Court Opinion

ID: 4332200
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:34:36.993752+00
Date Added: 2024-06-11T14:47:50.645901
License: Public Domain

GORDON B. COLOGNE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentCologne v. CommissionerNo. 12298-97United States Tax CourtT.C. Memo 1999-102; 1999 Tax Ct. Memo LEXIS 121; 77 T.C.M. 1728; T.C.M. (RIA) 99102; March 31, 1999, Filed 1999 Tax Ct. Memo LEXIS 121">*121  Decision will be entered under Rule 155.  Erla Elizabeth Arnold, for petitioner.Christine V. Olsen, for respondent.  COHEN, CHIEF JUDGE.  COHENMEMORANDUM OPINION1999 Tax Ct. Memo LEXIS 121">*122 [1] COHEN, CHIEF JUDGE: Respondent determined a deficiency in petitioner's Federal income tax in the amount of $ 11,032 for the taxable year 1994. By amendment to the answer, respondent asserts an increased deficiency in the amount of $ 14,297. The issue for decision is whether petitioner is entitled to deduct as alimony certain amounts paid in accordance with a marital settlement agreement.[2] This case was submitted fully stipulated under Rule 122. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. The stipulated facts are incorporated herein by this reference. Petitioner's brief contains statements and attachments that were not stipulated and are not evidence. See Rule 143(b). We disregard these in making our decision.BACKGROUND[3] Petitioner resided in La Quinta, California, at the time he filed the petition in this case. 1999 Tax Ct. Memo LEXIS 121">*123  Petitioner formerly was married to Patricia R. Cologne (Ms. Cologne). Petitioner and Ms. Cologne separated on March 21, 1993. On November 19, 1993, petitioner and Ms. Cologne entered into a marital settlement agreement (the agreement), which was filed with the Superior Court of the State of California for the County of San Diego on December 29, 1993.[4] Pertinent portions of the agreement are as follows:               RECITALS               * * * * *     6. Husband is presently the sole proprietor of Gordon   Cologne and Associates. This business has an estimated pre-tax   net income of $ 19,500.00 per month. Wife is presently unemployed   and has no earned income. Husband will retire on or about   September 1, 1994, after reaching the age of 70, and anticipates   receiving no earned income after that date.               * * * * *          DIVISION OF COMMUNITY PROPERTY               * * * * *     12. The real property commonly known as * * * Rancho Santa   Fe, California, shall be disposed of according to the following   terms:     A. The residence shall1999 Tax Ct. Memo LEXIS 121">*124  be listed for sale * * * on or   before February 1, 1994. * * * The residence shall remain listed   until sold. * * *               * * * * *     C. Wife may have the use and possession of the residence on   the condition that she maintain the residence and yard in   satisfactory condition, normal wear and tear excepted. Husband   shall have the right to occupy the residence for principal   residential use purposes, including sleeping, cooking and eating   and attending to his personal hygiene needs. In case of any   dispute, Wife shall have the first right to occupy the premises.   Husband shall also have the right to store any items of personal   property awarded to him in the premises until the sale is   consummated.               * * * * *     E. Until the sale of the residence is consummated or until   September 1, 1994, whichever first occurs, Husband shall pay on   a current basis, without the right to reimbursement, real   property taxes, principal and interest payments on the notes   secured by deeds of trust on the residence and fire and   liability insurance for the residence. 1999 Tax Ct. Memo LEXIS 121">*125  In addition, Husband   shall pay on a current basis all charges for trash pickup, the   water bill, and the gardener for one day a week, and pool   maintenance. If the house is not sold by September 1, 1994, and   the Wife continues to reside in the house, the Wife shall pay   all the aforesaid taxes, principal and interest on the notes,   insurance and maintenance costs as and for reasonable rental for   such use or the actual fair rental value, whichever is less. If   the sale of the residence is not consummated on or before   September 1, 1994, the court shall have the jurisdiction to make   further orders regarding occupancy and the payment of the   mortgages, real property taxes, insurance, trash pickup, water,   gardener and pool maintenance * * *.               * * * * *     H. The net proceeds of sale, * * * shall be held in escrow   and disbursed as follows:        (1) Husband shall be paid a sum equal to all payments     made by him on or after April 1, 1993, on * * * [certain     charge, credit card, and loan balances, except for     purchases made by petitioner after April 1, 1993];1999 Tax Ct. Memo LEXIS 121">*126          (2) The Wife shall be paid a sum equal to all payments     made by her on or after April 1, 1993, on * * * [certain     charge, credit card, and loan balances, except for     purchases made by Ms. Cologne after April 1, 1993].        (3) Any remaining balance due on the obligations     described in paragraphs (1) and (2) above shall be paid in     full.        (4) Any balance remaining shall be paid one-half to     each party and Wife shall pay to Husband from her one-half,     her share of the 1993 income tax obligation as set forth in     Paragraph 16.                * * * *     13. The real property in Blue River, Wisconsin, shall be   disposed of according to the following terms:     A. The parties shall continue to hold such property as   joint tenants with right of survivorship. Either party may   terminate the joint tenancy at any time. At such time both   parties shall make testamentary provisions so that the property   will pass to the children of this marriage if a party should die   prior to its sale.               * * 1999 Tax Ct. Memo LEXIS 121">*127  * * *     C. Both parties shall have the right of use and possession   of the residence. In case of a conflict, Wife shall have the   first right to any two-week period she chooses upon providing   Husband thirty days' advance written notice.               * * * * * *     E. Wife shall pay on a current basis, without the right to   reimbursement, principal and interest payment on the note   secured by the first deed of trust. Husband shall pay on a   current basis, without the right to reimbursement, real property   taxes on the residence, fire and liability insurance for the   residence, utilities, maintenance and repairs. All income   received on account of the property shall be applied to the   obligation owed to W. Southard and any remaining balance shall   be paid one-half by each party. Any earnings remaining after   payment to W. Southard shall be divided equally between the   parties.               * * * * *     15. The Husband's interest in the Judge's Retirement Plan   and in the Legislator's Retirement Plan shall be divided equally   between the parties. * * * Pending1999 Tax Ct. Memo LEXIS 121">*128  each plan's direct payment of   benefits to Wife, Husband shall allow the Wife to receive for   deposit in a joint account the entire retirement benefits in   lieu of the division of these benefits and the spousal support   as provided in paragraph 34 of this agreement. She may withdraw   all such sums for her personal use as an assignment in   satisfaction of spousal support.               * * * * * *     16. The parties shall file joint federal and state tax   returns for the calendar year ending 1993. * * * Any tax   liability due and unpaid upon the filing of the tax return shall   be paid by the Husband, and the Wife shall reimburse the Husband   her share of the tax based on the net income (retirement income   actually received) received by her during the year. * * *               * * * * *                DEBTS             *   *   *   *   *     30. Husband and Wife shall each pay fifty percent (50%) of   all liabilities and expenses (including accounting and legal   fee) relating to any tax liabilities asserted by Federal, State   or local taxing authorities1999 Tax Ct. Memo LEXIS 121">*129  arising out of any review of the   parties' personal income tax returns for any period when they   filed joint returns except for tax year 1993 which is governed   by paragraph 16. Each party shall, however, be solely   responsible for the liabilities and expenses resulting from   income known only to and solely benefiting said party.               * * * * *              SPOUSAL SUPPORT     34. Husband shall pay Wife * * *, as and for spousal   support the sum of $ 3,000.00 per month on the 1st day of each   month commencing November 1, 1993, and continuing until Husband   dies, Wife dies, Wife remarries, Wife commences residing with an   unrelated member of the opposite sex, or until Husband retires   on September 1, 1994, whichever shall first occur.   During 1994, petitioner made the following payments pursuant to   the agreement:$ 25,950.00Spousal support1,920.00Life insurance premiums3,030.00Gardener for home during pendency of sale675.83Pool service1,804.02Waste management6,790.77January and February pensions1,221.54Utilities (electric and water conditioning) for housein Wisconsin33,625.50One-half of petitioner and Ms. Cologne's 1993 stateand Federal income taxes.$ 75,017.661999 Tax Ct. Memo LEXIS 121">*130  Petitioner deducted $ 71,273 as alimony on his 1994 Federal income tax return.[5] The parties have stipulated that an alimony deduction is allowed for the following payments totaling $ 36,465: Spousal support of $ 25,950, life insurance premiums of $ 1,920, waste management of $ 1,804, and January and February pension payments of $ 6,791. Remaining in dispute are the payments of Ms. Cologne's half of the 1993 Federal and State income taxes and payment of the utilities for the Wisconsin property.DISCUSSION[6] Section 215 allows as a deduction an amount equal to the alimony or separate maintenance payments paid during the year. For purposes of section 215, the term "alimony or separate maintenance payment" means any alimony or separate maintenance payment (as defined in section 71(b)) that is includable in the gross income of the recipient under section 71. See sec. 215(b). Section 71(a) provides that gross income generally includes amounts received as alimony or separate maintenance payments. Section 71(b)(1) defines alimony or separate maintenance payment as any payment in cash if --     (A) such payment is received by (or on behalf of) a spouse   under a divorce or 1999 Tax Ct. Memo LEXIS 121">*131  separation instrument,     (B) the divorce or separation instrument does not designate   such payment as 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 of divorce or of separate maintenance, the   payee spouse and the payor spouse are not members of the same   household at the time such payment is made, and     (D) there is no liability to make any such payment for any   period after the death of the payee spouse and there is no   liability to make any payment (in cash or property) as a   substitute for such payments after the death of the payee   spouse.California Family Code section 4337 (West 1994) provides: "Except as otherwise agreed by the parties in writing, the obligation of a party under an order for the support of the other party terminates upon the death of either party or the remarriage of the other party."[7] The parties dispute whether the payments at issue meet the requirement of section 71(b)(1)(D). The parties agree that the agreement does not provide1999 Tax Ct. Memo LEXIS 121">*132  any conditions for the termination of these payments. Respondent's position is that petitioner's obligations to pay Ms. Cologne's share of their 1993 income taxes and for the utilities for the Wisconsin property survive her death. Petitioner argues that petitioner's liability for the payments terminates at her death pursuant to California Family Code section 4337.FEDERAL AND STATE INCOME TAX PAYMENTS[8] Because the income tax liabilities are joint and several, if Ms. Cologne died, petitioner would remain liable for the full amount of their taxes to the respective tax collectors. See sec. 6013(d)(3). Normally, however, petitioner would be entitled to the right of contribution for Ms. Cologne's half of the taxes. Petitioner, through the agreement, has given up that right (beyond the limited share specified). The question we must decide is whether, if Ms. Cologne died, petitioner would still be obligated for Ms. Cologne's half of the joint liabilities without the right of contribution (beyond the share specified). As this question is not answered by the agreement and the payment of taxes is not the usual type of support expense, such as food, shelter, or medical care, that necessarily1999 Tax Ct. Memo LEXIS 121">*133  ends with the payee spouse's death, we look to State law.[9] California Family Code section 4337 (West 1994) serves to terminate spousal support at the payee spouse's death, where the parties have not otherwise agreed. California law distinguishes payments for support from those for property settlement. In setting spousal support, the California court considers, among other factors, each party's earning capacity, the needs of each party based on the standard of living during the marriage, the payor spouse's ability to pay, the obligations and assets of each party, the duration of the marriage, and the age and health of the parties. See Cal. Fam. Code sec. 4320 (West 1994).[10] Division 7 of the California Family Code governs the division of debts and liabilities and that of property. See Cal. Fam. Code sec. 2500-2660 (West 1994). Both assets and liabilities are considered in dividing the community estate. See Cal. Fam. Code sec. 2552 (West 1994).[11] The allocation of the liability for the 1993 income taxes between petitioner and Ms. Cologne was based on their relative incomes for the year. Petitioner has not shown that the allocation was based on their relative needs, standards1999 Tax Ct. Memo LEXIS 121">*134  of living, or earning capacities when the taxes would be paid or on any other factors normally taken into consideration in determining support. The agreement provided that petitioner would be reimbursed for Ms. Cologne's smaller share out of the net proceeds, if any, of the sale of the residence remaining after other debts were paid. The division of the couple's tax liabilities is in the nature of a property settlement, rather than a provision for the future support of Ms. Cologne. Accordingly, section 4337 of the California Family Code (West 1994) does not operate to terminate these payments at Ms. Cologne's death, and the requirement of section 71(b)(1)(D) is not met. Petitioner is not entitled to an alimony deduction for the payments of his former spouse's 1993 Federal and State income tax liabilities.PAYMENT OF UTILITIES FOR WISCONSINPROPERTY[12] Pursuant to the agreement, petitioner and Ms. Cologne owned the Wisconsin property as joint tenants with right of survivorship. Both had the right of use and possession of the property, and his liability for utility bills would be continued after her death. While she occupied the property, however, the utility charges related to her1999 Tax Ct. Memo LEXIS 121">*135  use of it. We have allowed alimony deductions for utilities. See Graham v. Commissioner, 79 T.C. 415">79 T.C. 415 (1982); Zampini v. Commissioner, T.C. Memo 1991-395. We hold that petitioner is entitled to deduct half of the amount paid, or $ 610.77.[13] To reflect the above holdings and the parties' stipulations,[14] Decision will be entered under Rule 155.