TAX COURT OPINION

Case: Howard Wong
Docket Number: 6824-09S
Judge: Colvin
Opinion Type: bench
Filed: 03/25/2010
Pages: 7

ORIGINAL UNITED STATES TAX COURT WASHINGTON , DC 20217 HOWARD WONG, Petitioner, . ) . Docket No . 6824-09 S . COMMISSIONER OF INTERNAL REVENUE, ) Respondent O R D E R Pursuant to Rule'152(b),(cid:127)Tax Court Rules of Practice and Procedure, it i s 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 hearing in the above case before Judge .Laro at° Los Angeles, . CA on March 8, . .2010, containing his oral findings . of fact and opinion rendered at . the conclusion'of°the hearing . In accordance with the oral findings offact and opinion, an . appropriate Order and Decision will be entered . (Signed ) David Laro Judg e Dated : Washington, D .C . March 25,° 2010 SERVED AR 2 6 7QlO kl 3 Bench opinion by Senior Judge David Laro March 12, 2010 Wong v .. Commissioner . Docket No . 6824-09 S 3 THE COURT : All right . The Court has decided to 4 render Or al ridings of fact and a inion in this case . 5 This Bench Opinion is made pursuant to the authority 6 granted by Section 7459 ( b) of the Internal Revenue Code , 7 and Rule 152 of the Tax Court Rules of Practice and Procedure . Petitioner refers to Howard Wong, section 10 references are to the Internal Revenue Code, and Rul e 11 references are to the Court's Rules of Practice and 12 Procedure . 13 Petitioner resided in Los Angeles, California , 14 when his petition was filed . The Petitioner petitioned 15 the Court to review Respondent's determination of a 16 $9,012 deficiency . 17 Background 18 T Petitioner and Karen Wong (Ms . Wong) were 19 married on September 11, 1982, and separated on January 20 9, 2000 . On October 19, 2005, the Superior Court o f 21 California, County of Los Angeles, filed a Notice o f 22 Entry of Judgment dissolving Petitioner's marriage to Ms . 23 Wong, along with a divorce decree setting fort h 24 Petitioner's rights and obligations . 25 Paragraph 20 .A . of the divorce decree ordered Heritage Reporting Corporatio n (202) 628-4888 .Petitioner to-pay Ms . Wong $ 45,000 in exchange for Ms . Wong's waiver and release of all rights and claims to receive future spousal support from Petitioner . Paragraph 20 .B-. ,of the divorce decree obligate d Petitioner ,' should he not pay Ms . Wong $45,000 concurrent with the signing-of the divorce decree, to pay Ms . Wong $1,400 in monthly spousal support for 42 months, and then continuing thereafter until she .died or remarried . Paragraph 20 .B .(4) of the divorce decree provide d .that if Petitioner paid Ms . Wong the monthly spousal . 11 support payments in lieu of the 'lump-sum payment, then 12 the "spousal support,payments .to Ms . Wong shall .not be 13 includable in her gross income under Section 71, no r 14 deductible to Petitioner under Section 215 . pei~ (cid:127) 15 T "Petitioner did-not-paythe $45,000 when th e 16 - divorce decree was executed, but instead paid $40,000 to 17. Ms . Wong in 2006 .in the following installments : (1) A 18 $20,000 transfer to " Ms . Wong' s checking-account o n 19 January 17, 2006 ; .(2) a $5,000 transfer to Ms . Wong's 20 checking account on July 3, 2006 ; and (3) $15,000 by 21 check on September 20, 2006 . 2 2 23 We note that although paragraph 22 of the parties' stipulation of facts provides that Petitioner paid to Ms . 24 Wong $15,000 on September 28, 2008, we believe thi s 25 statement to be . erroneous when. compared with Petitioner's Heritage Reporting Corporatio n (202) 628-4888 bank statements referenced therein . On April 17, 2007, Petitioner filed his 2006 Form 1040, U .S . Individual Income Tax Return . On that return, Petitioner claimed an-alimony deduction of $40,000 for the spousal support payments he paid to Ms . Wong . On July 16, 2008, Respondent issued to Petitioner a notice of deficiency which disallowed Petitioner' s claimed deduction .for the spousal support payments . On September 2008, Respondent sent t o Petitioner a "no-change letter" in which Responden t notified Petitioner to disregard the July 16, 2008 , notice of deficiency because Respondent made no change s to the tax reported on Petitioner's 2006 tax return . On November 14, 2008, Respondent sent t o Petitioner a letter which stated that after receiving additional documentation regarding .Petitioner's 2006 tax return, Respondent changed his prior determination allowing Petitioner's alimony deduction for 2006 . Respondent issued Petitioner a second notice of deficiency on January 28, 2009, which disallowed Petitioner's $40,000 deduction for spousal suppor t payments paid to Ms . Wong. In response to the second notice, Petitioner petitioned the Court on March 16 , 2009, to review Respondent's determination . Discussion Heritage Reporting Corporatio n (202) 628-4888 , 1 3 4 5 7 8 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 2 4 25 II 9fte, Effect of No - Change letter on Second Notice L- 2 Petitioner . argues that Respondent's issuance of a no -3 change letter precludes him from reopening his case and 4 issuing a second notice of deficiency . We disagree . 5 Although there . is no statutory basis for a no- 6 change letter, we are aware of no case holding that a no- 7 change letter is binding on the Commissioner, except . ~-° possibly in the case where the taxpayer detrimentally relied on the letter . The record does not establish tha t 10 Petitioner detrimentally relied on the no-change letter . 11 - T.ao, Deductibility of Spousal Support Payments .L L 'M 12 Petitioner argues that the spousal support payments made '13 to Ms . Wong are deductible as alimony under Section 215 14 and 71(b)(1) . We disagree . An. income tax deduction is a 15 matter of legislative grace and is not an unqualifie d 16 right . See INDOPCO , Inc ., v . Commissioner , 503 U .S . 79 , 17 84 (1992) . An individual may deduct the amount of 18 alimony paid during the taxable year . Sec . 215(a) . 19 Section 71(b)(1) defines alimony to include (as 20 relevant here) any cash payment if : (1) Such payment i s 21 received by (or on behalf of') a spouse under a divorce or 22 separation instrument ; (2) the divorce or separatio n 23 instrument does not designate such payment as no t 24 includable in gross income under this section and no t 25 allowable as a deduction under'Section 215 ; and ( 3) there Heritage Reporting Corporatio n (202) 628-488 8 I 1 is no liability to make any such payment for any period 2 after, the death of the payee spouse, or to make any such 3 payment (in cash or property) as a substitute for suc h 4 payments after the death of the payee spouse . . Sec . 5 71(b)(1) . The term "divorce or separation instrument" includes a-decree-of divorce . Sec . 71(b)(2) . The test of Section 71(b)(1) is conjunctive and the failure to satisfy each prong precludes deductibility . By failing to pay Ms . Wong $45,000 upon executio n 11 of the divorce decree, paragraph 20 .A . of the divorc e 12 decree became inoperative . Thus, paragraph 20 .B . defined 13 the-rights and obligations of Petitioner and Ms . Wong . 14 Paragraph 20 .B .(4) leaves little room for interpretation . 15 It provides that "spousal support payments to Ms . 16 Wong shall not be includable in her gross income under 17 Section 71, nor deductible . to Petitioner under Sectio n 18 215 . 19 By virtue of that provision and by not making the 20 $45,000 payment to Ms . Wong, Petitioner precluded hi s 21 ability to deduct as alimony the periodical payments made 22 to Ms . Wong during the subject year . 23 Accordingly, Petitioner has failed to satisfy the 24- . second prong of the test of Section 71(b)(1), and is not 25 entitled to deduct such payments as alimony . Heritage Reporting Corporation (202) 628-4888 8 1 III . . Conclusion . We conclude that Petitioner may 2 not deduct the $40,000 in spousal support payments pai d 3 to Ms . Wong in 2006 . We will enter an appropriat e decision . This . concludes the Court's Oral Findings of 5 Fact and. Opinion in this case . (Whereupon, at 10 :01 a .m ., the Bench opinion in the above-entitled matter was concluded . ) 8 // 9 // 1 0 11 // 12 13 1 4 15 16 // 17 // 1 8 19 20 11 Heritage Reporting Corporation (202) 628-488 8