                  T.C. Summary Opinion 2004-65



                     UNITED STATES TAX COURT



  VINCENT J. BOIDO, JR. AND CHRISTINE P. BOIDO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3355-03S.             Filed May 14, 2004.


     Vincent J. Boido, Jr., pro se.

     Bryan E. Sladek, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to

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

should not be cited as authority.


     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2000,
the taxable year in issue. All Rule references are to Tax Court
Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax of $5,543 for the taxable year 2000.

     After dismissal of petitioner Christine P. Boido,2 the

issues for decision are: (1) Whether payments totaling $34,352

made by petitioner Vincent J. Boido, Jr. (petitioner) to his

former wife are deductible as alimony; and, if not, (2) whether

such payments are deductible as a nonbusiness bad debt.3

     An adjustment to the amount of petitioners’ itemized

deductions is a purely computational matter, the resolution of

which is dependent on our disposition of the disputed issue.

Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.   At the time that the petition

was filed, petitioners resided in New Hudson, Michigan.

     Before his marriage to petitioner Christine P. Boido,

petitioner was married to Rene M. Thiellesen (Ms. Thiellesen).




     2
        Petitioner Christine P. Boido did not appear at trial and
did not execute the stipulation of facts. Accordingly, the Court
will dismiss this action as to her. Rule 123(b). However,
decision will be entered against petitioner Christine P. Boido
consistent with the decision entered against petitioner Vincent
J. Boido, Jr., as to the deficiency in tax.
     3
        In the notice of deficiency, respondent disallowed one of
petitioners’ claimed dependency exemptions and increased
petitioners’ claimed child tax credit. These matters have been
resolved by the parties.
                                - 3 -

Petitioner and Ms. Thiellesen had one child, Nicole R. Boido

(Nicole), born November 13, 1987.

     On September 20, 1990, petitioner and Ms. Thiellesen were

divorced pursuant to a Consent Judgment of Divorce By Withdrawal

(divorce decree) entered by the Oakland County Circuit Court of

the State of Michigan (the Circuit Court).   With respect to

alimony, the divorce decree directed that petitioner:

     shall pay to Plaintiff [Ms. Thiellesen] as alimony the
     sum of Seven Hundred Fifty ($750.00) Dollars per month,
     for a period of twenty-four (24) months, from the date
     of Judgment, and that said alimony payments shall be
     taxable to Plaintiff and deductible by Defendant, and
     that at the end of the aforesaid period, alimony
     payable to either party shall be forever barred.
     [Emphasis added.]

There has been no subsequent modification to petitioner’s alimony

obligation to Ms. Thiellesen.   Petitioner timely paid his alimony

obligation pursuant to the divorce decree.

     With respect to Nicole, the divorce decree granted

petitioner and Ms. Thiellesen joint legal and physical custody of

Nicole.   The divorce decree also directed petitioner to pay Ms.

Thiellesen:

     directly, as support contribution for the minor child
     [Nicole], the sum of Seventy-Five ($75.00) Dollars per
     week, or Three Hundred, Twenty-Two ($322.50) Dollars
     and Fifty Cents per month, for the minor child, until
     said minor child attains the age of eighteen (18) years
     or graduates from high school, whichever is later, or
     until the further order of this Court.
                                 - 4 -

     By February 1995, Ms. Thiellesen was destitute.4    Ms.

Thiellesen approached petitioner and asked him if he “could help

her out with some money.”    Petitioner agreed to enter into a

private agreement with Ms. Thiellesen wherein he would prepay his

entire child support obligation due under the divorce decree by

1999, or 6 years early.     At trial, petitioner testified that, at

the time of the private agreement, he had a workable relationship

with Ms. Thiellesen regarding the best interests of their

daughter and that he:

     didn’t gain anything by doing this, by giving her [Ms.
     Thiellesen] the money up front. It was basically to
     help her out and see that my daughter was benefitted
     from this.

Between 1995 and 1999, petitioner paid the total sum of $41,244,

including the following:5    $6,892 in personal checks to Ms.

Thiellesen; $26,000 for a new Dodge truck for Ms. Thiellesen;6




     4
        Petitioner testified that by this time Ms. Thiellesen had
filed for bankruptcy, that she did not have any money, that she
was losing her house in which Nicole lived part-time, and that
her car had been repossessed.
     5
        The enumerated amounts, which are rounded to the nearest
dollar, aggregate less than the total sum of $41,244. The
discrepancy is unexplained in the record.
     6
        In February 1995, petitioner financed the purchase of the
truck and made the monthly payments. It is unclear who is the
registered owner of the truck, but petitioner testified that
Nicole currently drives the truck.
                               - 5 -

$1,918 to New Star Insurance;7 and $6,000 to State Farm

Insurance.8

     Sometime in 1999, Ms. Thiellesen filed a petition with the

Circuit Court seeking enforcement of petitioner’s $75 weekly

child support obligation.   On February 15, 2000, the Circuit

Court issued an Opinion and Order (order) holding that the

parties’ private agreement was void and unenforceable because

parents may not bargain away a child’s right to support.   The

Circuit Court was not persuaded that the noncash items benefited

Nicole as to constitute child support, but held that the checks

totaling $6,892 were tantamount to direct payments of child

support, which would be credited toward petitioner’s outstanding

child support obligation.   The Circuit Court calculated

arrearages against petitioner and then reinstated petitioner’s

child support obligation.

     At trial, petitioner testified that he discussed with his

attorney about suing Ms. Thiellesen for restitution in the amount

of $34,352, which was calculated as follows:   The total amount of

payments made pursuant to the private agreement less the amount

determined by the Circuit Court as child support; i.e., $41,244 -

$6,892 = $34,352.   Petitioner’s attorney, however, “felt that


     7
        New Star Insurance provided the insurance coverage for
the truck. Petitioner paid the insurance as it came due.
     8
        Petitioner paid for an investment fund and a universal
life policy for Nicole.
                                - 6 -

there was nothing to collect” because Ms. Thiellesen “wasn’t

making much income.”

     Petitioners timely filed a joint Federal income tax return

for 2000 using the cash basis method of accounting.   On their

return, petitioners claimed a deduction for alimony payments to

Ms. Thiellesen in the amount of $34,352.

     In the notice of deficiency, respondent disallowed

petitioners’ claimed alimony deduction.    Petitioners timely filed

a petition with this Court challenging the notice of deficiency.

Discussion9

     Deductions are strictly a matter of legislative grace, and a

taxpayer bears the burden of proving his or her entitlement to

the claimed deductions.    Rule 142(a)(1); see New Colonial Ice Co.

v. Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, 290

U.S. 111, 115 (1933); cf. sec. 7491(a)(2).

     Petitioner concedes that he is a cash basis taxpayer.   As

such, he may deduct expenditures only in the year paid.   Secs.

446, 461; secs. 1.446-1(c)(1), 1.461-1(a)(1), Income Tax Regs.

     A.    Alimony Deduction

     The first issue for decision is whether payments totaling

$34,352 made to petitioner’s former spouse are deductible as

alimony.    We hold that they are not.


     9
        We need not decide whether sec. 7491, concerning burden
of proof, applies in this case because petitioner did not allege
that sec. 7491 was applicable, and the issues are essentially
legal in nature. See Higbee v. Commissioner, 116 T.C. 438
(2001).
                               - 7 -

     Section 215(a) allows a deduction for alimony payments paid

during the payor’s taxable year.   Section 215(b) defines alimony

as payment which is includable in the gross income of the

recipient under section 71.   Section 71(b) provides a four-step

inquiry for determining whether a cash payment is alimony.

Section 71(b) provides:

          SEC. 71(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 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.
                                  - 8 -

Accordingly, if the payment made by petitioner fails to meet all

of the four enumerated criteria, that payment is not deductible

as alimony by petitioner.

     Based on the record, we find that the payments do not

constitute alimony under section 215.     The alimony provision in

the divorce decree required petitioner to pay alimony to Ms.

Thiellesen for only 24 months starting in September 1990 and

ending in September 1992, which petitioner paid accordingly.

The payments at issue were made well after September 1992 and

were made pursuant to the 1995 private agreement rather than the

divorce decree.     In addition, most (if not all) of the payments

in question were made before 2000, the taxable year in issue,

and, therefore, would not be deductible in 2000.     Finally, and

most fundamentally, the payments in question were purportedly

made as child support, which is neither alimony nor deductible as

such.     See sec. 71(c).   Therefore, we hold that petitioner is not

entitled to an alimony deduction for payments totaling $34,352

that he made to Ms. Thiellesen.

     B.     Bad Debt Deduction

     At trial, petitioner argued, in the alternative, that the

payments in question are deductible as a nonbusiness bad debt.

We hold that they are not.
                                 - 9 -

     Section 166(d) provides that a taxpayer may deduct, as a

short-term capital loss, a nonbusiness debt that becomes

worthless within the taxable year.10     See sec. 1.166-5(a)(2),

Income Tax Regs.    First, the debt must be a bona fide debt;

namely, “a debt which arises from a debtor-creditor relationship

based upon a valid and enforceable obligation to pay a fixed or

determinable sum of money.”    Sec. 1.166-1(c), Income Tax Regs.

The existence of a bona fide debt is a factual inquiry that turns

on the facts and circumstances of the particular case, and the

taxpayer bears the burden of proving that a bona fide debt

existed.    Rule 142(a); Dixie Dairies Corp. v. Commissioner, 74

T.C. 476, 493 (1980); Litton Bus. Sys., Inc. v. Commissioner, 61

T.C. 367, 377 (1973).

     Second, the debt must be wholly worthless.     Sec. 1.166-

5(a)(2), Income Tax Regs.    Whether or not a debt has become

worthless within a particular year is a question of fact, and the

taxpayer bears the burden of proving that the debt became

worthless in that year.     Redman v. Commissioner, 155 F.2d 319,

320 (1st Cir. 1946), affg. a Memorandum Opinion of this Court

dated May 15, 1945; Perry v. Commissioner, 22 T.C. 968, 973

(1954).    “Where the surrounding circumstances indicate that a


     10
        Assuming arguendo that the payments in question gave
rise to a debt, then such purported debt is a nonbusiness debt
because it was not created or acquired in connection with
petitioner’s trade or business. See sec. 166(d)(2).
                               - 10 -

debt is worthless and uncollectible and that legal action to

enforce payment would in all probability not result in the

satisfaction of execution on a judgment, a showing of these facts

will be sufficient evidence of the worthlessness of the debt.”

Sec. 1.166-2(b), Income Tax Regs.    No deduction is allowed for a

debt so long as any part of the debt is recoverable during the

taxable year.    Sec. 1.166-5(a)(2), Income Tax Regs.

     Petitioner contends that he has a valid and enforceable

claim against Ms. Thiellesen under the equitable doctrine of

unjust enrichment, and that this claim was wholly worthless in

the year 2000.11   On the other hand, respondent contends that

petitioner only has an unadjudicated and unliquidated claim

against Ms. Thiellesen because he failed to obtain a judgment

against her.12   Respondent further contends that, if the Court

finds that petitioner has a legal claim against Ms. Thiellesen,

the claim was not wholly worthless because petitioner could

recover the truck from Ms. Thiellesen under a constructive



     11
        Petitioner seeks restitution on the basis of unjust
enrichment, which is a form of equitable relief. See Dumas v.
Auto Club Ins. Association, 473 N.W.2d 652, 663 (Mich. 1991);
Restatement, Restitution, sec. 1 (1937).
     12
        Generally, a claim arising out of a breach of contract,
prior to being reduced to judgment, does not create such a
debtor-creditor relationship because the injured party has only
an unliquidated claim for damages. Lewellyn v. Elec. Reduction
Co., 275 U.S. 243, 246 (1927); Proesel v. Commissioner, 77 T.C.
992, 1002 (1981) (and cases cited therein).
                               - 11 -

trust.13   We turn to Michigan law to determine whether

petitioner’s assertion of the doctrine of unjust enrichment gives

rise to a valid and enforceable claim against Ms. Thiellesen.

     A person who has been unjustly enriched at the expense of

another is required to make restitution to the other.     Estate of

McCallum v. First State Bank, 395 N.W.2d 258, 261 (Mich. Ct. App.

1986); Restatement, Restitution, sec. 1 (1937).    The process of

imposing a “contract-in-law” to prevent unjust enrichment is an

activity which courts should approach with some caution.

Estate of McCallum v. First State Bank, supra.    Under Michigan

law, the essential elements of a claim for unjust enrichment are:

(1) Receipt of a benefit by the defendant from the plaintiff, (2)

which benefit it is inequitable that the defendant retain.     Id.

The plaintiff making a claim for unjust enrichment must establish

the nature of the transaction and the character of the liability

arising therefrom as a prerequisite to his right to recover.

Booker v. City of Detroit, 668 N.W.2d 623, 627 (Mich. 2003).       The

mere fact that a person benefits another is not of itself

sufficient to require the other to make restitution on a theory



     13
        Generally, a constructive trust allows the court to
impose a trust for the benefit of one person over assets owned by
another. Kent v. Klein, 91 N.W.2d 11, 14 (Mich. 1958). For
purposes of the requirement of worthlessness, respondent focuses
on the truck. The record is unclear, however, as to who is the
registered owner of the truck. We note that Nicole currently
drives the truck.
                              - 12 -

of unjust enrichment.   Estate of McCallum v. First State Bank,

supra.

     Petitioner contends that a debt arose when the Circuit Court

held that the private agreement between petitioner and Ms.

Thiellesen was void and unenforceable because parents may not

bargain away a child’s right to support under Michigan law.     See

Mich. Comp. Laws Ann. sec. 722.3 (West 2002); Wiersma v. Wiersma,

217 N.W. 767, 768 (Mich. 1928); Ballard v. Ballard, 198 N.W.2d

451, 452 (Mich. Ct. App. 1972).   Petitioner argues that he paid a

total of $41,244 as purported child support pursuant to the

private agreement, but that the Circuit Court characterized only

$6,892 of the total payments as tantamount to child support,

calculated arrearages against petitioner, and then reinstated

petitioner’s $75 weekly child support obligation.    As a result,

petitioner contends that the payments were not intended as a

gift, but were advance payments to Ms. Thiellesen.     Petitioner

thus claims that Ms. Thiellesen is unjustly enriched because he

relied on her “to uphold her end of their contract, which she

failed to do, resulting in Petitioner having to pay for a second

time the amount of $34,352.00” as child support pursuant to the

Circuit Court’s order, and, therefore, he is entitled to

restitution in the amount of $34,352.   We disagree.
                                - 13 -

     There is no doubt that Ms. Thiellesen benefited from receipt

of at least certain of the noncash advance payments.    At the

time, Ms. Thiellesen was destitute and her car had been

repossessed.    Based on the record, however, we are not convinced

that it is inequitable for Ms. Thiellesen to retain the advance

payments just because she will receive the same amount as future

child support.    Up until the decision of the Circuit Court,

petitioner and Ms. Thiellesen had a workable relationship

regarding the best interests of their daughter.    At the time,

petitioner intended the advance payments to “help out” Ms.

Thiellesen and to benefit Nicole given Ms. Thiellesen’s financial

situation.     But to petitioner’s dismay, the advance payments were

not characterized as tantamount to child support, and he was

further required by State law to continue paying child support.

Thus, the essence of petitioner’s argument is that he now has to

pay double child support.    We find petitioner’s argument

unpersuasive.

     Although the advance payments were held not to be tantamount

to child support, the intended benefits of the advance payments

were to ensure that Nicole lived in a good environment while in

Ms. Thiellesen’s custody.    Specifically, petitioner bought Ms.

Thiellesen a new truck in order for her to provide Nicole with

transportation while in her custody.     Under the circumstances, we

find that petitioner made the advance payments as a father
                               - 14 -

concerned for the welfare of his daughter.   The fact that the

advance payments were not adjudged to be child support is not

sufficient to show that it is inequitable for Ms. Thiellesen to

retain the advance payments.   Thus, we find that Ms. Thiellesen

was not unjustly enriched by receipt of the noncash items from

petitioner, and, therefore, petitioner does not have a valid and

enforceable claim against Ms. Thiellesen.

     C.   Conclusion

     We have considered all of the other arguments made by the

parties, and, to the extent that we have not specifically

addressed them, we conclude they are without merit.

     In view of the foregoing, we sustain respondent’s

determination.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         An order dismissing

                                    petitioner Christine P. Boido

                                    for lack of prosecution and

                                    decision for respondent will

                                    be entered.
