TAX COURT OPINION

Case: Douglas J. Kovats
Docket Number: 9742-14
Judge: Gustafson
Opinion Type: bench
Filed: 07/01/2015
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 MN DOUGLAS J. KOVATS, Petitioner, v. ) ) ) ) Docket No. 9742-14. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceedings at Philadelphia, Pennsylvania, on June 16, 2015, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before the undersigned judge at Philadelphia, Pennsylvania, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. July 1, 2015 SERVED Jul 01 2015 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Bench Opinion of Judge David Gustafson June 16, 2015 Douglas J. Kovats v. Commissioner Docket No. 9742-14 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (26 U.S.C.), and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a notice of deficiency dated February 5, 2014, the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioner Douglas J. Kovats for the year 2010. The issue for us to decide whether Mr. Kovats is entitled to a deduction for alimony. (The notice of deficiency also determined liability for an accuracy-related penalty under section 6662(a). Mr. Kovats disputed the penalty in his petition, but neither in his 21 pretrial memorandum nor at trial did he raise any 22 23 24 25 defense of "reasonable cause" nor make any other contention that, if the tax is not sustained, he should not be held liable for the penalty. Therefore, the penalty will follow the tax liability 866.488.DEPO twww.Capita1ReportingCompany.com Capital Reporting Company 4 in this case.) Trial of this case was conducted on June 15, 2015, in Philadelphia, Pennsylvania. Mr. Kovats represented himself; and respondent, the Commissioner of the IRS, was represented by Kirsten E. Brimer. FINDINGS OF FACT Mr. Kovats and his ex-wife separated in 2008, and their divorce was finalized in 2010 (the year at issue). That divorce was effectuated by a "Matrimonial Settlement Agreement" (Ex. 3-J) dated May 27, 2010 (and by a corresponding court judgment entered that same day). The agreement includes (as paragraph 20) a provlslon as to "Alimony" that is stated to be "Effective June 1, 2010," and that calls for monthly payments. The IRS did not disallow deductions for the alimony payments totaling $19,250 that he made pursuant to that agreement. (Stip. 7.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Rather, in dispute here are prior payments he made in 19 20 21 22 23 January through May 2010: Sometime after the Kovatses were separated in 2008, Mr. Kovats began making regular periodic payments to his estranged then-wife. No court order yet required any such payments, and the couple had no 24 written agreement requiring any such payments. But 25 Mr. Kovats made the payments nonetheless--not 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 prompted by disinterested generosity or donative intent, but because he thought he should and because he knew that, if he failed to make sufficient payments, the matter would likely become the subject of dispute and litigation. By 2010 Mr. Kovats was making weekly payments of $907 dollars (about $3,600 per month). See Exs. 8-J, 8a-J. The payments were not for child support (since the three children lived with Mr. Kovats) but rather to pay his estranged wife's living expenses. For 2008 and 2009 the couple filed joint returns (even though they were separated) and thus did not report alimony deductions for Mr. Kovats (which would have been offset by alimony income for 16 Mrs. Kovats). For 2010, however, Mr. Kovats filed a 17 18 19 20 21 22 23 24 25 separate return (Ex. 1-J), on which he did claim a deduction for alimony, in the amount of $34,044. It thus included both the $19,025 paid after June 1, 2010, pursuant to the Matrimonial Settlement Agreement and the periodic payments he made in January through May 2010. The IRS allowed a deduction of $19,025, disallowed the remainder, and issued on February 5, 2014, the notice of deficiency determining the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company resulting tax, and the corresponding penalty. Mr. Kovats timely filed his petition in this Court on May 1, 2014. At that time he resided in New Jersey. 6 (Stip. 1.) I. Burden of proof OPINION As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS determined. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). II. Alimony deduction Section 215(a) provides: "there shall be allowed as a deduction an amount equal to the alimony or separate maintenance payments paid during such individual's taxable year", for which purpose "alimony" is defined in section 71(b). Section 71(b) in turn provides that "alimony" means a payment that 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 meets several requirements, including that it is made 20 21 22 23 24 25 "under a divorce or separation instrument", see sec. 71(b) (1)(A), which term means a court decree (not present here) or "a written separation agreement", sec. 71(b) (2)(B), the provision that Mr. Kovats invokes. However, there was no "written separation 866.488.DEPO twww.CapitalReportingCompany.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Capital Reporting Company 7 agreement" in place in January through May 2010. To attempt to show such an agreement, Mr. Kovats relies on two letters between his lawyer and his ex-wife's lawyer discussing the periodic payments; but those 1 letters disprove the existence of any written agreement. Rather, Mr. Kovats's lawyer insisted that he made the payments "voluntarily" (Ex. 6-J), and his ex-wife's lawyer's letter indicates that Mr. Kovats had the ability to unilaterally reduce the amounts of his payments even when his ex-wife objected (see Ex. 7-J). Mr. Kovats asserts, and we assume for purposes of this opinion, that, if he had attempted to avoid making payments, the New Jersey courts would have found him in bad faith and would have compelled him to make support payments. However, even if that is true, that fact does not cure the absence of a "written" agreement. By requiring a written agreement, Congress evidently intended that the courts not engage in the very analysis into which Mr. Kovats's argument would pull us. Instead, before allowing an alimony deduction, we look for a written agreement, and there was none for the payments now in dispute. Decision will be entered in favor of the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 8 Commissioner, both as to the tax at issue and as to the accuracy-related penalty that follows the tax. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 12:37 p.m., in the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com