                              T.C. Memo. 2014-117



                         UNITED STATES TAX COURT



                 ADRIO MICHAEL BAUR, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 21865-12.                        Filed June 12, 2014.



      Adrio Michael Baur, pro se.

      E. Abigail Carlson, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      CHIECHI, Judge: Respondent determined a deficiency in, and an accu-

racy-related penalty under section 6662(a)1 on, petitioner’s Federal income tax

(tax) for his taxable year 2010 of $6,757 and $1,351.40, respectively.


      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-

[*2] The issues for decision for petitioner’s taxable year 2010 are:

      (1) Is petitioner entitled to deduct as alimony under section 215 certain

payments that he made in excess of the amount of payments that respondent

concedes is deductible alimony? We hold that he is not.

      (2) Is petitioner liable for the accuracy-related penalty under section

6662(a)? We hold that he is.

                                FINDINGS OF FACT

      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 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, sup-
      port, visitation, the medical and educational requirements of the
                                        -3-

      [*3] 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 divi-
      sion 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 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:

                  MARITAL SETTLEMENT AGREEMENT

             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”.
                                        -4-

[*4]                              WITNESSETH:

             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 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 SET-
       TLEMENT AGREEMENT.

       *          *           *          *           *          *             *

                         ARTICLE II
           UNALLOCATED MAINTENANCE & CHILD SUPPORT

             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.
                                   -5-

[*5] 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 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 obliga-
tion to support JUDITH. Said sums shall be includable in the gross
                                         -6-

        [*6] income of JUDITH and deductible from the gross income of
        ADRIO within the meaning and intent of Sections 71 and 215 of the
        United States Internal Revenue Code of 1986, The Tax Reform Acts
        of 1984 and 1986, as amended, or of any identical or comparable
        provision of a federal revenue code hereinafter enacted or modified.

        Pursuant to paragraph 2.1 of the settlement agreement, during 2010 peti-

tioner 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 section 215(a) for $41,6952 (claimed alimony deduction) of the

paragraph 2.1 payments.

        On June 18, 2012, respondent issued to petitioner a notice of deficiency

(notice) with respect to his taxable year 2010. In that notice, respondent disal-

lowed $26,143 of the claimed alimony deduction and allowed $15,552 of that

        2
       According to petitioner, he mistakenly claimed in his 2010 return an
alimony deduction under sec. 215(a) for $41,695 of the paragraph 2.1 payments,
instead of a deduction for the entire amount of $45,000.02.
                                        -7-

[*7] deduction.3 In the notice, respondent also determined that petitioner is liable

for his taxable year 2010 for the accuracy-related penalty under section 6662(a).

      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 Dissolu-
      tion 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 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


      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.
                                   -8-

[*8] cohabitation of JUDITH on a resident, conjugal basis, or further
order of Court;

      4.     Paragraph 2.5[4] 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 Section 2.1 of the Judgment for Dissolution of
Marriage entered March 26, 2009, specifically the $3,750.00 per
month and 45% of net bonuses were intended and shall be mainte-
nance to JUDITH BAUR. As such, all payments are includible in
JUDITH BAUR’s income and deductible from ADRIO BAUR’s
income for income tax purposes. Said payments shall be reviewable
pursuant to Section 504 and 510 of the IMDMA [Illinois Marriage
and Dissolution of Marriage Act] and shall terminate upon further
order of Court, JUDITH’s death, ADRIO’s death, JUDITH’s remar-
riage, or JUDITH residing on a conjugal basis with another person.

      2)     Paragraph 2.5[5] of the Judgment for Dissolution was not
intended to be part of the Judgment for Dissolution and was a scriv-
ener error. Accordingly, paragraph 2.5 of the Judgment for Dissolu-



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
    See supra note 4.
                                        -9-

      [*9] tion of Marriage is vitiated nunc pro tunc as if it never had any
      legal effect.

                                     OPINION

      Petitioner bears the burden of establishing that the determinations in the

notice that remain at issue are erroneous. See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).

      We turn initially to the issue presented under section 215. It is petitioner’s

position that the entire amount (i.e., $45,000.02) of the paragraph 2.1 payments

that he made during 2010 to Judith L. Baur constitutes alimony deductible under

section 215. It is respondent’s position that $17,981.89 of those payments

constitutes alimony deductible under that section.6

      Section 215(a) allows an individual to deduct “an amount equal to the

alimony or separate maintenance payments paid during such individual’s taxable

year.” Section 215(b) defines the term “alimony or separate maintenance pay-

ment” for purposes of section 215 to mean “any alimony or separate maintenance




      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 sec. 215 and the amount (i.e., $17,981.89) of those payments that
respondent maintains constitutes alimony deductible under that section is
$27,018.13.
                                       - 10 -

[*10] payment (as defined in section 71(b)) which is includible in the gross

income of the recipient under section 71.”

      Section 71(b)(1) provides the following definition of the term “alimony or

separate maintenance payment”:

      SEC. 71. ALIMONY AND SEPARATE MAINTENANCE
               PAYMENTS.

            (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 allow-
                able 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 mainte-
                nance, the payee spouse and the payor spouse are not mem-
                bers 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.
                                         - 11 -

[*11] Section 71(a) provides that “[g]ross income includes amounts received as

alimony or separate maintenance payments.” Section 71(c)(1) provides that

section 71(a) “shall not apply to that part of any payment 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.” The Supreme Court of the United States has held that “the allocations to

child support made therein [in a divorce or separation instrument] must be ‘specifi-

cally designated’ and not left to determination by inference or conjecture.”

Commissioner v. Lester, 366 U.S. 299, 306 (1961).

      Section 71(c)(2) provides that if any amount specified in a divorce or

separation instrument is to be reduced (1) upon the occurrence of a contingency

specified in that instrument relating to a child (e.g., attaining a specified age,

marrying, dying, leaving school, or a similar contingency) or (2) at a time that can

clearly be associated with that kind of contingency, an amount equal to the amount

of such reduction is to be treated for purposes of section 71(c)(1) as an amount

fixed as payable for the support of children of the payor spouse.

      Respondent argues that, because of paragraph 2.57 of the settlement agree-

ment, section 71(c)(2) requires that a part of the paragraph 2.1 payments be treated

      7
          See supra note 4.
                                         - 12 -

[*12] under section 71(c)(1) “as a sum which is payable for the support of children

of the payor spouse [petitioner].” Petitioner counters that the Cook County Circuit

Court’s September 6, 2012 order retroactively vitiated paragraph 2.5 of the

settlement agreement for tax purposes. We must determine what, if any, effect we

should give to that purported nunc pro tunc order. In making that determination,

we have in mind that “the definition of alimony for Federal income tax purposes

turns on a fulfillment of the statutory test [in section 71] and not on the intent of

the parties to a divorce proceeding or of the court overseeing that proceeding”.

Okerson v. Commissioner, 123 T.C. 258, 266 (2004). We also have in mind what

we stated in Gordon v. Commissioner, 70 T.C. 525, 530 (1978):

             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 judg-
      ment 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 all of those provisions

“as if said provisions were in this paragraph set forth verbatim as the judgment of
                                        - 13 -

[*13] 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 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 On that record, we find that petitioner and Judith L. Baur as


      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
          See supra note 4.
      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
                                                                         (continued...)
                                       - 14 -

[*14] 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 pay-

ments 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.




      10
         (...continued)
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.” Id. at 622. For reasons
set forth in the text, we conclude that paragraph 2.5 of the settlement agreement
was not, as the Cook County Circuit Court indicated in its September 6, 2012
order, “a scrivener error”.
                                         - 15 -

[*15] 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 section 215.

      We turn next to the issue presented under section 6662(a). Section 6662(a)

imposes an accuracy-related penalty of 20 percent on the underpayment to which

section 6662 applies. Section 6662 applies to the portion of any underpayment

which is attributable to, inter alia, (1) negligence or disregard of rules or regula-

tions, sec. 6662(b)(1), or (2) a substantial understatement of tax, sec. 6662(b)(2).

      The term “negligence” in section 6662(b)(1) includes any failure to make a

reasonable attempt to comply with the Code. Sec. 6662(c). Negligence has also

been defined as a failure to do what a reasonable person would do under the

circumstances. See Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992),

aff’g T.C. Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699

(1988), aff’d, 893 F.2d 656 (4th Cir. 1990). The term “negligence” also includes

any failure by the taxpayer to keep adequate books and records or to substantiate

items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. The term “disregard”

includes any careless, reckless, or intentional disregard. Sec. 6662(c).

      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
                                        - 16 -

[*16] shown in the return. Sec. 6662(d)(2)(A). An understatement is substantial

in the case of an 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 tax

return for that year or $5,000. Sec. 6662(d)(1)(A).

      The accuracy-related penalty under section 6662(a) does not apply to any

portion of an underpayment if it is shown that there was reasonable cause for, and

that the taxpayer acted in good faith with respect to, such portion. Sec.

6664(c)(1). The determination of whether the taxpayer acted with reasonable

cause and in good faith depends on all 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.

      Respondent bears the burden of production with respect to the accuracy-

related penalty under section 6662(a). See sec. 7491(c); Higbee v. Commissioner,

116 T.C. 438, 446-447 (2001). To satisfy respondent’s burden of production,

respondent must come forward with “sufficient evidence indicating that it is

appropriate to impose” the penalty. See Higbee v. Commissioner, 116 T.C. at 446.

Although respondent bears the burden of production with respect to the penalty

under section 6662(a), respondent “need not introduce evidence regarding rea-
                                       - 17 -

[*17] sonable cause * * * or similar provisions. * * * the taxpayer bears the

burden of proof with regard to those issues.” See id.

      We have found that petitioner is not entitled for his taxable year 2010 to

deduct $27,018.13 as alimony under section 215(a). As a result, there is an

underpayment of tax for petitioner’s taxable year 2010. Respondent argues that

that underpayment is attributable to a substantial understatement of tax in peti-

tioner’s 2010 return and that therefore the accuracy-related penalty under section

6662(a) should be imposed on petitioner. Petitioner’s only argument with respect

to the accuracy-related penalty under section 6662(a) is that there was no under-

payment of tax in his 2010 return.

      On the record before us, we conclude that the accuracy-related penalty

under section 6662(a) will be imposed if the computations under Rule 155 result

in an understatement of tax for petitioner’s taxable year 2010 that exceeds the

greater of 10 percent of the tax required to be shown in his 2010 return or

$5,000.11 See sec. 6662(d)(1)(A).

      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 sec. 6662(b)(1). Nor does petitioner claim that that
underpayment was not due to negligence or disregard of rules or regulations.
Because neither party advances any argument under sec. 6662(b)(1), we do not
address whether the underpayment for petitioner’s taxable year 2010 was due to
                                                                       (continued...)
                                       - 18 -

[*18] 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,


                                                Decision will be entered under

                                      Rule 155.




        11
        (...continued)
negligence or disregard of rules or regulations. However, on the record before us,
we find that petitioner has failed to show that there was reasonable cause for, and
that he acted in good faith with respect to, the underpayment for his taxable year
2010.
