                        T.C. Memo. 2008-207



                      UNITED STATES TAX COURT



                RICHARD W. FIELDS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     RICHARD W. FIELDS AND EKATERINA FIELDS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22132-06, 4256-07.     Filed August 28, 2008.



     Michael D. Jones, for petitioners.

     Edwina L. Jones, for respondent.



                        MEMORANDUM OPINION


     JACOBS, Judge:   These consolidated cases were submitted

fully stipulated pursuant to Rule 122.    All section references

are to the Internal Revenue Code as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
                               - 2 -

     The issues for decision are:    (1) Whether certain “Deferred

Payments” Richard Fields made in 2000, 2001, and 2003 to Karen

Fields, his former spouse, are deductible as alimony; and (2) if

not, whether Richard Fields and Ekaterina Fields (petitioners)

are liable for the accuracy-related penalty under section 6662(a)

as a result of their claiming an alimony deduction for that

payment in 2003.

                            Background

     The facts have been fully stipulated and are so found.      The

stipulation of facts and the attached exhibits are incorporated

herein by this reference.   Petitioners resided in New York when

they filed the petitions herein.

     Richard Fields filed his tax returns for 2000 and 2001 as a

married taxpayer filing separately.    He and Ekaterina Fields

filed a joint tax return for 2003.

     The deferred payments at issue herein arose as a consequence

of Richard Fields’s obligations to Karen Fields pursuant to a

Separation, Support and Property Settlement Agreement (agreement)

executed on October 7, 1999.   Mr. Fields is an attorney; however,

both he and Karen Fields had the advice of independent counsel in

the negotiation and preparation of the agreement.

     The agreement contains 19 headings and 42 numbered

paragraphs.   Paragraphs 3 and 4 of the agreement appear under the

heading “Alimony”.   Paragraph 3 contains mutual waivers of claims
                                - 3 -

each party might have against the other for alimony or spousal

support except as specifically provided in paragraph 4.

     Paragraph 4(a) provides:

     So long as any portion of the Deferred Payments referred to
     in Paragraph 15(b) remains unpaid, the Husband shall pay to
     the Wife alimony at the rate of Seventy Five Thousand
     Dollars ($75,000) per year, in equal monthly installments of
     Six Thousand Two Hundred Fifty Dollars ($6,250), until
     December 31, 2001. * * * Commencing January 1, 2002, and on
     the first day of each month thereafter until December 31,
     2002, so long as any portion of the Deferred Payments
     referred to in Paragraph 15(b) remains unpaid, the Husband
     shall pay the Wife alimony at the rate of Fifty Thousand
     Dollars ($50,000) per year, in twelve equal monthly
     installments of Four Thousand One Hundred Sixty-Seven
     Dollars ($4,167).

     Paragraph 4(b)provides:

     Alimony payments pursuant to this Paragraph 4 shall be
     taxable to the Wife and deductible by the Husband, and shall
     terminate forever on the first to occur of the death of
     either Party or full satisfaction of the Note (as defined in
     Paragraph 15(b) below); provided however, in the event the
     Husband fails to pay timely any of the Deferred Payments (as
     defined in Paragraph 15(b) below), the alimony payments to
     the Wife shall increase by twenty percent (20%) if, after
     expiration of the ten (10) day cure period, the Husband has
     not become current on the Note. Alimony shall remain at the
     increased level until the Husband becomes current on the
     note.

     Paragraph 4(c) of the agreement provides:   “Payments made

pursuant to this paragraph shall not terminate in the event of

the Wife’s remarriage”, and paragraph 4(d) of the agreement

provides:   “Except as provided in paragraph 4(a) and (b), alimony

is non-modifiable.”
                                - 4 -

     Paragraph 15 of the agreement appears under the heading

“Personalty”1 and provides, in pertinent part:

     15.   Lump Sum:

           (a)   At Closing, the Husband will pay the Wife Two
                 Million Dollars ($2,000,000) in immediately
                 available funds. * * *

           (b)   Thereafter, the Husband shall pay to the Wife the
                 following amounts in immediately available funds
                 (“Deferred Payments”):
                 - Two Hundred Seventy Five Thousand Dollars
                    ($275,000) on or before December 31, 1999; and
                 - Five Hundred Thousand Dollars ($500,000) on or
                    before December 31, 2000; and
                 - Five Hundred Thousand Dollars ($500,000) on or
                    before December 31, 2001; and
                 - Five Hundred Twenty Five Thousand Dollars
                   ($525,000) on or before December 31, 2002.

           (c)   The Deferred Payments shall be evidenced by a
                 Promissory Note (the “Note”), and delivered to the
                 Wife at Closing. The Deferred Payments shall be
                 secured by an Irrevocable Letter of Instruction
                 (the “Instruction Letter”) from the Husband to the
                 Firm [the law firm of which Mr. Fields was a
                 partner at that time], requiring the Firm in the
                 event of the Husband’s default in payment under
                 the Note, to pay directly to the Wife any funds or


     1
      The heading that precedes the heading “Personalty” in the
agreement is “Real Property”. Two paragraphs are set forth
thereunder (par. 7 and par. 8). Par. 7 provides for the release
by Karen Fields of any interest in Mr. Fields’s leasehold of a
residence in London. Par. 8 provides for the release by Karen
Fields of any interest in Mr. Fields’s residence in Washington,
D.C.

     In addition to par. 15, various other paragraphs appear
under the “Personalty” heading, most of which have subheadings:
“Furniture, Home Furnishings, Fine Art and Other Tangible
Personal Property” (par. 9), “Automobiles” (par. 10), “Pets”
(par. 11), “Boat and Jet Skis” (par. 12), “Swidler Berlin Shereff
Friedman, LLP” (par. 13), “Retirement Assets” (par. 14), and par.
16 relating to mutual indemnifications from third-party claims.
                     - 5 -

      assets due the Husband including without
      limitation salary, draws, bonuses, return of
      capital or other forms of compensation otherwise
      owed to the Husband by the [F]irm * * *.

(d)   The Promissory Note shall not bear interest and
      the Husband shall have the right to prepay it
      without penalty. * * *

(e)   All payments to the Wife under this paragraph are
      tax free to her and are not modifiable. The
      Husband expressly agrees that for the purpose of
      incorporation into a court order, the obligations
      set forth in Paragraph 15(b) above arise out of
      and are in the nature of support obligations and
      thus shall not be dischargeable in bankruptcy.
      The Husband expressly agrees that he shall not
      seek to discharge or release any of these
      obligations in bankruptcy or any other similar
      proceeding. The Husband further agrees that in
      the event he files for bankruptcy and is relieved
      of any of his obligations under Paragraph 15(b),
      then the Wife shall have the right to petition a
      court of competent jurisdiction to receive an
      award of spousal support in an amount not to
      exceed the amount of the discharged Deferred
      Payments referred to in Paragraph 15(b).

(f)   Except as provided in this agreement, upon
      delivery of the Two Million Dollar ($2,000,000)
      lump sum payment to the Wife at Closing, all
      assets, accounts, and interests of the parties in
      joint names or in the Husband’s Separate name or
      in the Husband’s possession shall become the
      Husband’s sole and separate property. In addition
      to the assets and funds identified above as the
      Wife’s sole and separate property, all assets,
      accounts and interests in the Wife’s sole name
      shall become her sole and separate property.
                               - 6 -

     Paragraph 25 provides:

     25.   The Parties intend, understand and agree that all
           transfers of property and Deferred Payments pursuant to
           Paragraph 15 above (excluding alimony payments) made to
           the Wife pursuant to this Agreement are intended to be
           tax-free to the Wife, pursuant to Section 1041 of the
           Internal Revenue Code, or under any other sections of
           the Internal Revenue Code which may pertain to said
           transfers or payments; provided, however, that the Wife
           shall be solely responsible for any taxes she may incur
           if she subsequently sells, transfers, or otherwise
           disposes of the property and payments she receives
           pursuant to this Agreement.

     Paragraph 19 of the agreement requires Mr. Fields to

maintain a decreasing term life insurance policy on his life

designating Karen Fields as the beneficiary and owner, with the

initial face amount of the policy being equal to the unpaid

balance of the deferred payments.   That policy is required to

remain in effect until Mr. Fields satisfies the promissory note

that evidences his obligation pursuant to paragraph 15 of the

agreement, and the death benefits payable thereunder to be

“commensurate with the unpaid balance of the Deferred Payments.”

     Some of the terms of the agreement were incorporated into

the Circuit Court of Fairfax County, Virginia’s divorce decree

dated November 5, 1999 (divorce decree).   The exact language of

paragraph 3 of the agreement (relating to waivers of support

other than as provided in paragraph 4 of the agreement),

paragraph 4(a) of the agreement (relating to monthly installments

of alimony during 2001 and 2002), paragraph 4(b) of the agreement

(relating to the characterization of the payments from Richard
                               - 7 -

Fields to Karen Fields as alimony for tax purposes), paragraph

4(c) of the agreement (relating to nontermination of the alimony

payments upon Karen Fields’s remarriage), and paragraph 4(d) of

the agreement (relating to nonmodification of the alimony

payments) was incorporated and reproduced in the divorce decree

as paragraph 17 thereof.   Paragraph 17 of the divorce decree is

captioned “Support” and is the only provision in the divorce

decree pertaining to spousal support.   The divorce decree

contains no reference to paragraph 15 of the agreement (other

than the reference to paragraph 15 found in paragraph 4 of the

agreement, which was incorporated and reproduced in the divorce

decree).

     Mr. Fields timely filed his tax return for the year 2000

with the assistance of American Express Tax & Business Services

(American Express) of Rockville, Maryland, on October 15, 2001.2

The return reported total income of $1,848,795 and reflected,

among other items, a $76,250 claimed deduction for alimony.     The

tax shown on the return was $693,313.   On December 31, 2002, Mr.

Fields, with the assistance of American Express, prepared and

filed an amended return for 2000 in which he reduced by $500,000

the amount of adjusted gross income he had previously reported.




     2
      Mr. Fields’s tax years 1999 and 2002 are not at issue, and
the record does not reveal how he reported, for tax purposes, any
payments he made to Karen Fields during those years.
                                 - 8 -

The explanation for the change was:      “The total alimony paid * *

* was understated by $500,000 on the original tax return.”     The

revised tax, according to the amended return, was $489,373.

     Mr. Fields timely filed his tax return for the year 2001

with the assistance of Coppergate Associates International of

London, England, on January 27, 2003 (pursuant to an extension of

time in which to file until January 30, 2003, inasmuch as

petitioner was living abroad).    The return reported total income

of $2,133,971 and reflected, among other items, a $568,750

claimed deduction for alimony.    The tax shown on the return was

$423,994.

     Mr. Fields failed to make the final deferred payment of

$525,000 to Karen Fields by December 31, 2002, as contemplated in

the agreement.   Instead, that payment was made in March 2003.

Contemporaneously with the March 2003 payment, Richard and Karen

Fields executed an “Agreement and Limited Mutual Release” in

which, among other things, Karen Fields released Richard Fields

from his obligations pursuant to “Paragraphs 15a-d (entitled Lump

Sum), and Paragraphs 3-4 (entitled Alimony)” of the agreement.

     Mr. Fields and Ekaterina Fields timely filed their tax

return for the year 2003 with the assistance of Meridian

Services, Ltd., of Charleston, South Carolina, on October 15,

2004.   The return reported total income of $924,867 and
                               - 9 -

reflected, among other items, a $525,000 claimed deduction for

alimony.   The tax shown on the return was $89,507.

     After examining the 2000, 2001, and 2003 tax returns,

respondent determined deficiencies in tax of $203,940, $195,500,

and $170,797 respectively for those years.    Respondent issued a

notice of deficiency to Mr. Fields for years 2000 and 2001 on

July 31, 2006, and a notice of deficiency to petitioners

for the year 2003 on January 4, 2007.     The deficiencies

respondent determined were attributable entirely to disallowance

of $500,000 of the claimed deductions for alimony in 2000 and

2001 and the $525,000 claimed deduction for alimony in 2003

(i.e., deductions attributable to payments made pursuant to

paragraph 15(b) of the agreement).     In addition, in his notice of

deficiency, respondent determined that for 2003 petitioners were

liable for a $34,159.40 penalty under section 6662(a).3

Respondent did not challenge the $76,250 alimony deduction

claimed in 2000 or the $68,750 alimony deduction claimed in 2001

(i.e., deductions attributable to payments made pursuant to

paragraph 4(a) of the agreement).

     Petitioners timely petitioned this Court for a

redetermination of the deficiencies.    Petitioners claim that all

amounts Mr. Fields paid to Karen Fields (and not just the amounts


     3
      On Jan. 16, 2007, respondent transmitted to petitioners an
examination report for 2003 which reduced the alternative minimum
tax and corresponding deficiency in tax for 2003 to $169,969 and
reduced the penalty for 2003 to $33,993.80.
                             - 10 -

paid pursuant to paragraph 4(a) of the agreement) were deductible

as alimony under section 215, noting:   (1) Paragraph 15 of the

agreement does not specifically state that those payments are not

allowable as deductions under section 215; and (2) Mr. Fields was

not obligated to make payments pursuant to paragraph 15(b) in the

event of Karen Fields’s death.   Moreover, petitioners posit that

even though the first sentence of paragraph 15(e) states that

“All payments to the Wife under this paragraph are tax free to

her”, the deferred payments under paragraph 15(b) are in the

nature of spousal support and would be tax free only in the event

Mr. Fields filed for bankruptcy.

     Petitioners did not address the issue of their liability for

the section 6662(a) penalty for 2003 in their petition, but both

they and respondent addressed that issue on brief.4

                           Discussion

     As stated in Estate of Goldman v. Commissioner, 112 T.C.

317, 322 (1999), affd. without published opinion sub nom.

Schutter v. Commissioner, 242 F.3d 390 (10th Cir. 2000):

          Generally, property settlements (or transfers of
     property between spouses) incident to a divorce neither are
     taxable events nor give rise to deductions or recognizable
     income. See sec. 1041. On the other hand, amounts received


     4
      Petitioners claimed, for the first time on brief, that
interest on any underpayment should be suspended pursuant to sec.
6404(g). Petitioners do not assert, and the record does not
indicate, that the Secretary made a determination not to abate
such interest, which would be reviewable by this Court pursuant
to sec. 6404(h). Hence, we deem petitioners’ claim for the
suspension of interest to be premature.
                              - 11 -

     as alimony or separate maintenance payments are taxable to
     the recipient (pursuant to sections 61(a)(8) and 71(a)) and
     deductible by the payor (pursuant to section 215(a)) in the
     year paid. For tax purposes, the phrase “alimony or
     separate maintenance payments” is defined in section
     71(b)(1) as any cash payments meeting the following four
     criteria:

          “(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.”

     The parties agree that Mr. Fields’s payments to Karen Fields

of $76,250 in 2000 and $68,750 in 2001 made pursuant to paragraph

4(a) of the agreement constitute deductible alimony.   The parties

further agree that Mr. Fields’s payments to Karen Fields made

pursuant to paragraph 15 of the agreement satisfy the first and

third criteria of section 71(b)(1).    They disagree as to whether

Mr. Fields’s payments to Karen Fields pursuant to paragraph 15 of

the agreement satisfy the second and fourth criteria of section

71(b)(1).   For the reasons set forth below, we hold those

payments do not and thus sustain respondent’s determination that
                              - 12 -

the payments Mr. Fields made to Karen Fields of $500,000 in 2000,

$500,000 in 2001, and $525,000 in 2003 are not alimony.

     With respect to the second criterion of section 71(b)(1),

petitioners posit that in order for payments from one spouse to

the other to be disqualified as alimony payments made pursuant to

a separation agreement or divorce decree, the separation

agreement or divorce decree must specifically provide that the

payments are not includable in the recipient’s income and are not

deductible by the payor.   Because the agreement does not contain

such a specific provision, petitioners maintain that Mr. Fields’s

payments to Karen Fields are not disqualified as deductible

alimony under section 71(b)(1)(B).

     We have already stated, in Estate of Goldman v.

Commissioner, supra at 323, that the divorce or separation

instrument need not mimic the language of section 71(b)(1)(B).

Rather, we have stated that a nonalimony designation will be

found “if the substance of such a designation is reflected in the

instrument.”   Id.

     In our view, the payments to be made pursuant to paragraph

15(b) of the agreement were designed to accomplish a purpose

different from that of the payments made pursuant to paragraph 4.

We believe the payments made pursuant to paragraph 4 were

intended to be for the support of Karen Fields, whereas the
                                - 13 -

payments made pursuant to paragraph 15 were intended to be a

property settlement.   The basis of this belief is as follows.

     Paragraph 15 of the agreement is concerned with the division

of property between Mr. Fields and Karen Fields.    Tellingly,

paragraph 15 appears under the heading “Personalty”, whereas

paragraph 4 appears under the heading “Alimony”.    And paragraph 4

is the only paragraph of the agreement referred to in the divorce

decree as requiring Mr. Fields to pay Karen Fields alimony.

     Paragraph 15(e) of the agreement provides that payments

under paragraph 15 are to be tax free to the Wife (i.e., Karen

Fields), whereas paragraph 4(b) designates the payments under

paragraph 4 from the Husband (i.e., Mr. Fields) to the Wife as

alimony “taxable to the Wife and deductible by the Husband”.     If

all the payments to be made under both paragraphs 4 and 15 were

intended to be alimony, we believe the agreement:    (1) Would not

have denominated the payments differently by means of placement

in separate paragraphs and under different headings, and (2)

would not have contained contradictory instructions as to the

inclusion (or not) of the payments in Karen Fields’s income.

     Moreover, the amounts payable pursuant to paragraph 15(b) of

the agreement are substantially larger than those required by

paragraph 4 of the agreement.    The payments made pursuant to

paragraph 15(b) of the agreement, referred to as “Deferred

Payments”, are, in our opinion, a series of discrete amounts in
                              - 14 -

the nature of installment payments, evidenced by a promissory

note and secured by an irrevocable letter of instruction to Mr.

Fields’s law firm.   Tellingly, as further security Mr. Fields was

required to maintain a decreasing term life insurance policy on

his life of which Karen Fields was to be the beneficiary and

owner until the promissory note evidencing Mr. Fields’s

obligations under paragraph 15 was satisfied.    Providing such

security is inconsistent with the provision in paragraph 4(b)

that such an obligation was to be extinguished upon Mr. Fields’s

death.

     Petitioners point to some provisions of the agreement which

give rise to a colorable claim that the payments made pursuant to

paragraph 15 were deductible alimony.   For example, paragraph 25,

in describing the agreed tax treatment of the payments under

paragraph 15 as tax free to Karen Fields, contains a

parenthetical reference to alimony payments.    Paragraph 15(e)

first specifies that payments made under that paragraph are tax

free to Karen Fields but then characterizes the payments to be

made pursuant to paragraph 15(b) as support obligations “and thus

not dischargeable in bankruptcy”.   It further provides that Karen

Fields “shall have the right to petition a court of competent

jurisdiction to receive an award of spousal support in an amount

not to exceed the amount of the discharged deferred payments

referred to in Paragraph 15(b).”    Moreover, we are mindful that
                                - 15 -

the agreement provides for an increase in the amount and duration

of alimony payments under paragraph 4(a) and 4(b) in the event

Mr. Fields does not timely make the payments required by

paragraph 15, suggesting a linkage or interchangeability between

the two types of payments.

     Notwithstanding the aforesaid, we are persuaded that the

agreement, when read in its entirety from a “reasonable,

commonsense perspective,” reflects a clear and express intent of

the parties that the amounts which Mr. Fields was required to pay

pursuant to paragraph 15 of the agreement constitute a division

of marital assets, as opposed to spousal support, and are not to

be included in the gross income of Karen Fields nor allowed as

deductions to Mr. Fields.    See Estate of Goldman v. Commissioner,

112 T.C. at 323.   Consequently, the second criterion of section

71(b)(1), which the payments must satisfy if they are to qualify

as alimony, has not been met.

     With respect to the fourth criterion of section 71(b)(1),

petitioners contend that the payments Mr. Fields was required to

make pursuant to paragraph 15 would not continue upon Karen

Fields’s death, and consequently the requirement of subparagraph

(D) of section 71(b)(1) is met.    We disagree with petitioners’

contention.

     Whether a postdeath obligation exists may be determined by

the terms of the divorce or separation instrument, or, if the
                              - 16 -

instrument is silent on that matter, by State law.   Morgan v.

Commissioner, 309 U.S. 78, 80-81 (1940); see also Kean v.

Commissioner, 407 F.3d 186, 191 (3d Cir. 2005), affg. T.C. Memo.

2003-163.   But there is no need to resort to State law to

determine the character of the payments at issue.5   Paragraph

4(b) of the agreement provides that the payments to be made

thereunder shall terminate on the death of either party or upon

the payment of all amounts due pursuant to paragraph 15,

whichever occurs first.   Such language is conspicuously lacking

in paragraph 15.   The agreement requires Mr. Fields to make

payments pursuant to paragraph 15 until fixed amounts ($500,000

in 2000, $500,000 in 2001, and $525,000 in 2002) are paid.     It

does not state that the obligation to make those payments

terminates upon the death of Karen Fields.   Therefore, the

amounts Mr. Fields paid pursuant to paragraph 15 of the agreement

do not satisfy the requirement of subparagraph (D) of section

71(b)(1).

     Having sustained respondent’s determination that the

payments Mr. Fields made to Karen Fields of $500,000 in 2000,

$500,000 in 2001, and $525,000 in 2003 are not alimony, we now


     5
      Petitioners rely on Va. Code Ann. sec. 20-109.1 (2004),
which provides that upon the death or remarriage of the spouse
receiving support, spousal support shall terminate unless
otherwise provided by stipulation or contract. We already found
that payments Mr. Fields made pursuant to par. 15 were not
spousal support payments but instead were part of a division of
marital assets.
                             - 17 -

turn our attention to respondent’s determination with respect to

the accuracy-related penalty under section 6662(a).

     Respondent determined that petitioners’ 2003 underpayment

was attributable to negligence or disregard of rules or

regulations under section 6662(b)(1) and/or to a substantial

understatement of income tax under section 6662(b)(2).    We

address only respondent’s claim that petitioners’ underpayment

for 2001 was attributable to a substantial understatement of

income tax under section 6662(b)(2).    We do so because a finding

that there was a substantial understatement of income tax alone

would be determinative that petitioners are liable for the

section 6662(a) penalty.

     Under section 7491(c), the Commissioner has the burden of

production with respect to any penalty.    Once the Commissioner

meets the burden of production, the taxpayer continues to have

the burden of proof with respect to whether the Commissioner’s

determination of the penalty is correct.    Rule 142(a); Higbee v.

Commissioner, 116 T.C. 438 (2001).     The submission of a case

without trial under Rule 122(a) does not alter the requirements

otherwise applicable to adducing proof.    Rule 122(b).

     For purposes of section 6662(b)(2), an understatement is

equal to the excess of the amount of tax required to be shown in

the tax return over the amount of tax shown.    Sec. 6662(d)(2)(A).

The difference is considered “substantial” in the case of an
                              - 18 -

individual if the amount of the understatement for the taxable

year exceeds the greater of 10 percent of the tax required to be

shown in the return for that taxable year or $5,000   Sec.

6662(d)(1)(A).   The amount of the understatement must be reduced

by that portion of the understatement which is attributable to

(1) “the tax treatment of any item by the taxpayer if there is or

was substantial authority for such treatment”, sec.

6662(d)(2)(B)(i),6 or (2) any item if (a) “the relevant facts

affecting the item’s tax treatment are adequately disclosed in

the return or in a statement attached to the return”, sec.



     6
      Following submission of this case, by means of an
attachment to their brief petitioners attempted to introduce into
evidence a written opinion by a law professor in support of a
claim that there was substantial authority as provided in sec.
6662(d)(2)(B)(i) for their treatment of Mr. Fields’s payments to
Karen Fields. The written opinion, which does not cite any
legal authorities, was not included in the stipulation of facts
and exhibits submitted pursuant to Rule 122. Consequently, the
Court returned the attachment. See Rules 143(b), 151.

     Petitioners later sought, by means of a motion, to amend the
stipulation of facts to include the written opinion. Respondent
objected to petitioners’ motion, and we denied petitioners’
motion to amend.

     We are mindful that the material petitioners wish the Court
to consider is dated Apr. 28, 2006, whereas petitioners’ 2003
return was filed on Oct. 14, 2004. Substantial authority for
purposes of sec. 6662(d)(2)(B)(i) must exist at the time the
return containing the item is filed or on the last day of the
taxable year to which the return relates. See sec. 1.6662-
4(d)(3)(iv)(C), Income Tax Regs. Accordingly, even if the
material constituted “authority” as contemplated by sec.
6662(d)(2)(B)(i), which is doubtful, see sec. 1.6662-
4(d)(3)(iii), Income Tax Regs., the material would not constitute
substantial authority for purposes of sec. 6662(d)(2)(B)(i).
                               - 19 -

6662(d)(2)(B)(ii)(I), and (b) “there is a reasonable basis for

the tax treatment of such item by the taxpayer”, sec.

6662(d)(2)(B)(ii)(II).    Disclosure of an item is not effective to

remove the item from the understatement to which the tax is

attributable where the treatment of the item for tax purposes

does not have a reasonable basis as defined in section 1.6662-

3(b)(3), Income Tax Regs.    Sec. 1.6662-4(e)(2)(i), Income Tax

Regs.

     Section 1.6662-3(b)(3), Income Tax Regs., provides that the

reasonable basis standard “is not satisfied by a return position

that is merely arguable or that is merely a colorable claim.”     If

a return position is reasonably based on one or more of the

authorities set forth in section 1.6662-4(d)(3)(iii), Income Tax

Regs. (taking into account the relevance and persuasiveness of

the authorities, and subsequent developments), the return

position will generally satisfy the reasonable basis standard

even though it may not satisfy the substantial authority standard

as defined in section 1.6662-4(d)(2), Income Tax Regs.    See

section 1.6662-4(d)(3)(ii), Income Tax Regs., for rules with

respect to relevance, persuasiveness, subsequent developments,

and use of a well-reasoned construction of an applicable

statutory provision for purposes of the substantial

understatement penalty.
                              - 20 -

     Petitioners’ 2003 return reported tax of $89,507.

Respondent determined, and we agree, that the tax required to be

shown on the return was $259,476.   Thus, the understatement was

$169,969.   This amount exceeds 10 percent of the tax required to

be shown in the return and obviously is greater than $5,000.

     The record does not disclose on what basis petitioners

claimed that Mr. Fields’s payments under paragraph 15(b) to Karen

Fields were alimony.   Because Mr. Fields did not originally claim

the 2000 payment of $500,000 as alimony, it is apparent that at

one time Mr. Fields did not consider that payment to be

deductible.   Other than petitioners’ uncorroborated claim (first

set forth in their posttrial brief) that Mr. Fields changed the

tax treatment of the payments made under paragraph 15(b) of the

agreement on the advice of his tax return preparers, a claim

discussed infra, nothing in the record indicates that petitioners

relied on one or more of the authorities set forth in section

1.6662-4(d)(3)(iii), Income Tax Regs., or otherwise had a

reasonable basis for deducting the payments made under paragraph

15(b) of the agreement on their 2003 return.   Thus, petitioners

have failed to carry their burden of showing that they had a

reasonable basis for their tax treatment of the 2003 payment to

Karen Fields, and accordingly the exception to the section

6662(a) penalty found in section 6662(d)(2)(B)(ii) is not

applicable.
                               - 21 -

     Pursuant to section 6664(c)(1), no penalty under section

6662 shall be imposed “with respect to any portion of an

underpayment if it is shown that there was a reasonable cause for

such portion and that the taxpayer acted in good faith with

respect to such portion.”    The determination of whether the

taxpayer acted with reasonable cause and in good faith depends on

the pertinent facts and circumstances, including the taxpayer’s

efforts to assess the taxpayer’s proper tax liability, the

knowledge and experience of the taxpayer, and the reliance on the

advice of a professional, such as an accountant.    Sec. 1.6664-

4(b)(1), Income Tax Regs.    Reliance on the advice of a

professional, such as an accountant, does not necessarily

demonstrate reasonable cause and good faith unless, under all the

circumstances, such reliance was reasonable and the taxpayer

acted in good faith.   Id.   In this connection, a taxpayer must

demonstrate that his/her reliance on the advice of a professional

concerning substantive tax law was objectively reasonable.

Goldman v. Commissioner, 39 F.3d 402, 408 (2d Cir. 1994), affg.

T.C. Memo. 1993-480.   In the case of claimed reliance on an

accountant who prepared the taxpayer’s tax return, the taxpayer

must establish that correct information was provided to the

accountant and that the item incorrectly omitted, claimed, or

reported in the return was the result of the accountant’s error.

Westbrook v. Commissioner, 68 F.3d 868, 881 (5th Cir. 1995),
                               - 22 -

affg. T.C. Memo. 1993-634; Weis v. Commissioner, 94 T.C. 473, 487

(1990); Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173 (1978).

     In their posttrial brief, petitioners claim that Mr.

Fields’s tax preparer, American Express, realized that it had

erred in not deducting as alimony the $500,000 deferred payment

Mr. Fields made in 2000 and therefore advised Mr. Fields to file

an amended return to correct its error, which Mr. Fields did on

December 31, 2002.    Petitioners also assert on brief that their

claiming deductions for the deferred payments made in 2001 and

2003 was approved by their return preparers for those years.

Further, petitioners assert, because the Internal Revenue Service

did not challenge the tax treatment of the deferred payments for

2000 and 2001, they had no reason to believe that respondent

might disallow the claimed alimony deduction for 2003.

     Although it appears that Mr. Fields had assistance from

accountants in preparing his returns for each of the years in

issue, no evidence was submitted as to what Mr. Fields told the

preparers and what the preparers told him.    See Garfield v.

Commissioner, ___ Fed. Appx. ___ (2d Cir., Aug. 18, 2008), affg.

T.C. Memo. 2006-67.    There is nothing in the record to

substantiate petitioners’ uncorroborated and first-time

assertions made in their posttrial brief that American

Express admitted error in preparing Mr Fields’s tax return for

2000 filed on October 15, 2001.    We have no way of knowing
                              - 23 -

whether the filing of the amended 2000 tax return on August 31,

2002, was to correct an “error” made by American Express, as

asserted by petitioners, or resulted from Mr. Fields’s desire to

claim and/or insistence on claiming the benefit of a greater

alimony deduction.   Nor do we have any way of knowing what

information the other tax preparers (Coppergate Associates

International and Meridian Services, Ltd.) had in preparing

petitioners’ 2001 and 2003 tax returns.   Moreover, the lack of a

previous challenge by respondent of Mr. Fields’s claimed alimony

deductions for the deferred payments made in 2000 and 2001

pursuant to paragraph 15 of the agreement does not show that

petitioners had reasonable cause for the erroneous position taken

for 2003.

     On the limited stipulated facts before us, we cannot find

that Mr. Fields, apparently a knowledgeable attorney, had

reasonable cause for, or acted in good faith with respect to,

changing his original position with respect to the

characterization of the $500,000 payment to Karen Fields in 2000

and, adhering to an erroneous position, with respect to the

$525,000 payment in 2003.

     Because petitioners have failed to prove that they are

entitled to relief under section 6664(c)(1), we reject their

arguments that they should be relieved of the section 6662

penalty.
                        - 24 -

To reflect the foregoing,


                                 Decisions will be entered

                            for respondent.
