TAX COURT OPINION

Case: Sotirios K. Barkas
Docket Number: 16342-09S
Judge: Colvin
Opinion Type: bench
Filed: 07/09/2010
Pages: 6

aklama- -V - Y'2ou.P r UNITED STATES TAX COURT WASHINGTON, D.C. 2021 7 SOTIRIOS K . BARKAS , Petitioner , v . ) Docket No . 16342-09S COMMISSIONER OF INTERNAL REVENUE, , Respondent . O R D E 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 to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at San Francisco, California, on June 18, 2010, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for petitioner . (Signed) Diane L. Kroupa Judg e Date : Washington, D .C . July 9, 2010 SERVED JUL 13 2010 3 1 Bench Opinion by Judge Diane L . Kroupa June 18, 2010 2 Sotirios K . Barkas v . Commissioner Docket No . 16342-09 S 3 4 THE COURT : The Court has decided to render ora l 5 findings of fact and opinion in this case, and the following 6 represents the Court's oral findings of fact and opinion . 7 These oral findings of fact and opinion shall not 8 be relied upon as precedent in any other case . Thi s 9 proceeding was conducted as a small tax case under section 10 7453 and Rules 170 through 175 . This bench opinion is made 11 pursuant to the authority granted in section 7459(b) an d 12 Rule 152 . All section references are to the Internal 13 Revenue Code unless otherwise indicated, and all rule 14 references are to the Tax Court Rules of Practice & 15 Procedure . 16 Mr . Barkas appeared on his own behalf, with,the 17 assistance of attorneys with the pro bono assistanc e 18 program . John Wall appeared on behalf of Respondent . 19 FINDINGS OF FAC T 20 Petitioner's 14-year marriage to his forme r 21 spouse, Ms . Barkas, was dissolved in California in November 22 2001 : Petitioner was required to pay Ms . Barkas spousa l 23 support pursuant to the judgment for dissolution o f 24 marriage . Petitioner was originally required to pay hi s 25 former spouse $5000 a month for spousal support beginning i n Heritage Reporting Corporation (202) 628-4888 4 1 2001 . 2 There were four children of the marriage . The 3 oldest child was adopted and a special-needs child . 4 Ms . Barkas received adoption assistance payments from the 5 Santa Clara county post-adoption services agency for th e 6 oldest child . Petitioner was entitled to approximately half 7 of the $90,000 adoption assistance payments Ms . Barka s 8 received following the divorce . 9 Petitioner's monthly support obligation wa s 10 modified to account for the adoption assistance payments in 11 late 2005 by the Superior Court of California, County o f 12 Santa Clara . Pursuant to the order, Petitioner was required 13 to pay Ms . Barkas spousal support of $1313 per month fro m 14 November 1st, 2005, through December 31st, 2008, a total of 15 $49,894, unless she remarried or passed away before December 16 31st, 2008 . 17 The order also required Ms . Barkas to pa y 18 Petitioner an equal amount for the same period to settle all 19 claims between Petitioner and Ms . Barkas, including 20 allegations that past support had been overpaid or any 21 allegation of fraud or concealment . Petitioner entered into 22 the modified agreement on the advice of counsel . 23 The parties agreed that because Ms . Barkas's 24 monthly repayment obligation was equal to Petitioner's 25 monthly support obligation, no money would be physicall y Heritage Reporting Corporation (202) 628-4888 5 1 paid to either party . This order stated that the spousal 2 support would constitute taxable income to Ms . Barkas an d 3 that Petitioner could deduct the amounts as alimony payment s 4 on his tax returns . 5 The order also provided that the parties would 6 physically exchange checks each tax year if necessary t o 7 satisfy the requirements of the tax laws and to express the 8 intent of the agreement . Petitioner and Ms . Barka s 9 physically exchanged checks in the years before 2007, the 10 year at issue . Petitioner deducted the amount as alimony 11 and included the amount in her gross income 12 for those prior years . 13 Petitioner and Ms . Barkas did not physically 14 exchange checks in 2007 . Petitioner claimed an alimon y 15 deduction of $15,756 on the return for 2007, as he has done 16 the previous years . But Ms . Barkas apparently did no t 17 report the amount in her gross income for 2007 . 18 Respondent issued a statutory deficiency notice to 19 Petitioner dated April 10th, 2009, determining a $512 1 20 deficiency in Petitioner's federal income tax by disallowing 21 the $15,756 alimony deduction Petitioner claimed . 22 Respondent also determined that Petitioner was liable for 23 the section 6662 accuracy-related penalty . 24 Petitioner timely filed a petition to contest the 25 deficiency determination . At the time he filed th e Heritage Reporting Corporation (202) 628-4888 6 1 petition, Petitioner resided in California . 2 OPINION 3 The first issue we must decide is whethe r 4 Petitioner is entitled to deduct the amounts paid to his 5 former spouse as alimony . An individual is allowed t o 6 deduct alimony or separate maintenance payments paid during 7 the taxable year . Sec . 215(a) . 8 The payments must meet certain requirements to be 9 deductible, however . Sec . 71(b) . 10 The payments must be made pursuant totidivorce or OUL 0- 11 settlement -free agreement . Sec . 71(b) (1) (A) . 12 The payor and the payee must not be members of the 13 same household at the time the payments are made . Sec . 14 71(b) (1) (C) . 15 The payor must not be liable for any payments 16 following the death of the payee . Sec . 71(b) (1) (D . ) 17 Furthermore, the divorce or settlement agreement 18 must not designate the payments as not deductible under 19 section 215 or not includable in the recipient's gros s 20 income . Petitioner's payments to Ms . Barkas fulfilled each 21 of these requirements . The only requirement at issue i s 22 whether Petitioner's payments were made in cash or a cash 23 equivalent . A check or money order that is payable o n 24 demand is a cash equivalent . See Lofstrom v . Commissioner , 25 125 T .C . 271, 276 (2005) . Heritage Reporting Corporation (202) 628-4888 41, 7 1 The modified support agreement between Petitioner 2 and Ms . Barkas indicated that they would issue checks to one 3 another and the parties exchanged checks in the years before 4 2007 . 5 We find, therefore, that the payments made in 2007 6 constitute a cash equivalent and Petitioner is therefor e 7 entitled to deduct the amount as alimony . 8 We further find that Petitioner is not liable for 9 the accuracy-related penalty . Petitioner relied upon tax 10 professionals in negotiating the modified support agreement 11 and in preparing his return for 2007 . 12 To reflect the foregoing, decision will be entere d 13 for Petitioner . 14 This concludes the Court's oral findings of fact 15 and opinion in this case . 16 17 Thank you . , T,TT T 2' ZTL . . T i3 E RK R C : . l ri e 18 (Whereupon, at 9 :30 a .m ., the bench opinion in the 19 above-entitled matter was concluded . ) 2 0 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888