Court Opinion

ID: 4332143
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:33:15.091744+00
Date Added: 2024-06-11T14:47:46.501562
License: Public Domain

FOREST R. PRESTON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentPreston v. CommissionerNo. 19597-97United States Tax CourtT.C. Memo 1999-49; 1999 Tax Ct. Memo LEXIS 56; 77 T.C.M. 1437; T.C.M. (RIA) 99049; February 23, 1999, Filed 1999 Tax Ct. Memo LEXIS 56">*56  Decision will be entered under Rule 155.  1999 Tax Ct. Memo LEXIS 56">*57 Robert R. Lomax, for petitioner.Eric B. Jorgensen, for respondent.  LARO, JUDGE.  LAROMEMORANDUM OPINION[1] LARO, JUDGE: The parties submitted this case to the Court without trial. See Rule 122. Petitioner petitioned the Court to redetermine deficiencies in his 1992, 1993, and 1994 Federal income tax and an accuracy-related penalty for 1994 under section 6662(a). Following concessions, the only issue left to decide is whether petitioner may deduct $ 47,482, $ 40,089, and $ 24,340 of alimony 1 for the respective years. We hold that his alimony deductions for the respective years are $ 1,878, $ 5,014, and zero. Unless otherwise stated, section references are to the Internal Revenue Code in effect for the subject years. Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest dollar.1999 Tax Ct. Memo LEXIS 56">*58  BACKGROUND[2] All facts were either stipulated or found by the Court from exhibits accompanying the stipulation of facts. The stipulations of fact and accompanying exhibits are incorporated herein by this reference. Petitioner is a cash method taxpayer who resided in Hamilton, Georgia, when he petitioned the Court.[3] Petitioner claimed alimony deductions of $ 60,102, $ 34,946, and $ 24,202 on his 1992, 1993, and 1994 Federal income tax returns, respectively. Respondent disallowed these deductions, determining that the payments were not alimony. Petitioner concedes that some of the reported amounts did not constitute alimony. Petitioner argues that his alimony deductions for the respective years are $ 47,482, $ 40,089, and $ 24,340.[4] Petitioner married Dianne Sowell (Ms. Sowell) in 1974, and they had two children (collectively, the children) during their marriage. The older child, Ashley Denise Preston (Ashley), was born October 19, 1976. The younger child, Martin Barron Sowell Preston (Barron), was born October 3, 1984. For most of 1991, petitioner lived with his family in Columbus, Georgia, in a house (the Columbus house) that he owned jointly with Ms. Sowell. Petitioner moved1999 Tax Ct. Memo LEXIS 56">*59  out of the Columbus house in December 1991, and he moved into a cabin that he owned in Harris County, Georgia.[5] In March 1992, Ms. Sowell petitioned the Superior Court of Muscogee County, Georgia, for a divorce from petitioner. One month later, on April 3, 1992, the superior court issued a temporary order nunc pro tunc to March 19, 1992. The temporary order stated:                 1.     Plaintiff [Ms. Sowell] shall have the temporary custody of   the two (2) minor children of the parties, and the Defendant   [petitioner] shall have the right to visit said children and   have said children visit with him at all reasonable times and   places.                 2.     Plaintiff shall have the temporary exclusive use of the   [Columbus] house and premises and all household furniture and   furnishings located therein * * * and the Cadillac automobile in   her possession. The Defendant shall have the temporary exclusive   use of all marital property now in his possession and the   property located in Harris County, Georgia known as the house or   cabin in the backwater.             *  * 1999 Tax Ct. Memo LEXIS 56">*60   *  *  *  *  *                 4.     Defendant shall pay for the support of Plaintiff and the   two (2) minor children of the parties and the following   household and family expenses until further Order of the Court:     (a) The mortgage payments, ad valorem taxes and insurance   on the * * * [Columbus house] * * *;     (b) All utility expenses at the * * * [Columbus house],   including electricity, water, garbage and sewer, telephone, gas,   pest control, cable television and lawn care;     (c) Wife's automobile expenses, including gasoline and oil,   repairs, automobile tags, licenses and insurance;     (d) The medical and dental expenses of Wife and the   children and prescription drug expenses;     (e) The children's school tuition, supplies and activities;     (f) The cost of clothing for Wife and the children * * *.     In addition to making the payments above enumerated,   Defendant shall pay to Plaintiff the sum of ONE THOUSAND DOLLARS   ($ 1,000) per month, commencing April 1, 1992, with a payment of   FIVE HUNDRED DOLLARS ($ 500.00), and the payment of an additional1999 Tax Ct. Memo LEXIS 56">*61     FIVE HUNDRED DOLLARS ($ 500.00) on the 15th of April, 1992, and   continuing with like payments during each calendar month   thereafter until further Order of the Court; with the provision,   however, that Defendant may at his option pay the monthly sum on   the 1st day of each calendar month rather than in two (2)   installments; and Defendant shall pay to Plaintiff immediately   an amount so that the total sum given to her for support of   herself and the children during the month of March, 1992 will   equal the sum of ONE THOUSAND DOLLARS ($ 1,000). [6] On June 3, 1993, the superior court held petitioner in contempt of the temporary order because he had failed to pay certain bills covered by the order. The court ordered him to pay these bills and to pay $ 350 of attorney's fees at the rate of $ 50 per month commencing with June 1993.[7] On September 4, 1993, the superior court entered a final judgment and decree (the final decree) granting Ms. Sowell a divorce from petitioner. The final decree provided in relevant part:           FINAL JUDGMENT AND DECREE     * * * it is the judgment of the Court that a total divorce   be granted. 1999 Tax Ct. Memo LEXIS 56">*62  * * * Each party is awarded their personal property   and other property which is in their possession.                 1.     The Plaintiff is awarded permanent custody of the two minor   children of the parties * * *             *  *  *  *  *  *  *                 4.     Defendant shall pay to the Plaintiff the sum of $ 800.00 per   month per child as child support and Defendant shall commence   said payments of child support on August 1, 1993, with a payment   of $ 800.00 and an equal payment of $ 800.00 on August 15, 1993   and said payments shall continue on the 1st and 15th of each   calendar month until each child attains the age of 18, marries,   dies, becomes fully self-supportive or otherwise emancipated,   whichever event shall first occur the child support shall   terminate. * * *             *  *  *  *  *  *  *                 6.     The Plaintiff is awarded the * * * [Columbus house], and   the Plaintiff is to make payments on the indebtedness secured by   said real property and shall hold the Defendant harmless   therefrom1999 Tax Ct. Memo LEXIS 56">*63  for payments due on said property.                 7.     The Defendant shall pay to the Plaintiff a lump sum award   of alimony total of $ 180,000.00 with $ 120,000.00 payable at   $ 1,000.00 per month for ten (10) years, beginning on August 1,   1993, and then in five (5) years, due on the 14th day of July,   1998, the Defendant shall pay to the Plaintiff a lump sum of   $ 10,000.00 and then in ten (10) years, due on the 14th day of   July, 2003, the Defendant shall pay to the Plaintiff $ 50,000.00.   * * *.             *  *  *  *  *  *  *                 10.     The Defendant is ordered to pay and be responsible for   tuition at Brookstone School for the minor child, Barron, for   1993-1994 school year.                 11.     The Defendant shall pay the insurance for the minor child,   Ashley's, car until she reaches 18 years of age.             *  *  *  *  *  *  *                 13.     The Defendant is ordered to buy the Plaintiff a car not to   exceed $ 17,000.00 within the next ninety (90) days. Defendant1999 Tax Ct. Memo LEXIS 56">*64     may finance said purchase and he shall be responsible and make   the payments as due.                 14.     The Defendant shall pay the sum of $ 5,000.00 as attorney   fees to be divided among the law firms HARP & JOHNSON, P.C. and   GROGAN, JONES, RUMER & GUNBY, P.C. for their legal   representation of Plaintiff. Said sum shall be payable at   $ 200.00 per month for 25 months beginning on August 1, 1993   until said sum is paid in full.             *  *  *  *  *  *  *                 16.     The Defendant shall maintain and pay the premiums for major   health, hospitalization and dental insurance for the minor   children for as long as he is obligated to pay child support.   The Defendant shall be responsible for all medical expenses   which are not covered by insurance for the benefit of the minor   children. * * * [8] Pursuant to the temporary order, petitioner paid Ms. Sowell monthly payments totaling $ 10,000 in 1992 and $ 7,000 in 1993. Pursuant to the final decree, petitioner paid Ms. Sowell monthly payments totaling $ 5,000 in 1993 and $ 12,000 in 1994. Petitioner claims1999 Tax Ct. Memo LEXIS 56">*65  an alimony deduction for the amount of these monthly payments, and for other amounts that he paid or incurred during the subject years for the benefit of Ms. Sowell and/or the children. Each amount that petitioner paid or incurred during the subject years, and for which he claims an alimony deduction, is listed below by year, payee, amount, and purpose. 2 These amounts are as follows:1992PayeeAmountPurposeMs. Sowell$ 10,000Monthly paymentsMs. Sowell2,232Clothes for childrenPacelli High1,109Ashley's tuitionSouthern Bell783Telephone -- Columbus houseSears375Pest control -- Columbus houseMs. Sowell212Clothes for Ms. SowellMs. Sowell350Barron's school pictureCB&T1,525Barron's tuitionN.C. Pharmacy447Drug billGalaxie210Satellite T.V. -- Columbus houseDr. Hudson406Children's physicianTelecable514Cable T.V. -- Columbus HouseUn. Cities Gas470Gas Heat -- Columbus HouseDr. Allison443Ms. Sowell's dentistBrookstone School2,373Barron's tuition/related exp.Dr. Helms665Ms. Sowell's dentistAssociates533Satellite T.V. -- Columbus houseGeorgia Power2,125Electric bill -- Columbus houseColumbus Water524Water bill -- Columbus houseC. Wilson86Children's piano activitiesColumbus Ledger116Newspaper -- Columbus houseMs. Sowell166Activities for BarronR. Waters385Tree removal -- Columbus houseGrasshopper685Lawn care -- Columbus houseMs. Sowell666Miscellaneous expensesBob's Pool1,408Pool liner -- Columbus houseJ.P Lanier Co.548Homeowner ins. -- Columbus houseMs. Sowell136Children's dental billMs. Sowell130Ms. Sowell's medical billMs. Sowell200Barron's birthday partyCB&T10,000Buy automobile for AshleyD.J. Ins.428Insurance -- Ms. Sowell's carD.J. Ins.340Insurance -- Ashley's carMs. Sowell468Misc. activities of childrenWorld Book200Encyclopedia for childrenS. Chemical100Pool chemicals -- Columbus housePreston Oil2,204Ms. Sowell's car expensesPreston Oil187Ashley's car expensesGAO Ins.3,133Ms. Sowell/children health insMs. Sowell600Children's Christmas47,4821999 Tax Ct. Memo LEXIS 56">*66 1993PayeeAmountPurposeMs. Sowell$ 7,000Monthly paymentsHarp & Johnson1,150Legal feesMs. Sowell5,000Monthly paymentsBarnett Bank669Buy automobile for DianeLee Grogan400Diane's attorney feesHirsch, et al.900Children's clothing allowanceBrookstone4,838Barron's tuitionMs. Sowell22ReimbursementSouthern Bell1,191Telephone -- Columbus houseSears510Pest control -- Columbus houseMs. Sowell95Ms. Sowell's billsMs. Sowell148Children's activitiesMs. Sowell46Children's activitiesUn. Cities Gas788Gas Heat -- Columbus HouseAssociates599Satellite T.V. -- Columbus houseGeorgia Power2,492Electric bill -- Columbus houseColumbus Water478Water bill -- Columbus houseN.C. Pharmacy209Drug bill -- Ms. SowellN.C. Pharmacy142Drug billDr. Allison746Ms. Sowell's dentistTelecable403Cable T.V. -- Columbus HouseS. Chemical319Pool Chemicals -- Columbus houseDr. Aranas65Children's doctor billDr. Helms1,312Ms. Sowell's dentistBrookstone423Barron's school related exp.Dr. Thomason139Children's dentistGayfers54Clothes for BarronDr. Phelts40Ashley's doctor billColumbus Ledger70Newspaper -- Columbus houseDr. Hutchins378Children's eye doctor billWorld Book857Encyclopedia for childrenTelecom193Telephone -- Columbus houseJosten's347Ring for AshleyMs. Sowell116Tire for Ashley's carGrasshopper630Lawn care -- Columbus housePastoral Inst.290Counseling for AshleyPrem Collections296Ashley's medical billOlan Mills22Children's picturesMs. Sowell28School suppliesMs. Sowell11Children's activitiesMs. Sowell30Ms. Sowell's automobile billD.J. Ins.60Insurance -- Columbus houseDr. Chhokar454Ms. Sowell's medical billDr. Hudson164Children's doctor billAuto Owners Ins.585Insurance on Ms. Sowell's carFuller Auto437Ms. Sowell's car repairSt. Fran. Hosp.110Ashley's medical billSt. Fran. Hosp.30Ms. Sowell's medical billRadiology9Ashley's doctor billProf. College464Ms. Sowell's medical billPath Em Re86Ms. Sowell's billColumbus College75Children's camp and karateMuscogee County701Tax on Ashley's carJeane Teaster60Ashley's tutor billMs. Sowell468Misc. expenses of childrenGAO Ins.2,222Ms. Sowell/children health ins.Preston Oil566Ms. Sowell's car expensesPreston Oil152Ashley's car expenses40,0891999 Tax Ct. Memo LEXIS 56">*67 1994PayeeAmountPurposeDr. Helms$ 1,647Ms. Sowell's dentistMs. Sowell12,000Monthly paymentsBarnett Bank2,692Purchase of car for Ms. SowellHarp & Johnson1,100Ms. Sowell's legal feesLee Grogan1,100Ms. Sowell's legal feesLane's128Portrait of BarronSouth Trust Bank755Purchase of car for Ms. SowellBrookstone2,588Barron's tuitionGen. Amer. Ins.2,048Pay loan on Ms. Sowell's insurancepolicyAuto Owner Ins.282Ashley's automobile insurance24,340 Discussion[9] We must determine whether petitioner may deduct any of the disputed payments as alimony. Respondent determined that he could not. Petitioner bears the burden of proving respondent's determination wrong. See Rule 142(a); Welch v. Helvering, 290 U.S. 111">290 U.S. 111, 290 U.S. 111">115, 78 L. Ed. 212">78 L. Ed. 212, 54 S. Ct. 8">54 S. Ct. 8 (1933).[10] An individual may generally deduct a payment made during the taxable year to a spouse1999 Tax Ct. Memo LEXIS 56">*68 3 to the extent it is alimony that is includable in the spouse's gross income. See sec. 215(a) and (b). A payment is alimony that is includable in a spouse's gross income when: (1) The payment is made in cash, (2) the payment is received by (or on behalf of) the spouse under a divorce or separation instrument, (3) the divorce or separation instrument does not provide that the payment is not reportable as alimony, (4) the spouses reside in separate households at the time the payment is made, (5) the spouses do not file a joint return, and (6) the liability for payment does not continue for any period after the spouse's death. See sec. 71(b)(1), (e). Each of these requirements must be met before a payor may deduct a payment as alimony. We concern ourselves only with the three requirements in dispute.[11] First, the need for a cash payment requires that alimony be paid in cash or a cash equivalent. A check or money order that is payable on demand is a cash equivalent. A debt instrument that is issued or transferred is not. See sec. 71(b)(1); sec. 1.71-1T(b), Q&A-5, Temporary Income Tax Regs., 49 Fed. Reg. 344551999 Tax Ct. Memo LEXIS 56">*69  (Aug. 31, 1984).[12] Second, only those payments that are received by or on behalf of a spouse pursuant to a divorce or separation instrument may qualify as alimony. Amounts that are paid as child support do not qualify as alimony. See sec. 71(c)(1). Payments made under a divorce or separation instrument are considered child support to the extent that they will be reduced upon the happening of a contingency related to a child, e.g., the child's reaching a specified age. See sec. 71(c)(2).[13] Third, alimony does not include amounts that must continue to be paid after the payee's death. See sec. 71(b)(1)(D). Whether an obligation to make a payment ceases upon the payee's death may be determined by the terms of the applicable documents. If the documents are silent on this matter, the answer lies in State law. See Sampson v. Commissioner, 81 T.C. 614">81 T.C. 614, 81 T.C. 614">618 (1983), affd. without published opinion 829 F.2d 39">829 F.2d 39 (6th Cir. 1987); see also Cunningham v. Commissioner, T.C. Memo 1994-474.[14] Turning to the instant facts, we find that few of the disputed payments qualify as alimony. Most of these payments are 1999 Tax Ct. Memo LEXIS 56">*70  either payments of child support or payments for which petitioner would remain liable if Ms. Sowell were to die. 4 As to the latter category of payments, nothing in the applicable documents conditions these payments on the fact that Ms. Sowell is living. Nor can we find such a condition in applicable State (Georgia) law. Under Georgia law, alimony is either periodic or lump sum, see Winokur v. Winokur, 258 Ga. 88">258 Ga. 88, 365 S.E.2d 94">365 S.E.2d 94, 365 S.E.2d 94">95 (Ga. 1988), and the mere fact that alimony is payable in installments does not mean it is periodic, see Stone v. Stone, 254 Ga. 519">254 Ga. 519, 330 S.E.2d 887">330 S.E.2d 887, 330 S.E.2d 887">889 (Ga. 1985). Lump-sum alimony is payable in installments if the applicable documents "state the exact amount of each payment and the exact number of payments to be made without other limitations, conditions or statements of intent". See Winokur v. Winokur, supra 258 Ga. 88">258 Ga. at 96; see also Stone v. Stone, supra 330 S.E.2d 887">330 S.E.2d at 889. An obligation to pay lump-sum alimony in installments does not terminate upon the payee's death. See Winokur v. Winokur, supra 258 Ga. 88">258 Ga. at 95; see also Human v. Commissioner, T.C. Memo 1998-106.1999 Tax Ct. Memo LEXIS 56">*71 [15] As to the non-child-support amounts which would cease upon Ms. Sowell's death -- namely, $ 212 spent in 1992 for Ms. Sowell's clothes, $ 443 spent in 1992 for Ms. Sowell's dentist, $ 665 spent in 1992 for Ms. Sowell's dentist, $ 130 spent in 1992 for Ms. Sowell's medical bill, $ 428 spent in 1992 for Ms. Sowell's car insurance, $ 2,204 spent in 1992 for Ms. Sowell's car expenses, $ 95 spent in 1993 for Ms. Sowell's bills, $ 209 spent in 1993 for Ms. Sowell's drug bill, $ 746 spent in 1993 for Ms. Sowell's dentist, $ 1,312 spent in 1993 for Ms. Sowell's dentist, $ 30 spent in 1993 for Ms. Sowell's automobile, $ 454 spent in 1993 for Ms. Sowell's medical bill, $ 585 spent in 1993 for Ms. Sowell's car insurance, $ 437 spent in 1993 for Ms. Sowell's car repair, $ 30 spent in 1993 for Ms. Sowell's medical bill, $ 464 spent in 1993 for Ms. Sowell's medical bill, $ 86 spent in 1993 for Ms. Sowell's bill, $ 566 spent in 1993 for Ms. Sowell's car expense, and $ 1,647 spent in 1994 for Ms. Sowell's dentist -- we hold that these amounts, but for the $ 2,204, $ 566 and $ 1,647 amounts, are deductible1999 Tax Ct. Memo LEXIS 56">*72  as alimony. 51999 Tax Ct. Memo LEXIS 56">*73  The deductible amounts, which aggregate $ 1,878 and $ 5,014 for 1992 and 1993, respectively, were paid to (or for the benefit of) Ms. Sowell's maintenance, and, naturally, petitioner's obligation to make these payments would have ceased upon Ms. Sowell's death. 6 The $ 2,204 and $ 566 amounts are not deductible because petitioner did not pay these amounts in cash, as is required by section 71(b)(1). Petitioner "paid" these amounts to Ms. Sowell by agreeing to pay these charges in the future. The $ 1,647 amount is not deductible because we are unable to find that it was paid pursuant to a divorce or separation instrument. Although the temporary order stated that petitioner must pay Ms. Sowell's medical and dental expenses, the final decree, which did not contain a similar provision, replaced the temporary order as of September 4, 1993.[16] We hold that petitioner's alimony deductions in the respective years are $ 1,878, $ 5,014, and zero. In so holding, we have carefully considered all remaining arguments made by the parties for a result contrary to that expressed herein, and, to the extent not discussed above, find them to be irrelevant or without merit.[17] To reflect the foregoing,[18] Decision will be entered under Rule 155.  Footnotes1. We use the term "alimony" to include "separate maintenance payments".↩2. Petitioner paid all these amounts, but for the $ 2,204 and $ 566 amounts shown with Preston Oil for 1992 and 1993, respectively. Ms. Sowell charged the $ 2,204 and $ 566 amounts to petitioner's account at Preston Oil. Preston Oil is a corporation owned and operated by petitioner.↩3. We use the term "spouse" to refer to a present or former spouse.↩4. Some of these amounts also were not paid pursuant to the temporary order or final decree.↩5. There are other amounts -- $ 447 spent in 1992 for a drug bill, $ 666 spent in 1992 for miscellaneous expenses, $ 3,133 spent in 1992 for health insurance for Ms. Sowell and the children, $ 22 spent in 1993 for reimbursement, $ 142 spent in 1993 for a drug bill, $ 2,222 spent in 1993 for health insurance for Ms. Sowell and the children, and $ 2,048 spent in 1994 to pay a loan on Ms. Sowell's insurance policy -- for which we are unable to determine what, if any, amount was paid with respect to Ms. Sowell. (We also note that the $ 2,048 amount was not required by either the temporary order or the divorce decree.) As petitioner bears the burden of proof, we must sustain respondent's disallowance of these amounts.↩6. Whereas petitioner's payments for Ms. Sowell's car expenses are deductible as alimony, petitioner's payments in satisfaction of his obligation to buy her a car are not. As we read the final decree, petitioner's obligation to buy the car would not have terminated upon Ms. Sowell's death. If Ms. Sowell had died before petitioner had bought her the car, petitioner would have had to buy the car for the benefit of her estate.↩