                        T.C. Memo. 2004-284



                      UNITED STATES TAX COURT



                   MUMTAZ A. ALI, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3064-03.               Filed December 27, 2004.



     Dennis G. Harkavy, for petitioner.

     Elaine T. Fuller, for respondent.


              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined a deficiency in

petitioner’s 2000 Federal income tax of $34,262.

     Petitioner and his former spouse, Shagufta Lisa Ali (Ali),

had two children and owned a community interest in the Spearmint

Rhino Clubs (SRC), a corporation.   Petitioner and Ali separated

in 1999.   SRC paid Ali $24,000 per month from June to December
                                - 2 -

2000 (a total of $168,000).    There was no court order, judgment,

or written agreement requiring petitioner to pay child, spousal,

or family support to Ali when Ali received those payments.   On

June 25, 2001, a State court filed a stipulation between Ali and

petitioner that retroactively (1) deemed petitioner to have paid

one-half of the distributions from SRC to Ali, and (2) deemed

those payments from June 1 to December 31, 2000, to have been

made by petitioner to Ali as unallocated family support in

satisfaction of petitioner’s obligation to provide support during

that period.

       The issues for decision are:

       1.   Whether payments made to Ali before the existence of a

written divorce or separation agreement that were retroactively

deemed to be unallocated family support payments by State court

order are alimony for purposes of section 71(b)(1).1   We hold

that they are not.

       2.   Whether petitioner may exclude from income the $84,000

that SRC paid on his behalf to Ali in 2000.   We hold that he may

not.




       1
        Section references are to the Internal Revenue Code in
effect for 2000. Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -

                         FINDINGS OF FACT

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

A.   Petitioner and His Former Spouse, Shagufta Lisa Ali

     Petitioner resided in California when he filed his petition.

Petitioner and Ali separated on July 14, 1999.    Petitioner and

Ali have two children.

B.   Petitioner’s Divorce

     On May 10, 2000, Ali filed an order to show cause with the

Superior Court of California for the County of Orange (State

court), the court with jurisdiction over the dissolution of the

marriage of petitioner and Ali, in which Ali sought, inter alia,

family support payments from petitioner.

     In 2000, petitioner and Ali each owned an undivided one-half

community property interest in SRC.    Ali received monthly

distributions of $24,000 from SRC from June to December 2000

(totaling $168,000) in 2000.   Petitioner and Ali had not divided

their community property interest in SRC in 2000.    There was no

court order or judgment or other written agreement requiring

petitioner to pay child, spousal, or family support in 2000.

     On February 5, 2001, the State court filed a partial

stipulation between petitioner and Ali which provided in part

that Ali would continue to receive distributions from SRC of

$24,000 per month as unallocated family support from petitioner

commencing February 1, 2001.   The State court reserved
                                 - 4 -

jurisdiction, retroactive to June 1, 2000, over the character and

any allocation of the payments.    On May 25, 2001, the State court

filed a second stipulation between petitioner and Ali which

provided in part that the community interests in SRC of

petitioner and Ali would be divided equally.

     On June 25, 2001, the State court filed a stipulation

between petitioner and Ali which provided that the $24,000

monthly distributions from SRC were allocated one-half each to

petitioner and Ali.   The June 25, 2001, stipulation also deemed

that the distributions allocated to petitioner and received by

Ali were paid by petitioner to Ali as unallocated family support

from June 1, 2000, to March 31, 2001, in satisfaction of his

obligation to provide support.

C.   Petitioner’s Tax Return for 2000

     Petitioner deducted $84,000 as alimony on his 2000 income

tax return for payments made by SRC on his behalf to Ali.

                              OPINION

A.   Background and Petitioner’s Contentions

     A taxpayer may deduct payments which qualify as alimony and

separate maintenance payments.    Sec. 215(a).   To qualify as

alimony, a payment must, among other requirements, be received by

or on behalf of a spouse under a divorce or separation

instrument.   Secs. 71(b)(1)(A) and (2), 215(b).    A divorce or

separation instrument is: (1) A decree of divorce or separate
                               - 5 -

maintenance or a written instrument incident to the decree, (2) a

written separation agreement, or (3) a decree requiring a spouse

to pay for the support or maintenance of the other spouse.    Sec.

71(b)(2); sec. 1.71-1(b)(1), (2), and (3), Income Tax Regs.

     Petitioner acknowledges that no written divorce or

separation instrument existed in 2000 when SRC made the payments

at issue to Ali.   Petitioner contends that the section

71(b)(1)(A) requirement that the payments at issue be received

under a divorce or separation instrument is met by the State

court’s retroactive approval of the stipulation that petitioner’s

one-half ($12,000) of each monthly payment (totaling $84,000) in

2000 was paid by him to Ali as family support.   Petitioner points

out that, under California law, the State court may retroactively

modify an agreement.   See In re Marriage of Skelley, 556 P.2d

297, 300 (Cal. 1976)

B.   Whether Retroactive Treatment by the State Court of Payments
     as Unallocated Family Support Meets the Requirement of
     Section 71(b)(1)(A) That the Payments Be Received Under a
     Divorce or Separation Instrument

     Petitioner contends that, because of the retroactive action

by the State court, the payments from SRC to Ali in 2000 were

payments under a divorce or separation instrument.

     We disagree for two reasons.   First, payments made before

the existence of a written divorce or separation instrument are

not deductible by the payor spouse under section 215 or its

predecessor.   Healey v. Commissioner, 54 T.C. 1702, 1705-1706
                               - 6 -

(1970), affd. without published opinion 28 AFTR 2d 71-5217, 71-2

USTC par. 9536 (4th Cir. 1971); Alleva v. Dept. of Treasury,

2002-1 USTC par. 50,188 (E.D.N.Y. 2001); Ewell v. Commissioner,

T.C. Memo. 1996-253; Jachym v. Commissioner, T.C. Memo. 1984-181;

White v. Commissioner, T.C. Memo. 1984-65.   Petitioner’s payments

were not made under a qualifying divorce or separation instrument

when they were made.   Second, retroactive imposition of support

by a State court does not have retroactive effect for Federal tax

purposes.   Turkoglu v. Commissioner, 36 T.C. 552, 555 (1961);

Segal v. Commissioner, 36 T.C. 148, 153-154 (1961); Van

Vlaanderen v. Commissioner, 10 T.C. 706, 707-708 (1948), affd.

175 F.2d 389 (3d Cir. 1949); Daine v. Commissioner, 9 T.C. 47,

51-52 (1947), affd. 168 F.2d 449 (2d Cir. 1948); see also

Ianniello v. Commissioner, 98 T.C. 165, 175 n.5 (1992) (State

court adjudications retroactively changing the rights of parties

are generally disregarded for Federal income tax purposes).2

Thus, SRC’s payments to Ali in 2000 were not alimony, even though

the State court made the June 25, 2001, instrument, which




     2
          An exception to the general rule exists when the nunc
pro tunc order retroactively corrects an order which failed to
reflect the true intention of the court at the time it was
rendered. Gordon v. Commissioner, 70 T.C. 525, 530 (1978);
Johnson v. Commissioner, 45 T.C. 530, 532 (1966). There is no
evidence that the State court’s retroactive order in this case
corrects an order which failed to reflect the true intention of
the court at the time it was rendered.
                                - 7 -

provided that SRC’s payments were unallocated family support,

retroactive to the date of those payments.

       Petitioner contends that Healey v. Commissioner, supra,

supports his position.    We disagree.   In Healey, a State court

gave retroactive effect to its nunc pro tunc order.    We said in

Healey that payments were not made deductible by means of a

retroactive court order.    Id. at 1706.   Healey does not support

petitioner’s contention that retroactive State court actions are

recognized for purposes of the section 71(b)(1)(A) requirement

that payments be received under a divorce or separation

instrument.

       We do not recognize the retroactive nature of the State

court instrument in deciding whether, for purposes of section

71(b)(1)(A), the payments made by SRC were made under a written

divorce or separation agreement.    Thus, petitioner may not deduct

any of the $84,000 that SRC paid to Ali in 2000 as alimony.

C.     Whether Petitioner May Exclude From Income the $84,000 That
       SRC Paid to Ali in 2000

       Petitioner’s community property share of income from SRC for

2000 is $84,000.    Petitioner contends that he may exclude that

amount from his income because SRC made the payments directly to

Ali.    We disagree.

       Petitioner has offered no authority for his position.

Petitioner is taxed on his share of SRC community income even

though he chose to have it paid directly to Ali because income
                                 - 8 -

from property is taxed to the owner of the property at the time

the income is earned.     Helvering v. Horst, 311 U.S. 112, 116-117

(1940); Lucas v. Earl, 281 U.S. 111, 114 (1930); see United

States v. Malcolm, 282 U.S. 792, 793-794 (1931).    Tax cannot be

avoided through an anticipatory assignment of income.     Lucas v.

Earl, supra.

     A shareholder receives a constructive dividend to the extent

of the corporation's earnings and profits if the corporation pays

a personal expense of its shareholder or the shareholder uses

corporate property for a personal purpose.    Secs. 301(c), 316(a);

Falsetti v. Commissioner, 85 T.C. 332, 356-357 (1985); Henry

Schwartz Corp. v. Commissioner, 60 T.C. 728, 743-744 (1973).

Petitioner does not contend that SRC’s earnings and profits were

less than $84,000, and there is no evidence to suggest that the

earnings and profits requirement is not met.    A payment is a

constructive dividend if the corporation has conferred an

economic benefit on the shareholder without expectation of

repayment.     United States v. Smith, 418 F.2d 589, 593 (5th Cir.

1969); Truesdell v. Commissioner, 89 T.C. 1280, 1295 (1987).

Petitioner economically benefited from SRC’s payment to Ali

because those payments relieved him of the obligation to make
                               - 9 -

cash payments to her.   Thus, the $84,000 that SRC paid to Ali in

2000 is a constructive dividend to petitioner in that amount and

is not excluded from his income.




                                              Decision will be

                                         entered for respondent.
