity" standard to determine the

characterization of the alimony payments. Specifically, the

district court held that the 1989 Con sent Judgment "provides for

the payment of lump sum alimony with "reasonable clarity' ".

Barrett, 878 F.Supp. at 897 (citing Bowe, 557 So.2d at 795). While

the district court erred with respect to the proper test, we agree

with its ultimate conclusion.

14 See Wray, 394 So.2d at 1345.

15 Creekmore, 651 So.2d at 518; A rmstrong, 618 So.2d at 1281.

1 6 Mount v. Mount, 624 So.2d 1001, 1004 (Miss.1993) (en banc).

The 1984 Judgment provided for a final settlement of Pat and

Helen's property rights. Because property settlements cannot be

6 requirements for deductible alimony.

The Mississippi Supreme Court has repeatedly announced that an

alimony decree is presumed to provide for periodic alimony unless

the decree "by clear and express language" provides for lump sum

alimony. 13 Ideally, a lump sum alimony award will state that the

payor spouse must pay a certain total sum, payable in specified

monthly installments; 14 however, there is no required form for lump

sum alimony.

To determine whether the language of an alimony award clearly

and expressly provides for lump sum alimony, the court must

consider the substance of the award without regard to the label

attached. 15 The I.R.S. suggests that the label attached to the

instant award—"property settlement"—indicates that the nature of

the award is lump sum because property settlements, like lump sum

awards, are not subject to subsequent modification. 16 While thesubsequently modified under Mississippi law , the 1989 Consent

Judgment cannot be an additional property settlement or a

modification of the original property settlement. S ee id. at 1005.

17 Creekmore, 651 So.2d at 518.

1 8 Hubbard, 656 So.2d at 128; Creekmore, 651 So.2d at 518-19.

The exception, though, is the new H ubbard -created rehabilitative

periodic alimony. See supra note 7.

1 9 The fact that the payments were made in installments is not

indicative of periodic alimony; lump sum alimony can be paid at

one time or in installments. Creekmore, 651 So.2d at 518; Wray,

394 So.2d at 1344.

7 label may suggest that the chancellor intended to prevent further

modification of this agreemen t, it is the characteristics of the

award that must control our decision.

One characteristic of lump sum alimony is a specified

duration of time for the payments, after which the obliga tion

ceases. 17 It is a well-established principle in Mississippi law

that the chancellor cannot set an arbitrary date for the cessation

of periodic alimony. 18 The 1989 Consent Judgment, in a manner

consistent with a lump sum award, explicitly limits Pat's

obligation to two separate payments, which he made in 1989 and

1990. 19 The 1989 Consent Judgment's requirement that Pat make only

two more additional payments also coincides with the goal of lump

sum alimony to act as a final settlement between the parties, after

which payments are made, the parties are forever released from

liability from one another.

Another difference between lump sum and periodic alimony is

that lump sum alimony constitutes a final settlement betw een the

parties that is not subject to subsequent modification. The 19898

Con sent Judgment provides for such an outcome, stating that the

cessation of alimony was not subject to any further change. Pat,

however, relie s on a clause in the 1989 Consent Judgment. This

clause provides that the earlier decrees, except as modified by the

1989 Consent Judgment, remain valid. Pat interprets this clause to

mean that the provisions of the 1984 Order that terminated the

alimony at Helen's death or remarriage are still in effect because

the 1989 Consent Judgment did not state otherwise, thereby leaving

the periodic alimony in effect. The district court properly

rejected this argument. The 1989 Consent Judgment was not a

modification of the earlier alimo ny award; rather, it expressly

replaced it. Additionally, the 1989 Consent Judgment provides that

it cannot be modified, as is the case with lump sum alimony. For

these reasons, the district court was correct in holding that the

payments constitute lump sum alimony and, because the obligation to

pay lump sum alimony does not terminate at the death of the payee

spouse, the c ourt correctly found that such payments are not

deductible under I.R.C. § 215(a).

III.

Our categorization of Pat's payments p ursuant to the 1989

Consent Judgment as lump sum alimony, however, does not apply to

the amount in which he was in arrears prior to the 1989 Consent

Judgment. Because Pat's payments pursuant to the 1989 Consent

Judgment were made to extinguish hi s obligations to pay alimony

arrearages and future alimony, the lump sum alimony payments that

Pat made are treated as payments in satisfaction of unpaid and2 0 Olster v. C.I.R., 79 T.C. 456, 463-64, 465-66, 1993 WL 267167

(1982), aff'd, 751 F.2d 1168 (11th Cir.1985); s ee Stroud v.

C.I.R., 66 T.C.M. (CCH) 158, 1982 WL 11147 (T.C.1993) (noting that

the parties stipulated at the time of their settlement of alimony

obligations that the husba nd was $60,000 in arrears and holding

that the first $60,000 paid to the former spouse after the

settlement is attributed to the periodic payments in arrears at

that time ); see also Decker v. United States, Civ. No. 5:91-172

(JAC), 1993 WL 402814 (D.Conn. June 9, 1993) (holding that "when a

lump-sum payment is made in satisfaction of both past and future

alimony obligations, it is regarded as having been made in

satisfaction of past alimony obligations and is includable in the

recipient's gross income to the extent of such arrearages").

21 Olster, 79 T.C. at 465.

22 Id. at 465-66.

23 Id. at 463.

9 accrued alimony to the extent of such arrearages. 20

The government contends that the 1989 Consent Judgment clearly

extinguishes Pat's obligation to pay the past due alimony. This

argument, however, assumes that Helen relinquished her rights to

past due alimony for no consideration. Under the 1989 Consent

Judgment, it is apparent that Helen relinquished her rights to past

and future alimon y in exchange for the lump sum payments made by

Pat. 21 Furthermore, because "[w]e cannot find an unequivocal basis

for allocating the lump-sum payment between alimony arrearages and

future alimony obligations

..., the payment must be deemed to be in

satisfaction of back alimony obligations to the extent thereof". 22

Alimony arrearages retain the classification of the payments

that they held when they became due

. 23 When Pat ceased making

alimony payments, the 1985 Order, which provided for periodic

alimony, was in effect; thus, the $25,200 in alimony arrearages2 4 Stroud, 66 T.C. M. (CCH) 158; s ee also Decker, 1993 WL

402814.

10 that accrued under the 1985 Order are also periodic. 24 Accordingly,

$25,200 of Pat's 1989 payment to Helen constitutes deductible

alimony under I.R.C. § 215(a).

IV.

In conclusion, we hold that because the 1989 Consent Judgment

provided for lump sum alimony, the plaintiffs cannot deduct those

payments except t o the extent of the arrearages in the amount of

$25,200 that already had accrued. For these reasons, the judgment

of the district court is AFFIRMED in part and REVERSED in part.