T.C. Memo. 1999-102

UNITED STATES TAX COURT

GORDON B. COLOGNE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12298-97. Filed March 31, 1999.

Erla Elizabeth Arnold, for petitioner.

Christine V. Olsen, for respondent.

MEMORANDUM OPINION

COHEN, Chief Judge: Respondent determined a deficiency in

petitioner's Federal income tax in the amount of $11,032 for the

taxable year 1994. By amendment to the answer, respondent

asserts an increased deficiency in the amount of $14,297. The

issue for decision is whether petitioner is entitled to deduct as
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alimony certain amounts paid in accordance with a marital

settlement agreement. 

This case was submitted fully stipulated under Rule 122. 

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the year in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure. The stipulated facts are incorporated herein by this

reference. Petitioner's brief contains statements and

attachments that were not stipulated and are not evidence. See

Rule 143(b). We disregard these in making our decision. 

Background

Petitioner resided in La Quinta, California, at the time he

filed the petition in this case. Petitioner formerly was married

to Patricia R. Cologne (Ms. Cologne). Petitioner and Ms. Cologne

separated on March 21, 1993. On November 19, 1993, petitioner

and Ms. Cologne entered into a marital settlement agreement (the

agreement), which was filed with the Superior Court of the State

of California for the County of San Diego on December 29, 1993. 

Pertinent portions of the agreement are as follows:

RECITALS

* * * * * * *

6. Husband is presently the sole proprietor of

Gordon Cologne and Associates. This business has an

estimated pre-tax net income of $19,500.00 per month. 

Wife is presently unemployed and has no earned income. 

Husband will retire on or about September 1, 1994,
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after reaching the age of 70, and anticipates receiving

no earned income after that date.

* * * * * * *

DIVISION OF COMMUNITY PROPERTY

* * * * * * *

12. The real property commonly known as * * *

Rancho Santa Fe, California, shall be disposed of

according to the following terms:

A. The residence shall be listed for sale * * *

on or before February 1, 1994. * * * The residence

shall remain listed until sold. * * *

* * * * * * *

C. Wife may have the use and possession of the

residence on the condition that she maintain the

residence and yard in satisfactory condition, normal

wear and tear excepted. Husband shall have the right

to occupy the residence for principal residential use

purposes including sleeping, cooking and eating and

attending to his personal hygiene needs. In case of

any dispute, Wife shall have the first right to occupy

the premises. Husband shall also have the right to

store any items of personal property awarded to him in

the premises until the sale is consummated.

* * * * * * *

E. Until the sale of the residence is

consummated or until September 1, 1994, whichever first

occurs, Husband shall pay on a current basis, without

the right to reimbursement, real property taxes,

principal and interest payments on the notes secured by

deeds of trust on the residence and fire and liability

insurance for the residence. In addition, Husband

shall pay on a current basis all charges for trash

pickup, the water bill, and the gardener for one day a

week, and pool maintenance. If the house is not sold

by September 1, 1994, and the Wife continues to reside

in the house, the Wife shall pay all the aforesaid

taxes, principal and interest on the notes, insurance

and maintenance costs as and for reasonable rental for

such use or the actual fair rental value, whichever is
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less. If the sale of the residence is not consummated

on or before September 1, 1994, the court shall have

the jurisdiction to make further orders regarding

occupancy and the payment of the mortgages, real

property taxes, insurance, trash pickup, water,

gardener and pool maintenance * * *.

* * * * * * *

H. The net proceeds of sale, * * * shall be held

in escrow and disbursed as follows:

(1) Husband shall be paid a sum equal

to all payments made by him on or after

April 1, 1993, on * * * [certain charge,

credit card, and loan balances, except for

purchases made by petitioner after April 1,

1993];

(2) The Wife shall be paid a sum equal

to all payments made by her on or after

April 1, 1993, on * * * [certain charge,

credit card, and loan balances, except for

purchases made by Ms. Cologne after April 1,

1993].

(3) Any remaining balance due on the

obligations described in paragraphs (1) and

(2) above shall be paid in full.

(4) Any balance remaining shall be paid

one-half to each party and Wife shall pay to

Husband from her one-half, her share of the

1993 income tax obligation as set forth in

Paragraph 16.

* * * * * * *

13. The real property in Blue River, Wisconsin,

shall be disposed of according to the following terms:

A. The parties shall continue to hold such

property as joint tenants with right of survivorship. 

Either party may terminate the joint tenancy at any

time. At such time both parties shall make

testamentary provisions so that the property will pass

to the children of this marriage if a party should die

prior to its sale.

* * * * * * *
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C. Both parties shall have the right of use and

possession of the residence. In case of a conflict,

Wife shall have the first right to any two-week period

she chooses upon providing Husband thirty days' advance

written notice.

* * * * * * *

E. Wife shall pay on a current basis, without

the right to reimbursement, principal and interest

payment on the note secured by the first deed of trust. 

Husband shall pay on a current basis, without the right

to reimbursement, real property taxes on the residence,

fire and liability insurance for the residence,

utilities, maintenance and repairs. All income

received on account of the property shall be applied to

the obligation owed to W. Southard and any remaining

balance shall be paid one-half by each party. Any

earnings remaining after payment to W. Southard shall

be divided equally between the parties.

* * * * * * *

15. The Husband's interest in the Judge's

Retirement Plan and in the Legislator's Retirement Plan

shall be divided equally between the parties. * * *

Pending each plan's direct payment of benefits to Wife,

Husband shall allow the Wife to receive for deposit in

a joint account the entire retirement benefits in lieu

of the division of these benefits and the spousal

support as provided in paragraph 34 of this agreement. 

She may withdraw all such sums for her personal use as

an assignment in satisfaction of spousal support. 

* * * * * * *

16. The parties shall file joint federal and

state tax returns for the calendar year ending 1993. 

* * * Any tax liability due and unpaid upon the filing

of the tax return shall be paid by the Husband, and the

Wife shall reimburse the Husband her share of the tax

based on the net income (retirement income actually

received) received by her during the year. * * *

* * * * * * *
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DEBTS

* * * * * * *

30. Husband and Wife shall each pay fifty percent

(50%) of all liabilities and expenses (including

accounting and legal fee) relating to any tax

liabilities asserted by Federal, State or local taxing

authorities arising out of any review of the parties'

personal income tax returns for any period when they

filed joint returns except for tax year 1993 which is

governed by paragraph 16. Each party shall, however,

be solely responsible for the liabilities and expenses

resulting from income known only to and solely

benefiting said party.

* * * * * * *

SPOUSAL SUPPORT

34. Husband shall pay Wife * * *, as and for

spousal support the sum of $3,000.00 per month on the

1st day of each month commencing November 1, 1993, and

continuing until Husband dies, Wife dies, Wife

remarries, Wife commences residing with an unrelated

member of the opposite sex, or until Husband retires on

September 1, 1994, whichever shall first occur.

During 1994, petitioner made the following payments pursuant

to the agreement: 

$25,950.00 Spousal support

 1,920.00 Life insurance premiums

 3,030.00 Gardener for home during pendency of sale

 675.83 Pool service

 1,804.02 Waste management

 6,790.77 January and February pensions

 1,221.54 Utilities (electric and water conditioning) 

 for house in Wisconsin

 33,625.50 One-half of petitioner and Ms. Cologne's 1993

 State and Federal income taxes.

$75,017.66

Petitioner deducted $71,273 as alimony on his 1994 Federal income

tax return. 
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The parties have stipulated that an alimony deduction is

allowed for the following payments totaling $36,465: Spousal

support of $25,950, life insurance premiums of $1,920, waste

management of $1,804, and January and February pension payments

of $6,791. Remaining in dispute are the payments of

Ms. Cologne's half of the 1993 Federal and State income taxes and

payment of the utilities for the Wisconsin property.

Discussion

Section 215 allows as a deduction an amount equal to the

alimony or separate maintenance payments paid during the year. 

For purposes of section 215, the term "alimony or separate

maintenance payment" means any alimony or separate maintenance

payment (as defined in section 71(b)) that is includable in the

gross income of the recipient under section 71. See sec. 215(b). 

Section 71(a) provides that gross income generally includes

amounts received as alimony or separate maintenance payments. 

Section 71(b)(1) defines alimony or separate maintenance payment

as any payment in cash if--

(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
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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.

California Family Code section 4337 (West 1994) provides: 

"Except as otherwise agreed by the parties in writing, the

obligation of a party under an order for the support of the other

party terminates upon the death of either party or the remarriage

of the other party." 

The parties dispute whether the payments at issue meet the

requirement of section 71(b)(1)(D). The parties agree that the

agreement does not provide any conditions for the termination of

these payments. Respondent's position is that petitioner's

obligations to pay Ms. Cologne's share of their 1993 income taxes

and for the utilities for the Wisconsin property survive her

death. Petitioner argues that petitioner's liability for the

payments terminates at her death pursuant to California Family

Code section 4337. 

Federal and State Income Tax Payments

Because the income tax liabilities are joint and several, if

Ms. Cologne died, petitioner would remain liable for the full

amount of their taxes to the respective tax collectors. See sec.

6013(d)(3). Normally, however, petitioner would be entitled to

the right of contribution for Ms. Cologne's half of the taxes. 
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Petitioner, through the agreement, has given up that right

(beyond the limited share specified). The question we must

decide is whether, if Ms. Cologne died, petitioner would still be

obligated for Ms. Cologne's half of the joint liabilities without

the right of contribution (beyond the share specified). As this

question is not answered by the agreement and the payment of

taxes is not the usual type of support expense, such as food,

shelter, or medical care, that necessarily ends with the payee

spouse's death, we look to State law.

California Family Code section 4337 (West 1994) serves to

terminate spousal support at the payee spouse's death, where the

parties have not otherwise agreed. California law distinguishes

payments for support from those for property settlement. In

setting spousal support, the California court considers, among

other factors, each party's earning capacity, the needs of each

party based on the standard of living during the marriage, the

payor spouse's ability to pay, the obligations and assets of each

party, the duration of the marriage, and the age and health of

the parties. See Cal. Fam. Code sec. 4320 (West 1994). 

Division 7 of the California Family Code governs the

division of debts and liabilities and that of property. See Cal.

Fam. Code sec. 2500-2660 (West 1994). Both assets and

liabilities are considered in dividing the community estate. See

Cal. Fam. Code sec. 2552 (West 1994). 
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The allocation of the liability for the 1993 income taxes

between petitioner and Ms. Cologne was based on their relative

incomes for the year. Petitioner has not shown that the

allocation was based on their relative needs, standards of

living, or earning capacities when the taxes would be paid or on

any other factors normally taken into consideration in

determining support. The agreement provided that petitioner

would be reimbursed for Ms. Cologne's smaller share out of the

net proceeds, if any, of the sale of the residence remaining

after other debts were paid. The division of the couple's tax

liabilities is in the nature of a property settlement, rather

than a provision for the future support of Ms. Cologne. 

Accordingly, section 4337 of the California Family Code (West

1994) does not operate to terminate these payments at

Ms. Cologne's death, and the requirement of section 71(b)(1)(D)

is not met. Petitioner is not entitled to an alimony deduction

for the payments of his former spouse's 1993 Federal and State

income tax liabilities.

Payment of Utilities for Wisconsin Property

Pursuant to the agreement, petitioner and Ms. Cologne owned

the Wisconsin property as joint tenants with right of

survivorship. Both had the right of use and possession of the

property, and his liability for utility bills would be continued

after her death. While she occupied the property, however, the
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utility charges related to her use of it. We have allowed

alimony deductions for utilities. See Graham v. Commissioner, 79

T.C. 415 (1982); Zampini v. Commissioner, T.C. Memo. 1991-395. 

We hold that petitioner is entitled to deduct half of the amount

paid, or $610.77.

To reflect the above holdings and the parties' stipulations,

Decision will be entered

under Rule 155.