T.C. M em o . 2 0 1 9 -1 0 5

UNITED STATES TAX COURT

M ARIA M
. FAUST, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 7 0 18 -1 7
. Fi l edAu gu s t 2 0 , 2 0 1 9
.

M ari a M . Fau s t , p ro s e. Sco t t A. Ho v ey

an dJ effreyE. Go ld , fo r res po n d en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION COPELAND, Ju d g e: Res p on d en td et erm i n eda d efi ci en cy i n p et i t i o n er’ s Fed eral i nco m e t ax an da p en al ty as fo ll o ws : Pen al ty Year Defi ci en cy sec. 6 6 6 2(a) 2 0 1 5 $ 4 ,0 6 2 $ 8 1 2.4 0- 2
-

[* 2 ] Th e i s s u es fo r d eci si o n are: 1
. wh et her p et i ti o n er fai l ed t o i n cl u d e as t ax ab le i n co m e $ 2 7 ,2 4 5 1 recei v edas al i m o n y

o r s ep arat e m ai n t en an ce fro m h er ex -h u s b an d du ri n g th e 2 0 15 t ax y ear u n d er t he t erm s o f a p en d en t e l i t e o rd er an ds ub s equ en t s ti p u l at i o n ag reem en tan dd i vo rce d ecree. W e h o l dthatth e $ 2 7,2 4 5 was , fo r Fed eral t ax p u rp os es , al i m o n y

an d s ep arat e m ai n t en an ce u nd er s ect i o n 7 1 (b ) 2 an dth erefo re t ax ab l e i n co m e wh i ch p et i t i o n er fai l edt o i n cl u d e; an d 2
. wh et her p et i ti o n er i s l i ab l e fo r an accu racy -rel at edp en al ty o f $ 8 1 2 .4 0 , p u rs u an t t o s ect i o n 6 66 2 (a) fo r anu n d erp aym en t at tri b u tab l e t o
n eg li g en ce 3 fo r t h e 2 0 1 5 t ax y ear. W e h o l d t h atp et i t i o n er i s n o tl i ab l e fo r t h e p en al ty b ecau s e s he act edwi th reas o n ab l e cau s e an di n g o o dfai th
.

1 Th e n o ti ce o f d efi ci en cy d et erm i n edan ad

ju st m en to f $ 2 7 ,2 52 . Itap p ears th at , i n cal cu l at i n g p et it i o n er’ s ad ju s t m en t , res p o n d en t u s edth e m o n th ly al i m o n y am ou n to f $ 2 ,2 7 1 p u rs u an tt o a co u rto rd er. Ho wev er, a l at er ag reem en t redu ced th e m o n thl y

am ou n tt o $ 2 ,2 7 0 . As a res ul t , res p o n d en t co n ced ed $ 7 o f th e al i m o n y ad ju s tm en ti n h i s s eri at i m

an s w eri ng b ri ef.
2 Al l s ect i o n referen ces are t o th e In tern al Rev en u e Co d e i n effect fo r t h e y ear i n i s s u e, an d al l Ru l e referen ces are t o the Tax Co urtRu l es o f Pract ice an d Pro cedure, u n les s o th erwi s e i n d i cat ed
.

3 Th e n o ti ce o f d efi ci en cy d et erm i n edth e s ec. 6 6 6 2 (a) p en al ty as ap p l i cab l e o n o n e o r m o re o f t he s ec. 6 6 6 2(b )(1 ), (2 ), (3 ), o r (6 ) g ro u nd s , b u t , o n b ri ef, res p o n d en t ad dres s edo n l y s ec. 6 66 2 (b )(1 ). Th erefo re we d o n o t ad dres s the s ec. 6 6 6 2 (b )(2 ), (3 ), o r (6 ) al t ern at iv e.- 3
-

[* 3 ] FINDINGS OF FACT 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. 1
. Pet i t i o ner Pet i t i o ner res i dedi n W as h in g t o n , D.C., wh en s h e fi l ed h er p et i t i o n . Pet i t io n er i m

m i g rat edt o the Un i t edSt at es wh en s h e was 2 1 y ears o l d . Sh e was p ro v id eda Sp an i s h i nt erp ret er attri al
. Pet i t i o n er p rev i o u sl y h adCh il d X, wh o was
n o to f t h e m arri ag e. Pet i ti o ner m arri edM i ch ael T. Fau sti n 1 9 92 . Pet i t i on er an d M r. Fau s th adCh il dY du ri ng th ei r m arri ag e. Pet i ti o ner d i dn o tp u rs u e p o s t s eco n d ary

edu cat i o n an d i n s t eads erv edas th e fu l l -t i m e care g i v er t o Ch i l dX
an d Ch i l dY. Th e m ari t al co upl e l as tres id edt o g et h er i n W as hi n g t o n , D.C., wh ere M r. Fau s twas s t at i o nedo n act i v e dut y i n th e U.S. Nav y (Nav y ). Pet i t i o ner s uffered fro m

a h i s t o ry o f ab us e b y

h er fo rm er h u sb an d . OnJ u l y 1 2 , 2 0 1 2 , the Nav y ’ s Fam i l y Adv ocacyPro g ram

Cas e Rev i ew Co m

m i tt ee
s ub s t an t i at eds p o us al em o t i o nal ab u s e o f p et i t i o ner b y M r. Fau s t . OnAu g us t2 0 , 2 0 1 2 , p et i t i o n er an dM r. Fau sten t ered i nt o a co n s en tag reem en t(Co n sen t Ag reem en t ) wh ereb y

M r. Fau s tag reed n ott o “ as s au l t , th reat en , h aras s , o r s t al k ” p et i t i o n er. Th e co up l e s ep arat edi n 2 0 12
. Effect i v e J an u ary

1 , 2 0 1 3 , th e Nav y

tran s ferred M r. Fau s t t o Vi rg i n i a Beach , Vi rg i n i a, wh ere h e fi l edfo r d i v o rce du ri n g 2 0 13 . Th e Ci rcu i tCo u rtfo r t h e- 4
-

[* 4 ] Ci ty o f Vi rg i n ia Beach i ss u eda p en d en t e l i t e o rd er (Ord er) o n Au g u s t2 , 2 0 1 3 , requ iri ng M r. Fau s tt o p ay p et i t io n er $ 2 ,2 7 1 p er m o n th b eg i n n i n g o n Au g u st 2 , 2 01 3 , an dco n t i n u in g u nt i l fu rt h er o rd er o f t h atco u rt . Th e Ord er co nt ai ns n o
o th er p ro v i s i o n s reg ard i n g t h e t erm i n at i o n o f p aym en t s an d m ak es n o m en t i o n o f th e t ax treat m en to f t h e p aym en t s . A No v em b er 2 0 , 2 0 1 3 , l et t er fro m

th e Di rect o r o f So ci al Serv ices atth e Fam i l y Pl ace, a l o w-i n co m e co m m u n i ty cen t er i n W as hi n g t o n , D.C., n o t edth at p et i t i o n er b eg an p art i ci p at i on i n a d o m es t ic v io l en ce s upp o rt g ro up kn o wnas Ci rcl e o f Lat i n a W o m en i n Act i o n i n Oct o b er 2 0 1 3 . OnM ay 2 0 , 2 0 1 5 , p et i t i o n er
an d M r. Fau s ten t eredi n t o a s t i p u l at i o n ag reem en t (Ag reem en t ). Th e Ag reem en t p ro v id es th at , b eg in n i n g o n J u n e 1 , 2 0 1 5 , M r. Fau s t wi l l m ak e m o n th l y s p o u s al
s up p ortp aym en ts o f $ 2 ,2 7 0 t o p et it i o n er. 4 Th e Ag reem en trep l aces th e Au g u s t2 , 2 0 1 3 , Ord er. Sect io n 3 .F. o f the Ag reem en t g en eral l y ad dres s es M r. Fau st ’ s m i li t ary ret i rem en tp ay an d p ro v i d es th atp et i t i o n er wi l l b eg i n t o recei ve a s h are o f i to n ce M r. Fau s tb eg i n s t o co l l ect i t . Sect i o n 4 o f t h e Ag reem en tg en eral l y co v ers
s p o u sal s up p o rtan d t h e effect o n s p o u s al s up p o rtwh en ret i rem en tp ay b eg i n s .

4 Th o u g h i tm ay

h av e b een a m ere ro u n d i ng m at t er, t h e ag reem en t d idn o t ex p li ci t l y s t at e a reas o n fo r t he $ 1 redu ct i o n fro m th e $ 2 , 2 71 p ai du n d er t he Ord er.- 5
-

[* 5 ] Th e Ag reem en tp ro v i d es th atth e $ 2 ,2 7 0 i n s p o u s al s up p o rti s t o b e redu ced b y th e am o u nt o f ret i rem en tp ay o n ce p et i t io n er b eg i ns t o recei v e h er s h are o f ret i rem en tp ay . Wh i l e i n th e 2 01 5 t ax y ear n o ret i rem en tp ay was recei v edo r ap p li cab l e, h adan y

s u ch p aym en t s b een du e o r recei v edth e m i l i t ary ret i rem en t p aym en t s were t o co nt i n u e o n l y u n ti l (1 ) M r. Fau s tn o l o n g er h as the ri gh tt o recei v e m i li t ary

ret i rem en tp ay , (2 ) M r. Fau s t ’ s d eat h , o r (3 ) p et i t io n er’ s d eat h
. Fu rt her, t h e Ag reem en tp ro v i d es th atth e s p o u s al s up p o rts h al l t erm i n at e

“ up o n th e d eat h o f ei th er p art y , p et i t i o n er’ s rem arri ag e, p et it i on er’ s co h ab i t at i o n i n a rel at i o n s h i p an al o g o u s t o m arri ag e fo r m o re t h an o n e y ear * * * o r [i s ] s tay ed
up o n * * * [p et i t i o n er’ s] m o n th l y p o rt i o n o f * * * [M r. Fau s t ’ s ] m i li t ary ret i redp ay
m eet i n g o r ex ceed i n g $ 2 ,2 7 0 .0 0 p er m o n th
. ” Th ere i s n o m en ti o n o f t h e t ax treat m en to f t h e s p o u s al s upp o rtp aym en ts i n the Ag reem en t . Th e Ag reem en td o es
co n tai n a s ep arat e p arag rap h o n “ Tax Adv ice”, s t at i n g th atth e Ag reem en tm ay h av e t ax co n s equen ces an dthateach p art y s ho u l do b tai n i n d ep en d en tt ax ad v i ce. Th e Ci rcu i tCo u rtfo r t h e Ci ty o f Vi rg i n ia Beach en t eredth e fi n al d iv o rce d ecree (Decree) o n Oct o b er 7 , 2 0 1 5 . Th e Decree req u i res M r. Fau s tt o p ay p et i t i o n er $ 2 ,2 7 0 p er m on th b y affi rm i n g , rat i fy i n g, an di n co rp o rat i n g b y referen ce th e Ag reem en t. Sp eci fi cal l y , p arag rap h 4 o f t h e Decree co p ies , wi th
n o n s ub s t an t i v e ed i t s , s ect io n 4
. b . o f t h e Ag reem en t , wh i ch s et s fo rt h t h e t erm s an d- 6
-

[* 6 ] co n di t i o n s o f M r. Fau s t ’ s $ 2 ,2 7 0 m o n th l y s p o u s al s up p o rtp aym en t s t o p et i t i o n er an dl at er ret i rem en tp aym en t s. Th e Decree s tat es : “No twi th s tan d i n g th e fo rg o i n g [o b l i g at io n t o p ay s up p o rt ] Pl ai nt i ff’ s [M r. Fau s t ’ s] s p o us al s up p o rt
o b l i g at i o n s h al l t erm i n at e upo n th e d eat h o f ei th er p art y . ” Th e Decree m ak es n o fu rt her m en t i on o f th e t ax treat m en to f ei th er s p o u s al s up p o rtp aym en ts o r m i l i t ary ret i rem en tp aym en t s . 2
. Pet i t i o ner’ s Tax Retu rn Pet i t i o ner t i m el y

fi l eda Fo rm

1 0 4 0 , U.S. In d i v i du al In co m e Tax Retu rn , fo r th e 2 0 15 t ax y ear. Sh e o b t ai nedp ro fes s i o n al as s i s t an ce fro m the Am eri can As s oci at i o n o f Ret i red Pers o n s’ l o w-i nco m e-t ax p ay er retu rn p rep arat i on s erv i ce at th e Ch ev y

Ch as e Co m

m u n i ty Cen t er, i n W as h i n g to n , D.C. Th e Fo rm 1 0 40 rep o rt edad

ju s tedg ro s s i n co m e o f $ 11 ,5 9 9 an d t ax ab l e i n co m e o f $ 1 ,2 99 ; i td i d
n o trep o rtp aym en t s p et i t i o n er recei v edfro m M r. Fau s t u n d er th e Ord er, Ag reem en t , o r Decree. 3
. No t i ce o f Defi ci en cy an dPet i ti o n Res p o n d en ti n i t i al l y

d en i edM r. Fau s ta d edu ct i o n fo r h i s p aym en t s t o p et i t i o n er fo r p eri o ds du ri n g 2 01 5 co v eredb y the Ord er b utl at er d et erm i n edth at h e was en t i t l edt o th e d edu ct i o n o n th e b as i s o f ev i den ce h e p res en teddu ri n g th e- 7
-

[* 7 ] ex am i n at i o n o f h i s 2 0 1 5 t ax retu rn . Th atev id en ce was l at er u s edt o b eg i n th e
ex am i n at i o n o f p et i t i o n er’ s 2 0 15 t ax return . Acco rd i ng t o th e ex am i n at i o n wo rk p ap ers i n p et i ti o n er’ s ad m i n i st rat i v e fi l e, h er ex am i n at io n b eg an o n M ay 1 2 , 2 0 1 7 , an d o n th at d at e t he ex am i n er, M s . Gn eh m (Ex am i ner Gn eh m ), creat eda “ LeadSh eetfo r t h e Accu racyRel at ed Pen al ty 2 0 % Neg li g en ce o r Di s reg ardo f Ru l es o r Reg u l at i o n (IRC Sec 6 6 6 2 (c)).” Th e ex am i nat io n wo rk

p ap ers s t at e: “ T h i s p en al ty ap pl i es .” Th e ev i d en ce i n th e
reco rdth atth e p en al ty was ap p ro v edb y a m an ag er co ns i s t s o f anen try i n th e Co rres p on den ce Ex am i n at i o n Au t o m at io n Sup p ortCas e No t es (cas e n o t es ). An
em pl o y ee o f res po n d en t , Lau ra Sh erm an , m ad e t h e fo l l o wi ng en try t o th e cas e
n o t es d at edM ay

1 8 , 2 01 7 : “

Neg l i gen ce Pen al ty

IRC 6 6 6 2(c) h as b een ap p ro v ed b y m an ag er p er IRM 2 0 .1 .5 .7 Pen al ty l eads h eetp rep aredp er IRM 4 .1 9
. 1 3.5 .3 an d ap p ro v ed . CEAS n o n -act i o n n o t e h as b een i np ut .” Attri al res p o n d en tes t ab l i s h ed th atM s . Sh erm an was the d i rectm an ag er o f Ex am in er Gn eh m . Th e reco rdal s o
co n tai n s a wo rk

pap er t i t led“Neg l i g en ce o r Di s reg ardo f t h e Ru l es o r Reg ul at i o n LeadSh eet6 6 62 (c)” d at edJ u l y 3 1 , 2 0 17 , wh i ch al s o co n t ai n s Ex am i n er Gn eh m ’ s
n o t es d at edM ay

1 2 , 2 01 7 , s u g g es t i n g th e “ neg l i g en ce p en al ty i s ap p ro p ri at e.” Th e ex am i n at io n wo rk

p ap ers i nd i cat e t h atEx am i n er Gn eh m d et erm i n ed p et i t i o n er was s ub

jectt o i nco m e t ax o n th e p aym en t s recei v edfro m M r. Fau s t ,- 8
-

[* 8 ] t o t al i n g $ 2 7 ,2 5 2 , as al i m on y co m p en s at i o n fo r t h aty ear. Acco rd i n g t o th o s e
wo rk p ap ers , M s . Gn eh m

v eri fi edth ro u gh M r. Fau st ’ s b an k s t at em en t s th atal l p aym en t s ati s su e du ri n g 2 0 1 5 were m ad e t o p et i t i o n er. On J u ly 3 1 , 2 0 1 7 , Ex am i ner Gn eh m s en ta l et t er an dFo rm 4 5 4 9 , In co m e Tax Ex am i n at i o n Ch an g es , t o p et i ti o n er. OnOct o b er 2 , 2 0 17 , res p o n den ti s s u edth e n ot i ce o f d efi ci en cy t o p et i t i o n er fo r h er 2 0 1 5 t ax ab le y ear. Th e n o t i ce d et erm i n edth atp et i t i o n er’ s fai l ure t o rep o rt $ 2 7 ,2 5 2 5 i n i nco m e recei v ed fro m M r. Fau s tres u l t ed i n a d efi ci en cy o f $ 4 ,0 6 2 an d
an accu racy -rel at edp en al ty u n d er s ect i on 6 6 6 2 (a) o f $ 8 12 .4 0
. OPINION 1
. St an dardo f Rev i ew Gen eral ly , th e Co m

m i s s i o n er’ s d et erm i n at i o n s i n a n o t i ce o f d efi ci en cy are p res u m edco rrect . W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3 ). Ru l e 1 4 2 (a) p l aces th e b u rd en o f p ro o f o n th e t ax p ay er u n l es s o th erwi s e p ro v i d edb y s t atu t e. Th e b urd en o f p ro o f s h i ft s t o th e Co m m i ss i on er u nd er cert ai n ci rcu m s t an ces wh en a t ax p ay er co m es fo rt h wi th cred i b l e ev i d en ce wi th res pect t o an y fact u al i s s u e rel ev an t t o as cert ai n i n g t h e t ax p ay er’ s l i ab il i ty . Sec. 7 49 1 (a)(1 ). Pet i t io n er d o es

5 Th e n o ti ce o f d efi ci en cy d et erm i n edan ad

ju st m en to f $ 2 7 ,2 52 . As s t at ed s up ra n o t e 1 , res p o n d en tco nced ed$ 7 o f t h e al i m o n y ad ju s t m en ti n h i s s eri at i m an s weri n g b ri ef, m ak i n g th e ad ju s t m en t$ 2 7 ,2 45 i n st ead
.- 9
-

[* 9 ] n o tco n t en d , n o r d o es th e ev i d en ce es t ab li s h , th atth e b u rd en s h i ft s t o
res p o n d en t u n der s ect i o n 7 4 9 1 (a) as t o an y i s s u e o f fact
. 2
. Wh et h er Pet it i o n er Fai l edTo Rep o rt$ 2 7 ,2 4 5 o f Tax ab l e Al i m o n y In co m e Sect io n 6 1 (a)(8 ) p ro v i d es th atg ro s s i n co m e i n cl u d es am o u n ts recei v edb y a p ay ee s p o u s e as al i m o ny

o r s ep arat e m ai nt en an ce u n d er s ect i o n 7 1 (b ). Sect i o n 2 1 5 (a) an d(b ) al l ows th e p ay o r s p o u s e a d educt i o n fo r th e p aym en to f al i m o n y as d efi n edi n s ect i o n 7 1 (b ), wh i ch p ro v i d es :

(1 ) In g en eral .--Th e t erm

“ al i m o n y o r s ep arat e m ai n t en an ce p aym en t ” m ean s an y

p aym en ti n cas h i f-- (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 nd er a d i v o rce o r s ep arat i on i n st ru 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 i ch i s n o ti n cl u di b l e i n g ro s s i n co m e u nd er t h i s s ect i o n an dn otal l o wab l e as a d edu ct i on u n d er s ect i o n 2 1 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 ou 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 iab i l it y

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 t h 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. If t h e req u i rem en t s o f s ect i o n 7 1 (b ) are m et , th enthe p aym en ti s al i m o n y ; i f
an y s i n g l e req u i rem en ti s n o tm et , th en th e p aym en t i s n o tal i m o n y . J affe v
.- 1 0 -

[* 1 0 ] Co m

m i s si o n er, T.C. M em o . 1 99 9 -1 96 , 1 99 9 Tax Ct . M em o LEXIS 2 3 4 , at* 9 . Wh i l e al i m o n y , s ep arat e m ai n t en an ce, o r o th er t erm s m ay v ary fro m St at e t o St at e u n d er v ari ou s St at e-l ev el d o m es t i c rel at io n s s tatu tes , th e cl as s i fi cat i o n o r l ab el in g o f a p aym en tas al im o ny o r n o t al i m o n y

b y the p art ies o r a St at e co u rti s
n o tco ncl u s i v e fo r Fed eral t ax p u rp o s es . Ho o v er v . Co m m i s s i o n er, 1 0 2 F.3 d8 4 2 , 8 4 4 -8 4 5 (6 th Ci r. 1 99 6 ), aff’ g T.C. M em o . 1 9 9 5 -1 8 3; Nel s o n v . Co m m i ss i o n er, T.C. M em o . 1 99 8 -2 6 8 (h ol di n g th atp aym en t s s at i sfy i n g s ect i o n 7 1 were al i m o n y fo r Fed eral t ax p u rp o s es reg ard l es s o f a l at er St at e d et erm i n at i o n th atth ey were a d i v i s i on o f m ari t al p ro p ert y ). Th e t es ti s wh et h er t h e req u i rem en t s o f s ect i o n 7 1 (b )
are s at i s fi ed
. Ho o v er v . Co m m i s s i o n er, 1 0 2 F.3 dat8 4 4 -8 4 5
. Fi rs t , s ect i on 7 1 (b )(1 )(A) req u i res th at “ s u ch p aym en ti s recei v edb y (o r o n b eh al f o f) a s p o us e u n d er a d i vo rce o r s ep arat i o n i n s tru m en t ”. Th e reco rdb efo re
u s es t ab l i s h es th atal l o f t h e p aym en t s were act u al l y recei v edb y p et i t io n er, as
s h o wnb y M r. Fau s t ’ s b an kreco rd s . As t o wh et h er t h o se p aym en t s were m ad e
u n d er a d i v o rce o r s ep arat i o n ag reem en t , s ect i o n 7 1 (b )(2 ) b ro ad l y d efi n es a

“ d i vo rce o r s ep arat i o n i n s tru m en t ” as

(A) a d ecree o f d i vo rce o r s ep arat e m ai n t en an ce o r a wri t t en i n s tru m en t i n ci d en tt o s uch a d ecree, (B) a wri t t en s ep arat i o n ag reem en t , o r- 1 1 -

[* 1 1 ] (C) a d ecree (n o t d es cri b edi n s ub p arag rap h (A)) req u i ri n g a s p o u s e t o m ak e p aym en t s fo r t h e s up po rto r m ai n t en an ce o f t h e o th er s p o u s e. Th e 2 0 1 5 p aym en t s ati s s u e h ere o ccu rredu n d er (1 ) t h e Ord er (J an u ary 1 , 2 0 1 5 --M ay

3 1, 2 0 1 5 ), wh ich i s “ a d ecree” wi th i n th e m ean i n g o f s ect i o n 7 1 (b )(2 )(C); (2 ) t he Ag reem en t(J u n e 1 , 2 0 1 5 --Oct o b er 6 , 2 0 1 5), wh i ch i s a

“ wri t t en s ep arat i o n ag reem en t ” wi thi n th e m ean i n g o f s ect i o n 7 1 (b )(2 )(B); an d (3 ) t h e Decree (Oct o b er 7 , 2 0 1 5 --Decem ber 3 1, 2 0 15 ), wh i ch i s a “ d ecree o f d i v o rce” wi thi n t h e m ean in g o f s ect io n 7 1(b )(2 )(A). Th us , th e req u i rem en t s o f
s ect i on 7 1 (b )(1 )(A) were m etb ecau se al l o f t h e p aym en t s were act u al l y recei v ed
u n d er a d i v o rce o r s ep arat i o n ag reem en t . Th e Co u rtn o t es that , i n th e p art i cu lar co n t ex to f m i l it ary ret i rem en tp ay , ad d it i o n al s t atu t o ry

p ro v i s i on s ap p l y

t o an award , th o u gh th e p u rp o s e o f t h o s e p ro v is i o n s i s n o tt o ad dres s th e t ax treat m en to f m i li t ary b en efi t s . Sch u l l er v . Co m m i s s i o n er, T.C. M em o . 2 0 1 2 -3 4 7 , at* 5 -* 6 . Inad d i ti o n , i n 1 9 8 2 Co n g res s
en act edth e Un i fo rm edServ i ces Fo rm er Sp o u s es ’ Pro tect io n Act(USFSPA), Pu b
. L. No . 9 7 -2 5 2 , 9 6 St at . 7 3 0 (1 98 2 ) (co d i fi edas am en d edat1 0 U.S.C. s ec. 1 4 0 8 (2 0 1 2)), wh i ch n o w g o v ern s St at es ’ au th o ri ty t o awardm i l i t ary

ret i rem en ti n d i v o rces an ds ep arat i o n ag reem en t s . Ho wev er, b ecau s e p et i t i o n er recei v edn o- 1 2 -

[* 1 2 ] m il i t ary

ret i rem en tp aym en t s du ri n g th e p eri o dat i ss u e, we n eedn otan dd o
n o tad dres s co m

p li an ce wi th USFSPA. W e n o wtu rn t o s ect i o n 7 1 (b )(1 )(B), wh i ch p ro v i d es thata p aym en ti s n o t al i m o n y i f t h e i n s tru m en taward i n g th e p aym en t s peci fi cal l y d es i g nat es th e p aym en t as n o ti n cl u d ib l e i n g ro s s i n co m e an d n o t al l o w ab l e as a d edu ct i o n u n d er
s ect i on 2 1 5 . A s p eci fi c d es i g n at i o n n eedn o tm im i c s ect i o n 7 1 (b )(1 )(B) o r 2 1 5 , b u tth e s ub s t an ce o f s u ch a d es i g n at i o n m us tb e cl earl y refl ect edi n the i n s tru m en t. Es t at e o f Go l d m an v . Co m m is s i o n er, 1 1 2 T.C. 3 1 7 , 3 2 3 (1 9 99 ), aff’ dwi th o u t p ub l i s h edo p i n i o n s ub n o m . Sch u t ter v . Co m m i s s i o ner, 2 4 2 F.3 d3 9 0 (1 0 th Ci r. 2 0 0 0 ). Here, t h e Ord er, Ag reem en t , an d Decree h av e n o s u ch ex p res s p ro v i s i o n s , are s i len t as t o th e s p eci fi c t ax treat m en to f t h e p aym en t s , an dp ro v i d e n o o th er
ev i d en ce t h ata n o n al i m o ny d es i g n at i o n was i nt en d edi n s ubs t an ce. Th e s ect i o n 7 1 (b )(1 )(B) res tri ct i o n i s th erefo re n o tap p l i cab l e h ere. Sect io n 7 1 (b )(1 )(C) p ro v i d es th ati f a l eg al l y s ep arat edp ay o r s p o u s e an d p ay ee s p o u s e res i de i n th e s am e h o u s eh o l d , th e p aym en t s are n o t al im o n y o r
s ep arat e m ai n t en an ce. Pet i ti o n er an dM r. Fau s th av e l i v eds ep arat el y fro m o n e
an o th er atl eas ts i n ce t h e Nav y tran s ferred M r. Fau s tfro m W as h i ng t o n , D.C., t o Vi rg i n i a Beach o n J an u ary 1 , 2 0 1 3 . Inad d i t i o n , p et it io n er an dM r. Fau s th av e b een “ l eg al l y

s ep arat ed ” at l eas ts i n ce t h e o rd er o n Au g us t2 , 2 0 13 . Fo r p u rp o s es- 1 3 -

[* 1 3 ] o f s ect i o n 7 1(b )(1 )(C), p et i t i o n er an d M r. Fau s twere l eg al ly s ep arat edan d
res i di n g ap artfro m

each o ther at al l t i m es du ri n g 2 0 1 5
. Las t ly , we ad dres s th e s ect i o n 7 1 (b )(1 )(D) req u i rem en t s th at(1 ) t h ere b e n o p ay o r s p o u s e l iab i l i ty

t o m ak e p aym en t s aft er t h e p ay ee s p o u s e’ s d eat h an d (2 ) t h ere b e n o p ay o r s po u s e 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 st i tu t e fo r s u ch p aym en t s aft er t h e p ay ee s po u s e’ s d eat h
. Th e Ord er req u i res M r. Fau s tt o p ay p et i t i o n er $ 2 ,2 7 1 p er m o n th b eg i n n in g
o n Au g u s t2 , 2 0 13 , an dco n t i n ui n g u n t i l fu rt h er o rd er o f t he ci rcu itco u rt . Th e Ord er h as n o o ther p ro v i s io n s reg ard i n g th e t erm in at i o n o f p aym en t s . Va. Co d e An n . s ec. 2 0 -1 0 9 (D) (2 0 1 6 ) p ro v i d es : “ Un l es s o th erwi s e p ro v i d edb y s t i p u l at i o n
o r co n tract , s p ou s al s up p o rtan dm ai n t en an ce s h al l t erm i n at e up o n th e d eat h o f ei th er p art y

o r rem arri ag e o f t h e s p o u s e recei vi n g s up p o rt .” Th us , Va. Co d e An n . s ec. 2 0 -1 0 9 (D) cl ari fi es th e s p ou s al s upp o rtt erm in at i o n d at e. Th e Ord er m eet s th e req u i rem en t s o f s ect i o n 7 1 (b )(1 )(D). Reg ard i n g th e Ag reem en t , M r. Fau s th as a m o n th l y s p o us al s upp o rt
o b l i g at i o n o f $ 2 , 2 7 0
. Th ats p o u s al s up p o rt o b l i g at i o n t erm in at es “ up o n th e d eat h
o f ei ther p art y , p et i t i o n er’ s rem arri ag e, p et i t i o ner’ s co h ab i tat i o n i n a rel at i o n s h i p
an al o g o us t o m arri ag e fo r m ore t h an o n e y ear.” It i s al s o “ s t ay ed up o n * * *- 1 4 -

[* 1 4 ] [p et i t i o n er’ s ] m on th l y po rt i o n o f * * * [M r. Fau s t ’ s ] m i l i t ary ret i red p ay
m eet i n g o r ex ceed i n g $ 2 ,2 7 0 .0 0 p er m o n th
. ” Th e Ag reem en tal s o s ep arat el y s et s o u t a fo rm

u l a fo r d et erm in in g h o w m u ch p et i t i o n er i s t o recei v e fro m an y fu tu re m i l i t ary

ret i rem en tp ay

thatM r. Fau s t recei v es . Th e Ag reem en tfu rt h er d i rect s thatth e s p o u s al s up p o rt p aym en t s b e redu ced by

an y am ou n tp et i t i o n er recei v es u n d er t h e m i l i t ary ret i rem en t p ay fo rm u l a; p ro v i d edth at , i n co m b i n at i o n , p et i t i o n er n ev er recei ves l es s than $ 2 ,2 7 0 p er m o n th . Un l i k e th e s po u s al s up p ortp aym en t s , th e m i l i t ary ret irem en t p aym en t s
ex p res s l y t erm i n at e o n l y

wi th (1 ) M r. Fau s t ’ s ri g h tt o recei v e t he p aym en t s ; (2 ) M r. Fau s t ’ s d eat h; o r (3 ) p et i t i o n er’ s d eat h . Wh i l e n o m i l i t ary ret i rem en t p aym en t s were at i s s ue fo r 2 0 1 5 , we n o t e t h i s req u i rem en t , t o th e ex t en tap p l i cab l e h ere, wo u l dn ev erthel es s b e m etab i n i ti o s i n ce t h e p aym en t s ex p res s l y t erm i n at e
up o n p et i t i o n er’ s d eat h
. Tak i n g th e p ro v is i o n s o n “ s p o u s al s upp o rto bl i g at i o n” an d“ m il i taryret i red p ay ” t o g et h er, t h ere i s n o o ut co m e u n d er t h e Ag reem en twh ere M r. Fau s ti s l i ab l e t o m ak e p aym en t s b ey on dp et i t i o n er’ s d eat h. As a res u l t , th e Ag reem en tal s o
m eet s th e req u irem en t s o f s ect i o n 7 1 (b )(1 )(D). Th e Decree al s o req ui res M r. Fau s tt o p ay $ 2 ,2 7 0 p er m o n th t o p et i t i o n er b y affi rm in g , rat i fy in g , an di nco rp o rat i n g b y referen ce t h e Ag reem en t . Sp eci fi cal l y ,- 1 5 -

[* 1 5 ] p arag rap h 4 o f t h e Decree co p i es , wi th m i n o r ed i ts , s ect i o n 4 .b
. o f t h e Ag reem en t , wh i ch s et s fo rt h t hatth e s p o u s al s up p o rtp aym en t s t o p et i t i o n er t erm i n at e up o n h er d eat h . Th e Decree m eet s t h e co n d i t i on s o f s ect i on 7 1 (b )(1 )(D) fo r t h e s am e reas o n s th atth e Ag reem en tm eet s th e co n d i t i o ns o f s ect i on 7 1 (b )(1 )(D). W i th th e Ord er, Ag reem en t , an dDecree each m eet i ng al l o f t h e co n d i t i o n s
o f s ect i o n 7 1 (b ), we m

u s tco n cl u d e t h atfo r Fed eral t ax p u rp o ses th e p aym en t s at i s su e fo r 2 01 5 were al i m o n y , wh i ch p et i t io n er fai ledt o rep o rt . 3
. Wh et h er Pet it i o n er Is Li ab l e fo r a Pen al ty Pu rs u an t t o Sect io n 6 66 2 (a) Sect io n 6 6 6 2 (a) an d(b )(1 ) i m p o s es an accu racy -rel at edp en al ty equ al t o 2 0 % o f t h e p ort io n o f an u nd erp aym en to f t ax req u iredt o b e s h o wno n a retu rn th ati s at tri b u t ab l e t o “ [n ] eg l i g en ce o r d is reg ardo f ru l es o r reg u l at i o n s .” Neg li g en ce i n cl u d es “ an y fai l ure t o m ak e a reas o n ab l e at t em p tt o co m p l y wi th th e p ro v is i o n s o f t h i s t i t l e”. Sec. 6 6 6 2 (c). W e h av e d efi n edn eg l i g en ce as th e fai l u re t o ex erci s e du e care o r t h e fai l u re t o d o wh ata reas o n ab l e p ers o n wo u l dd o u n d er th e ci rcu m s t an ces . See Al l en v . Co m m i ss i o n er, 9 2 T.C. 1 , 1 2 (1 9 8 9 ), aff’ d, 9 2 5 F.2 d3 4 8 (9 th Ci r. 1 9 9 1); Neel y v . Co m m i s s i o ner, 8 5 T.C. 9 3 4 , 9 4 7 (1 9 8 5 ). Th e Co m m is s i o n er b ears th e b u rd en o f p ro du ct i o n wi th res p ectt o an y
accu racy -rel at edp en al ty

u n d er s ect i o n 6 6 62 (a) d et erm in edi n a n o t i ce o f- 1 6 -

[* 1 6 ] d efi ci en cy . See s ec. 7 4 9 1 (c); Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 -4 4 7 (2 0 0 1 ). To s at i s fy th e b u rd en o f p ro du ct i o n , “ th e Co m m is s i o n er m

u s t
co m e fo rward wi th s u ffi ci en tev i d en ce i n d i cat i n g th at i t i s ap p ro p ri at e t o i m p o s e” th e p en al ty . See Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at 4 4 6. Th e Co m m i s s i o n er’ s b u rd eno f p ro du ct i o n u n d er s ect i o n 7 49 1 (c) i n cl ud es es t ab l i s h in g co m p l i an ce wi t h th e s up erv i s o ry

ap p ro v al req u i rem en to f s ect i on 6 7 5 1(b ). Cl ay v . Co m m i s s i o n er, 1 5 2 T.C. _

_ , _

_ (s l i p o p . at3 9) (Ap r. 2 4 , 2 0 1 9 ); Graev v . Co m m i s s i o n er, 1 4 9 T.C. 4 8 5 , 4 9 2 -4 9 3 (2 0 17 ), s up p lem en t i n g an do v erru li n g i n p art1 4 7 T.C. 4 6 0 (2 0 1 6 );
s ee al so Ch ai v . Co m

m i ss i o n er, 8 5 1 F.3 d1 9 0 , 2 2 2 (2 dCi r. 2 0 1 7 ) (ci t i n g Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at4 4 6), aff’ g i n p art , rev ’ g i n p artT.C. M em o. 2 0 1 5 -4 2
. Pet i t i o ner wo u l dn o tb e l i ab l e fo r t h e accu racy -rel at edp en al ty u n d er s ect i o n 6 6 6 2 (a) u n l es s th e reco rds h o wed th atth e p en al ty was p ro perl y

d et erm i n edb y
res p o n d en t. See Graev v . Co m m i s s i o n er, 1 4 9 T.C. at4 93 . Ino rd er t o m eeth i s b u rd eno f p ro du ct i o n fo r s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ty , res p o n d en t
m u sts h o wth atth ere was wri t t en s uperv i s o ry ap p ro v al o f t h e i ni t i al p en al ty d et erm i n at i o n . See s ecs . 6 7 5 1 (b )(1 ), 7 4 91 (c); Cl ay v . Co m m i s s i o n er, 1 5 2 T.C. at

_ _ (s l i p o p . at4 3 -4 4 ); Graev v . Co m m i s s i o n er, 1 4 9 T.C. at4 9 3 n .1 4 (ci t i n g Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 dat2 2 1).- 1 7 -

[* 1 7 ] Fi n al l y , th e s ect io n 6 6 62 (a) p en al ty d oes n o tap p l y t o an y p o rt io n o f an
u n d erp aym en t “ i f i t i s s h o wnthatth ere was a reas o n ab l e cau s e fo r s u ch p ort i o n
an d th atth e t ax p ay er act edi n g o o dfai th” wi th res p ectt o i t . Sec. 6 6 64 (c)(1 ). Res p o n d en td et erm i n edth at th e $ 4 , 0 6 2 u n d erp aym en t res u lt i ng fro m th e i n cl u s i o n o f $ 2 7 ,2 5 2 6 i n al i m o n y as g ro s s i n co m e was s ub jectt o th e s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ty . W e ad dres s s up erv i s o ry

ap p ro v al an dreas o n ab l e cau s e i n tu rn . a. Sup erv i s o ry

Ap pro v al Sect io n 6 7 5 1 (b ) req u i res m an ag eri al ap p ro v al o f p en al t i es , i n wri ti n g . Sp eci fi cal l y , s ect i o n 6 7 5 1 (b )(1 ) p ro v i d es : “ No p en al ty

u n d er t h is t i t l e s h al l b e
as s es s edu n l es s th e i n i t i al d et erm i n at i o n o f s u ch as s es s m en t i s p ers o n al l y ap p ro v ed (i n wri t i n g ) b y

the i m m ed iat e s up erv i so r o f t h e i n d iv i du al m ak i ng s u ch d et erm i n at i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i g n at e.” In Cl ay v . Co m m i s s i o n er, 1 52 T.C. at_

_ (s l i p o p . at4 3 -4 4 ), we an s weredthe qu es ti o n o f wh atco n st i tut es an i n i t i al d et erm in at io n . W e h el dth atan i n it i al d et erm i n at i o n o ccu rs n o l at er t h an wh en “p ro p o sedad ju st m en t s are co m

m u n i cat ed t o the t ax p ay er fo rm al l y

as p arto f a co m

m u n i cat io n th atad vi s es th e t ax p ay er t h at p en al t i es wi ll b e p ro po s edan dg i v i n g th e t ax p ay er t he ri gh tt o ap peal th em wi th

6 As n o t edp rev i ou s l y , res p o n d en tn o wco n ced es $ 7 o f t h i s am o u n t .- 1 8 -

[* 1 8 ] Ap p eal s * * * [Atth atp o i n t ] th e i s s u e o f p en al t i es i s o ffi ci al l y o n t h e t ab l e.” Id . Sup erv i s o ry

ap p ro v al m

u s tb e o b t ai n edb efo re t h atm o m en tt o ach i ev e t h e
co n gres si o n al i n t en to f s ect i o n 6 7 5 1 (b ): “ to p rev en t IRS ag en t s fro m th reat en i n g
u n ju s t i fi edp en al t ies t o en co u rag e t ax p ay ers t o s et t l e”. Ch ai v . Co m m i s si on er, 8 5 1 F.3 dat 2 19
. Th e reco rdco n t ai ns ev i d en ce t hatth e ex am i n er fi l l edo uta LeadSh eetfo r Accu racy -Rel at edPen al ty 2 0 % Neg li g en ce Di s reg ardo f th e Ru l es o r Reg u l at i o n (IRC Sec 6 6 6 2 (c)) o n M ay 1 2 , 2 0 1 7 . Th e reco rdal s o co n t ai n s cas e n ot es i n d i cat i n g t h at a M s . Sh erm an ap p ro v edth e p en al ty o n M ay 1 8 , 2 0 1 7 , an d
res p o n d en t p res en t edcred i b l e t es t i m o n y th atM s . Sh erm an was th e ex am in er’ s d i rect m an ag er. Th i s i n fo rm at i o n was co m m u n i cat edt o p et i t io n er b y

l et t er d at ed J u l y 3 1 , 2 0 1 7. W e fi n d, as a res u l t , th atres p o n d en th as s at i sfi edh i s b u rd en o f p ro duct i o n wi th res pect t o s ect i o n 6 7 51 (b )(1 ). b
. Reas on ab l e Cau s e Ev en tho u g h th e Co m

m i s s i o n er h as m eth i s b u rd en o f p ro du ct i o n, the
s ect i on 6 6 6 2 (a) p en al ty

s t i l l m ay n o tb e i m

p o s edi f t h e t ax pay er p ro du ces p ers u as i v e ev i d en ce th ats h e “ act edwi th reas o n ab l e cau s e an dg o o d fai th ” wh i ch
can b e d et erm i n edi n l i g h to f p et i t io n er’ s “ ex p eri en ce, kn o wl ed g e, an dedu cat i o n.” Hi g bee v . Co m

m i ss i o n er, 1 1 6 T.C. at4 4 8 -4 4 9 ; s ee s ec. 6 6 6 4 (c)(1 ). Th e- 1 9 -

[* 1 9 ] d et erm in at i o n o f reas o n ab l e cau s e an dg o o dfai th “ i s m ad e o n a cas e-b y -cas e b as i s , t ak i n g i n t o acco un tal l p ert i n en tfact s an d ci rcu m s tan ces .” Sec. 1 .6 66 4 -4 (b )(1 ), In co m e Tax Reg s . Ci rcu m s t an ces th ati n d i cat e reas o nab l e cau s e
an d g o o dfai th i n cl u d e rel i an ce o n th e ad v i ce o f a t ax p ro fes s i o nal o r an h o n es t
m i s u n d ers t an d i n g o f t h e l aw t h ati s reas o n ab l e i n t h e l i g h to f al l th e fact s an d ci rcu m s t an ces . Sec. 1 .6 6 64 -4 (b )(1 ), In co m e Tax Reg s .; s ee Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at4 4 9. Du ri n g th e t ri al p et i t io n er u n d ers t o o dth e qu es ti o n s as k edo f h er wi th th e
as s i s tan ce o f a tran s l at o r; h o wev er, we reco g n i ze t h at En gl i s h i s n o tp et i t i o n er’ s fi rs tl an g u ag e an dth ats h e i s o f l i m i t edEn g l i s h p ro fi ci en cy . In v i ew o f p et i t i o n er’ s l i m i tededu cat i o n al b ack g ro un d an dl i m i t edEn g l i s h , co m b i nedwi th th e co m pl i cat ed s eri es o f t h e Ord er, Ag reem en t , an dDecree, s o m e co nfu s i o n i s
u n s u rp ri s i n g . Ev enres p o n d en twas i n i ti al ly co n fu s eden ou g h t o co n s i d er p aym en t s p red at i n g the Ag reem en tas n o n d edu ct ib l e t o M r. Fau s t (an dth erefo re
n o tal i m o n y ). Ont o p o f t h at , we reco g ni ze p et i t i o n er’ s cred i b l e t es t i m o n y wi th reg ardt o h er m en tal s t at e, as fu rt h er ev i d en cedb y th e Co n s en t Ag reem en t , th e Nav y ’ s
s ub s t an t i at i o n o f s p o us al em o t io n al ab u se, an d h er p art ici p at io n i n a d o m es t i c- 2 0 -

[* 2 0 ] v i o l en ce s up p o rtg ro up . Las t l y , we n ot e t h atp et i t i o n er o b t ai n edwh at l o w-i n co m e-t ax p ay er p ro fes s i o n al as s i s t an ce s he co u ldi n p rep ari n g h er t ax retu rn . Tak i n g al l o f t he fact s an dci rcu m s t an ces t o g et h er, t he Co urtb el i ev es th at p et i t i o n er m ad e h on es tan d reas o n ab l e effo rt s t o d et erm i n e h er 2 0 15 Fed eral i n co m e t ax l i ab i l i ty

an dth atth e u n d erp aym en tres ul t edfro m an h o n es t
m i s u n d ers t an d i n g o f l aw t h ati s reas on ab l e i n th e l i g h t o f h er l i m i t edEn g l i s h p ro fi ci en cy , edu cat i o n , h i s t o ry o f ab u s e atth e h an d s o f h er ex -h u s b an d, an dth e
m u lt i tu de o f co m

p li cat edfact s an du n u s ual ci rcu m st an ces s u rro u n d in g th is p art i cu l ar cas e. W e co n cl u d e th atp et i t io n er h as p ro ven th ats h e act edwi th
reas on ab l e cau s e an di n g oo dfai th an di s n o tl i ab l e fo r th e accu racy -rel at ed p en al ty fo r 2 0 1 5
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t ered
u n der Ru l e 1 5 5
.