                  T.C. Summary Opinion 2010-33



                     UNITED STATES TAX COURT



               PAUL THADDEUS BANACH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8039-09S.                Filed March 22, 2010.



     Paul Thaddeus Banach, pro se.

     Randall B. Childs, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1    Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
                                - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined a deficiency in petitioner’s Federal

income tax for 2006 of $25,000 and an accuracy-related penalty

under section 6662(a) and (b)(1) of $5,000.   The issues for

decision are:   (1) Whether lump-sum payments made by petitioner

to his former wife in 2006 are deductible as alimony under

section 215, and (2) whether petitioner is liable for the

accuracy-related penalty.   We hold that the lump-sum payments are

not deductible as alimony and that petitioner is not liable for

the accuracy-related penalty.

                             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.   Petitioner resided in the State

of Florida when the petition was filed.

     Petitioner and Deborah Banach (Ms. Banach) married in 1980.

On July 12, 2006, petitioner and Ms. Banach entered into a

Marital Settlement Agreement (the agreement).   With respect to

alimony the agreement states:

     5.  ALIMONY
          The husband shall pay to the Wife lump sum alimony
     as follows: $80,000.00 cash prior to the entry of the
     final judgment; and an additional $20,000.00 cash
     within 90 days after the entry of the final judgment;
     and an additional payment of $10,000.00 cash within 180
     days after the entry of the final judgment. This
     payment satisfies the Husband’s alimony obligation and
                               - 3 -

     the Wife waives any other form of alimony (temporary,
     permanent periodic, rehabilitative, etc.). The payment
     of these amounts is enforceable by contempt.

The agreement did not specify whether the lump-sum payments would

terminate upon Ms. Banach’s death.

     On July 24, 2006, petitioner paid Ms. Banach $80,000.      That

same day the Final Judgment of Dissolution of Marriage (the

judgment) was entered in the Circuit Court of the Twelfth

Judicial Circuit In and For Manatee County, Florida.   The

judgment states, in part, that “[t]he Marital Settlement

Agreement is approved and made a part of this Final Judgment by

reference and the parties are ordered to comply with the same.”

     On October 20, 2006, petitioner paid Ms. Banach $20,000.

     On his 2006 Federal income tax return petitioner claimed a

deduction of $100,000 for “alimony paid” to Ms. Banach.    In

determining whether the $100,000 lump-sum alimony was deductible,

petitioner consulted an attorney and an accountant and called the

IRS hotline.   Each person queried assured petitioner that the

lump-sum alimony was indeed deductible.

     In a notice of deficiency respondent determined the payments

were not alimony and therefore disallowed the claimed deduction.

Respondent also determined that petitioner was liable for the

accuracy-related penalty based on negligence or disregard of

rules or regulations.
                                - 4 -

                             Discussion

A.    Alimony Deduction

       Generally, property settlements or equitable divisions of

marital property incident to a divorce are not taxable events and

do not give rise to a deduction.    Sec. 1041; 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).    On the other hand, payments made or received as

alimony or separate maintenance generally are deductible by the

payor spouse under section 215(a) and includable in the gross

income of the payee spouse under sections 61(a)(8) and 71.

       The term “alimony” means any alimony as defined in section

71.    Section 71(b)(1) provides a four-step inquiry for

determining whether a payment is alimony or separate maintenance.

Section 71(b)(1) 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 * * *
                 and not allowable as a deduction under
                 section 215,
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                      (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.

Payments are deductible as alimony only if all four

requirements of section 71(b)(1) are met.

     Both parties agree that petitioner’s payments to Ms. Banach

satisfied the requirements set out in section 71(b)(1)(A), (B),

and (C).   Payment was made in cash, pursuant to a “divorce or

separation instrument” as described in section 71(b)(2), and the

payment was not ineligible for the sections 71 and 215

deduction/inclusion scheme.   At the time of payment, petitioner

and Ms. Banach were not members of the same household.   The

disagreement in this case is solely about whether the lump-sum

alimony payments satisfied section 71(b)(1)(D), which requires

that there be no liability to make any payment after the death of

the payee spouse.    Okerson v. Commissioner, 123 T.C. 258, 265

(2004).    If the payor would remain liable for the payments after

the payee’s death, none of the payments are alimony.   Sec. 1.71-

1T(b), Q&A-10, Temporary Income Tax Regs., 49 Fed. Reg. 34456

(Aug. 31, 1984).
                               - 6 -

     In determining whether such an obligation exists, we first

turn to the applicable instrument.     Gilbert v. Commissioner, T.C.

Memo. 2003-92, affd. sub nom. Hawley v. Commissioner, 94 Fed.

Appx. 126 (3d Cir. 2004).   Because the agreement is silent on

whether the lump-sum payments would survive Ms. Banach’s death,

we look to State law to determine whether the payments would

terminate by operation of Florida law.    Id.   In Commissioner v.

Estate of Bosch, 387 U.S. 456, 465 (1967), the Supreme Court of

the United States addressed the means for determining State law

in the context of a Federal tax case and stated that “the State’s

highest court is the best authority on its own law.”

     Florida’s alimony statute specifically permits a trial court

to award alimony in the form of periodic payments, lump-sum

payments, or both.   Fla. Stat. Ann. sec. 61.08(1) (West 2006).

“By definition, ‘lump-sum alimony’ is a fixed and certain amount,

the right to which is vested in the recipient and which is not

therefore subject to increase, reduction, or termination in the

event of any contingency, specifically including those of death

or remarriage.”   Boyd v. Boyd, 478 So. 2d 356, 357 (Fla. Dist.

Ct. App. 1985).   According to the Florida Supreme Court, an award

of lump-sum alimony survives the death of both the obligor and

the obligee.   See Canakaris v. Canakaris, 382 So. 2d 1197, 1201

(Fla. 1980); see also Fla. Stat. Ann. sec. 61.075(2) (West 2006);

Filipov v. Filipov, 717 So. 2d 1082, 1084 (Fla. Dist. Ct. App.
                                - 7 -

1998).    Thus, it seems clear that petitioner’s lump-sum alimony

payments to Ms. Banach would not meet the requirement of section

71(b)(1)(D) for deduction eligibility.

      Accordingly, we hold that petitioner’s deduction of the

$100,000 paid to his former wife in 2006 was improper as it did

not meet the definition of “alimony” under section 71(b)(1)(D).

B.   Section 6662(a) Penalty

      Section 6662(a) and (b)(1) imposes a penalty equal to 20

percent of the amount of any underpayment attributable to

negligence or disregard of rules or regulations.     The term

“negligence” includes any failure to make a reasonable attempt to

comply with tax laws, and disregard includes any careless,

reckless, or intentional disregard of rules or regulations.     Sec.

6662(c).    The Commissioner bears the burden of production, sec.

7491(c), but, if satisfied, the taxpayer then bears the ultimate

burden of persuasion, Higbee v. Commissioner, 116 T.C. 438, 446

(2001).

      Section 6664 provides an exception to the imposition of the

accuracy-related penalty if the taxpayer establishes that there

was reasonable cause for, and the taxpayer acted in good faith

with respect to, the underpayment.      Sec. 6664(c)(1); sec. 1.6664-

4(a), Income Tax Regs.    The determination of whether the taxpayer

acted with reasonable cause and in good faith is made on a case-

by-case basis, taking into account the pertinent facts and
                                 - 8 -

circumstances and can include reasonable reliance on the advice

of a professional tax adviser.    Sec. 1.6664-4(b)(1), Income Tax

Regs.

     After considering the totality of the facts and

circumstances, we are satisfied that petitioner, who consulted an

attorney and an accountant and called the IRS hotline before

claiming the deduction in issue, acted in good faith and comes

within the reasonable cause exception of section 6664(c)(1).

Accordingly, we hold that petitioner is not liable for the

accuracy-related penalty under section 6662.

                           Conclusion

     We have considered all of the arguments made by the parties,

and, to the extent that we have not specifically addressed them,

we conclude that they are without merit.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent as to the

                                         deficiency in tax and for

                                         petitioner as to the accuracy-

                                         related penalty.
