                  T.C. Summary Opinion 2006-122



                     UNITED STATES TAX COURT



             ROCKE RICHARD LABOZETTA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21111-04S.               Filed July 31, 2006.


     Rocke Richard LaBozetta, pro se.

     Brian Bilheimer, 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 in issue.
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     Respondent determined a $6,589 deficiency in petitioner’s

2002 Federal income tax.   The sole issue before this Court is

whether petitioner may deduct $23,400 as alimony paid to his ex-

wife in taxable year 2002.

                             Background

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

the time that the petition was filed, petitioner resided in

Clifton, New Jersey.

     Petitioner married Karen LaBozetta (Ms. LaBozetta) on April

3, 1993.   One child was born of the marriage.   The couple

separated in 2001, and divorce proceedings were initiated in the

Superior Court of New Jersey, Chancery Division, Family Part,

Bergen County.   The marriage was terminated by decree of divorce

dated May 9, 2002.

     Included among the stipulated exhibits for this case is a

copy of the Final Dual Judgment of Divorce, along with a copy of

its underlying Property Settlement agreement (agreement).

Relevant provisions of the agreement provide:    (1) That the

parties expressly bargained for a waiver of alimony from one

another; (2) that petitioner owed Ms. LaBozetta $23,400 and; (3)

that Ms. LaBozetta would pay petitioner $29,746 in a buyout

arrangement for the couple’s marital home.

     As part of the agreement, the parties detailed how Ms.

LaBozetta would buy out petitioner’s share of equity in the
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marital home, a sum approximating $73,000.     Since Ms. LaBozetta’s

annual household income precluded her from qualifying for a

mortgage for the remaining postbuyout balance on the home, the

parties further agreed that the amount of buyout equity owed to

petitioner would be reduced by 20 percent of Ms. LaBozetta’s

share in petitioner’s pension, or $19,854.     The agreement also

provided that petitioner would owe Ms. LaBozetta $23,400 (with

the parties waiving an actual payment of that amount) to further

reduce the amount of equity owed to petitioner.     Petitioner

contends that the $23,400 was actually paid as alimony to Ms.

LaBozetta, and accordingly, should be deductible.

     On August 9, 2002, Ms. LaBozetta drafted a check to

petitioner for $29,746.1    Petitioner cashed the check on August

12, 2002, at Fleet Bank in Ridgefield Park, New Jersey.

     On April 15, 2003, petitioner timely filed a Form 1040, U.S.

Individual Income Tax Return, for 2003 on which he claimed a

deduction of $23,400 for alimony paid to Ms. LaBozetta.

Respondent issued a notice of deficiency disallowing petitioner’s

deduction.




     1
         The $29,746 is computed as follows:

     Petitioner’s equity in the marital home:             $73,000
     Ex-wife’s share of petitioner’s pension              (19,854)
     Petitioner’s waiver of buyout equity                 (23,400)
       Balance to petitioner by check                      29,746
                                  - 4 -

                               Discussion

      The parties dispute whether petitioner can claim a deduction

of $23,400 for alimony paid to Ms. LaBozetta.      At trial,

petitioner maintained that the $23,400 at issue qualified as

alimony on the basis of these factors:      The presence of

contradictory language in an earlier draft of the agreement

calling for alimony to be paid to Ms. LaBozetta; petitioner’s

belief that the $23,400 “payment” on May 9, 2002 (the date of the

agreement), was, in fact, alimony; and that the word “alimony”

was stricken from the copy of the agreement immediately before

its signing on the basis of an understanding between petitioner

and Ms. LaBozetta that the $23,400 at issue would stand in the

place of their previous agreement regarding alimony.

A.   Settlement Agreement

      Although petitioner conceded at trial that the agreement was

a final document, he nonetheless maintains that this Court should

reject the contract as written and, in the alternative, consider

evidence regarding prior events, including petitioner’s belief

that at the time the agreement was signed, the $23,400 at issue

was, in fact, alimony.      Petitioner disputes the contractual terms

of the New Jersey Final Dual Judgment of Divorce and the

agreement, and accordingly, we must first examine the terms and

tenor of that contract.
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      Among the relevant provisions of the agreement, paragraph 5

(“Mutual Release”) states: “the provisions of this agreement * *

* release and discharge * * * [each party] from all causes of

action, claims, rights, or demands whatsoever, in law or equity,

which either of the parties ever had or now has against the

other.”   Moreover, paragraph 8 (“Alimony”) reads: “In exchange

for the mutual promises contained within, each party forever

waives alimony from the other.”   Lastly, and perhaps most

significant to this discussion, paragraph 10(A)(b) (“Equitable

Distribution”) states:

     For the mutual promises contained herein, including
     those involving equitable distribution and any other
     claims the parties may have against the other, the
     parties acknowledge that Husband would owe Wife the sum
     of $23,400, which Wife expressly waives herein, thus
     further buying down an additional $23,400 of the
     $73,000 owed to Husband.

     Notably, the phrase “any other claims the parties may have

against the other” was inserted after “and” in the preceding

quotation on the date that the agreement was signed, and was

initialed by both parties.

     It is clear that the Agreement controls and not, as

petitioner asserts, previous drafts of that document, or the

intent of the parties at the time the agreement was signed.

According to the parol evidence rule of contract law, parol

(oral) evidence “cannot be introduced to create, vary or

contradict a term of a contract not otherwise present in the
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written agreement.”    Odatalla v. Odatalla, 810 A.2d 93, 98 (N.J.

Super. Ct. Ch. Div. 2002) (emphasis added).   The parol evidence

rule will exclude testimony only when it is “‘offered for the

purpose of “varying or contradicting” the terms of an

“integrated” contract’”.    Id. (quoting Atl. N. Airlines, Inc. v.

Schwimmer, 96 A.2d 652, 656 (N.J. 1953).

     The terms of the agreement are clear; in the agreement, the

parties expressly waived alimony, as well as any legal claims

that the parties might have, or ever had, against each other.

The agreement does not indicate that petitioner would waive

$23,400 of equity owed under the marital home buyout in lieu of

an alimony obligation.   Although the parol evidence rule will

allow extrinsic evidence to “interpret the meaning of the written

words of [a] contract”, if petitioner’s reasoning were followed,

application of the rule would require that we interpret the

clause “any and all claims” (par. 10(A)(b)) to mean “alimony”, an

obligation that has already been expressly waived elsewhere in

the agreement.   Id.   This interpretation would cause an

inconsistency unwarranted by the facts of this case.

     While we find persuasive petitioner’s argument that he would

not have waived the $23,400 but for the benefit of an alimony

deduction, we also note his admission that he ultimately wished

to do whatever he could to ensure that their child remained with

her mother in the marital home.   Taken together, the inconsistent
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outcome that would result were we to interpret the terms of the

agreement to include alimony, and petitioner’s testimony about

his wishes regarding the marital home, adequately establish that

the agreement cannot be interpreted to prove an alimony

obligation.

       In summary, we find the agreement clear, controlling, and an

exclusive statement of all of the terms of the parties’

settlement.    Accordingly, we will not consider any extrinsic

negotiations, notations, or side agreements which may have

existed between petitioner and Ms. LaBozetta.

B.    Waiver of Buyout Equity

       We next turn to the agreement itself and specifically,

whether petitioner’s reduction in the amount of equity owed to

him by Ms. LaBozetta might qualify as a deductible alimony

payment pursuant to section 71(b).      Payments pursuant to a

property settlement (such as the agreement) are generally not

deductible for tax purposes from the income of the paying spouse.

Yoakum v. Commissioner, 82 T.C. 128, 134 (1984) (and cases cited

thereat).    Under section 215, a deduction is allowed for an

amount equal to alimony or separate maintenance payments paid

during the taxable year.    “[A]limony or separate maintenance

payment” means any alimony or separate maintenance payment that

is included in the gross income of the recipient under section

71.    Sec. 215(b).
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     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
     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 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.

     In order to qualify for an alimony deduction, petitioner

must first show that the $23,400 at issue was a “payment in

cash”.   Sec. 71(b)(1).   The temporary regulations promulgated

under section 71(b) specify that in order for a cash payment to

qualify as alimony, an actual payment by either cash, check, or

money order must occur.    Sec. 1.71-1T(b), Q&A-5, Temporary Income

Tax Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984).2   At trial,

petitioner testified that he did not remit the $23,400 at issue

in cash, check, or money order but rather waived that amount from

the total $73,000 of buyout equity owed for his share of the


     2
       Temporary regulations are entitled to the same weight as
final regulations. See Peterson Marital Trust v. Commissioner,
102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d Cir. 1996).
                               - 9 -

marital home.   As no cash payment in accordance with section

71(b) was made, we find this waiver to be no more than a transfer

incident to a divorce agreement and not alimony for which

petitioner is entitled to a deduction.     Accordingly, as the

agreement expressly waived alimony for both petitioner and Ms.

LaBozetta, and as there has been no payment in cash as provided

under section 1.71-1T(b), Q&A-5, Temporary Income Tax Regs.,

supra, we sustain respondent’s determined deficiency.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                               for respondent.
