Neil Jerome Proctor v. Commissioner ( 2007 )


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    129 T.C. No. 12
    UNITED STATES TAX COURT
    NEIL JEROME PROCTOR, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent
    Docket No. 2813-06.              Filed October 10, 2007.
    P and his spouse (S) divorced in December 1993.
    The divorce decree required P and S to share equally
    their children’s uninsured medical and dental costs.
    The divorce decree also required P, pursuant to the
    Uniformed Services Former Spouses’ Protection Act, 10
    U.S.C. sec. 1408 (2000), to pay S 25 percent of his
    military retirement pay. The divorce decree did not
    indicate whether the payments with respect to P’s
    military retirement should be included in gross income
    or deducted as alimony, or whether such payments were
    to terminate upon the death of S.
    P paid S $6,074 in 2002 and deducted the entire
    amount as alimony. R determined, in a notice of
    deficiency, that the payments were not alimony and,
    therefore, were not deductible.
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    1. Held: P’s payments to S relating to his
    children’s dental bills are, pursuant to sec.
    71(c)(3),1 child support.
    2. Held, further, P’s payments to S relating to
    her share of his military retirement pay are alimony
    and, therefore, deductible pursuant to sec. 215.
    Neil Jerome Proctor, pro se.
    Pamela L. Mable, for respondent.
    OPINION
    FOLEY, Judge:   The issues for decision are what portion of
    certain lump-sum payments made pursuant to a divorce decree
    qualifies as child support and what portion qualifies as alimony.
    Background
    Petitioner and Liza Holdman (Ms. Holdman), who were married
    in 1979, had two children, Dianne and Kimberly.   On December 10,
    1993, the Superior Court of Pulaski County, Georgia (Superior
    Court), entered a Final Judgment and Decree (divorce decree)
    terminating petitioner and Ms. Holdman’s marriage.   The divorce
    decree required petitioner to pay $675 per month in child
    support, maintain medical and dental insurance for each child,
    and share equally with Ms. Holdman any medical and dental costs
    1
    Unless otherwise indicated, all section references are to
    the Internal Revenue Code of 1986, as amended.
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    not covered by insurance.   The divorce decree also required
    petitioner, who was an active member of the U.S. Navy at the time
    of the divorce, to pay Ms. Holdman, pursuant to the Uniformed
    Services Former Spouses' Protection Act (USFSPA), 10 U.S.C. sec.
    1408 (2000), 25 percent of his disposable retirement pay
    (retirement payments).
    On June 30, 2000, petitioner retired from the U.S. Navy.     In
    August of the same year, petitioner began receiving his
    retirement pay, but he failed to make payments to Ms. Holdman as
    set forth in the divorce decree.   On December 4, 2000, Ms.
    Holdman initiated a contempt proceeding against petitioner for
    his failure to comply with the divorce decree.   The Superior
    Court, on June 26, 2001, ordered (the June 26 order) petitioner
    to pay $1,463 relating to the children’s past dental bills.     The
    June 26 order also required petitioner to pay $68 a month
    relating to his portion of Kimberly’s then-current dental bills
    and $321 per month representing Ms. Holdman’s share of
    petitioner’s retirement pay.   Petitioner failed to comply with
    the order.   In response, Ms. Holdman initiated three additional
    contempt proceedings.
    On December 10, 2001, the Superior Court issued an order
    (the December 10 order) that required petitioner to comply with
    the June 26 order and decreased the retirement payments to $231
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    per month.   Pursuant to the December 10 order, petitioner paid
    $2,774 on May 6, 2002, representing his first payment for his
    children’s uninsured dental expenses and Ms. Holdman’s share of
    his retirement pay.    Petitioner followed that payment, in 2002,
    with six additional payments of $550 (i.e., totaling $3,300).        Of
    the $6,074 paid by petitioner in 2002, $2,687 was for his
    children’s uninsured dental expenses.
    In July 2003, petitioner filed a Federal income tax return
    relating to 2002 and deducted, as alimony, $6,074.      In a
    statutory notice of deficiency, dated November 9, 2005, and
    relating to 2002, respondent disallowed petitioner’s alimony
    deduction.   On February 7, 2006, while residing in Eastman,
    Georgia, petitioner filed his petition with the Court.
    Discussion
    Petitioner deducted, as alimony, the entire $6,074 paid to
    Ms. Holdman in 2002.   We must determine what portion, if any, of
    this amount was attributable to child support and what portion,
    if any, was attributable to alimony.      Petitioner contends that
    the entire amount is alimony and is, therefore, deductible.
    Respondent contends that none of the amount is deductible because
    part of it is child support, and the remaining portion, relating
    to Ms. Holdman’s share of petitioner’s retirement pay, is a
    division of marital property and does not qualify as alimony.
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    I.     Child Support
    An individual may generally deduct payments made to a spouse
    during the taxable year to the extent those payments are alimony
    includable in the spouse’s gross income.       See sec. 215(a) and
    (b).    Any payment which the terms of the divorce decree fix as a
    sum payable for the support of children is not alimony.        See sec.
    71(c)(1).    If any payment is less than the amount specified in
    the divorce decree, to the extent the payment does not exceed the
    amount required to be paid for child support, such amount shall
    be considered support.       See sec. 71(c)(3).   Pursuant to the
    divorce decree, petitioner was required to pay Ms. Holdman $8,000
    by the end of 2002 with respect to his children’s uninsured
    medical expenses and Ms. Holdman’s share of his retirement pay
    (i.e., $2,687 relating to his children’s uninsured medical
    expenses and $5,313 relating to Ms. Holdman’s share of his
    retirement pay).       Petitioner started making payments in 2002.     In
    that year, petitioner made lump-sum payments to Ms. Holdman
    totaling $6,074 (i.e., $1,926 less than the amount required
    pursuant to the divorce decree).       Accordingly, $2,687 of the
    $6,074 paid by petitioner in 2002 is, pursuant to section
    71(c)(3), child support and cannot be deducted as alimony.          See
    Blyth v. Commissioner, 
    21 T.C. 275
     (1953).        We must determine
    whether the remaining $3,397 is alimony.
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    II.    Alimony
    Respondent contends that the retirement payments are part of
    a property settlement and do not qualify as alimony.     An
    individual may generally deduct payments made to a spouse during
    the taxable year to the extent that those payments are alimony
    includable in the spouse’s gross income.     See sec. 215(a) and
    (b).    Section 71(a) requires amounts received as alimony to be
    included in gross income.
    In order to qualify as alimony, payments must meet the
    requirements of section 71(b)(1)(A) through (D).     Ms. Holdman
    received the retirement payments pursuant to a divorce decree.
    Thus, such payments meet the requirements of section 71(b)(1)(A).
    In addition, petitioner and Ms. Holdman resided in separate
    households at the time the payments were made.     Thus, such
    payments also meet the requirements of section 71(b)(1)(C).
    Respondent contends that the retirement payments do not, however,
    meet the requirements of section 71(b)(1)(B) and (D).
    Section 71(b)(1)(B) requires that the divorce instrument
    “not designate such payment as a payment which is not includible
    in gross income under this section and not allowed as a deduction
    under section 215”.    Respondent contends that this prong is not
    met because the divorce decree refers to the payments as part of
    a division of the marital property.     The classification of a
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    payment as part of the division of marital property does not,
    however, preclude the payment from being alimony.    See Benedict
    v. Commissioner, 
    82 T.C. 573
    , 577 (1984) (stating that “labels
    attached to payments mandated by a decree of divorce or marriage
    settlement agreement are not controlling”).    While the
    designation need not mimic the statutory language of sections 71
    and 215, the requirements of subparagraph (B) will generally be
    met if there is no “clear, explicit and express direction” in the
    divorce decree stating that the payment is not to be treated as
    alimony.   See Estate of Goldman v. Commissioner, 
    112 T.C. 317
    ,
    323 (1999), affd. without published opinion sub nom. Schutter v.
    Commissioner, 
    242 F.3d 390
     (10th Cir. 2000).    The divorce decree
    does not contain such language.   Accordingly, the retirement
    payments meet the requirements of section 71(b)(1)(B).
    Section 71(b)(1)(D) provides that there must be no liability
    for the payor to make such payments, or for the payor to make
    substitute payments, after the death of the payee spouse.
    Respondent contends that the retirement payments fail to meet the
    requirements of section 71(b)(1)(D) because the divorce decree
    does not state whether such payments will terminate upon the
    death of Ms. Holdman.   In 1986, Congress amended section
    71(b)(1)(D), specifically to remove the requirement that a
    divorce instrument expressly state that the liability terminates
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    upon the death of the payee spouse.   See Tax Reform Act of 1986,
    Pub. L. 99-514, sec. 1843(b), 
    100 Stat. 2853
    .    Consequently,
    section 71(b)(1)(D) is satisfied if the liability ceases upon the
    death of the payee spouse by operation of law.    Cf. Notice 87-9,
    1987-
    1 C.B. 421
    .
    The divorce decree provides that the retirement payments
    were ordered pursuant to the USFSPA, which states that
    Payments from the disposable retired pay of a member
    pursuant to this section shall terminate in accordance
    with the terms of the applicable court order, but not
    later than the date of the death of the member or the
    date of the death of the spouse or former spouse to
    whom payments are being made, whichever occurs first.
    10 U.S.C. sec. 1408(d)(4) (2000).   Accordingly, the retirement
    payments will terminate, by operation of law, on the date that
    either petitioner or Ms. Holdman dies, whichever occurs first.2
    Moreover, the USFSPA provides that “Notwithstanding any other
    provision of law, this section does not create any right, title,
    2
    The USFSPA provides that a former spouse may serve upon
    the Secretary of Uniformed Services the divorce decree ordering
    payments pursuant to the USFSPA. After receipt of such service,
    the payments are made directly to the member’s spouse. See 10
    U.S.C. sec. 1408(d)(1). While Ms. Holdman did not serve the
    Secretary with a copy of the divorce decree or receive payments
    directly from the Secretary, the payments were ordered “as
    authorized under the Uniformed Services Former Spouses’ Act”.
    Prior to enactment of the USFSPA, former spouses had no right to
    receive a portion of a member’s military retirement pay. See
    McCarty v. McCarty, 
    453 U.S. 210
     (1981). The USFSPA was enacted
    to allow courts to award spouses and former spouses an interest
    in a member’s military retirement pay. See S. Rept. 97-502
    (1982).
    - 9 -
    or interest which can be sold, assigned, transferred, or
    otherwise disposed of (including by inheritance) by a spouse or
    former spouse”.   10 U.S.C. sec. 1408(c)(2)(2000).    Petitioner has
    no liability to make such retirement payments after the death of
    Ms. Holdman.   Thus, the retirement payments meet the requirements
    of section 71(b)(1)(D).
    The retirement payments meet the requirements of section
    71(b)(1), and pursuant to section 215, petitioner is entitled to
    a deduction of $3,387 for alimony payments.3
    Contentions we have not addressed are irrelevant, moot, or
    meritless.
    To reflect the foregoing,
    An appropriate decision will
    be entered.
    3
    In Eatinger v. Commissioner, 
    T.C. Memo. 1990-310
    , Witcher
    v. Commissioner, 
    T.C. Memo. 2002-292
    , and Pfister v.
    Commissioner, 
    359 F.3d 352
     (4th Cir. 2004), affg. 
    T.C. Memo. 2002-198
    , the Court treated military retirement payments as
    property taxable to the former spouse. In those cases, the Court
    concluded that the payments were includable in the former
    spouse’s gross income pursuant to sec. 61(a)(11), but did not
    address whether the payments qualified as alimony, pursuant to
    sec. 71. Conversely, in Baker v. Commissioner, T.C. Memo. 2000-
    164, the Court agreed with respondent that the military
    retirement payments received by a former spouse qualified as
    alimony, pursuant to sec. 71.
    

Document Info

Docket Number: 2813-06

Filed Date: 10/10/2007

Precedential Status: Precedential

Modified Date: 11/14/2018