                          T.C. Summary Opinion 2013-80



                         UNITED STATES TAX COURT



         MARK A. STEVES AND STACEY L. STEVES, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                   MARK A. STEVES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 3561-12S, 3562-12S.            Filed October 21, 2013.



      P. Elizabeth Pirsch, for petitioners.

      Christopher R. Moran, for respondent.



                              SUMMARY OPINION


      CHIECHI, Judge: These consolidated cases were heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the peti-
                                          -2-

tions were filed.1 Pursuant to section 7463(b), the decisions to be entered are not

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

for any other case.

        Respondent determined deficiencies of $21,341.29 and $22,512.37 in the

Federal income tax (tax) of petitioner Mark A. Steves (Mr. Steves) for his taxable

years 2007 and 2008, respectively, and a deficiency of $32,102.52 in the tax of

Mr. Steves and petitioner Stacey L. Steves (Ms. Steves) for their taxable year

2009.

        The issue remaining for decision is whether certain payments that Mr.

Steves made during 2007, 2008, and 2009 constitute alimony deductible under

section 215 for those respective years. We hold that they do not.

                                       Background

        All of the facts in these cases, which the parties submitted under Rule 122,

have been stipulated by the parties and are so found.

        Mr. Steves and Ms. Steves resided in Virginia at the time the respective

petitions in these cases were filed.




        1
        Hereinafter, all section references are to the Internal Revenue Code in
effect for the years at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                                        -3-

      Around June 24, 2005, Mr. Steves and Carolyn Louise Robards (Ms.

Robards), who were married on July 1, 1995, jointly purchased certain real prop-

erty (Braddock Road property) at 7117 Braddock Road, Springfield, Virginia. Mr.

Steves and Ms. Robards financed the purchase of the Braddock Road property

with a mortgage loan (mortgage) that they obtained from HSBC Mortgage Corp.

Since Mr. Steves and Ms. Robards purchased the Braddock Road property to at

least March 14, 2013, they coowned that property and were coobligors on the

mortgage.

      At a time not established by the record, Mr. Steves and Ms. Robards decid-

ed to end their marriage. Around May 25 and June 2, 2006, Ms. Robards and Mr.

Steves, respectively, signed a document titled “SUPPORT AND PROPERTY

SETTLEMENT AGREEMENT” (settlement agreement), pursuant to which they

intended to “make a full, final, complete and equitable property division, a final

settlement, adjustment, compromise and determination of all right of support and

maintenance by either party against the other by reason of their marriage, and to

adjust and settle any and all other rights either may have against the other arising

out of the marriage”. The settlement agreement provided in pertinent part:

             6.    SPOUSAL SUPPORT AND MAINTENANCE. Each
      party understands that he or she may be entitled to alimony, spousal
      support and maintenance and that, under the laws of the Common-
                                  -4-

wealth of Virginia, either party can request a reservation of the right
to receive alimony. They further understand that if a court makes an
award of alimony, that award may be increased or decreased by the
court upon proper motion due to a change in circumstances. How-
ever, they understand that if any amount of alimony is specified in a
written agreement between them or is waived, then such waiver or
agreed alimony payment cannot thereafter be changed by the court
unless agreed to by the parties. Taking into consideration all relevant
facts and circumstances, including, but not limited to, the financial
circumstances of the parties, their employment, income and income
potentials, and the division of marital property provided for elsewhere
in this Agreement, the parties agree as follows with regard to spousal
support.

             A.   Dr. Steves neither seeks, desires nor requires the
payment of spousal support from Ms. Robards, now or in the future.
Accordingly, Dr. Steves hereby waives and releases any right that he
may have for alimony, support and maintenance or for a reservation
of alimony, support and maintenance from Ms. Robards, * * *

              B.   Dr. Steves shall pay to Ms. Robards for alimony,
spousal support and maintenance the sum of Four Thousand Five
Hundred Dollars ($4,500.00) per month, commencing on the first day
of the month after Ms. Robards moves into the Braddock Road Prop-
erty, and continuing on the first calendar day of each month thereafter
for twelve (12) years or until Dr. Steves has made one-hundred and
forty-four (144) monthly spousal support payments in the amount set
forth herein.

                     (i)    Dr. Steves’ obligation to pay spousal sup-
port to Ms. Robards pursuant to this Agreement shall end on the
earliest to occur of the following events: a) the death of either party;
(b) the remarriage of Ms. Robards; c) Ms. Robards’ habitual cohab-
itation for a period of twelve months or longer in a relationship anal-
ogous to a marriage; or (d) Dr. Steves having made 144 monthly
spousal support payments to Ms. Robards as set forth above.
                                  -5-

*           *          *           *          *          *           *

                    (iv) Such support and maintenance payments
made pursuant to this Agreement shall be deemed taxable income
to Ms. Robards and deductible by Dr. Steves for federal and state
income tax purposes, to the fullest extent permitted by applicable
federal and state income tax law and regulations.

*           *          *           *          *          *           *

      8.     REAL PROPERTY

*           *          *           *          *          *           *

              B.      Braddock Road Property. The parties presently
own as tenants by the entirety real property located in the Fairfax
County, and more particularly identified as 7117 Braddock Road,
Springfield, Virginia, hereinafter described as the “Braddock Road
Property.” The Braddock Road Property is encumbered by a deed of
trust currently held by HSBC Mortgage Corporation, to which the
parties are jointly liable. Both parties warrant that, other than these
encumbrances, they know of no other debts, liens, loans, encum-
brances or the like associated with the Braddock Road Property that
have occurred during their joint ownership of said property. The
parties agree as follows with respect to the Braddock Road Property:

                   1.      The parties shall continue to co-own the
Braddock Road Property after their divorce, if any, and Ms. Robards
shall have exclusive use, possession and occupancy of the Braddock
Road Property for so long as she desires to occupy it as her primary
residence. Dr. Steves stipulates and warrants that he shall at no time
institute proceedings to force the sale or partition of the Braddock
Road Property or do anything to interfere with Ms. Robards’ use and
enjoyment, possession and occupancy of the property.

                  2.   During Ms. Robards’ use, possession and
occupancy of the Braddock Road Property and until she attains age
                                  -6-

59 ½, Dr. Steves shall be solely responsible for all costs arising out
of or in connection with said property, including, without limitation,
the mortgage indebtedness (mortgage amortization and interest, real
estate taxes, and insurance), dues, assessments, maintenance and
repairs, and for the following other expenses associated with prop-
erty: utilities (electric, gas, water/sewer), lawn care and maintenance,
capital improvements, and all maintenance and major repairs (those
costing $250.00 or more) to the premises. After Ms. Robards turns
59 and ½ years old, and for so long thereafter as she continues to
have use, possession and occupancy of the Braddock Road Property,
she and Dr. Steves shall share equally the mortgage indebtedness
(mortgage amortization and interest, real estate taxes, and insurance).
Dr. Steves shall continue to be solely financially responsible for all
dues, assessments, maintenance and repairs, and for the following
other expenses associated with Braddock Road property, including,
but not limited to, utilities (electric, gas, water/sewer), lawn care and
maintenance, capital improvements, and all maintenance and major
repairs (those costing $250.00 or more) to the premises. Dr. Steves
shall indemnify, defend, and hold Ms. Robards harmless from all lia-
bility arising therefrom. During her use, possession and occupancy
of the Braddock Road Property, Ms. Robards shall be responsible for
paying the costs of her groceries, house cleaning, minor repairs (those
under $250), telephone, trash, and cable/internet, and her personal
expenses associated with living in the Braddock Road Property.

*           *          *           *           *          *           *

                     3.     The proceeds from the sale of the Braddock
Road Property shall be applied as follows: (a) payment of the mort-
gage indebtedness secured by the property, (b) payment of commis-
sions and other customary and reasonable costs associated with the
sale, and c) payment to Dr. Steves of an amount equal to his docu-
mented pay-down of the principal on the first deed of trust from the
date of divorce, if any, to the date of the closing. The parties shall
thereafter equally divide the remaining net proceeds from the sale of
the property. The settlement attorney or agent for the sale of the
                                       -7-

      Braddock Road Property shall be authorized and directed to divide
      the proceeds of sale between the parties as provided herein, and to
      disburse the proceeds to each by separate check.

      *           *           *         *           *          *            *

             18. TAX INTENT AND TAX ADVICE. It is the intent of
      the parties that all transfers of assets and other monetary awards pur-
      suant to this Agreement, except spousal support payments, are non-
      taxable transfers between the parties incident to their divorce. The
      parties acknowledge that their attorneys have not rendered tax advice
      regarding the ramifications of this Agreement, and the parties have
      been advised that they should contact competent tax professionals
      should they have any questions regarding the taxable effect of any
      payments, credits, or transactions specified in this Agreement, or
      other tax questions.

      In September 2006, Mr. Steves and Ms. Robards were divorced pursuant

to a final divorce decree. That decree incorporated the settlement agreement.

      During 2007, 2008, and 2009, pursuant to paragraph 6.B. of the settlement

agreement, Mr. Steves paid to Ms. Robards $54,000, $48,750, and $54,000, re-

spectively, as “alimony, spousal support and maintenance”. (We shall sometimes

refer collectively to the payments during 2007, 2008, and 2009 that Mr. Steves

made pursuant to paragraph 6.B. of the settlement agreement as the alimony pay-

ments under paragraph 6.B.)

      During 2007, 2008, and 2009, pursuant to paragraph 8.B.2. of the settlement

agreement, Mr. Steves made certain payments totaling $55,586, $56,443, and
                                         -8-

$67,133, respectively, for “mortgage indebtedness (mortgage amortization and

interest, real estate taxes, and insurance), dues, assessments, maintenance and

repairs” with respect to the Braddock Road property and for the “following other

expenses associated with [that] property: utilities (electric, gas, water/sewer),

lawn care and maintenance, capital improvements and all maintenance and major

repairs”.2 (We shall sometimes refer collectively to the payments during 2007,

2008, and 2009 that Mr. Steves made pursuant to paragraph 8.B.2. of the settle-

ment agreement as the payments at issue.)

      Mr. Steves filed Form 1040, U.S. Individual Income Tax Return, for each

of his taxable years 2007 (2007 return) and 2008 (2008 return), and Mr. Steves

and Ms. Steves filed a tax return for their taxable year 2009 (2009 return). In

each of those returns, Mr. Steves claimed a deduction for the total amount of

alimony payments under paragraph 6.B. during each of those years. In each of

the 2008 return and the 2009 return, an alimony deduction also was claimed for




      2
       The record does not establish the nature or the amount of each of the
various expenses relating to the Braddock Road property that Mr. Steves paid
pursuant to paragraph 8.B.2. of the settlement agreement during each of the years
2007, 2008, and 2009.
                                         -9-

the total amount of expenses that Mr. Steves had paid pursuant to paragraph

8.B.2. of the settlement agreement during each of those years.3

      Respondent issued respective notices of deficiency (notices) to Mr. Steves

with respect to his taxable years 2007 and 2008 and to Mr. Steves and Ms. Steves

with respect to their taxable year 2009. In those notices, respondent determined

to disallow the deduction claimed as alimony for each of the taxable years 2008

and 2009 for the payments that Mr. Steves had made pursuant to paragraph 8.B.2.

of the settlement agreement during each of those years.4

                                     Discussion

      Mr. Steves and Ms. Steves bear the burden of establishing that the deter-

minations in the respective notices that remain at issue are erroneous. See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). That these cases were

submitted fully stipulated does not change that burden or the effect of a failure of

proof. See Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91 (1990), aff’d,

943 F.2d 22 (8th Cir. 1991).


      3
        In the petition, Mr. Steves claimed as an affirmative issue that he is entitled
for his taxable year 2007 to an alimony deduction for the payments that he had
made pursuant to paragraph 8.B.2. of the settlement agreement during that year.
      4
       See supra note 3. Respondent did not disallow the deduction claimed as
alimony for each of taxable years 2007, 2008, and 2009 for the alimony payments
under paragraph 6.B. during each of those years.
                                      - 10 -

      The only issue remaining for decision is whether the payments at issue that

Mr. Steves made pursuant to paragraph 8.B.2. of the settlement agreement con-

stitute alimony deductible under section 215.

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

mony 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

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
                                      - 11 -

                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 main-
                tenance, 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.

      Section 71(b)(2) provides the following definition of the term “divorce or

separation instrument” used in section 71(b)(1)(A) and (B):

      SEC. 71. ALIMONY AND SEPARATE MAINTENANCE
               PAYMENTS.

            (b) Alimony or Separate Maintenance Payments Defined.--For
      purposes of this section--

      *           *          *          *          *           *          *

                 (2) Divorce or separation instrument.--The term “divorce
             or separation instrument” means--

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

                      (B) a written separation agreement, or
                                       - 12 -

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

      The parties agree that the payments at issue must meet all four require-

ments in section 71(b)(1)(A) through (D) in order to constitute alimony or

separate maintenance payments that are deductible under section 215(a) and

includible in the income of the recipient under section 71(a).5 They disagree as

to whether those payments satisfy the respective requirements in section

71(b)(1)(A), (B), and (D).

      It is respondent’s position that the payments at issue do not satisfy the

respective requirements in section 71(b)(1)(A), (B), and (D). We consider only

whether the payments at issue satisfy the requirement in section 71(b)(1)(B).

That is because resolution of that question resolves the issue of whether the pay-

ments at issue constitute alimony deductible under section 215.

      The requirement in section 71(b)(1)(B) is satisfied with respect to a pay-

ment under a divorce or separation instrument if that instrument, when read from

a reasonable, commonsense perspective, “does not designate such payment as a

payment which is not includible in gross income under this section and not allow-

      5
       Consistent with sec. 71(a), sec. 61(a)(8) defines gross income to mean all
income from whatever source derived, including alimony and separate mainte-
nance payments.
                                         - 13 -

able as a deduction under section 215”. See Estate of Goldman v. Commissioner,

112 T.C. 317, 323-324 (1999), aff’d without published opinion sub nom. Schutter

v. Commissioner, 242 F.3d 390 (10th Cir. 2000). The term “designate” as used

in section 71(b)(1)(B) means “to make known directly.” Richardson v.

Commissioner, 125 F.3d 551, 556 (7th Cir. 1997), aff’g T.C. Memo. 1995-554.

“For a * * * [divorce or separation] instrument to make known directly that a

spouse’s payments are not to be treated as income, * * * the instrument must

contain a clear, explicit and express direction to that effect.” Id.

      It is the position of respondent that although paragraph 8.B.2. of the settle-

ment agreement does not designate the payments at issue as payments that are not

includible in gross income under section 71 and not allowable as deductions

under section 215, paragraph 18 of the settlement agreement (paragraph 18)

does.6 Mr. Steves and Ms. Steves disagree. It is their position that paragraph 18

does not designate the payments at issue as payments that are not includible in

gross income under section 71 and not allowable as deductions under section 215.

In support of that position, Mr. Steves and Ms. Steves argue that the phrase


      6
       Paragraph 18, which is titled “TAX INTENT AND TAX ADVICE”,
provides in pertinent part: “It is the intent of the parties that all transfers of assets
and other monetary awards pursuant to this Agreement, except spousal support
payments, are non-taxable transfers between the parties incident to their divorce.”
                                      - 14 -

“spousal support payments” in paragraph 187 is ambiguous and refers to all

payments that are required under the settlement agreement and that constitute

spousal support under the law of the Commonwealth of Virginia (Virginia law).

According to Mr. Steves and Ms. Steves, paragraph 8.B.2. of the settlement

agreement required Mr. Steves to make the payments at issue, and those payments

constitute spousal support under Virginia law.

      We do not find the phrase “spousal support payments” in paragraph 18 to

be ambiguous, as Mr. Steves and Ms. Steves argue. We also reject their argument

that we must examine Virginia law to answer the question that we must resolve

under section 71(b)(1)(B).

      In addition to paragraph 18, the only other place in the settlement agree-

ment where the phrase “spousal support payments” is used is paragraph 6 of that

agreement, which is titled “SPOUSAL SUPPORT AND MAINTENANCE”. In

paragraph 6.B. of the settlement agreement pursuant to which Mr. Steves made

the respective alimony payments that were deducted in each of the 2007 return,

the 2008 return, and the 2009 return and that respondent allowed as deductions,8

the phrase “spousal support payments” is used two times and refers to the pay-


      7
          See supra note 6.
      8
          See supra note 4.
                                        - 15 -

ments for “alimony, spousal support and maintenance”, “alimony, support, and

maintenance”, “support and maintenance” to which paragraph 6 of the settlement

agreement pertains and which are used interchangeably in that paragraph.

        We conclude that the phrase “spousal support payments” in paragraph 18

refers only to the “spousal support payments” that Mr. Steves made pursuant to

paragraph 6.B. of that agreement and not to the payments that he made pursuant

to paragraph 8.B.2. of that agreement. Mr. Steves made the payments at issue

pursuant to paragraph 8.B.2. of the settlement agreement, not pursuant to para-

graph 6.B. of that agreement. Paragraph 18 designated those payments at issue

as “non-taxable transfers between the parties incident to their divorce”, that is to

say, as amounts not includible in the income of the payee (Ms. Robards) and, as a

result, amounts not deductible by the payor (Mr. Steves). See sec. 215(a) and (b).

        On the record before us, we find that the payments at issue that Mr. Steves

made pursuant to paragraph 8.B.2. of the settlement agreement do not satisfy the

requirement in section 71(b)(1)(B). On that record, we further find that the pay-

ments at issue do not constitute alimony deductible under section 215.

        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.
                                - 16 -

To reflect the foregoing and the concessions of the parties,


                                         Decisions will be entered under

                                Rule 155.
