                  T.C. Summary Opinion 2010-163



                       UNITED STATES TAX COURT



                WILLARD R. RANDALL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13261-09S.             Filed October 28, 2010.



     Alfred D. Mathewson, Eric Ortiz (student), and Joseph

Gonzales (student), for petitioner.

     Jay A. Roberts, for respondent.



     HALPERN, Judge:    This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and
                               - 2 -

this opinion shall not be treated as precedent for any other

case.1

     By notice of deficiency, respondent determined a deficiency

of $12,540 and an accuracy-related penalty of $2,508 with respect

to petitioner’s 2007 Federal income tax.    Taking into account

respondent’s concessions, the only issue for decision is whether

petitioner is entitled to an alimony deduction of $69,000.

                            Background

     Some facts are stipulated and are so found.    The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.   We round all amounts to the nearest dollar.

Petitioner bears the burden of proof.    See Rule 142(a)(1).2   At

the time he filed the petition, petitioner lived in New Mexico.

     Petitioner and his ex-wife divorced in 2007.    In its final

order, the divorce court found that petitioner was due a $69,000

property equalization payment from his ex-wife but awarded her a

like amount as spousal support.   The court immediately offset the

amounts, ordering that spousal support be “considered paid in

full by forgiveness of $69,000 equalization payment due to * * *


     1
      Hereafter, unless otherwise stated, section references are
to the Internal Revenue Code in effect for 2007, and Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
      Petitioner has not raised the issue of sec. 7491(a), which
shifts the burden of proof to the Commissioner in certain
situations. We conclude that sec. 7491(a) does not apply here
because petitioner has not produced any evidence that he has
satisfied the preconditions for its application.
                                - 3 -

[petitioner] by * * * [ex-wife].”    On his 2007 Form 1040, U.S.

Individual Income Tax Return, petitioner claimed a deduction of

$69,000 for alimony paid.    Respondent examined that return and

disallowed the alimony deduction.

                             Discussion

Introduction

     Section 215(a) allows a taxpayer to deduct alimony paid

during the taxable year.    The term “alimony” is defined in

section 71(b) as, in part, “any payment in cash”, and the issue

is whether, during 2007, petitioner made a $69,000 cash payment

of alimony.3

Arguments

     Respondent argues that petitioner is not entitled to an

alimony deduction because, rather than remit a cash payment, “his

obligation to pay this amount was offset against the $69,000

equalization payment”.   Respondent argues that waiver of the

equalization payment is not an accepted section 71(b) cash

equivalent because section 1.71-1T(b), Q&A-5, Temporary Income

Tax Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984), the regulation

interpreting section 71(b), limits the term’s meaning to two

specifically identified equivalents: checks and money orders



     3
      There are four additional definitional requirements, none
of which is in issue. See sec. 71(b)(1). The definition of
alimony found in sec. 71(b) is made applicable for purposes of
sec. 215(a) by sec. 215(b).
                                - 4 -

payable upon demand.    Respondent concludes that petitioner’s

failure either to make a cash payment or to use an identified

cash equivalent precludes any alimony deduction.

     Petitioner argues that the transaction’s economic structure

renders his forgiveness of the equalization payment a section

71(b) cash equivalent.    He argues that the regulation does not

foreclose such treatment as it provides an inexhaustive list of

accepted cash equivalents.    Petitioner asserts that if he and his

ex-wife had adhered to the statute’s literal language by

exchanging written checks, he would be entitled to an alimony

deduction despite being “in the same economic condition, less the

transaction costs”.    He concludes that since the payments’

immediate offset did not alter his or his ex-wife’s economic

conditions, the economic “reality of the transaction” is that

petitioner satisfied his alimony obligation with a section 71(b)

cash equivalent.

Analysis

     The facts before us demonstrate that petitioner satisfied

his spousal support obligation with a cash payment.     Section

71(b) requires that alimony be a payment in cash but does not

limit the term to bills and notes.      Rather, section 1.71-1T(b),

Q&A-5, Temporary Income Tax Regs., supra, provides a nonexclusive

list of accepted cash equivalents, stating that cash payments

“including checks and money orders payable on demand” qualify as
                                 - 5 -

alimony.    See sec. 7701(c) (stating that the terms “includes” and

“including”, when used in the Internal Revenue Code, “shall not

be deemed to exclude other things otherwise within the meaning of

the term defined”).

     A check is defined as “[a] written order to a bank to pay

the amount specified from funds on deposit”.    The American

Heritage Dictionary of the English Language (4th ed. 2000).

Conceptually, petitioner’s spousal support payment is an oral

version of this accepted cash equivalent.    The divorce court

denominated petitioner’s and his ex-wife’s mutual obligations in

equal dollar amounts, and, with respect to her, the effect of its

order offsetting those obligations was the same as if it had

ordered her to pay herself $69,000 of his money on deposit with

her in discharge of his obligation to her in that sum (and

likewise with respect to him).    Thus, in addition to payee,

petitioner’s ex-wife assumed the role of bank, since she held

petitioner’s money, not having yet satisfied her equivalent

obligation.    This view complies with the legislative history of

section 71(b) because there is no threat of petitioner’s

deducting a disguised property transfer as alimony; the parties

agreed at trial that the spousal support payment was not a

property settlement.    See H. Rept. 98-432 (Part 2), at 1495

(1984).    To that extent, mere formalism need not prevail.
                               - 6 -

     Further, this Court does not require taxpayers to follow

literally all transactional steps when to do so would result in

the “utilization of fruitless steps”.     See, e.g., Ruckriegel v.

Commissioner, T.C. Memo. 2006-78; Gilday v. Commissioner, T.C.

Memo. 1982-242 n.8.   Although petitioner did not satisfy all the

steps of section 71(b) by paying in a manner specifically

mentioned in the regulation, he used a conceptually similar form

of payment that did not alter the transaction’s substance.       Cf.

Spencer v. Commissioner, 110 T.C. 62, 82 (1998) (finding that

defects in the transaction’s form were not “merely ‘fruitless

steps’” (quoting Gilday v. Commissioner, supra)), affd. without

published opinion 194 F.3d 1324 (11th Cir. 1999).        Requiring the

parties to ask the divorce court to alter the instantaneous

transaction in order to adhere to the statute’s exact language in

this case would have been meaningless and the “utilization of

fruitless steps”.4


                                            Decision will be entered

                                       for petitioner.




     4
      In LaBozetta v. Commissioner, T.C. Summary Opinion 2006-
122, we disallowed an alimony deduction where the divorcing
spouses had expressly waived alimony and the claimed alimony
payment was made by way of offset against one spouse’s monetary
obligation to the other. Because of the absence of an obligation
to pay alimony, our analysis of the cash payment terms of sec.
71(b) appears to constitute dictum. In any event, LaBozetta is
not precedent. See sec. 7463(b).
