Johanson v. Cir

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CAROL A. JOHANSON; ALFRED F. 
MELZIG, JR.,
No. 06-75623
Petitioners-Appellants,
v.  Tax Ct. No.
2490-05
COMMISSIONER OF INTERNAL
OPINION
REVENUE,
Respondent-Appellee.

Appeal from a Decision of the
United States Tax Court
Submitted August 15, 2008*
San Francisco, California
Filed September 3, 2008
Before: Diarmuid F. O’Scannlain and Barry G. Silverman,
Circuit Judges, and James K. Singleton,**
Senior District Judge.
Opinion by Judge Silverman
*The panel unanimously finds this case suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).
**The Honorable James K. Singleton, United States District Judge for
the District of Alaska, sitting by designation.
12087
JOHANSON v. CIR 12089
COUNSEL
Marjorie A. O’Connell, O’Connell & Associates, Washing-
ton, D.C., for the petitioners-appellants.
12090 JOHANSON v. CIR
Regina S. Moriarty, United States Department of Justice, Tax
Division, Washington, D.C., for the respondent-appellee.
OPINION
SILVERMAN, Circuit Judge:
Spousal support payments made pursuant to a divorce set-
tlement agreement are deemed to be “alimony” — and there-
fore income to the recipient and deductible by the payor —
if, among other things, the payments are to terminate on the
death of the payee spouse. In the present case, the marital set-
tlement agreement did not expressly state what would happen
to the payments in the event of the payee’s death. We hold
today that the Tax Court correctly looked to state law to deter-
mine whether or not the payments would survive the payee’s
death. Under California Family Code section 4337, spousal
support terminates on the death of either spouse unless the
parties expressly agree in writing to the contrary. The Tax
Court held that the payments in this case are alimony because
the payee failed to clearly and convincingly establish, as
required by California law, that the payments would continue
past her death. We affirm.
I. FACTS
In 1996, Carol A. Johanson and John Weiler divorced in
California after nearly thirty years of marriage. Johanson and
Weiler executed a “Marital Settlement Agreement” that obli-
gated Weiler to make monthly “spousal support” payments of
$5,250 to Johanson until October 31, 2010. With respect to
these payments, the Agreement explicitly provides:
IV. SPOUSAL SUPPORT
* * *
JOHANSON v. CIR 12091
26. Both parties are aware that this marriage is one
considered and characterized as a marriage of long
duration. As a result, certain responsibilities for sup-
port may exist between the parties for some
unknown length of time after separation and after a
dissolution is entered unless both parties freely and
voluntarily waive their rights to support and agree to
the termination of the courts [sic] jurisdiction over
the issue of spousal support. Once this waiver and
agreement is entered, it is non-reversible and may
work a considerable hardship on either one or both
of the parties.
26. [sic] Being aware of the above, the court will
retain jurisdiction over John’s right to collect spousal
support from Carol until May 31, 2011 at which time
his right to collect such support shall permanently
terminate. This termination date is absolute and non-
modifiable under any circumstances.
27. Being aware of the above, John agrees to pay
spousal support to Carol in the amount of $5,250.00
per month beginning the first month following the
sale of the residence (close of escrow). Spousal sup-
port shall be due, one-half on the first of each and
every month and one-half on the 15th of each and
every month. Spousal support shall continue at this
amount through October 31, 2010 at which time
Carol’s right to collect spousal support from John
will permanently terminate. This termination date is
absolute and non-modifiable under any circum-
stances . . . .
28. The duration of spousal support is non-
modifiable and the court will not have jurisdiction to
modify the length of time John will pay spousal sup-
port to Carol. Specifically, the court does not have
jurisdiction to award any spousal support payable
12092 JOHANSON v. CIR
from John to Carol for any period beyond October
31, 2010, regardless of the circumstances that may
arise and regardless of whether any motion to mod-
ify spousal support is filed before, on or after Octo-
ber 31, 2010. The court also does not have
jurisdiction to modify the amount of spousal support
payable from John to Carol except for two circum-
stances, John’s death, prolonged unemployment or
John’s disability. Upon John’s death, spousal support
will terminate permanently. Upon John’s prolonged
unemployment, the court has the jurisdiction to
lower the amount of support for the length of the
unemployment provided appropriate efforts are
being made by John to find employment. Upon
John’s disability, the court has the jurisdiction to
lower the amount of support for the length of the dis-
ability. Disability is defined as the inability to pursue
an occupation because of physical or mental impair-
ment. If such a modification is sought by John and
ordered by the court, the court may increase or
decrease the amount of support as the circumstances
warrant but under no circumstances does the court
have the jurisdiction or the authority to raise spousal
support over the amount of $5,250.00 per month.
In 2002, Weiler paid Johanson $63,000 pursuant to the
spousal support provision of the Agreement. Johanson filed
her 2002 tax return jointly with her new husband and did not
include the $63,000 in spousal support payments as part of
their gross income. On November 10, 2004, the IRS notified
Johanson of a tax deficiency of $20,475 and a penalty of
$4,095. The IRS explained that the $63,000 Johanson
received from Weiler constitutes alimony and as such is
includible in taxable gross income. Somewhere along the
way, the IRS decided not to pursue the penalty.
In considering Johanson’s petition for redetermination of
deficiency, the United States Tax Court held that the spousal
JOHANSON v. CIR 12093
support payments satisfy the definition of alimony in section
71(b)(1) of the Internal Revenue Code because Weiler is not
obligated to continue the spousal support payments for any
time after the death of Johanson, the payee spouse. In so hold-
ing, the Tax Court relied on California Family Code section
4337, which provides as follows:
Except as otherwise agreed by the parties in writing,
the obligation of a party under an order for the sup-
port of the other party terminates upon the death of
either party or the remarriage of the other party.
The Tax Court also rejected Johanson’s arguments that the
payments were part of a property settlement or an overall
lump-sum obligation.
We have jurisdiction to review Johanson’s timely appeal of
the Tax Court’s decision. See 26 U.S.C. § 7482(a)(1).
II. ANALYSIS
We “review decisions of the Tax Court under the same
standards as civil bench trials in the district court. Therefore,
conclusions of law are reviewed de novo, and questions of
fact are reviewed for clear error.” Milenbach v. Comm’r, 318
F.3d 924, 930 (9th Cir. 2003) (internal citation omitted). “The
interpretation and meaning of contract provisions are ques-
tions of law reviewed de novo.” Id.[1] The Internal Revenue Code requires that “alimony or
separate maintenance payments” be included in taxable gross
income. See 26 U.S.C. § 71(a). The Code provides a four-part
definition of “alimony or separate maintenance payments”:
(1) In general.—The term “alimony or separate
maintenance payment” means any payment in cash
if—
12094 JOHANSON v. CIR
(A) such payment is received by (or on
behalf of) a spouse under a divorce or sepa-
ration instrument,
(B) the divorce or separation instrument
does not designate such payment as a pay-
ment 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.
Id. § 71(b)(1). Subsection (D), the only part of this definition
at issue in this appeal, thus requires that for payments to be
deemed alimony, there must be no liability to continue pay-
ments after the death of the payee spouse. See id.
§ 71(b)(1)(D). Otherwise, the payments are deemed a dis-
guised property division, neither taxable to the payee nor
deductible by the payor. A support agreement that does not
explicitly provide that payments terminate upon the death of
the payee spouse can nevertheless satisfy § 71(b)(1)(D) if the
payments terminate in the event of the payee spouse’s death
by operation of state law. See Kean v. Comm’r, 407 F.3d 186,
191 (3d Cir. 2005); Lovejoy v. Comm’r, 293 F.3d 1208, 1210
(10th Cir. 2002); Barrett v. United States, 74 F.3d 661, 664
(5th Cir. 1996); Hoover v. Comm’r, 102 F.3d 842, 846-48
JOHANSON v. CIR 12095
(6th Cir. 1996); Zinsmeister v. Comm’r, 80 T.C.M. (CCH)
774 (2000); see also I.R.S. Notice 87-9, 1987-1 C.B. 421.
Where “state family law is ambiguous as to the termination of
payments upon the death of the payee, a federal court will not
engage in complex, subjective inquiries under state law;
rather the court will read the divorce instrument and make its
own determination based on the language of the document.”
Hoover, 102 F.3d at 846; see also Kean, 407 F.3d at 191(declining to delve into the “intricacies” of state family law).
In this case, state family law is unambiguous as to the termi-
nation of payments upon the death of the payee, so we need
not make an independent determination.
[2] Here, the Agreement does not explicitly provide
whether Weiler’s liability to make monthly payments to
Johanson continues after her death. Under California law,
“[e]xcept 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.” Cal. Fam. Code § 4337. A
written agreement to waive section 4337 “must be specific
and express.” In re Marriage of Thornton, 115 Cal. Rptr. 2d
380, 383 (Ct. App. 2002).1 While “[n]o particular words are
required . . . silence will not do.” Id. (quoting In re Marriage
of Glasser, 226 Cal. Rptr. 229, 230 (Ct. App. 1986)). Mere
failure to include death as a terminating event does not consti-
tute waiver of section 4337. Id. at 385.
[3] However, where there is “language in the written agree-
ment reasonably susceptible to interpretation as a declaration
of an intent that support continue beyond [death],” extrinsic
evidence is admissible in order to determine whether the writ-
1
Although Thornton involved the remarriage provision of § 4337, we
follow California cases that have indicated that the death and remarriage
provisions of section 4337 should be interpreted in a similar fashion. See,
e.g., In re Marriage of Cesnalis, 131 Cal. Rptr. 2d 436, 439 (Ct. App.
2003).
12096 JOHANSON v. CIR
ten agreement waived section 4337. In re Marriage of Ces-
nalis, 131 Cal. Rptr. 2d 436, 439-40 (Ct. App. 2003) (finding
a non-modification statement “expressly limited to the . . .
‘duration of spousal support’ ” to warrant such analysis of
extrinsic evidence). In Cesnalis, the question was whether
spousal support payments would continue in the event of the
payee spouse’s remarriage. Id. at 438. Similar to the language
in the Cesnalis agreement, the agreement here contains spe-
cific non-modification statements related to the duration of
the spousal support payments that are “reasonably susceptible
to interpretation” as an agreement to continue payments after
Johanson’s death. See id. at 439-40. Therefore, extrinsic evi-
dence was admissible on the question of whether the parties
waived the statutory termination of spousal support on the
payee’s death. See id. at 439.
Under California law, Johanson “bears the burden of prov-
ing, by clear and convincing evidence” that there is a written
agreement to continue the spousal support payments beyond
Johanson’s death. Id. The Tax Court did not clearly err in
holding that the extrinsic evidence proffered by Johanson
failed to meet this standard. That language explicitly provid-
ing for the termination of the spousal support payments at
“the death of either party” was deleted from a prior version
of the Agreement does not clearly and convincingly establish
that the parties agreed in writing that the payments to Johan-
son would continue past her death. That the parties obtained
life insurance on Weiler’s life to secure the spousal support
payments does not shed any light on what the parties agreed
to in the event of Johanson’s death. The fact that Weiler con-
tinues to pay spousal support after Johanson remarried does
not constitute a written agreement regarding the status of pay-
ments in the event of Johanson’s death.
[4] The Tax Court did not clearly err in ruling that Johan-
son failed to prove by clear and convincing evidence that she
and Weiler agreed in writing that the spousal support pay-
ments would continue past her death. Consequently, Weiler’s
JOHANSON v. CIR 12097
payments to Johanson were correctly found to be alimony,
and therefore, taxable to Johanson.2
The decision of the Tax Court is AFFIRMED.
2
We do not address Johanson’s estoppel argument raised in her reply
brief because the Tax Court did not consider it, Johanson did not raise it
in her opening brief, and the Commissioner did not discuss the issue. See
United States v. Ullah, 976 F.2d 509, 514 (9th Cir. 1992).