                             T.C. Memo. 1998-2



                          UNITED STATES TAX COURT



                      WILLIAM J. WELLS, Petitioner v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent


       Docket No. 5458-94.                       Filed January 5, 1998.


       Joyce J. Pearson, for petitioner.


       Linas N. Udrys, for respondent.


                            MEMORANDUM OPINION


       NAMEROFF, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7443A(b)(3)1 and Rules 180, 181, and

182.       Respondent determined deficiencies in petitioner’s 1990 and

1991 Federal income tax in the amounts of $6,513 and $8,043,


       1
        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.
                               - 2 -


respectively.   The sole issue for decision is whether amounts

paid as “family support” pursuant to a State court decree were

alimony payments and therefore deductible by petitioner under

section 215.

                            Background

     Some of the facts have been stipulated, and they are so

found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time he filed his

petition, petitioner resided in Irvine, California.

     Petitioner and his former wife, Karen Wells (Ms. Wells),

were married on August 2, 1980.   They have two children from the

marriage:   Christopher, born July 24, 1982, and Lindsey, born

August 28, 1985.   On June 1, 1990, the Superior Court of

California, Orange County (Superior Court), entered a Judgment of

dissolution of marriage effective August 15, 1990.    Christopher

and Lindsey resided with Ms. Wells during the years at issue.

     As part of their divorce, petitioner and Ms. Wells entered

into a Marital Termination Agreement (MTA) on February 5, 1990.

They retained Attorney Richard E. Young (Mr. Young) to draft and

effectuate the MTA without contest.    Although Ms. Wells initially

approached Mr. Young for assistance with the divorce, Mr. Young

served as an impartial mediator in negotiating and drafting the

MTA for both petitioner and Ms. Wells.   Petitioner and Ms. Wells
                               - 3 -


understood that payments to be made under the MTA were to provide

financial support for Ms. Wells and the children.

     The Superior Court approved the MTA and made it an Order of

the Court.   The relevant portions of the Superior Court’s order

are recited below:2

     14.   CHILD CUSTODY AND SUPPORT:

          A. SPOUSAL SUPPORT Neither party shall pay the
     other any amount for support, however, the Court will
     reserve jurisdiction over the right to award spousal
     support until December 26, 1995, at which time the
     right to grant spousal support for either party shall
     terminate without further order of the court. If you
     fail to pay any court ordered child support, an
     assignment of your wages will be obtained without
     further notice to you.

                              *   *   *

          C. FAMILY SUPPORT ORDER:
          * * * [Petitioner] shall pay to * * * [Ms. Wells]
     as and for the FAMILY SUPPORT ORDER sum of $2,000.00
     per month, until the sale of their house, one and a
     half (1 1/2) months after the sale of the house, the
     FAMILY SUPPORT ORDER shall increase to the sum of
     $3,238.00 per month, payable one-half on the first and
     one-half of [sic] the fifteenth day of each month,
     commencing March 1, 1990, and continuing thereafter
     until further Order of the Court or until the child
     marries, dies, is emancipated, reaches 19 or reaches 18
     and is not a full-time high school student residing
     with a parent, whichever first occurs. * * * [Ms.
     Wells] shall immediately report to * * * [petitioner]
     the name, address and phone number of her Employer and

     2
        California recognizes three forms of support: Child,
spousal, and family. See Cal. Fam. Code sec. 150 (West 1994).
We note that the Cal. Fam. Code, enacted in 1992 and operative
from Jan. 1, 1994, was derived from the family law provisions of
the Cal. Civ. Code, Code of Civ. Proc., Evid. Code, and Prob.
Code. The relevant portions of the sections cited herein were
adopted as the Cal. Fam. Code without substantial changes.
                              - 4 -


     her monthly income. Any increase in income shall be
     grounds for a reevaluation of * * * [petitioner’s]
     obligation for support. Further, the termination of
     the mutual obligation of spousal support, shall be
     further grounds for reevaluation of the support orders.

     On September 19, 1990, petitioner and Ms. Wells, through a

Memorandum of Agreement, modified the MTA.   The relevant portions

of that agreement (Modified MTA) are set out below:

     NOW, THEREFORE, * * * [Ms. Wells and petitioner] do
     hereby agree to modify the Marital Termination
     Agreement of February 5, 1990, to the extent and only
     to the extent as herein detailed. Said order shall be
     modified with respect to paragraph numbered (14)
     subsection (c) thereof, as follows:

     a. * * * [Petitioner] shall pay to * * * [Ms. Wells]
     as and for family support order the sum of $2,600.00
     per month, payable in the sum of $1,300.00 on the 15th
     day of each month and $1,300.00 on the 1st day of each
     month, commencing October 15, 1990.

     b. That portion of paragraph numbered (14) subsection
     (c) of the Marital Termination Agreement above referred
     to and which reflects that “one and a half (1 1/2)
     months after the sale of the house, the family support
     order shall increase to the sum of $3,238.00 per
     month.” is hereby, by agreement of the parties,
     declared of no force and effect.

                             *   *   *

     e. * * * [Ms. Wells] agrees to notify * * *
     [petitioner] at the commencement of full-time
     employment by * * * [Ms. Wells] and to notify * * *
     [petitioner] of the name and address of her employer
     and her salary structure all at such time as * * * [Ms.
     Wells] commences full-time employment.

     Petitioner and respondent have stipulated that petitioner

had made the payments at issue pursuant to this Modified MTA.

They also have stipulated these additional facts:
                              - 5 -


     During the taxable year 1990, commencing January 1,
     1990, through October 15, 1990, petitioner paid Karen
     Wells $2,000.00 per month as “family support” pursuant
     to the MTA as modified.

     Commencing October 15, 1990, and continuing through all
     of the taxable year 1991, petitioner paid Karen Wells
     $2,600.00 per month as “family support” pursuant to the
     MTA as modified. For the month of October, 1990,
     petitioner made one payment in the amount of $1,000.00
     and one payment in the amount of $1,300.00.

     On July 11, 1995, petitioner filed a motion in the Superior

Court seeking to reform the Modified MTA.   Through this motion,

petitioner moved for that court “to properly interpret the

meaning and intent of the family support, child support and

spousal support paragraphs in the parties [sic] judgment of

dissolution filed June 1, 1990.”   On August 16, 1996, the

Superior Court, by way of an order, made a factual finding that

the payments “were intended to be as separate allocated sums of

child support and spousal support.”   The Superior Court, however,

did not specifically delineate the amounts for alimony and child

support.

     During the calendar years 1990 and 1991, petitioner paid Ms.

Wells family support of $25,500 and $31,200, respectively.    On

his 1990 and 1991 Federal income tax returns, petitioner claimed

alimony deductions of $22,452 and $27,468, respectively, which

represented approximately 88 percent of petitioner’s total family

support payments during each year.    Petitioner derived the above

ratio using figures that were reflected in a “Dissomaster”
                                   - 6 -


report.3      The “Dissomaster” report indicated that petitioner was

to pay family support of $3,238 per month, of which $2,857 was to

be for spousal support and $381 was to be for child support.4

Mr. Young, allegedly, relied upon this report when drafting the

MTA.       Petitioner also claimed dependency exemption deductions for

Christopher and Lindsey on his 1990 and 1991 tax returns.       In the

notice of deficiency, respondent disallowed petitioner’s alimony

deductions.

                                Discussion

       Section 215(a) allows a deduction for the payment of alimony

during a taxable year.       Section 215(b) defines alimony as payment

that is includable in the gross income of the recipient under

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

determining whether a cash payment is alimony.       Section 71(b)

provides:

            (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 includable in gross income under this section


       3
        A “Dissomaster” is a commercially available computer
program used by family law practitioners to compute support
payment amounts based on income and other factors.
       4
            $2,857 divided by $3,238 equals approximately 88 percent.
                                - 7 -


           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.

If any portion of the payments made by petitioner fails to meet

any one of the four enumerated criteria, that portion is not

alimony and thus is not deductible by petitioner.

      Moreover, payments made for child support are not

deductible under section 215.    Sec. 71(c).   Child support is that

part of the payment which the terms of the divorce instrument

fixed as payable for the support of the children of the payor

spouse.   Sec. 71(c)(1).   An amount is treated as fixed under

section 71(c)(1) if it will be reduced on the happening of a

contingency specified in the divorce instrument relating to a

child (such as attaining a specified age, marrying, dying,

leaving school, or a similar contingency) or at a time which can

clearly be associated with a contingency related to the child.

Sec. 71(c)(2).

     Respondent argues that the family support payments made by

petitioner fail to qualify as deductible alimony.    In making that
                                 - 8 -


determination, respondent focuses on when the payments at issue

were scheduled to terminate.   First, respondent contends that the

payments made by petitioner fail to qualify as alimony because

the family support payments were not set to terminate upon the

death of Ms. Wells, as required by section 71(b)(1)(D).    In

addition, respondent, relying on section 71(c)(2), asserts that

the payments were nondeductible child support payments, because

the Modified MTA made the “cessation of the payments contingent

upon events which are associated with petitioner's children.”

     Petitioner, on the other hand, argues that the payments at

issue were deductible alimony.    Petitioner asserts that his

payments satisfied section 71(b)(1)(D) because, under California

law, the obligation for support terminates automatically upon the

death of either party or the remarriage of the recipient.

Moreover, petitioner contends that his payments met the

definition of alimony because the Modified MTA failed to fix any

amount as child support, as required by section 71(c)(2) and

Commissioner v. Lester, 366 U.S. 299 (1961).

Evidentiary Matters

     As a preliminary matter, we must make rulings on evidentiary

matters.   Respondent moved, pursuant to Rule 50, for the Court to

“exclude all extrinsic evidence, including, but not limited to,

the testimony of petitioner and the testimony of * * * [Mr.

Young] which pertains to the intended character and/or amount of
                                - 9 -


support payments made by petitioner, from evidence”.     Respondent

also moved to exclude from evidence:    (1) The August 16, 1996,

order of the Superior Court, in which the court attempted to

clarify the character of the family support payments; and (2) the

“Dissomaster” report.

     Petitioner introduced the above evidence to establish that

88 percent of the family support payments represented alimony.

Respondent objects to the introduction of the evidence, relying

upon the parol evidence rule and the Supreme Court's holding in

Commissioner v. Lester, supra.5   In essence, respondent asserts

that since the MTA clearly characterizes the full amount of the

family support payments as child support pursuant to section

71(c)(2), the introduction of extrinsic evidence is

inappropriate.    We reserved a final ruling as to the

admissibility of the evidence and tentatively received the

evidence offered.    Respondent renewed the objection at trial and

again on brief.

     This Court has held, relying on the holding in Lester, that

parol and other extrinsic evidence is inadmissible to explain the

intent, motives, and conduct of parties where a clear and

     5
        Respondent also objects to the “Dissomaster” report on
the basis of relevance, asserting that at no time during the
relevant period did petitioner pay Ms. Wells $3,238 per month,
the amount indicated in the report. While it is true that
petitioner paid less than $3,238 per month, the objection is
overruled, as it goes to the weight of the evidence rather than
to its admissibility.
                               - 10 -


unambiguous written separation agreement specifically and

unequivocally fixes periodic payments as child support.     Estate

of Craft v. Commissioner, 68 T.C. 249, 263-264 (1977), affd. 608

F.2d 240 (5th Cir. 1979); Grummer v. Commissioner, 46 T.C. 674,

680 (1966).    Conversely, the introduction of extrinsic evidence

is permitted in cases where documents contain inconsistencies

and/or ambiguities.

     The documents before us are riddled with inconsistency and

ambiguity.    For example, paragraph 14C. lists several

contingencies relating to “the child”.    This singular reference

is perplexing as petitioner and Ms. Wells have two children from

their marriage, and the document does not reveal whether these

contingencies related to one or both of the children.

     The fact that petitioner and Ms. Wells modified the MTA adds

complexity to our analysis.    The Modified MTA states that the MTA

is modified “to the extent and only to the extent as herein

detailed.”    In modifying the first sentence of paragraph 14C.,

the Modified MTA changes the monthly amount of family support and

specifically eliminates the portion of the sentence relating to

the sale of the house.    The Modified MTA, however, is silent as

to the contingencies relating to “the child”, and there appears

to be uncertainty as to whether the contingencies were intended

to have survived the modification.
                              - 11 -


     Respondent asserts that Grummer v. Commissioner, supra, is

indistinguishable from this case.    We disagree.    In Grummer, this

Court, in excluding extrinsic evidence, found that there was no

ambiguity in the language of the agreement and that “The parties

stated with clarity that the periodic payments were to be treated

solely as support for the children.”    Id. at 679.    No such

clarity, however, is present in the documents before us.

Accordingly, we deny respondent’s motion in limine and overrule

all related subsequent objections.

     Petitioner, on the other hand, raises a relevancy objection

to the introduction of a Minute Order of the Superior Court filed

May 17, 1995.   The order required petitioner to pay Ms. Wells

$2,222 per month as “child support” and $275 per month as

alimony, “COMMENCING FORTHWITH” from the date the Minute Order

was filed.   We sustain petitioner’s objection.     This order

modified petitioner’s payments beginning with June 1, 1995, and

thereafter and has no bearing on petitioner’s payments made

during taxable years 1990 and 1991.    The order, in stating the

“COURT RESERVES ISSUE OF RETROACTIVITY AS TO COMMENCEMENT OF

SUPPORT ORDERS”, implies that its effectiveness is limited to

modifying petitioner’s future support obligations only.

Divorce or Separation Instrument

     While respondent does not question whether, under section

71(b)(1)(A), petitioner had made payments pursuant to a divorce
                                - 12 -


or separation instrument, we believe that this issue deserves our

consideration.    Section 71(b)(2) defines the term “divorce or

separation instrument” as follows:

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

          (B) a written separation agreement, or

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

The term “written separation agreement” is not comprehensively

defined by the Code, the legislative history, or applicable

regulations.     Bogard v. Commissioner, 59 T.C. 97, 100 (1972).   We

have held, however, that the existence of a clear, written

statement of the terms of support for separated parties is

sufficient to satisfy section 71(b)(2)(B).     Id. at 101.

     The parties have stipulated that petitioner had made the

payments at issue pursuant to the Modified MTA.    Ordinarily, a

stipulation of fact is binding on the parties, and we are

constrained to enforce it.    Rule 91.   We may, however, modify or

set aside a stipulation that is clearly contrary to the facts

revealed on the record.     Cal-Maine Foods, Inc. v. Commissioner,

93 T.C. 181, 195 (1989).    The record plainly demonstrates that

the January 1 through October 14, 1990, payments, were not made

pursuant to the Modified MTA.    We, therefore, shall set aside the

above stipulation pertaining to those payments.    The stipulation
                              - 13 -


relating to the October 15, 1990, through December 31, 1991,

payments, however, shall not be disturbed.

     In determining whether petitioner’s payments were made

pursuant to a “written separation instrument”, we need only look

to when the payments were made.   We consider those payments made

pursuant to the MTA (whether made before or after the Superior

Court adopted the MTA as an Order of the Court) and Modified MTA

as having been made pursuant to written separation instruments,

because those instruments satisfy the requirements stated in

section 71(b)(2).   On the other hand, those payments for the

January 1 through February 4, 1990, period (about $2,000) were

not made pursuant to any instrument and, therefore, do not

satisfy the section 71(b)(1)(A) requirement.

Termination Upon Death

     Keeping in mind that petitioner made payments pursuant to

two separate instruments (i.e., those made pursuant to the MTA

and those made pursuant to the Modified MTA),6 we now must decide

whether, under section 71(b)(1)(D), petitioner’s payments were

set to terminate upon the death of Ms. Wells.   Neither the MTA

nor the Modified MTA specifically states whether the above was to

occur.   We, therefore, must look to California law to determine

whether a postdeath legal obligation existed, as State law


     6
        The following discussion pertains only to those payments
made for the period beginning with Feb. 5, 1990.
                               - 14 -


determines various rights of the parties.     Sampson v.

Commissioner, 81 T.C. 614, 618 (1983), affd. without published

opinion 829 F.2d 39 (6th Cir. 1987).

     California Family Code section 4337 (West 1994) provides

that, “Except as otherwise agreed by the parties in writing, the

obligation of a party under an order for the support of the other

party terminates upon the death of either party or the remarriage

of the other party.”    (Emphasis added.)   Under California law, an

order for “spousal support” means an order for the support of the

spouse based upon the standard of living established during

marriage.   On the other hand, “child support”, once ordered by a

court, survives the death of the payee custodial parent and

continues as an obligation of the payor noncustodial parent.      In

re Marriage of McCann, 32 Cal. Rptr. 2d 639 (Ct. App. 1994); In

re Marriage of Gregory, 281 Cal. Rptr. 188 (Ct. App. 1991).     The

third category, “family support”, is an unallocated combination

of “child support” and “spousal support”.    Cal. Fam. Code secs.

92, 4330 (West 1994).

     Petitioner argues that because family support is an

unallocated combination of child support and spousal support, he

must prevail since spousal support terminates at the death of the

payee.   We believe the converse argument is equally persuasive

(i.e., that the payments are not alimony because child support
                              - 15 -


survives the death of the custodial parent), and we refuse to

accept his conclusion.

     Upon reviewing the relevant evidence before us, we hold that

petitioner’s payments, under both instruments, do not meet the

section 71(b)(1)(D) requirement.   Contrary to petitioner’s

contention, California Family Code section 4337 (West 1994) does

not assist him in satisfying that provision.

     While the MTA is not a model of clarity, we are convinced

that the parties intended the payments to terminate, on a pro

rata basis, as each child “marries, dies, is emancipated, reaches

19 or reaches 18 and is not a full-time high school student

residing with a parent”.   The reference to “the child” was merely

a scrivener’s error that was not caught by Mr. Young or his

clients.   Thus, both petitioner and Ms. Wells had “otherwise

agreed in writing” to terminate the family support payments at

some point other than the death of the payee spouse.    In effect,

they had agreed that the payments were to continue until one or

more of the specified events occurred with respect to the

children, even if Ms. Wells were to die beforehand.    Thus, the

payments would not terminate on her death.

     Turning now to the Modified MTA, it does not make any

difference whether we accept respondent’s interpretation of that

document (i.e., that paragraph 14C. required payment of $2,600

per month, terminating pro rata as each child marries, dies,
                               - 16 -


etc.) or petitioner’s (i.e., that paragraph 14C. required family

support payments that were not subject to any of the above

events).    If we concur with respondent, then both petitioner and

Ms. Wells had, once again, “otherwise agreed in writing” and the

result would mirror the above.7

     On the other hand, even if we were to concur with

petitioner’s interpretation of the Modified MTA, he still would

not prevail.    We are unaware of any California statute that

terminates family support obligations upon the death of the payee

spouse.    California Family Code section 4337 pertains only to

spousal support orders and, in our estimation, does not address

family support payments.    Assuming a “worst case scenario” (i.e.,

custodial parent dies and custody is awarded to someone other

than the surviving spouse), we cannot believe that California law

would permit the surviving parent to avoid any further support

obligations.    See Murphy v. Commissioner, T.C. Memo. 1996-258.

Accordingly, respondent’s determination shall be sustained.

     To reflect the foregoing,


                                      Respondent’s motion in limine

                                 will be denied and decision will

                                 be entered for respondent.

     7
        A holding in accordance with respondent’s interpretation,
however, would require us to find that petitioner and Ms. Wells
continued to ignore the patent ambiguity of the one-child
provision.
- 17 -
