DocketNumber: Docket No. 21865-12
Citation Numbers: 107 T.C.M. 1566, 2009 Tax Ct. Memo LEXIS 316, 2014 Tax Ct. Memo LEXIS 125, 2014 T.C. Memo. 117
Filed Date: 6/12/2014
Status: Non-Precedential
Modified Date: 4/18/2021
Decision will be entered under
CHIECHI,
*118 The issues for decision for petitioner's taxable year 2010 are:
(1) Is petitioner entitled to deduct as alimony under
(2) Is petitioner liable for the accuracy-related penalty under
Some of the facts have been stipulated and are so found.
Petitioner resided in Illinois at the time he filed the petition.
On June 20, 1982, petitioner married Judith L. Baur. During their marriage, petitioner and Judith L. Baur had three children, AB, JB, and SB.
At a time not established by the record, petitioner and Judith L. Baur decided to end their*317 marriage. On February 24, 2009, the Circuit Court of Cook County, Illinois (Cook County Circuit Court), issued a final judgment titled "JUDGMENT FOR DISSOLUTION OF MARRIAGE" (dissolution judgment). In the dissolution judgment, the Cook County Circuit Court found in pertinent part: The parties hereto have entered into a written Marital Settlement Agreement dated February 20, 2009, concerning the questions of the maintenance and medical requirements of the parties, custody, support, visitation, the medical and educational requirements of the *119 parties' children, attorney's fees and costs, and the respective rights of each party in and to the property, income or estate which either of them now owns or may hereafter acquire, including a division of all marital and non-marital property, and other matters, which Agreement has been attached hereto and incorporated herein and presented to this Court for its consideration.
In the dissolution judgment, the Cook County Circuit Court ordered, adjudged, and decreed, inter alia, that the marriage between petitioner and Judith L. Baur be dissolved. The dissolution judgment also ordered, adjudged, and decreed: All of the provisions of the Marital Settlement*318 Agreement between the Petitioner [Judith L. Baur] and the Respondent [petitioner] dated February 20, 2009, are expressly ratified, confirmed, approved and adopted as the orders of this Court to the same extent and with the same force and effect as if said provisions were in this paragraph set forth verbatim as the judgment of this Court; each of the parties hereto shall perform under the terms of said Agreement.
The "Marital Settlement Agreement dated February 20, 2009" (settlement agreement) to which the above-quoted order in the dissolution judgment referred provided in pertinent part: THIS AGREEMENT made and entered into this 20th day of February, 2009, in the City of Chicago, County of Cook and State of Illinois, by and between JUDITH BAUR, hereinafter referred to as "JUDITH", and ADRIO BAUR, hereinafter referred to as "ADRIO". WHEREAS: * * * * * G. Both parties expressly state that they have freely and voluntarily entered into this Agreement of their own volition, free from any duress or coercion and with full knowledge of each and every provision contained in this Agreement and the consequences thereof. * * * * * * * * NOW, THEREFORE, in consideration*319 of the mutual and several promises and undertakings contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do freely and voluntarily agree to each and every term and provision set forth in this MARITAL SETTLEMENT AGREEMENT. * * * * * 2.1 Commencing March 1, 2009, ADRIO shall pay JUDITH, as and for unallocated maintenance and child support, the sum of Three Thousand Seven Hundred Fifty Dollars ($3,750.00) per month. Payments shall be made on a bi-weekly basis at the rate of One Thousand Seven Hundred Thirty Dollars and Seventy Seven Cents ($1,730.77) per payment. The payments shall be withheld from ADRIO's paycheck and sent directly to JUDITH or by way of direct deposit in an account in JUDITH's name. This amount is based upon ADRIO's current gross base income of $9,867.00 per month. *121 In addition, ADRIO shall pay forty five percent (45%) of any and all net bonuses he receives within thirty (30) days of receipt and he shall tender proof of bonuses and commissions within one (1) week of receipt. This amount and bonus percentage shall be reviewed in two years without*320 the necessity of filing a Petition to Review. * * * * * * * * 2.3 The payments set forth in this Article shall terminate upon the first to occur of any of the following events: (a) The death of JUDITH; (b) The death of ADRIO; (c) The remarriage of JUDITH; (d) The cohabitation by JUDITH with a non-related person on a resident, continuing conjugal basis. * * * * * 2.5 In the event that * * * [SB] is emancipated and * * * [JB] is living independently or outside JUDITH's residence, without any financial support from JUDITH for any essentials or living expenses including clothing, personal care, room, board, schooling and the like, then the unallocated support shall be modified to maintenance and ADRIO shall pay to JUDITH One Thousand Eight Hundred Dollars ($1,800) per month, subject to review if either party files a petition to review. This amount is based upon ADRIO's current earnings. 2.6 The sums paid by ADRIO to JUDITH pursuant to this Article are acknowledged to be paid incident to the Judgment for Dissolution of Marriage and in discharge of ADRIO's legal obligation to support JUDITH. Said sums shall be includable in the gross *122 income of JUDITH and deductible from the gross income of ADRIO*321 within the meaning and intent of
Pursuant to paragraph 2.1 of the settlement agreement, during 2010 petitioner made to Judith L. Baur 26 payments of $1,730.77, or a total of $45,000.02 (paragraph 2.1 payments), as "unallocated maintenance and child support".
Around April 4, 2010, petitioner received a net bonus of $8,040.29. Although paragraph 2.1 of the settlement agreement required petitioner to pay to Judith L. Baur 45 percent of the net amount of that bonus, he did not do so during 2010.
Petitioner filed Form 1040, U.S. Individual Income Tax Return, for his taxable year 2010 (2010 return). In the 2010 return, petitioner claimed an alimony deduction under
On June 18, 2012, respondent issued to petitioner a notice of deficiency (notice) with respect to his taxable*322 year 2010. In that notice, respondent disallowed $26,143 of the claimed alimony deduction and allowed $15,552 of that *123 deduction.3 In the notice, respondent also determined that petitioner is liable for his taxable year 2010 for the accuracy-related penalty under
On September 6, 2012, after respondent issued the notice to petitioner, the Cook County Circuit Court issued an order (September 6, 2012 order) that provided in pertinent part: THIS MATTER, coming to be heard on Respondent's Petition to Clarify Intent of the Judgment for Dissolution of Marriage, * * * the Court * * * HEREBY FINDS: 1. * * * [T]hat the provision in the Judgment for Dissolution of Marriage concerning unallocated support is intended to be maintenance, for the support of JUDITH BAUR; 2. All payments made from ADRIO BAUR to JUDITH BAUR from the date the Judgment for*323 Dissolution of Marriage was entered, that is, $3,750.00 per month (plus 45% of any bonuses) from February 29, 2009 to the present date have been and continue to be maintenance to JUDITH BAUR, until further order of Court; 3. It was the intent of the Court that all payments made from ADRIO BAUR to JUDITH BAUR from February 29, 2009 to the present date as referenced in the finding of the second paragraph are to be includible in income to JUDITH BAUR and deductible for income tax purposes for ADRIO BAUR and shall terminate upon the death of ADRIO, the death of JUDITH, JUDITH's remarriage, or the *124 cohabitation of JUDITH on a resident, conjugal basis, or further order of Court; 4. Paragraph 2.5 4*324 of the Judgment is a scrivener error and should be vitiated nunc pro tunc;
In the September 6, 2012 order, the Cook County Circuit Court ordered: 1) All payments made to JUDITH BAUR from ADRIO BAUR pursuant to 2) Paragraph 2.5 5 of the Judgment for Dissolution was not intended to be part of the Judgment for Dissolution and was a scrivener error. Accordingly, paragraph 2.5 of the Judgment for Dissolution *125 of Marriage is vitiated nunc pro tunc as if it never had any legal effect.
Petitioner bears*325 the burden of establishing that the determinations in the notice that remain at issue are erroneous.
We turn initially to the issue presented under
(b) Alimony or Separate Maintenance Payments Defined.—For purposes of this section— (1) In general.—The term "alimony or separate maintenance payment" means any payment in cash if— (A) such payment is received by (or on behalf of) a spouse under a divorce or 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 (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.
*127
Respondent argues that, because of paragraph 2.5 7 of the settlement agreement, State court adjudications retroactively redesignating divorce-related payments as alimony and not child support (or vice versa) are generally disregarded for Federal income tax purposes if the order retroactively changes the rights of the parties or the legal status of the payments. An exception to this rule is made when a retroactive judgment corrects a divorce decree that mistakenly failed to reflect the true intention of the court at the time the decree was rendered. * * * [Citations omitted.]
In the dissolution judgment, the Cook County Circuit Court, inter alia, adopted all of the provisions of the settlement agreement as part of that judgment and ordered petitioner and Judith L. Baur to comply with*329 all of those provisions "as if said provisions were in this paragraph set forth verbatim as the judgment of *129 this Court". That agreement, which by its terms was "freely and voluntarily entered into" by petitioner and Judith L. Baur "with full knowledge of each and every provision contained in this Agreement and the consequences thereof" and which the Cook County Circuit Court adopted and made part of the divorce judgment,8 unambiguously provided in paragraph 2.5 for a reduction in the payments required under paragraph 2.1 of that agreement upon the occurrence of certain contingencies relating to SB and JB.
On the record before us, we reject the statement in the Cook County*330 Circuit Court's September 6, 2012 order that "[p]aragraph 2.5 9 of the Judgment for Dissolution was not intended to be part of the Judgment for Dissolution and was a scrivener error."10*331 On that record, we find that petitioner and Judith L. Baur as *130 well as the Cook County Circuit Court intended that paragraph 2.5 be part of the settlement agreement and the dissolution judgment at the time that court entered that judgment. The Cook County Circuit Court issued its September 6, 2012 order only after respondent issued on June 18, 2012, the notice to petitioner for his taxable year 2010 in which respondent determined, because of paragraph 2.5 of the settlement agreement, to disallow as deductible alimony certain payments that he had made to Judith L. Baur.
On the record before us, we find that the inclusion of paragraph 2.5 in the settlement agreement and the dissolution judgment was not a mistake by petitioner and Judith L. Baur or by the Cook County Circuit Court. On that record, we conclude that the Cook County Circuit Court's September 6, 2012 order did not correct a mistake in the dissolution judgment. On the record before us, we conclude that we will give no effect to the purported nunc pro tunc September 6, 2012 Cook County Circuit Court order.
*131 Based upon our examination of the entire record before us, we sustain respondent's position on brief that $27,018.13 of the paragraph 2.1 payments totaling $45,000.02 does not constitute alimony deductible under
We turn next to the issue presented under
The term "negligence" in
For purposes of
The accuracy-related penalty under
Respondent bears the burden of production with respect to the accuracy-related penalty under
We have found that petitioner is not entitled for his taxable year 2010 to deduct $27,018.13 as alimony under
On the record before us, we conclude that the accuracy-related penalty under
*134 We have considered all of the contentions and arguments of the parties that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.
To reflect the foregoing,
1. All section references are to the Internal Revenue Code (Code) in effect for the year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. According to petitioner, he mistakenly claimed in his 2010 return an alimony deduction under
3. Respondent concedes on brief (1) that, pursuant to paragraph 2.1 of the settlement agreement, during 2010 petitioner paid a total of $45,000.02 to Judith L. Baur as "unallocated maintenance and child support" and (2) that petitioner is entitled for his taxable year 2010 to an alimony deduction of $17,981.89 and not $15,552 as respondent determined in the notice.↩
4. Paragraph 2.5 of the settlement agreement (quoted above) provided:
2.5 In the event that * * * [SB] is emancipated and * * * [JB] is living independently or outside JUDITH's residence, without any financial support from JUDITH for any essentials or living expenses including clothing, personal care, room, board, schooling and the like, then the unallocated support shall be modified to maintenance and ADRIO shall pay to JUDITH One Thousand Eight Hundred Dollars ($1,800) per month, subject to review if either party files a petition for review. This amount is based upon ADRIO's current earnings.
5.
6. The difference between the entire amount (i.e., $45,000.02) of the paragraph 2.1 payments that petitioner maintains constitutes alimony deductible under
7.
8. In the divorce judgment, the Cook County Circuit Court ordered: All of the provisions of the Marital Settlement Agreement between the Petitioner [Judith L. Baur] and the Respondent [petitioner] dated February 20, 2009, are expressly ratified, confirmed, approved and adopted as the orders of this Court to the same extent and with the same force and effect as if said provisions were in this paragraph set forth verbatim as the judgment of this Court; each of the parties hereto shall perform under the terms of said Agreement.↩
9.
10. Black's Law Dictionary 1466 (9th ed. 2009) refers the user to the term "clerical error" for the definition of the term "scrivener's error". That dictionary provides the following definition of the term "clerical error": "An error resulting from a minor mistake or inadvertence, esp. in writing or copying something on the record, and not from judicial reasoning or determination."
11. Respondent does not argue on brief that the underpayment for petitioner's taxable year 2010 was attributable to negligence or disregard of rules or regulations under
gary-antonides-v-commissioner-of-internal-revenue-david-smith-mary-diane , 893 F.2d 656 ( 1990 )
Gerald Leuhsler, Beverly Leuhsler v. Commissioner of ... , 963 F.2d 907 ( 1992 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Commissioner v. Lester , 81 S. Ct. 1343 ( 1961 )