TAX COURT OPINION

Case: Jack R. Stedman
Docket Number: 10802-05
Judge: Thornton
Opinion Type: memo
Filed: 10/27/2008
Pages: 9

T .,C . Memo . 2.008-23 9 UNITED STATES TAX COUR 11 JACK R . STEDMAN, Petitione v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 10802 -05 . Fi,le4 October 27, 2008 Jack R . Stedman, pro se . Michael-,W . Bitner , . .for respondent . , MEMORANDUM OPINION THORNTON ., Judge : Respondent determined a $1,928 'deficienc y in petitioner's 2002 Federal income tax and ~ $386 accuracy- related penalty under section 6662 .1 The is,ues for decisio n 1 Unless otherwise indicated, all secti6n references are to the Internal Revenue Code as in effect-for t e taxable year a t issue . ERVED, OCT 2 7 2008 - 2 - are : (1) Whether petitioner is entitled to deduct as alimony court-ordered payments of attorney's fees to his ex-wife ; and (2) whether petitioner is liable for the section 6662 accuracy- related penalty . Background The parties have stipulated some facts, which are so found . When he petitioned the Court, petitioner resided in Nebraska . Petitioner is a retired postal inspector and certified public accountant (C .P .A .) . In 1980 petitioner and Ivadelle L . Stedman divorced . There ensued protracted litigation between them over her .right to a portion of petitioner's Civil Servic e Retirement System (CSRS) benefits . By finding of facts and order on attorney's fees dated June 28, 1995, pursuant to Cal . Fam . Code sec . 2030 (West 1994), the Superior Court of California, County of Santa Clara, ordere d petitioner to'!pay his former wife's attorney $112,075, representing $102,000 in fees and $10,075 in costs . By the Superior Court's amended order dated August 31, 1995, thes e attorney 's fees and costs were to be paid in monthly installment s from petitioner's CSRS benefits . For the year at issue, the monthly installments were $1,000 per month . The U .S . Office of Personnel Management (OPM) was ordered to make these payment s directly to petitioner ' s former wife . The order and amende d order were silent as to whether the obligation to pay attorney's - 3 - fees and costs would terminate if she died before they were paid in full . On his 2002 Federal income tax return, petitioner claimed a $12,000 deduction for alimony paid with respect to the award of attorney' s fees and costs . Petitioner did of consult a ta x professional about this claimed deduction . In the notice of deficiency , respondent disallowed the deduction and imposed an accuracy - related penalty pursuant to sectio 6662 ( a) and (b)(1) . Alimony Deduction Discussio n Section 215(a) allows a deduction for he payment of alimony as defined in section 71(b), which provides : (1) In general .--The term "alimony or separate maintenance payment" means any payment in cash if-- payment is received by (or on behalf of) a spouse under a divorce or separation instrument , (B) .the .divorce or separatio instrument does not designate such payment a 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 o f .divorce-or of separate maintenanc, the-payee spouse and the payor spouse are not members of the same household at the time such~- payment is made, an d (D) there is no liability to make any such payment for any period after the death of the payee spouse and there is o liability to make any payment (in cash or p operty) as a - 4 - a substitute for such payments after the death of the payee spouse . The parties agree that the requirements of subparagraphs (A), (B), and o(C) have been satisfied. They disagree solel y about whether the payments satisfy subparagraph (D) ; i .e . , whether the obligation to pay the court-ordered attorney's fee s and costs would have terminated in the event of the death of petitioner's former wife . Under section 71(b)(1)(D), the payor must have no liability to continue payments after the recipient's death ; otherwise the payor may not deduct any required related payments . See Johanson v . Commissioner , 541 F .3d 973, 976-977 (9th Cir . 2008), affg . T .C . Memo . 2006-105 ; Kean v . Commissioner , 407 F .3d 186, 191 (3d Cir . 2005), affg . T .C . Memo . 2003-163 . If the divorce instrument is silent as to the existence of a postdeath obligation, the requirements of section 71(b)(1)(D) may still be satisfied if the payments terminate upon the payee spouse's death by operation o f State law . Johanson v . Commissioner , supra at 977 . If State law is ambiguous in this regard, however, a "'federal court will no t engage in complex, subjective inquiries under state law ; rather , the court will read the divorce instrument and make its ow n determination based on the language of the document .'" Id . (quoting Hoover v . Commissioner , 102 F .3d 842, 846 (6th Cir . 1996), affg . T .C . Memo . 1995-183) . 5 - Because the Superior Court order is silent as to whether the obligation to pay attorney's fees and costs to petitioner's former wife would terminate in the event of her death, we consider whether California law provides a' lear answer .to thi s question . Petitioner was ordered to pay his former wife's attorney's fees and costs pursuant to Cal . Fam ._Code SEC . 2030 . That provision-authorizes a court in a marriage issolution proceedin g to order one party to pay reasonably necess4r y and costs to the other party or to the oth e party's attorney . There is no provision in°Cal . Fam . Code sec . 2030 terminating th e payor's obligation upon the death or-remarr age of the other spouse . By contrast , with respect to cour t ordered awards.. of' spousal "support"' made pursuant to . Cal . Fam . Code sec .-4337 (Wes t 2004), the statute specifically provides .th t, unless the partie s to aemarriage-dissolution agree . otherwise i writing, the payor' s obligation "terminates upon the death .of ei her party or the remarriage'-of the other party ." Cal . Fam . ode sec . .4337 . Differentiating attorney's fees from .s ousal support, one California court has held that under the s t tutory predecessor to Cal . Fam . Code sec . 2030, the remarriage of a former spouse .doe s not preclude her right to'attorney's fees i a postdissolution proceeding . Newport v ."Newport ,r20l Cal .. .R tr .~647, 648 (Ct . App . 1984) . Respondent contends that . since (' - 6 - terminate the °j right to attorney's fees, neither would the death of a former spouse . See Adamoli v . Drake , 62 . ,Cal . _Rptr, . 2d 466 (Ct . App . 19971) (in a postdissolution proceeding involving a former,husband;'s continuing obligation to support a disabled child, the former wife' s cause of action for attorney's fees under Cal . Faml . Code sec . 2030 did not abate with her death) ;-cf . Johanson V . Commissioner , supra at 977 n .l (following California case law whicl4 holds that the death and remarriage provisions of , Cal . Fam . Code; sec . 4337,should be interpreted "in a simila r fashion") . We find respondent's contentions persuasive . Indeed, without expregsly analyzing the .(cid:127) particulars of California famil y -law, this Court .has held-that an award of attorney' s fees in a California domestic relations proceeding survived the death o f the spouse to whom the fees were awarded . Ribera v . Commissioner , T .C . Memo . 1997-38, affd . without published opinion ; 139 F .3d 907 (19th Cir . 1998) ; see :also Berry v . Commissioner , T .C . Memo . 2000-373 (under Oklahoma law, obligation to pay attorney's fees arising from'a,temporary order issued by .the divorce court' pendente lite would not have terminated if .-the , payee spouse died before entry,of a final decree), affd . 36 Fed . Appx . 400 (10th' Cir . 2002) ; Zinsmeister v . Commissioner , T .C . Memo . 2000-364 (under Minnesota law, payment of attorney's fee award did notS,qualify as alimony where, the payor's obligation to that California. law would.. not. avail make an independen t ourt orders as to on would end at the death of his former wife . See Johanson_ v 9.77 . Because the Superior Court orders ar e silent . in thi s regard,-,and--because there is no 'other evide ce to support a contrary conclusion ,, we would ,st-ill- conclu d that petitioner.=. s.- .x obligation'to make-the payments .in issue w o ld not terminate upo n the death of his former .: spouse . Hence-the yment s satisfy the°requirements of section 71(b)(1 ) (D ) At trial and on .brief .petitioner has ;a tacked'the State judgment awarding attorney' s=fees and cost s to his ...former wife . He contends 'that the-State court . exceeded i ordering OPM to pay attorney's fees and co s benefits There .is no .indication, .°however, . ; has overturned the judgments in question . ' rinciples o f collateral estoppel and full faith . and' credit counsel that w e respect them .. -See Stark v . Commissioner , T .IC .=Memo . 2003-47 ; Calhoun v'. Commissioner ,, T .C :, _Memo . 1992-2461, affd . without,. published opinion 993 F .2d 1533 (2d-Cir . 1993) . : . Accuracy-Related Penalt y - 8 - Section 6662(a) imposes a 20-percent .penalty on any portion of an underpayment that is attributable to, among other things, negligence or disregard of rules or regulations . See sec . 6662(b)(1) . For this purpose, negligence includes any failure to make a reasonable attempt to comply with the tax code ; the term "disregard" includes "careless, reckless, or intentional disregard ." Sec . 6662(c) . We find that petitioner's understatement, resulting from his improper attempt to deduct as alimony the court-ordered payments of attorney'sfees, is attributable to negligence and disregard of rules and regulations . Accordingly, respondent has carrie d his burden of production . under section 7491(c) with respect to the accuracy-related penalty under section 6662(a) .- The accuracy-related penalty does not apply with respect to any portion of the underpayment if it is shown that the taxpayer had reasonable cause and acted in good,faith . Sec . 6664(c)(1) . Petitioner, a retired C .P .A ., has offered no separate arguments in this regard . He professes to be familiar with the provisions of the Internal Revenue Code . He did not consult a professional tax adviser in preparing his 2002 Federal income tax return . Particularly in the light of his experience, and professed knowledge, we conclude that petitioner has not shown that he ha d 1 it - 9 - reasonable cause or acted in good faith wit respect to the disallowed alimony deduction . To reflect the foregoing, Decision will be entere d for resp ndent .