MCMAHON v. COMMISSIONER

T.C. Summary Opinion 2001-6

UNITED STATES TAX COURT

BARBARA ANN MCMAHON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12148-99S. Filed January 24, 2001.

Barbara Ann McMahon, pro se.

Shawna A. Early, for respondent.

DINAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

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effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

Respondent determined a deficiency in petitioner’s Federal

income tax of $9,895 for the taxable year 1995.

The issue for decision is whether certain amounts petitioner

received from her former husband are includable in her income as

alimony or separate maintenance payments.1

Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Ridgefield, Connecticut, on the date the petition was filed in

this case.

Petitioner and her former husband, George R. Reed, separated

in April 1993. Mr. Reed filed a petition for divorce on December

10, 1993, in the Circuit Court, Seventh Judicial District, for

St. Johns County, Florida. On December 23, 1993, Mr. Reed filed

with the circuit court a Motion to Establish Temporary Child

Support and Other Temporary Relief. Petitioner separately sought

temporary support from Mr. Reed by filing with the court a motion

for Application for Temporary Allowances. This latter motion was

argued before the court with counsel representing both petitioner

1

In the petition, petitioner disputes the interest due on

the deficiency. This Court does not have jurisdiction to

redetermine interest in this case prior to the entry of a

decision redetermining the deficiency. See sec. 7481(c); Rule

261; Pen Coal Corp. v. Commissioner, 107 T.C. 249, 255 (1996).

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and Mr. Reed, and on June 30, 1994, the court entered an order

(“temporary order”) granting petitioner “temporary spousal

support.” Petitioner and Mr. Reed entered into a final divorce

settlement agreement (“final agreement”) on July 19, 1995,

dissolving their marriage. During the taxable year in issue,

1995, petitioner received six payments of $4,000 each pursuant to

the temporary order and one payment of $10,000 pursuant to the

final agreement.

Petitioner reported no alimony income on her Federal income

tax return for 1995. The statutory notice of deficiency

reflected respondent’s determination that petitioner received

unreported alimony income in the amount of $34,000. The notice

stated:

It is determined that the $34,000.00 you received

in 1995 from your former spouse, George R. Reed, under

an “Order on Temporary Allowances” qualifies as alimony

payments. Accordingly, the $34,000.00 is includable in

your gross income.

The $34,000 amount was comprised of six payments of $4,000 and

one payment of $10,000. Despite the statement in the notice that

all of these payments were made pursuant to the temporary order,

the parties have stipulated that only the six $4,000 payments

were received pursuant to the temporary order, while the $10,000

payment was received pursuant to the final agreement.

Under the Internal Revenue Code, amounts paid which are

“alimony or separate maintenance payments” must be included in

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the recipient’s income. See secs. 61(a)(8) and 71(a). The

phrase “alimony or separate maintenance payments” is defined as

follows:

SEC. 71(b)(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 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.

In determining whether payments meet this definition, the labels

used by taxpayers in an instrument are not controlling. See

Benedict v. Commissioner, 82 T.C. 573, 577 (1984).

The first amounts at issue in this case are the six payments

of $4,000 each which petitioner received pursuant to the

temporary order. The temporary order stated in relevant part:

As and for temporary spousal support, Husband [Mr.

Reed] will pay to the Clerk of the Circuit Court, St.

Johns County, Florida, for disbursement to the Wife

[petitioner] a monthly sum of $4,000.00 commencing on

July 1, 1994 and each month thereafter until further

Order of Court. He shall also pay an additional sum of

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$1,000.00 per month as and for partial retroactive

support and this shall be for a period of six months.

The order did not apportion the $4,000 payments between child

support and alimony.

Based upon the record in this case, we find that the

payments made under the temporary order meet the definitional

requirements of section 71(b)(1). First, the payments were

received by petitioner under a divorce or separation instrument,

as defined in section 71(b)(2). Second, the instrument did not

designate the payments as not includable in gross income under

section 71 and not allowable as a deduction under section 215.

Third, petitioner was not a member of the same household as Mr.

Reed at the time of the payments.

The fourth requirement is that the obligation to make

payments ceases upon the death of the payee spouse. This

requirement may be met either by the terms of the instrument

itself, or by operation of State law. See Cunningham v.

Commissioner, T.C. Memo. 1994-474. The terms of the temporary

order do not satisfy this requirement, so we next examine whether

the obligation would cease by operation of law. At trial,

respondent assumed that Florida law governs petitioner’s right to

receive alimony payments under both the temporary order and the

final agreement. Petitioner did not dispute this assumption, and

we find nothing in the record to indicate that it was in error.

Therefore, we must decide the issue as we believe the highest

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Florida court would decide it. See Commissioner v. Estate of

Bosch, 387 U.S. 456, 465 (1967). In the absence of a decision by

the highest court, we must apply what we “find to be the state

law, after giving ‘proper regard’ to relevant rulings of other

courts of the State.” Id.

With respect to permanent periodic alimony, it is clear

under Florida law that a payor’s obligation to make payments

ceases upon the death of the payee. See Canakaris v. Canakaris,

382 So.2d 1197, 1202 (Fla. 1980). In our review of Florida law

we have found no case in which the Supreme Court of Florida

directly held that the obligation to pay support under a

temporary order likewise ceases upon the death of the payee. We

are convinced, however, that the court would find that the

general rule applicable to permanent periodic alimony also

applies to temporary support.

There is no compelling distinction--between permanent

periodic alimony and support awarded under a temporary decree--

which would cause the former, but not the latter, to cease upon

the payee spouse’s death. On the contrary, the temporary nature

of the order suggests that the payments would not have survived

petitioner. The District Court of Appeal of Florida, Fourth

District, relied upon this point when it recently addressed a

similar issue in Faile v. Fleming, 763 So.2d 459 (Fla. Dist. Ct.

App. 2000). In that case, the court found that an award of

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“reasonable monthly living expenses” and “temporary relief” in a

temporary relief order could not support a contract claim by the

payee spouse after the payor spouse’s death. The court stated:

The order was a temporary relief order, a non-permanent

agreement. It is clearly established that the obligation to

pay permanent alimony dies with the obligated party, so that

to overcome this general rule, “there must be an express

indication of an intention to the contrary” in an agreement

between the parties. A temporary relief order carries less

of a suggestion of permanency than an award of permanent

alimony. No reading of the temporary relief order implied

that David intended that support payments referenced in the

order were to continue after his death.

Id. at 460 (citation omitted). Similarly, in this case nothing

in the temporary order indicates an intention that the support

payments were to continue after petitioner’s death.

Based upon our analysis of Florida law, we hold that Mr.

Reed’s obligation to make the payments under the temporary order

would have ceased upon petitioner’s death by operation of law.

Petitioner argues that these six $4,000 payments are

properly characterized as child support payments. Portions of

payments “which the terms of the divorce or separation instrument

fix (in terms of an amount of money or a part of the payment) as

a sum which is payable for the support of children of the payor

spouse”, sec. 71(c)(1), are not included in the definition of

alimony or separate maintenance payments. See sec. 71(c)(1);

Ambrose v. Commissioner, T.C. Memo. 1996-128. Nothing in the

order fixes any portion of the $4,000 payments as child support.

Petitioner asserts that the support she had sought from the court

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was for her children,2 and that the $4,000 payments should be

considered child support despite the lack of identification as

such in the court order. However, only child support payments

fixed by the terms of the instrument itself are excluded from the

definition of alimony or separate maintenance payments; an

inference cannot be made from intent or surrounding circumstances

that payments were for child support. See id.

Because the terms of the temporary order do not fix any

portion of the $4,000 payments as child support, and because the

payments otherwise meet the definitional requirements of section

71(b)(1), we hold that petitioner received $24,000 in alimony

income under sections 61(a)(8) and 71(a).

The next amount at issue in this case is the lump-sum

payment of $10,000 which petitioner received pursuant to the

final settlement agreement.

Petitioner and respondent stipulated the following statement

in the Stipulation of Facts filed in this case:

Petitioner concedes that the $10,000 payment she

received in August, 1995 is includible as taxable

income for the 1995 taxable year.

This concession is not a stipulation of fact--it is a conclusion

of law. As such, it does not bind this Court. See Edward D.

2

In addition, Mr. Reed had also filed a motion with the

circuit court which sought to establish “Child Support and Other

Temporary Relief.” However, there is no evidence that this

motion was ever argued and/or decided.

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Rollert Residuary Trust v. Commissioner, 80 T.C. 619, 630 (1983),

affd. 752 F.2d 1128 (6th Cir. 1985); Gaddy v. Commissioner, 38

T.C. 943, 951 (1962), affd. in part and remanded in part 344 F.2d

460 (5th Cir. 1965). We therefore turn to the merits of this

issue. The final agreement provided in relevant part:

The Husband [Mr. Reed] shall pay to the Wife [petitioner] as

and for lump sum alimony the amount of $10,000 payable

within fifteen (15) days from the date of the Final Judgment

of Dissolution. Beginning January 1, 1996, the Husband

shall pay to the Wife as rehabilitative alimony the sum of

$516.67 per month for sixty (60) months which shall be due

and payable the first of each month, until the death of

either party or the remarriage of the Wife or the completion

of the sixty (60) payment obligation, whichever shall first

occur.

The terms of this agreement do not state that the liability to

make the $10,000 payment would have ceased after the death of

petitioner, despite the fact that the very next sentence

specifically terminates Mr. Reed’s liability to make the

rehabilitative alimony payments (of $516.67 for 60 months) after

petitioner’s death. Furthermore, assuming that Florida law would

affect the alimony obligation under the final agreement (the

status of the agreement is not clear from the record), the

obligation to make a lump-sum alimony payment--unlike the

obligation to pay permanent periodic alimony--does not terminate

upon the death of the payee spouse by operation of Florida law.

See Canakaris v. Canakaris, supra at 1201; Philipose v.

Philipose, 431 So.2d 698, 700 (Fla. Dist. Ct. App. 1983). In

Canakaris, the Supreme Court of Florida stated that there arises

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“upon the entry of a final judgment of a lump sum award a vested

right which is neither terminable upon a spouse’s remarriage or

death nor subject to modification.”3 Cankaris v. Canarkis, supra

at 1201.

Because Mr. Reed’s obligation to make the lump-sum alimony

payment would have continued after petitioner’s death, the lump-

sum payment is not an alimony or separate maintenance payment as

defined in section 71(b)(1). See sec. 71(b)(1)(D). We therefore

hold that, contrary to respondent’s determination and

petitioner’s concession, the $10,000 lump-sum alimony payment

received by petitioner is not includable in her gross income

under section 61(a)(8) or 71(a).4

3

This is consistent with the purpose of lump-sum alimony in

Florida, which may be awarded for support or vested property

interests, or to ensure an equitable distribution of property

acquired during the marriage. See Canakaris v. Canakaris, supra

at 1201. For example, an award of the marital home may be

appropriate as lump-sum alimony. See id. at 1204.

4

The final agreement further provides that “The alimony

received by the Wife [petitioner] from the Husband [Mr. Reed]

shall be considered income to the Wife and tax deductible to the

Husband.” We note that this statement has no effect on the

Federal income tax treatment of the $10,000 payment in this case.

It is clear that individuals may expressly exclude payments from

the definition of alimony or separate maintenance payments by

designating the payments as not includable under sec. 71 and not

deductible under sec. 215. See sec. 71(b)(1)(B). However, the

individuals in this case did not attempt to exclude the $10,000

payment from the definition. Rather, they attempted to include

in the definition the payment which otherwise does not meet the

requirements of sec. 71(b)(1).

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Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.