T.C. Memo. 2008-207

UNITED STATES TAX COURT

RICHARD W. FIELDS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

RICHARD W. FIELDS AND EKATERINA FIELDS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 22132-06, 4256-07. Filed August 28, 2008.

Michael D. Jones, for petitioners.

Edwina L. Jones, for respondent.

MEMORANDUM OPINION

JACOBS, Judge: These consolidated cases were submitted

fully stipulated pursuant to Rule 122. All section references

are to the Internal Revenue Code as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure. 
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The issues for decision are: (1) Whether certain “Deferred

Payments” Richard Fields made in 2000, 2001, and 2003 to Karen

Fields, his former spouse, are deductible as alimony; and (2) if

not, whether Richard Fields and Ekaterina Fields (petitioners)

are liable for the accuracy-related penalty under section 6662(a)

as a result of their claiming an alimony deduction for that

payment in 2003.

Background

The facts have been fully stipulated and are so found. The

stipulation of facts and the attached exhibits are incorporated

herein by this reference. Petitioners resided in New York when

they filed the petitions herein. 

Richard Fields filed his tax returns for 2000 and 2001 as a

married taxpayer filing separately. He and Ekaterina Fields

filed a joint tax return for 2003. 

The deferred payments at issue herein arose as a consequence

of Richard Fields’s obligations to Karen Fields pursuant to a

Separation, Support and Property Settlement Agreement (agreement)

executed on October 7, 1999. Mr. Fields is an attorney; however,

both he and Karen Fields had the advice of independent counsel in

the negotiation and preparation of the agreement. 

The agreement contains 19 headings and 42 numbered

paragraphs. Paragraphs 3 and 4 of the agreement appear under the

heading “Alimony”. Paragraph 3 contains mutual waivers of claims
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each party might have against the other for alimony or spousal

support except as specifically provided in paragraph 4. 

Paragraph 4(a) provides: 

So long as any portion of the Deferred Payments referred to

in Paragraph 15(b) remains unpaid, the Husband shall pay to

the Wife alimony at the rate of Seventy Five Thousand

Dollars ($75,000) per year, in equal monthly installments of

Six Thousand Two Hundred Fifty Dollars ($6,250), until

December 31, 2001. * * * Commencing January 1, 2002, and on

the first day of each month thereafter until December 31,

2002, so long as any portion of the Deferred Payments

referred to in Paragraph 15(b) remains unpaid, the Husband

shall pay the Wife alimony at the rate of Fifty Thousand

Dollars ($50,000) per year, in twelve equal monthly

installments of Four Thousand One Hundred Sixty-Seven

Dollars ($4,167).

Paragraph 4(b)provides:

Alimony payments pursuant to this Paragraph 4 shall be

taxable to the Wife and deductible by the Husband, and shall

terminate forever on the first to occur of the death of

either Party or full satisfaction of the Note (as defined in

Paragraph 15(b) below); provided however, in the event the

Husband fails to pay timely any of the Deferred Payments (as

defined in Paragraph 15(b) below), the alimony payments to

the Wife shall increase by twenty percent (20%) if, after

expiration of the ten (10) day cure period, the Husband has

not become current on the Note. Alimony shall remain at the

increased level until the Husband becomes current on the

note. 

Paragraph 4(c) of the agreement provides: “Payments made

pursuant to this paragraph shall not terminate in the event of

the Wife’s remarriage”, and paragraph 4(d) of the agreement

provides: “Except as provided in paragraph 4(a) and (b), alimony

is non-modifiable.”
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1The heading that precedes the heading “Personalty” in the

agreement is “Real Property”. Two paragraphs are set forth

thereunder (par. 7 and par. 8). Par. 7 provides for the release

by Karen Fields of any interest in Mr. Fields’s leasehold of a

residence in London. Par. 8 provides for the release by Karen

Fields of any interest in Mr. Fields’s residence in Washington,

D.C. 

 

In addition to par. 15, various other paragraphs appear

under the “Personalty” heading, most of which have subheadings: 

“Furniture, Home Furnishings, Fine Art and Other Tangible

Personal Property” (par. 9), “Automobiles” (par. 10), “Pets”

(par. 11), “Boat and Jet Skis” (par. 12), “Swidler Berlin Shereff

Friedman, LLP” (par. 13), “Retirement Assets” (par. 14), and par.

16 relating to mutual indemnifications from third-party claims. 

Paragraph 15 of the agreement appears under the heading

“Personalty”1 and provides, in pertinent part:

15. Lump Sum:

(a) At Closing, the Husband will pay the Wife Two

Million Dollars ($2,000,000) in immediately

available funds. * * *

(b) Thereafter, the Husband shall pay to the Wife the

following amounts in immediately available funds

(“Deferred Payments”):

 - Two Hundred Seventy Five Thousand Dollars

 ($275,000) on or before December 31, 1999; and

- Five Hundred Thousand Dollars ($500,000) on or 

 before December 31, 2000; and

- Five Hundred Thousand Dollars ($500,000) on or 

 before December 31, 2001; and

- Five Hundred Twenty Five Thousand Dollars 

 ($525,000) on or before December 31, 2002.

(c) The Deferred Payments shall be evidenced by a 

Promissory Note (the “Note”), and delivered to the

Wife at Closing. The Deferred Payments shall be

secured by an Irrevocable Letter of Instruction

(the “Instruction Letter”) from the Husband to the

Firm [the law firm of which Mr. Fields was a

partner at that time], requiring the Firm in the

event of the Husband’s default in payment under

the Note, to pay directly to the Wife any funds or
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assets due the Husband including without 

limitation salary, draws, bonuses, return of

capital or other forms of compensation otherwise

owed to the Husband by the [F]irm * * *.

(d) The Promissory Note shall not bear interest and 

the Husband shall have the right to prepay it

without penalty. * * * 

(e) All payments to the Wife under this paragraph are 

tax free to her and are not modifiable. The 

Husband expressly agrees that for the purpose of 

incorporation into a court order, the obligations 

set forth in Paragraph 15(b) above arise out of

and are in the nature of support obligations and

thus shall not be dischargeable in bankruptcy. 

The Husband expressly agrees that he shall not

seek to discharge or release any of these

obligations in bankruptcy or any other similar

proceeding. The Husband further agrees that in

the event he files for bankruptcy and is relieved

of any of his obligations under Paragraph 15(b),

then the Wife shall have the right to petition a

court of competent jurisdiction to receive an

award of spousal support in an amount not to

exceed the amount of the discharged Deferred

Payments referred to in Paragraph 15(b). 

(f) Except as provided in this agreement, upon

delivery of the Two Million Dollar ($2,000,000)

lump sum payment to the Wife at Closing, all

assets, accounts, and interests of the parties in

joint names or in the Husband’s Separate name or

in the Husband’s possession shall become the

Husband’s sole and separate property. In addition

to the assets and funds identified above as the

Wife’s sole and separate property, all assets,

accounts and interests in the Wife’s sole name

shall become her sole and separate property.
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Paragraph 25 provides:

25. The Parties intend, understand and agree that all

transfers of property and Deferred Payments pursuant to

Paragraph 15 above (excluding alimony payments) made to

the Wife pursuant to this Agreement are intended to be

tax-free to the Wife, pursuant to Section 1041 of the

Internal Revenue Code, or under any other sections of

the Internal Revenue Code which may pertain to said

transfers or payments; provided, however, that the Wife

shall be solely responsible for any taxes she may incur

if she subsequently sells, transfers, or otherwise

disposes of the property and payments she receives

pursuant to this Agreement.

Paragraph 19 of the agreement requires Mr. Fields to 

maintain a decreasing term life insurance policy on his life

designating Karen Fields as the beneficiary and owner, with the

initial face amount of the policy being equal to the unpaid

balance of the deferred payments. That policy is required to

remain in effect until Mr. Fields satisfies the promissory note

that evidences his obligation pursuant to paragraph 15 of the

agreement, and the death benefits payable thereunder to be

“commensurate with the unpaid balance of the Deferred Payments.”

Some of the terms of the agreement were incorporated into

the Circuit Court of Fairfax County, Virginia’s divorce decree

dated November 5, 1999 (divorce decree). The exact language of

paragraph 3 of the agreement (relating to waivers of support

other than as provided in paragraph 4 of the agreement),

paragraph 4(a) of the agreement (relating to monthly installments

of alimony during 2001 and 2002), paragraph 4(b) of the agreement

(relating to the characterization of the payments from Richard
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2Mr. Fields’s tax years 1999 and 2002 are not at issue, and

the record does not reveal how he reported, for tax purposes, any

payments he made to Karen Fields during those years. 

Fields to Karen Fields as alimony for tax purposes), paragraph

4(c) of the agreement (relating to nontermination of the alimony

payments upon Karen Fields’s remarriage), and paragraph 4(d) of

the agreement (relating to nonmodification of the alimony

payments) was incorporated and reproduced in the divorce decree

as paragraph 17 thereof. Paragraph 17 of the divorce decree is

captioned “Support” and is the only provision in the divorce

decree pertaining to spousal support. The divorce decree

contains no reference to paragraph 15 of the agreement (other

than the reference to paragraph 15 found in paragraph 4 of the

agreement, which was incorporated and reproduced in the divorce

decree). 

Mr. Fields timely filed his tax return for the year 2000

with the assistance of American Express Tax & Business Services

(American Express) of Rockville, Maryland, on October 15, 2001.2

The return reported total income of $1,848,795 and reflected,

among other items, a $76,250 claimed deduction for alimony. The

tax shown on the return was $693,313. On December 31, 2002, Mr.

Fields, with the assistance of American Express, prepared and

filed an amended return for 2000 in which he reduced by $500,000

the amount of adjusted gross income he had previously reported. 
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The explanation for the change was: “The total alimony paid * *

* was understated by $500,000 on the original tax return.” The

revised tax, according to the amended return, was $489,373.

Mr. Fields timely filed his tax return for the year 2001

with the assistance of Coppergate Associates International of

London, England, on January 27, 2003 (pursuant to an extension of

time in which to file until January 30, 2003, inasmuch as

petitioner was living abroad). The return reported total income

of $2,133,971 and reflected, among other items, a $568,750

claimed deduction for alimony. The tax shown on the return was

$423,994.

Mr. Fields failed to make the final deferred payment of

$525,000 to Karen Fields by December 31, 2002, as contemplated in

the agreement. Instead, that payment was made in March 2003. 

Contemporaneously with the March 2003 payment, Richard and Karen

Fields executed an “Agreement and Limited Mutual Release” in

which, among other things, Karen Fields released Richard Fields

from his obligations pursuant to “Paragraphs 15a-d (entitled Lump

Sum), and Paragraphs 3-4 (entitled Alimony)” of the agreement.

Mr. Fields and Ekaterina Fields timely filed their tax

return for the year 2003 with the assistance of Meridian

Services, Ltd., of Charleston, South Carolina, on October 15,

2004. The return reported total income of $924,867 and
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3On Jan. 16, 2007, respondent transmitted to petitioners an

examination report for 2003 which reduced the alternative minimum

tax and corresponding deficiency in tax for 2003 to $169,969 and

reduced the penalty for 2003 to $33,993.80.

reflected, among other items, a $525,000 claimed deduction for

alimony. The tax shown on the return was $89,507.

After examining the 2000, 2001, and 2003 tax returns,

respondent determined deficiencies in tax of $203,940, $195,500,

and $170,797 respectively for those years. Respondent issued a

notice of deficiency to Mr. Fields for years 2000 and 2001 on

July 31, 2006, and a notice of deficiency to petitioners

for the year 2003 on January 4, 2007. The deficiencies

respondent determined were attributable entirely to disallowance

of $500,000 of the claimed deductions for alimony in 2000 and

2001 and the $525,000 claimed deduction for alimony in 2003

(i.e., deductions attributable to payments made pursuant to

paragraph 15(b) of the agreement). In addition, in his notice of

deficiency, respondent determined that for 2003 petitioners were

liable for a $34,159.40 penalty under section 6662(a).3

Respondent did not challenge the $76,250 alimony deduction

claimed in 2000 or the $68,750 alimony deduction claimed in 2001

(i.e., deductions attributable to payments made pursuant to

paragraph 4(a) of the agreement). 

Petitioners timely petitioned this Court for a

redetermination of the deficiencies. Petitioners claim that all

amounts Mr. Fields paid to Karen Fields (and not just the amounts
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4Petitioners claimed, for the first time on brief, that

interest on any underpayment should be suspended pursuant to sec.

6404(g). Petitioners do not assert, and the record does not

indicate, that the Secretary made a determination not to abate

such interest, which would be reviewable by this Court pursuant

to sec. 6404(h). Hence, we deem petitioners’ claim for the

suspension of interest to be premature.

paid pursuant to paragraph 4(a) of the agreement) were deductible

as alimony under section 215, noting: (1) Paragraph 15 of the

agreement does not specifically state that those payments are not

allowable as deductions under section 215; and (2) Mr. Fields was

not obligated to make payments pursuant to paragraph 15(b) in the

event of Karen Fields’s death. Moreover, petitioners posit that

even though the first sentence of paragraph 15(e) states that 

“All payments to the Wife under this paragraph are tax free to

her”, the deferred payments under paragraph 15(b) are in the

nature of spousal support and would be tax free only in the event

Mr. Fields filed for bankruptcy.

Petitioners did not address the issue of their liability for

the section 6662(a) penalty for 2003 in their petition, but both

they and respondent addressed that issue on brief.4

Discussion

As stated in 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):

Generally, property settlements (or transfers of

property between spouses) incident to a divorce neither are

taxable events nor give rise to deductions or recognizable

income. See sec. 1041. On the other hand, amounts received
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as alimony or separate maintenance payments are taxable to

the recipient (pursuant to sections 61(a)(8) and 71(a)) and

deductible by the payor (pursuant to section 215(a)) in the

year paid. For tax purposes, the phrase “alimony or

separate maintenance payments” is defined in section

71(b)(1) as any cash payments meeting the following four

criteria:

“(A) such payment is received by (or on behalf of) a

spouse under a divorce or separation instrument,

(B) the divorce or separation instrument does not

designate such payment as a payment which is not includible

in gross income under this section and not allowable as a

deduction under section 215,

(C) in the case of an individual legally separated from

his spouse under a decree of divorce or of separate

maintenance, the payee spouse and the payor spouse are not

members of the same household at the time such payment is

made, and

(D) there is no liability to make any such payment for

any period after the death of the payee spouse and there is

no liability to make any payment (in cash or property) as a

substitute for such payments after the death of the payee

spouse.”

The parties agree that Mr. Fields’s payments to Karen Fields

of $76,250 in 2000 and $68,750 in 2001 made pursuant to paragraph

4(a) of the agreement constitute deductible alimony. The parties

further agree that Mr. Fields’s payments to Karen Fields made

pursuant to paragraph 15 of the agreement satisfy the first and

third criteria of section 71(b)(1). They disagree as to whether

Mr. Fields’s payments to Karen Fields pursuant to paragraph 15 of

the agreement satisfy the second and fourth criteria of section

71(b)(1). For the reasons set forth below, we hold those

payments do not and thus sustain respondent’s determination that
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the payments Mr. Fields made to Karen Fields of $500,000 in 2000,

$500,000 in 2001, and $525,000 in 2003 are not alimony.

With respect to the second criterion of section 71(b)(1),

petitioners posit that in order for payments from one spouse to

the other to be disqualified as alimony payments made pursuant to 

a separation agreement or divorce decree, the separation

agreement or divorce decree must specifically provide that the

payments are not includable in the recipient’s income and are not

deductible by the payor. Because the agreement does not contain

such a specific provision, petitioners maintain that Mr. Fields’s

payments to Karen Fields are not disqualified as deductible

alimony under section 71(b)(1)(B). 

We have already stated, in Estate of Goldman v.

Commissioner, supra at 323, that the divorce or separation

instrument need not mimic the language of section 71(b)(1)(B). 

Rather, we have stated that a nonalimony designation will be

found “if the substance of such a designation is reflected in the

instrument.” Id. 

In our view, the payments to be made pursuant to paragraph

15(b) of the agreement were designed to accomplish a purpose

different from that of the payments made pursuant to paragraph 4. 

We believe the payments made pursuant to paragraph 4 were

intended to be for the support of Karen Fields, whereas the
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payments made pursuant to paragraph 15 were intended to be a

property settlement. The basis of this belief is as follows.

Paragraph 15 of the agreement is concerned with the division

of property between Mr. Fields and Karen Fields. Tellingly,

paragraph 15 appears under the heading “Personalty”, whereas

paragraph 4 appears under the heading “Alimony”. And paragraph 4

is the only paragraph of the agreement referred to in the divorce

decree as requiring Mr. Fields to pay Karen Fields alimony. 

Paragraph 15(e) of the agreement provides that payments

under paragraph 15 are to be tax free to the Wife (i.e., Karen

Fields), whereas paragraph 4(b) designates the payments under

paragraph 4 from the Husband (i.e., Mr. Fields) to the Wife as

alimony “taxable to the Wife and deductible by the Husband”. If

all the payments to be made under both paragraphs 4 and 15 were

intended to be alimony, we believe the agreement: (1) Would not

have denominated the payments differently by means of placement

in separate paragraphs and under different headings, and (2)

would not have contained contradictory instructions as to the

inclusion (or not) of the payments in Karen Fields’s income. 

Moreover, the amounts payable pursuant to paragraph 15(b) of

the agreement are substantially larger than those required by

paragraph 4 of the agreement. The payments made pursuant to

paragraph 15(b) of the agreement, referred to as “Deferred

Payments”, are, in our opinion, a series of discrete amounts in
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the nature of installment payments, evidenced by a promissory

note and secured by an irrevocable letter of instruction to Mr.

Fields’s law firm. Tellingly, as further security Mr. Fields was

required to maintain a decreasing term life insurance policy on

his life of which Karen Fields was to be the beneficiary and

owner until the promissory note evidencing Mr. Fields’s

obligations under paragraph 15 was satisfied. Providing such

security is inconsistent with the provision in paragraph 4(b)

that such an obligation was to be extinguished upon Mr. Fields’s

death.

Petitioners point to some provisions of the agreement which

give rise to a colorable claim that the payments made pursuant to

paragraph 15 were deductible alimony. For example, paragraph 25,

in describing the agreed tax treatment of the payments under

paragraph 15 as tax free to Karen Fields, contains a

parenthetical reference to alimony payments. Paragraph 15(e)

first specifies that payments made under that paragraph are tax

free to Karen Fields but then characterizes the payments to be

made pursuant to paragraph 15(b) as support obligations “and thus

not dischargeable in bankruptcy”. It further provides that Karen

Fields “shall have the right to petition a court of competent

jurisdiction to receive an award of spousal support in an amount

not to exceed the amount of the discharged deferred payments

referred to in Paragraph 15(b).” Moreover, we are mindful that
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the agreement provides for an increase in the amount and duration

of alimony payments under paragraph 4(a) and 4(b) in the event

Mr. Fields does not timely make the payments required by

paragraph 15, suggesting a linkage or interchangeability between

the two types of payments. 

Notwithstanding the aforesaid, we are persuaded that the

agreement, when read in its entirety from a “reasonable,

commonsense perspective,” reflects a clear and express intent of

the parties that the amounts which Mr. Fields was required to pay

pursuant to paragraph 15 of the agreement constitute a division

of marital assets, as opposed to spousal support, and are not to

be included in the gross income of Karen Fields nor allowed as

deductions to Mr. Fields. See Estate of Goldman v. Commissioner,

112 T.C. at 323. Consequently, the second criterion of section

71(b)(1), which the payments must satisfy if they are to qualify

as alimony, has not been met.

With respect to the fourth criterion of section 71(b)(1),

petitioners contend that the payments Mr. Fields was required to

make pursuant to paragraph 15 would not continue upon Karen

Fields’s death, and consequently the requirement of subparagraph

(D) of section 71(b)(1) is met. We disagree with petitioners’

contention. 

Whether a postdeath obligation exists may be determined by

the terms of the divorce or separation instrument, or, if the
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5Petitioners rely on Va. Code Ann. sec. 20-109.1 (2004),

which provides that upon the death or remarriage of the spouse

receiving support, spousal support shall terminate unless

otherwise provided by stipulation or contract. We already found

that payments Mr. Fields made pursuant to par. 15 were not

spousal support payments but instead were part of a division of

marital assets.

instrument is silent on that matter, by State law. Morgan v.

Commissioner, 309 U.S. 78, 80-81 (1940); see also Kean v.

Commissioner, 407 F.3d 186, 191 (3d Cir. 2005), affg. T.C. Memo.

2003-163. But there is no need to resort to State law to

determine the character of the payments at issue.5 Paragraph

4(b) of the agreement provides that the payments to be made

thereunder shall terminate on the death of either party or upon

the payment of all amounts due pursuant to paragraph 15,

whichever occurs first. Such language is conspicuously lacking

in paragraph 15. The agreement requires Mr. Fields to make

payments pursuant to paragraph 15 until fixed amounts ($500,000

in 2000, $500,000 in 2001, and $525,000 in 2002) are paid. It

does not state that the obligation to make those payments

terminates upon the death of Karen Fields. Therefore, the

amounts Mr. Fields paid pursuant to paragraph 15 of the agreement

do not satisfy the requirement of subparagraph (D) of section

71(b)(1). 

Having sustained respondent’s determination that the

payments Mr. Fields made to Karen Fields of $500,000 in 2000,

$500,000 in 2001, and $525,000 in 2003 are not alimony, we now
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turn our attention to respondent’s determination with respect to

the accuracy-related penalty under section 6662(a). 

Respondent determined that petitioners’ 2003 underpayment

was attributable to negligence or disregard of rules or

regulations under section 6662(b)(1) and/or to a substantial

understatement of income tax under section 6662(b)(2). We

address only respondent’s claim that petitioners’ underpayment

for 2001 was attributable to a substantial understatement of

income tax under section 6662(b)(2). We do so because a finding

that there was a substantial understatement of income tax alone

would be determinative that petitioners are liable for the

section 6662(a) penalty.

Under section 7491(c), the Commissioner has the burden of

production with respect to any penalty. Once the Commissioner

meets the burden of production, the taxpayer continues to have

the burden of proof with respect to whether the Commissioner’s

determination of the penalty is correct. Rule 142(a); Higbee v.

Commissioner, 116 T.C. 438 (2001). The submission of a case

without trial under Rule 122(a) does not alter the requirements

otherwise applicable to adducing proof. Rule 122(b). 

 For purposes of section 6662(b)(2), an understatement is

equal to the excess of the amount of tax required to be shown in

the tax return over the amount of tax shown. Sec. 6662(d)(2)(A). 

The difference is considered “substantial” in the case of an
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6Following submission of this case, by means of an

attachment to their brief petitioners attempted to introduce into

evidence a written opinion by a law professor in support of a

claim that there was substantial authority as provided in sec.

6662(d)(2)(B)(i) for their treatment of Mr. Fields’s payments to

Karen Fields. The written opinion, which does not cite any 

legal authorities, was not included in the stipulation of facts

and exhibits submitted pursuant to Rule 122. Consequently, the

Court returned the attachment. See Rules 143(b), 151.

 

Petitioners later sought, by means of a motion, to amend the

stipulation of facts to include the written opinion. Respondent

objected to petitioners’ motion, and we denied petitioners’

motion to amend.

 

We are mindful that the material petitioners wish the Court

to consider is dated Apr. 28, 2006, whereas petitioners’ 2003

return was filed on Oct. 14, 2004. Substantial authority for

purposes of sec. 6662(d)(2)(B)(i) must exist at the time the

return containing the item is filed or on the last day of the

taxable year to which the return relates. See sec. 1.6662-

4(d)(3)(iv)(C), Income Tax Regs. Accordingly, even if the

material constituted “authority” as contemplated by sec.

6662(d)(2)(B)(i), which is doubtful, see sec. 1.6662-

4(d)(3)(iii), Income Tax Regs., the material would not constitute

substantial authority for purposes of sec. 6662(d)(2)(B)(i).

individual if the amount of the understatement for the taxable

year exceeds the greater of 10 percent of the tax required to be

shown in the return for that taxable year or $5,000 Sec.

6662(d)(1)(A). The amount of the understatement must be reduced

by that portion of the understatement which is attributable to

(1) “the tax treatment of any item by the taxpayer if there is or

was substantial authority for such treatment”, sec.

6662(d)(2)(B)(i),6 or (2) any item if (a) “the relevant facts

affecting the item’s tax treatment are adequately disclosed in

the return or in a statement attached to the return”, sec.
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6662(d)(2)(B)(ii)(I), and (b) “there is a reasonable basis for

the tax treatment of such item by the taxpayer”, sec.

6662(d)(2)(B)(ii)(II). Disclosure of an item is not effective to

remove the item from the understatement to which the tax is

attributable where the treatment of the item for tax purposes

does not have a reasonable basis as defined in section 1.6662-

3(b)(3), Income Tax Regs. Sec. 1.6662-4(e)(2)(i), Income Tax

Regs. 

Section 1.6662-3(b)(3), Income Tax Regs., provides that the

reasonable basis standard “is not satisfied by a return position

that is merely arguable or that is merely a colorable claim.” If

a return position is reasonably based on one or more of the

authorities set forth in section 1.6662-4(d)(3)(iii), Income Tax

Regs. (taking into account the relevance and persuasiveness of

the authorities, and subsequent developments), the return

position will generally satisfy the reasonable basis standard

even though it may not satisfy the substantial authority standard

as defined in section 1.6662-4(d)(2), Income Tax Regs. See

section 1.6662-4(d)(3)(ii), Income Tax Regs., for rules with

respect to relevance, persuasiveness, subsequent developments,

and use of a well-reasoned construction of an applicable

statutory provision for purposes of the substantial

understatement penalty.
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Petitioners’ 2003 return reported tax of $89,507. 

Respondent determined, and we agree, that the tax required to be

shown on the return was $259,476. Thus, the understatement was 

$169,969. This amount exceeds 10 percent of the tax required to

be shown in the return and obviously is greater than $5,000.

The record does not disclose on what basis petitioners

claimed that Mr. Fields’s payments under paragraph 15(b) to Karen

Fields were alimony. Because Mr. Fields did not originally claim

the 2000 payment of $500,000 as alimony, it is apparent that at

one time Mr. Fields did not consider that payment to be

deductible. Other than petitioners’ uncorroborated claim (first

set forth in their posttrial brief) that Mr. Fields changed the

tax treatment of the payments made under paragraph 15(b) of the

agreement on the advice of his tax return preparers, a claim

discussed infra, nothing in the record indicates that petitioners

relied on one or more of the authorities set forth in section

1.6662-4(d)(3)(iii), Income Tax Regs., or otherwise had a

reasonable basis for deducting the payments made under paragraph

15(b) of the agreement on their 2003 return. Thus, petitioners

have failed to carry their burden of showing that they had a

reasonable basis for their tax treatment of the 2003 payment to

Karen Fields, and accordingly the exception to the section

6662(a) penalty found in section 6662(d)(2)(B)(ii) is not

applicable.
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Pursuant to section 6664(c)(1), no penalty under section

6662 shall be imposed “with respect to any portion of an

underpayment if it is shown that there was a reasonable cause for

such portion and that the taxpayer acted in good faith with

respect to such portion.” The determination of whether the

taxpayer acted with reasonable cause and in good faith depends on

the pertinent facts and circumstances, including the taxpayer’s

efforts to assess the taxpayer’s proper tax liability, the

knowledge and experience of the taxpayer, and the reliance on the

advice of a professional, such as an accountant. Sec. 1.6664-

4(b)(1), Income Tax Regs. Reliance on the advice of a

professional, such as an accountant, does not necessarily

demonstrate reasonable cause and good faith unless, under all the

circumstances, such reliance was reasonable and the taxpayer

acted in good faith. Id. In this connection, a taxpayer must

demonstrate that his/her reliance on the advice of a professional

concerning substantive tax law was objectively reasonable. 

Goldman v. Commissioner, 39 F.3d 402, 408 (2d Cir. 1994), affg.

T.C. Memo. 1993-480. In the case of claimed reliance on an

accountant who prepared the taxpayer’s tax return, the taxpayer

must establish that correct information was provided to the

accountant and that the item incorrectly omitted, claimed, or

reported in the return was the result of the accountant’s error.

Westbrook v. Commissioner, 68 F.3d 868, 881 (5th Cir. 1995),
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affg. T.C. Memo. 1993-634; Weis v. Commissioner, 94 T.C. 473, 487

(1990); Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173 (1978).

In their posttrial brief, petitioners claim that Mr.

Fields’s tax preparer, American Express, realized that it had

erred in not deducting as alimony the $500,000 deferred payment

Mr. Fields made in 2000 and therefore advised Mr. Fields to file

an amended return to correct its error, which Mr. Fields did on

December 31, 2002. Petitioners also assert on brief that their

claiming deductions for the deferred payments made in 2001 and

2003 was approved by their return preparers for those years. 

Further, petitioners assert, because the Internal Revenue Service

did not challenge the tax treatment of the deferred payments for

2000 and 2001, they had no reason to believe that respondent

might disallow the claimed alimony deduction for 2003.

Although it appears that Mr. Fields had assistance from

accountants in preparing his returns for each of the years in

issue, no evidence was submitted as to what Mr. Fields told the

preparers and what the preparers told him. See Garfield v.

Commissioner, ___ Fed. Appx. ___ (2d Cir., Aug. 18, 2008), affg.

T.C. Memo. 2006-67. There is nothing in the record to

substantiate petitioners’ uncorroborated and first-time

assertions made in their posttrial brief that American 

Express admitted error in preparing Mr Fields’s tax return for

2000 filed on October 15, 2001. We have no way of knowing
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whether the filing of the amended 2000 tax return on August 31,

2002, was to correct an “error” made by American Express, as

asserted by petitioners, or resulted from Mr. Fields’s desire to

claim and/or insistence on claiming the benefit of a greater

alimony deduction. Nor do we have any way of knowing what

information the other tax preparers (Coppergate Associates

International and Meridian Services, Ltd.) had in preparing

petitioners’ 2001 and 2003 tax returns. Moreover, the lack of a

previous challenge by respondent of Mr. Fields’s claimed alimony

deductions for the deferred payments made in 2000 and 2001

pursuant to paragraph 15 of the agreement does not show that

petitioners had reasonable cause for the erroneous position taken

for 2003. 

On the limited stipulated facts before us, we cannot find

that Mr. Fields, apparently a knowledgeable attorney, had

reasonable cause for, or acted in good faith with respect to,

changing his original position with respect to the

characterization of the $500,000 payment to Karen Fields in 2000

and, adhering to an erroneous position, with respect to the

$525,000 payment in 2003.

Because petitioners have failed to prove that they are

entitled to relief under section 6664(c)(1), we reject their

arguments that they should be relieved of the section 6662

penalty. 
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To reflect the foregoing,

Decisions will be entered

for respondent.