TAX COURT OPINION

Case: Derek Leon George
Docket Number: 26956-07S
Judge: Colvin
Opinion Type: bench
Filed: 12/08/2008
Pages: 9

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 DEREK LEON GEORGE, Petitione r v . ) Docket No . 26956-07 S COMMISSIONER OF INTERNAL REVENUE, Respondent CAL . STR,T , 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 the pages of the transcript of the trial of the above case before Special Trial Judge Robert N . Armen, Jr . at Jacksonville, Florida on November 18, 2008, 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, a Decision will be entered for respondent . (Signed) Robert N . Armen, Jr. Special Trial Judg e Dated : Washington, D .C . December 8, 2008 SERVED Dec 09 2008 3 1 Bench Opinion by Special Trial Judge Robert N . Armen Jr . 2 November 18, 200 8 3 George v . Commissioner Docket No . 26956-07 S 4 THE COURT : I . The Court has decided to 5 render oral findings of fact and opinion in this case , 6 and the following represents the Court ' s oral findings of 7 fact and opinion . The oral findings of fact and opinion 8 shall not be relied upon as precedent in any other case . 9 II . The proceeding was heard as a Small Ta x 10 Case pursuant to the provisions of Section 7463 of the 11 Internal Revenue Code of 1986, as amended, and Rules 170 12 through 175 of the Tax Court Rules of Practice an d 13 Procedure . 14 III . This bench opinion is made pursuant to 15 the authority granted by Section 7459(b) of the Internal 16 Revenue Code of 1986 , as amended , and Rule 152 of the Tax 17 Court Rules of Practice and Procedure . 18 Hereinafter in this bench opinion, and unless 19 otherwise indicated , all section numbers refer to th e 20 Internal Revenue Code , as amended and in effect for 2005, 21 the taxable year in issue , and all Rule numbers refer to 22 the Tax Court Rules of Practice and Procedure . 23 IV . Petitioner appeared on his own behalf . 24 J . Scot Simpson appeared on behalf of Respondent . 25 V . Petitioner resided in the State of Heritage Reporting Corporatio n (202) 628-4888 4 1 Florida at the time that the petition was filed with the 2 Court . 3 VI . The sole issue for decision is whether 4 $29,398 Petitioner paid to his ex-wife in 2005 pursuant 5 to a Financial and Asset Agreement ( asset agreement) was 6 deductible as alimony under Section 71 . Responden t 7 disallowed the deduction and determined a deficiency i n 8 Petitioner's Federal income tax for 2005 in the amount of 9 $7,500 . 10 VII . Petitioner and Jacki Lynn George became-- 11 a couple and started living together in or about 1993 . 12 Several years later, in 1997, they married . In 2005, 13 they divorced . No children were born of the marriage . 14 Incident to their divorce, Petitioner an d 15 Jacki Lynn George executed the asset agreement, which was 16 drafted largely, if not exclusively, by Petitioner . 17 Pursuant to that agreement, Petitioner paid 18 Ms . George a total of $29,938, and Ms . George took 19 certain action, specifically including executing two 20 quit-claim deeds transferring her interest in certain 21 real property to Petitioner . 22 In June 2005, the Circuit Court for Volusia 23 County, Florida, entered its Final Judgment dissolving 24 the marriage of Petitioner and Jacki Lynn George . The 25 Circuit Court's decree incorporated the asset agreement . Heritage Reporting Corporation (202) 628-4888 5 1 The operative document served to "divide our assets 2 (everything we own and that is owed to us)" . 3 Petitioner and Jacki Lynn George file d 4 separate income tax returns for 2005 . Ms . George did not 5 report any part of the $29,398 payment as alimony o r otherwise on her 2005 individual return . 7 VIII . The issue for decision is essentiall y 8 legal in nature ; accordingly , we decide it without regard 9 to the burden of proof . 10 Section 71(a) provides the general rule that 11 alimony payments are included in the gross income of the 12 payee spouse ; Section 215 ( a) provides the complementary 13 general rule that alimony payments are tax deductible by 14 the payor spouse in " an amount equal to the alimony or 15 separate maintenance payments paid during suc h 16 individual's taxable year . " 17 Property settlements are not "alimony" . See, 18 e .g ., Riley v . Commissioner , 649 F . 2d 768 ( 10th Cir . 19 1981 ), affg . T .C . Memo . 1979 - 237 . The term " alimony" 20 means any alimony as defined in Section 71 . Sectio n 21 71 ( b) provides : 22 //SEC . 71 ( b) . Alimony or Separate Maintenance 23 Payments Defined .--For purposes of this section- 24 (1) In general .--The term " alimony or 25 separate maintenance payment" means any payment in cash If CZ Heritage Reporting Corporatio n (202) 628-4888 6 1 if- 2 (A) such payment is received by (or on behalf 3 of) a spouse under a divorce of separation instrument , 4 (B) the divorce or separation instrument does 5 not designate such payment as a payment which is no t 6 includable in gross income * * * and not allowable as a 7 deduction under Section 215 , 8 (C) in the case of an individual legally 9 separated from his spouse under a decree of divorce or of 10 separate maintenance, the payee spouse and the payo r 11 spouse are not members of the same household at the time 12 such payment is made, an d 13 (D) there is no liability to make any such 14 payment for any period after the death of the paye e 15 spouse and there is no liability to make any payment (in 16 cash or property) as a substitute for such payments after 17 the death of the payee spouse . 1/ 18 Both parties agree that Petitioner ' s payments 19 to his ex-wife satisfied the requirements set out i n 20 Section 71 (b) (1) ( A) , (B), and ( C) . Payment was made in 21 cash ; payment was made pursuant to a "divorce o r 22 separation instrument " as described in Section 23 71(b)(2)(C) ; payment was not made ineligible for th- sZ, 24 Section 71 and 215 deduction/inclusion scheme ; and at the 25 time of payment, Petitioner and his ex-wife were no t Heritage Reporting Corporation (202) 628-4888 N 1 members of the same household . 2 Rather, the disagreement between the parties 3 in this case centers on whether Petitioner ' s payments 4 satisfied Section 71 ( b)(1)(D) ; i .e ., whether Petitioner's 5 liability to make the payments would have terminated i n 6 the event of his ex -wife's death . 7 If the obligation to make the payments would 8 have terminated in the event of his ex-wife's death, th e 9 payments would have been " alimony" . However , because it 10 is clear that Petitioner ' s payments to his ex-wife would 11 not have terminated in the event of his ex-wife ' s death , 12 we agree with Respondent that the payments were not 13 alimony and therefore that the payments were no t 14 deductible by Petitioner . 15 As the asset agreement is silent on whether 16 Petitioner ' s payments to his ex - wife would survive her 17 death, our analysis is guided by Florida State law . 18 "Although Federal law controls in determinin g 19 Petitioner ' s income tax liability * * *, State law is 20 necessarily implicated in the inquiry inasmuch as the 21 nature of Petitioner's liability for the payments" was 22 based in Florida law . Berry v . Commissioner , T .C . Memo . 23 2000-373 , affd . 36 Fed . Appx . 400 (10th Cir . . 2002) ; see 24 also, e .g ., Sampson v . Commissioner , 81 T .C . 614, 61 8 25 (1983), affd . without published opinion 829 F .2d 39 (6th Heritage Reporting Corporatio n (202) 628-4888 Cir . 1987) . 2 In Commissioner v . Estate of Bosch , 387 U .S1 3 456, 465 (1967), the Supreme Court addressed the mean s 4 for determining State law in the context of a Federal tax 5 case and stated that "the State's highest court is th e 6 best authority on its own law . " 7 Putting aside the details of the asse t 8 agreement , which, on its face, direct our interpretation 9 that the asset agreement is a property settlement, and 10 not "alimony", we observe that Florida's alimony statute 11 specifically permits a trial court to award alimony in 12 the form of periodic payments, lump sum payments, o r 13 both . See Sec . 61 .08(1), Fla . Stat . Ann . (West 2006) . 14 Lump sum alimony may be used as a tool for 15 the equitable division of marital assets . See, e .g . , 16 Canakaris v . Canakaris , 382 So .2d 1197, 1201 (Fla . 1980) . 17 However, " [b] y definition, ' lump sum alimony' is a fixed 18 and certain amount, the right to which is vested in the 19 recipient and which is not therefore subject to increase, 20 reduction, or termination in the event of an y 21 contingency, specifically including those of death o r 22 remarriage ." Boyd v . Boyd , 478 So . 2d 356, 357 (Fla . Ct . 23 App . 1985) . 24 According to the Florida Supreme Court, an 25 award of lump sum alimony survives the death of both the Heritage Reporting Corporatio n (202) 628-4888 9 1 obligor and the obligee . See Canakaris v . Canakaris , 2 supra . See also Sd- 61 .075(2), Fla . Stat . Ann (West 3 2006) ; Filipov v . Filipov , 717 So . 2d 1082, 1084 (Fla . 4 Ct . App . 1998) . 5 Thus, even if the asset agreement were 6 reflective of lump sum alimony and not a propert y 7 settlement per se, it is clear that an award of lump sum 8 alimony would not meet the requirement of Section 9 71(b)(1)(D) for deduction eligibility . 10 Although we are not bound by labels i n 11 deciding whether payments are to be considered "alimony", 12 see, e .g ., Beard v . Commissioner , 77 T .C . 1275, 1283-1284 13 (1981), on its face the asset agreement explains that its 14 intent is to serve as a "division of assets" of th e 15 marital estate . Some weight must be given to th e 16 document's own language . See Griffith v . Commissioner , 17 749 F .2d 11, 13 (6th Cir . 1984), affg . T .C . Memo . 1983- 18 278 . 19 Further, Petitioner's ex-wife's behavior 20 following the execution of the asset agreement supports 21 to conclusion that the asset agreement was, in fact, a 22 property settlement agreement and not alimony subject to 23 the inclusion/deduction scheme of Sections 71 and 315 . 24 Combined with the fact that Petitioner' s 25 obligation to make the payments pursuant to the asset Heritage Reporting Corporatio n (202) 628-4888 1 0 1 agreement would not have terminated under State law in 2 the event of Petitioner ' s ex-wife's death, we mus t 3 conclude that Respondent was correct in disallowing 4 Petitioner's $29,398 alimony deduction for 2005 . 5 Accordingly , we sustain Respondent ' s determination . 6 IX . In order to give effect to our 7 disposition of the disputed issue, decision will be 8 entered for Respondent . 9 X . This concludes the Court's oral findings 10 of fact and opinion in this case . 11 (Whereupon , at 2 :12 p .m ., the trial in the 12 above-entitled matter was concluded . ) 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888