TAX COURT OPINION

Case: Carol S. Wells
Docket Number: 7129-10S
Judge: Colvin
Opinion Type: bench
Filed: 10/21/2010
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 CAROL S. WELLS, Petitioner, v. ) Docket No. 7129-10S. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) O R D E R Pursuant to Rule 152 (b) , Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith - to petitioner and to respondent a copy of transcript of Laurence J. Whalen at Peoria, findings of Illinois, containing his oral fact and opinion rendered on September 15, 2010. the proceedings in the above case before Judge the pages of the In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. October 21, 2010 vgo OCT 222010 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 Bench Opinion by Senior Judge Laurence J. Whalen Carol S. Wells v. Commissioner Docket No. 7129-10S September 15, 2010 3 L_ THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT' S ORAL FINDINGS OF FACT AND OPINION. II. This proceeding was heard as a Small Tax Case pursuant to the provisions of Section 7463 of the Internal Revenue Code, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. In this bench opinion, all section numbers refer to the Internal Revenue Code, as amended and in effect for 2008, the taxable year in issue, unless stated otherwise, and all rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to Section 7463(b), the decision to be entered in this case is not reviewable by any other court, and this bench opinion shall not be treated as precedent for any other case. III. This bench opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. Heritage Reporting Corporation (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 IV. 4 Ms. Carol S. Wells appeared on her own behalf. Ms. Julie A. Jebe, attorney at law, appeared on behalf of respondent . U. Respondent determined a deficiency of $3, 510 in petitioners' Federal income tax for the taxable year 2008. The deficiency is attributable solely to the disallowance of the deduction for alimony paid that was claimed by petitioner in her U.S. Individual Income Tax Return for 2008 in the amount of $10,800. The issue for decision is whether petitioner is entitled to deduct, pursuant to Section 215 (a) , "alimony or separate maintenance payments " in the aggregate amount of $10,800. VI. The parties submitted this case pursuant to Rule 122 on the basis of the pleadings and the facts recited in, and the exhibits attached to, their Stipulation of Facts. The facts recited in the stipulation are so found, and the attached exhibits are taken into evidence. Petitioner resided in Normal, Illinois, at the time the petition was filed. On or about September 13, 2007, Heritage Reporting Corporation (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 5 petitioner divorced Mr. Jeffrey B. Wells after more than 13 years of marriage. Three children had been born to the couple before their divorce. Petitioner's divorce was effected by the Judgment of Dissolution filed by the Circuit Court of the Eleventh Judicial Circuit, County of McLean. Paragraph 5.C. of that Judgment provides as follows: Ouote The Respondent's [M:c. Jeffery B. Wells'] child support shall be set in the amount of $400.00 per month commencing with the first payment due September 1, 2007, with said child support to be paid via a Notice/Order of Withholding and payments remitted through the State Disbursement Unit. Said child support shall terminate absent an order otherwise on August 21, 2021, when it would be anticipated the youngest minor child will have reached the age of majority and completed his high school education but may be extended in the event the minor child has not completed his high school education but shall not extend past August 21, 2022. Said child support represents a downward deviation on the Respondent's [bte. Wells'] statutory child support by the amount of $900.00 per month in exchange for any claims for maintenance by Respondent [htc. Heritage Reporting Corporation (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 6 Wells] from Petitioner or in lieu of claims of offset raised herein. Said offset of $900.00 per month shall continue for a period of five years, shall be considered in future instances of modification of child support (ie. [sic] if Respondent's [Mr. Wells'] statutory child support would be $1600.00 per month, his child support will be set at $700.00 per month after said offset) and shall terminate in the event the Respondent [Mr. Wells] remarries, dies or cohabits with another individual on a continuing conjugal basis as contemplated within 750 ILCS 5/510. Further, the Petitioner agrees to assume 100 percent of an and all day care or nanny related expenses incurred for the benefit of the minor children. End Quote. During 2008, Mr. Wells made 26 bi-weekly payments of $184.62, an aggregate of $4,800.12, into petitioner's "EPPIcard account", an account maintained by the Illinois Department of Human Services, Illinois Disbursement Unit, and petitioner withdrew $8,105 from the account. During 2008, petitioner did not make any cash payment of alimony or separate maintenance to her former.husband. VII. Heritage Reporting Corporation (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 7 ¯ In this case, we are called upon to determine whether petitioner is entitled to deduct $900 per month, an aggregate of $10,800 for the year, as alimony. The record does not show that petitioner actually made any cash payments of alimony or separate maintenance to her former husband. Nevertheless, she asks the Court to find that she is entitled to be treated as if she had, based on the premise that she and her former husband each agreed to offset their mutual obligation to pay $900 to the other. Petitioner's view is that she accepted child support payments of $400 per month from her former husband, or $900 per month less than he was obligated to pay and, in return, he treated petitioner as having satisfied her obligation to pay alimony to him in the amount of $900 per month. The statement of Mr. James P. Ingold, CPA, submitted by petitioner states: Ouote In other words, at the time Mr. Wells delivers a check for $400, it is equivalent of him delivering a check for $1,300 for child support and her [petitioner) delivering a check for $900 for maintenance. Therefore, I feel it meets the "equivalency" test as mentioned in Factor 1. End Ouote. According to Mr. Ingold, Section 71(b) merely specifies that "The payment is in cash or its equivalent". Heritage Reporting Corporation (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 26 27 28 29 30 31 32 33 34 35 36 37 38 VIII. 8 The term "alimony or separate maintenance payment", collectively referred to as alimony, is any payment, as defined in Section 71(b), which is includible in the gross income of the recipient under Section 71. Section 215(a). Section 71(b) (1) defines "alimony" as follows: In general.-The term "alimony Ouote (1) or separate maintenance payment" means any payment is received by (or on (A) such payment behalf of) a spouse under a divorce or separation instrument, (B) does not designate such payment as a payment which is not income under this section and not allowable as a deduction under section 215, the divorce or separation instrument in cash if- includible in gross in the case of an individual (C) legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the time such payment the same household at is made, and the payee spouse and there is (D) there is no liability to make any such payment for any period after the death of no liability to make any payment cash or property) as a substitute for such payments after the death of payee spouse. End Ouote the (in Section 71(c) (1) provides, in effect, that the term alimony does not include "that part of any payment which the terms of the divorce or separation instrument fix (in terms of an amount of money or a part of the payment) as a sum Heritage Reporting Corporation (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 9 which is payable for the support of children of the payor spouse." Significantly, Section 1.71-1T(b), Q & A-5, Temporary Income Tax Regs., makes it clear that alimony or separate maintenance payments cannot be made in a form other than cash. The temporary regulation provides "Only cash payments (including checks and money orders payable on demand) qualify as alimony or separate maintenance." Id. As long as all of the other requirements are satisfied, the payor spouse must make a cash payment to the payee spouse, or to a third party on behalf of the payee spouse, for the payment to qualify as alimony or separate maintenance. See Sec. 1.71-1T(b), Q & A-6, Temporary Income Tax Regs. IX. Petitioner's position presupposes that Mr. Wells was legally obligated to make child support payments to her of $1,300 per month. However, the Judgment of Dissolution states that Mr. Wells' "child support shall be set in the amount of $400.00 per month". It never mentions a child support obligation of $1,300 per month, nor does it impose an obligation in such amount on Mr. Wells. For example, n ther the Judgment of Dissolution nor anything else in the A record explains how such a child support obligation of $1,300 a month was computed for the couples' three children. Heritage.Reporting Corporation (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 10 Petitioner's position also presupposes that petitioner was legally obligated to make separate maintenance payments to him of $900 per month. We cannot find such an obligation set out in the Judgment of Dissolution. The Judgment of Dissolution document states that there was a "downward deviation" in Mr. Wells' child support "by the amount of $900.00 per month in exchange for any claims for maintenance by Respondent [Mr. Wells] from Petitioner or in lieu of claims of offset raised therein." That language neither obligates Mr. Wells to pay child support to petitioner of $1,300 per month, nor does it obligate petitioner to pay alimony or separate maintenance of $900 per month to Mr. Wells. Moreover, even if such legal obligations had been created under the Judgment of Dissolution, the fact remains that petitioner made no cash payments to her former husband. Section 71(b) (1) plainly requires payments of alimony or separate maintenance to be "in cash". Petitioner's case fails because she failed to observe that requirement. In order to give effect to our disposition of the disputed issue, decision will be entered for respondent. L. XI. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 s 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 2s THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon at 9:17 a.m. the bench opinion in the above-entitled matter was concluded.) 11 // // // // // // // // // // // // // // // // - // // // // // Heritage Reporting Corporation (202) 628-4888