TAX COURT OPINION

Case: Dennis G. Smith
Docket Number: 18401-09S
Judge: Colvin
Opinion Type: bench
Filed: 04/27/2010
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 2021 7 DENNIS G . SMITH, Petitioner , v . ) Docket No . 18401-09S . COMMISSIONER OF INTERNAL REVENUE ., Respondent . ORDE R .Pursuant to Rule 152 ( b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial of this case before Judge Haines at Seattle, Washington on April 16, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155 . (Signed) Harry A. Haines Judge Dated : Washington, D .C . April 27, 2010 SERVED APB 2 7 2010 3 1 Bench Opinion By Judge Harry A . Haines April 16, 2010 2 Dennis G . Smith v . Commissioner Docket No . : 18401-09S 3 THE COURT : The Court has decided to render 4 oral findings of fact and opinion in this case and the 5 following represents the Court's oral findings of fact 6 and opinion . The oral findings of fact and opinio n 7 shall not be relied upon as precedent in any other 8 case . 9 Petitioner timely filed Form 1040, U .S . 10 Individual Income Tax Return, for 2007 (year a t 11 issue) . On such return petitioner claimed a deduction 12 for alimony paid to his former spouse, Lynda C . Smith 13 (Ms . Smith), in the amount of $43,360 . On May 8 , 14 2009, respondent mailed to petitioner a notice of 15 deficiency for 2007 that disallowed $18,830 of the 16 claimed alimony deduction, resulting in a deficiency 17 of $5,702 .96 . Petitioner filed a petition with this 18 Court in response to the notice of deficiency . After 19 respondent's concession that petitioner is not subject 20 to additions to tax under section 6662(a) an d 21 6662(b)(1), the remaining issue for decision i s 22 whether petitioner can deduct the $18,830 disallowed 23 by respondent as an alimony deduction under section 24 215(a) in 2007 . 25 The parties' stipulation-of facts and the Heritage Reporting Corporatio n (202) 628-4888 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 4 attached exhibits are incorporated herein by thi s reference . Petitioner is an individual who maintaine d his legal residence in the state of Washington at th e time his petition was filed in this case . Petitioner and Ms . Smith were married i n 1987 but separated during 2007 . On February 2, 2007 , a temporary order, In re the Marriage of : Lynda C . Smith and Dennis Glen Smith (first order), was filed . On December 19, 2007, a temporary order, In re th e Marriage of : Lynda C . Smith and Dennis Glen Smit h (second order ), was filed . Pursuant to the first order, petitioner mad e spousal maintenance payments to Ms . Smith of $2,23 0 per month beginning on February 1, 2007, which totale d $24,530 for-2007 . Respondent allowed petitioner an alimony deduction for such payments . In accordanc e with the first order, on February 9, 2007, petitione r placed $16,500 from his January 2007 bonus into a trust account (trust account) held by petitioner' s divorce attorney, Mr . Larry Couture (Mr . Couture) . On February 16, 2007, a payment of $2,500 was made fro m the trust account to Diana Kiesel (Ms . Kiesel), th e divorce attorney for Ms . Smith, for payment of lega l services . Another such payment was made for $4,00 0 from the trust account to Ms . Kiesel on December 21 , Heritage Reporting Corporation (202) 628-4888 5 1 2007, pursuant to the second order . 2 The first order also required that all of 3 petitioner's future employment bonuses be deposited 4 into the trust account and no funds would be removed 5 without the parties' agreement or further court order . 6 On July 13, 2007, petitioner received an employmen t 7 bonus of $37,532 .56, and deposited $37,500 into hi s personal account . On July 19, 2007, he received and 9 deposited an additional employment bonus of $4,41 3 10 into his personal account . On the same day petitioner 11 withdrew $24,442 from his personal account an d 12 deposited it into the trust, leaving $17,503 .56 of the 13 July 2007 bonus payments in his personal account . 14 On the July 23, 2007, a check for $16,062 15 was paid to Ms . Smith and Ms . Kiesel from the trust 16 account . Petitioner contends that the $16,062 check 17 was written to resolve Ms . Smith's objection ove r 18 petitioner retaining $17,503 .56 of the July 2007 bonus 19 payments in his personal account . The check was made 20 payable to both Ms . Kiesel and Ms . Smith because Ms . 21 Smith was delinquent on her attorney's fees payable to 22 Ms . Kiesel . Such a payment was not addressed by 23, either the first or second order or a writte n 24 agreement between petitioner and Ms . Smith . Moreover, 25 petitioner'did not provide any record of how the Heritage Reporting Corporatio n (202) 628-4888 6 1 $16,062 payment was used . 2 The total alimony deducted on petitioner's 3 Form 1040 for 2007 was $43,360, consisting of the 4 $24,530 spousal maintenance payments that responden t 5 concedes is deductible, the $2,500 and $4,000 payments 6 to Ms . Kiesel made on February 16 and December 21 , 7 2007, respectively, and the $16,062 payment to Ms . 8 Kiesel and Ms . Smith made on July 23, 2007 . The tota l of such payments is $47,092, which differs from the 10 $43,360 petitioner deducted, although petitione r 11 provided no explanation for the difference . 12 Section 215(a) provides that an individual 13 is allowed as a deduction the amount equal to th e 14 alimony or separate maintenance payments paid during 15 the individual's taxable year . The term "alimony or 16 separate maintenance payment" means any alimony or 17 separate maintenance payment (as defined in section 18 71(b)) which is includable in the gross income of the 19 recipient under section 71 . Sec . 215(b) . An alimony 20 or separate maintenance payment is any payment in cash 21 that satisfies the four requirements listed unde r 22 section 71(b)(1) . Sec . 71(b) . The first requirement 23 is that the payment be . received by or on behalf of a .24 spouse under a divorce or separation instrument . Sec . 25 71(b) (1) (A) . Section 71(b)(2) defines a divorce or Heritage Reporting Corporatio n (202) 628-4888 7 1 separation instrument as a decree of divorce or a 2 written instrument incident to such a decree, a 3 written separation agreement, or a decree requiring a 4 spouse to make payments for the support or maintenance 5 of the other spouse . 6 A divorce or separation agreement must be in 7 writing . Herring v . Commissioner , 66 T .C . 308, 31 1 8 (1976) . The writing requirement does not, however , 9 specify the medium which may be used nor the form the 10 writing must take . Leventhal v . Commissioner , T .C . 11 Memo . 2000-92 ; Ellis v . Commissioner , T .C . Memo . 1990- 12 456 ; Osterbauer v . Commissioner , T . C . Memo . 1982-266 . 13 A payment made pursuant to an oral agreement is not a 14 payment made pursuant to a divorce or separatio n 15 instrument unless there is some type of writte n 16 instrument memorializing the agreement . Herring v . 17 18 Commissioner , supra ; Osterbauer v . Commissioner , supra . Petitioner bears the burden of provin g 19 respondent's determinations are incorrect . See Rule 20 142(a) . 21 Petitioner and Ms . Smith did not execute a 22 written agreement providing for the $16,062 paymen t 23 made from the trust account . Furthermore, despite the 24 fact that neither the first nor the second orde r 25 provided what the funds in the trust account should be Heritage Reporting Corporatio n (202) 628-4888 8 .used for, it is clear that neither order required . such a payment to be made . Petitioner-made the $16,06 2 payment to resolve Ms . Smith's objectio ns over 4 petitioner's retention of the $17,503 .56 of the bonus 5 payments that should have been placed in the trus t 6 account . In addition, petitioner provided no record showing how the $16,062 payment was used or how muc h 8 either Ms . Kiesel or Ms . Smith received . 9 For the foregoing reasons, the Court finds 10 that the total of $16,062 transferred from the . trust 11 to Ms . Smith and Ms . Kiesel was not paid under a 12 divorce or separation instruction as required under 13 section 71(b)(1)(A) . Therefore, petitioner is no t 14 entitled to an alimony deduction under section 215 for 15 2007 for the $16,062 payment made from the trus t 16, account . 17 Both respondent and petitioner agree that 18 the payments of Ms . Smith's attorney's 'fees from the 19- trust account satisfy all the requirements set forth 20 in section 71(b)(1), except the requirement unde r 21 section 71(b)(1)(D) of whether such payments would 22 terminate in the event of Ms . Smith's death . .23 Although Federal law controls petitioner's 24 income tax liability in this case, the determination 25 of petitioner's liability for such payments depends o n Heritage Reporting Corporation (202) 628-4888 9 1 Washington law . See, e .g ., Sampson v . Commissioner , 2 81 T .C . 614, 618 (1983), aff'd without publishe d 3 opinion, 829 F .2d 39 (6th Cir . .1987) ; Estate of Bosch 4 v . Commissioner , 387 U .S . 456, 465 (1967) . 5 The state courts of Washington have not 6 addressed the narrow legal issue presented in the 7 instant case . However, the majority of state courts 8 considering a similar question have concluded that an 9 award of attorney's fees remains viable an d 10 enforceable notwithstanding the death of one spouse 11 before entry of a final divorce decree . See Berry v . 12 Commissioner , T .C . Memo . 2000-373 . Furthermore , 13 courts granting awards of attorney's fees frequently 14 focus on the public policy underlying the statutory 15 provisions authorizing such awards ; i .e ., providing 16 otherwise needy spouses with the means to retai n 17 counsel in divorce actions . Id . Such courts point 18 out that a spouse's access to counsel would be unduly 19 restricted if counsel were required to bear the risk 20 that his or her client might not survive until a final 21 divorce decree is entered . Id . 22 Under Washington law, the statute that 23 governs payment of attorney's fees in dissolution 24 proceedings provides that the court may order a party 25 to pay the other party's attorney's fees after Heritage Reporting Corporatio n (202) 628-4888 1 0 1 considering the financial resources of the parties . 2 Wash . Rev . Code Ann . Sec . 26 .09 .140 (2010) .' The 3 statute requires the court to consider the financial 4 resources of the parties so that access to'counsel is 5 available to both parties . Access would be undul y 6 restricted if counsel were-to bear the risk that his 7 client might not survive . See Berry v . Commissioner , supra . Furthermore, neither the first nor the second order contained a provision for termination o f 10 payments for Ms .. Smith's attorney's fees upon Ms . 11 Smith's death . 12 Petitioner has failed to establish tha t 13 there is no liability to pay attorney's fees after the 14 death of Ms . . Smith which would qualify as alimon y 15 pursuant to section 71(b)(1)(D), and thus he is not 16, entitled to a deduction under section 215(a) for such 17 payments . .18 In reaching our holdings, we have considered 19 all arguments made, and, to the extent not mentioned, 20 we conclude that they are moot, irrelevant ., or without 21 merit . 22 To reflect the foregoing, decision will be 23 entered under Rule 155 :. . 24 This concludes the Court's oral findings of 25 facts and opinion . Heritage Reporting Corporation (202) 628-4888 1 (Whereupon , at 11 :38 a .m ., the bench opinio n 2 in the above - entitled matter was concluded . ) 11 3 // 5 6 // 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888