                  T.C. Summary Opinion 2006-130



                     UNITED STATES TAX COURT



                 PAMELA L. LIGHT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22909-04S.               Filed August 28, 2006.


     Pamela L. Light, pro se.

     Jack T. Anagnostis, for respondent.



     GOLDBERG, 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

effect for the year at issue, and Rule references are to the Tax

Court Rules of Practice and Procedure.
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     Respondent determined a deficiency of $1,599 in petitioner’s

2002 Federal income tax.   The sole issue for this Court to decide

is whether petitioner must include in her gross income alimony

payments she received in 2002.

                             Background

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

the time the petition in this case was filed, petitioner resided

in Bethel, Pennsylvania.

     Petitioner and Kent R. Gutzler (Mr. Gutzler) were married on

September 12, 1998.    There were no children born of the marriage.

After petitioner and Mr. Gutzler separated, a final order (order)

was issued by the Court of Common Pleas of Berks County,

Pennsylvania, Domestic Relations Section on January 22, 2002,

which directed that Mr. Gutzler pay $1,400 monthly for

petitioner’s support, effective January 1, 2002.   These monthly

payments were to end in the event of either party’s death.      The

order included a handwritten notation that read:   “Plaintiff

agrees to be responsible for the monthly payment of the Jeep

vehicle in her possession and the insurance thereon.”

     The parties entered into a postnuptial agreement (agreement)

on October 11, 2002.   Under the agreement, Mr. Gutzler was

ordered to pay petitioner alimony of $1,400 a month.    These

monthly payments were to end in the event of either party’s

death.   The agreement also provided for the tax treatment of the
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payments.   The payments were to be alimony, included in

petitioner’s gross income and deductible by Mr. Gutzler from his

gross income.   Moreover, in the event that petitioner challenged

Mr. Gutzler’s rights to deduct any portion of the monthly

payments from his income, she would remain liable to him for the

full amount of any increase in his Federal income tax liability.

Finally, both parties specifically acknowledged that certain tax

consequences might result from the agreement, and that they had

been advised to seek independent tax advice regarding these

possible tax consequences.

     On or about April 15, 2003, petitioner filed Form 1040, U.S.

Individual Income Tax Return, for 2002, on which she reported

both adjusted gross and taxable income of $2,392.    On August 16,

2004, respondent issued a notice of deficiency.    Respondent’s

examination increased petitioner’s reported gross income by

$16,800 representing the alimony payments petitioner received

from Mr. Gutzler in 2002.    Additionally, respondent disallowed

petitioner’s previously claimed earned income tax credit of $178.

As a result of these changes, respondent calculated a deficiency

of $1,599 for petitioner’s 2002 Federal income tax.

                             Discussion

     The Commissioner’s determinations are presumed correct, and

taxpayers generally bear the burden of proving otherwise.     Welch

v. Helvering, 290 U.S. 111, 115 (1933).    Accordingly, petitioner
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bears the burden of proving that respondent’s determination in

the notice of deficiency is erroneous.   See Rule 142(a); Welch v.

Helvering, supra at 115.

Taxation of Alimony

     An individual may deduct from his or her taxable income the

payments he or she made during a taxable year for alimony or

separate maintenance.   Sec. 215(a).   Conversely, the recipient of

alimony or separate maintenance payments must include those

payments when calculating his or her gross income.   Sec.

61(a)(8).

     Section 71(b)(1) defines “alimony or separate maintenance

payment” as 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 includable
     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.
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     Section 71(b)(2) defines a “divorce or separation

instrument” as:

          (A) a decree of divorce or separate maintenance or a
     written instrument incident to such a decree,

          (B) a written separation agreement, or

          (C) a decree (not described in subparagraph (A))
     requiring a spouse to make payments for the support or
     maintenance of the other spouse.

Characterization of Monthly Payments

     Petitioner argued that none of the $1,400 monthly payments

she received in 2002 should be included in her gross income under

section 71(a) because she and Mr. Gutzler had a “handshake

understanding” that the payments were not alimony.    Petitioner

testified to an oral agreement between Mr. Gutzler and her that

purportedly took place concurrent with the order.    It provided

that Mr. Gutzler would not deduct the payments, nor would

petitioner include the payments as income, if she used the

payments solely for her attorney’s fees, payment of Mr. Gutzler’s

automobile insurance, and payments on an automobile in Mr.

Gutzler’s possession.   Petitioner now asks this Court to reject

the underlying order and agreement and, in the alternative,

consider evidence:   (1) Of a “handshake” agreement, and (2) that

the terms of the “handshake” agreement should supplant the

meaning of alimony pendente lite and alimony as used in the order

and the agreement.   Since petitioner disputes the legal effects
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of the order and the agreement as written, we must first examine

the terms and tenor of those contracts.

     1.   Order

     Among the relevant provisions of the order, paragraph 3 of

the “Legal Notice” (p. 4) states:

     All charging orders for spousal support and alimony
     pendente lite, including unallocated orders for child
     and spousal support or child support and alimony
     pendente lite, shall terminate upon death of the payee.

     2.   Agreement

     Among the relevant provisions of the agreement, paragraph 10

(“Waiver Or Modification To Be In Writing”) states:

     No modification or waiver of any of the terms hereof shall
     be valid unless in writing and signed by both parties and no
     waiver or any breach hereof or default hereunder shall be
     deemed a waiver of any subsequent default of the same
     similar nature.

Moreover, paragraph 13 (“Integration”) reads:

     This agreement constitutes the entire understanding of the
     parties and supercedes any and all prior agreements and
     negotiations between them. There are no representations or
     warranties other than those expressly set forth herein.

     Section B (“Support, Alimony, and Alimony Pendente Lite

Provisions”) states:

     Husband shall pay alimony pendente lite to Wife in the
     sum of One Thousand Four Hundred Dollars ($1,400) per
     month until entry of the decree in divorce between the
     parties or for a period of four (4) months after the
     execution date of this agreement. Such payments shall
     terminate in the event of Husband’s death of Wife’s
     prior death. The alimony pendente lite order for
     support shall remain in full force and effect until the
     divorce decree is entered.
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     Lastly, section G (“Tax Provisions”), paragraph 2 (“Payments

To Be Alimony”) reads:

     It is the intention of the parties that all payments
     made to Wife by Husband pursuant to the provisions of
     Paragraph B 2 hereof while the parties are living apart
     are intended to be alimony payments, taxable as income
     to Wife and deductible from income by Husband for
     income tax purposes, and that no other payments made
     under this agreement are to be deemed or treated as
     alimony. In the event of any action taken by Wife
     which affects Husband’s rights to deduct any portion or
     all of the alimony payments from Husband’s income, Wife
     will be liable to Husband for the full amount of the
     increase in Husband’s tax liability resulting from the
     loss of the deduction. * * * All alimony payments
     shall terminate as set forth in Paragraph C 2 or upon
     the prior death of Wife.

     We are satisfied that payments made pursuant to both the

order and the agreement meet the requirements of section 71(b)(1)

and (2).   The order is a decree requiring payments for

maintenance or support within the purview of section 71(b)(2)(C),

and it does not contain any provision that the payments not be

includable in the payee’s gross income.   Furthermore, the order

specifically provides that payments are to cease upon the death

of the payee spouse.

     The agreement, entered incident to the decree of divorce,

also specifies that the payments are to cease on the payee

spouse’s death.   The agreement provides that the monthly payments

are to be included in the gross income of the payee spouse.

Notably, the agreement specifically supersedes any prior

agreements between the parties, constitutes the full
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understanding of the parties, and provides that the payments are

includable in the gross income of the payee spouse.   Therefore,

we find both the order and the agreement clear and unambiguous

that the payments made pursuant to both are to be alimony as

defined under section 71(b).

     3.   Evidence of Oral Contract

     Petitioner argued that despite plain language in the order

and agreement to the contrary, this Court should consider

evidence of an oral contract, made concurrently with the order,

that the payments were not to be considered alimony includable in

her gross income, nor would Mr. Gutzler claim a deduction on the

payments, in exchange for certain obligations otherwise assumed

by petitioner, as well as in consideration for her abandoning

their marital home.   Petitioner claimed that these obligations

included her assumption of Mr. Gutzler’s automobile insurance

payments, payments on an automobile in Mr. Gutzler’s possession,

and payment of her attorney’s fees.    Our determination that the

order and the agreement are clear, enforceable contracts

obligating Mr. Gutzler to make payments to petitioner

notwithstanding, we next address petitioner’s argument that we

should consider extrinsic evidence of a side agreement as to the

parties’ intentions regarding the monthly payments.

     Agreements incident to a divorce are contracts that must be

construed in accordance with the rules of law generally
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applicable to contract construction.   D’Huy v. D’Huy, 568 A.2d

1289, 1293 (Pa. Super Ct. 1990) (citing Trumpp v. Trumpp, 505

A.2d 601 (Pa. Super Ct. 1985)).   These rules require that

contractual terms that are otherwise clear and unambiguous be

given effect without reference to or reliance upon matters that

may have occurred outside of the contract.   Id.   Equally true, of

course, is that where the terms of a contract are ambiguous,

parol (i.e., oral) evidence may be received for the limited

purpose of resolving these ambiguities.   Id. (citing In re Estate

of Breyer, 379 A.2d 1305, 1309-1310 (Pa. 1977)).   Accordingly,

the question remaining is not petitioner’s intent as to the

purported oral agreement but rather whether the terms “alimony

pendente lite” and “alimony” as used in the order and the

agreement are ambiguous.

     The terms of the order and the agreement are otherwise clear

and unambiguous.   In the order, the parties expressly agreed that

Mr. Gutzler would pay petitioner monthly alimony pendente lite of

$1,400 based upon the disparity in their respective incomes.

Petitioner may not argue that these payments are excludable from

her gross income simply because she earmarked them for other

obligations; namely, her own attorney’s fees and payment on a

vehicle which, at trial, she testified had been in her possession

since February 2002.   The notation on the order that petitioner

was to remain responsible for payments on the Jeep vehicle in her
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possession as of February 2002 does not imply that the monthly

payments were expressly and only for this purpose.    Additionally,

there was no evidence presented of petitioner’s obligation to pay

Mr. Gutzler’s automobile insurance out of the monthly payments.

       Petitioner also maintained an erroneous belief that because

she was using part of the payments to satisfy her attorney’s fees

in the underlying divorce action, these payments would not be

includable in her gross income.     As previously discussed, section

71(b) provides that if a spouse receives alimony pendente lite,

the amount received must be included in the gross income of the

payee.    Secs. 71(b)(1), (2)(C).   Moreover, because petitioner had

unfettered discretion and control over the payments, she may not

exclude from her gross income amounts which she alone designated

for her own attorney’s fees.

       Finally, while we are sympathetic to petitioner’s argument

that she would not have signed the order were it not for her

understanding that she would not have to include payments

received in her gross income, her misunderstanding is an error of

law.    See secs. 61(a)(8), 71(b)(1).   Accordingly, because we find

the underlying order and agreement clear, controlling, and the

exclusive statement of all of the terms of the parties’

settlement, we sustain respondent’s deficiency determination.
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    Reviewed and adopted as the report of the Small Tax Case

Division.


                                       Decision will be entered

                                  for the respondent.
