                          T.C. Summary Opinion 2013-94



                         UNITED STATES TAX COURT



                 JAMES ALTON TUCKER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19960-12S.                         Filed November 25, 2013.



      Brett M. Bloom, for petitioner.

      Robert J. Braxton, for respondent.



                              SUMMARY OPINION


      DEAN, Special Trial Judge: This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code1 in effect when the petition was



      1
       Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
                                          -2-

filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by

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

case.

         Respondent determined a deficiency of $10,425 in petitioner’s 2010 Federal

income tax and disallowed, in part, a claimed deduction for payments made on

behalf of Darlene Wilmoth-Tucker (Ms. Wilmoth). The remaining issue2 for

decision is whether the payments petitioner made in 2010 on behalf of Ms.

Wilmoth are properly deductible as alimony payments under section 215.

                                      Background

         This case was submitted fully stipulated under Rule 122, and the stipulated

facts are so found. We incorporate by reference the parties’ stipulation of facts

and accompanying exhibits.

         Petitioner resided in the Commonwealth of Virginia when the petition was

filed.

         Petitioner and Ms. Wilmoth were married on May 25, 1985. The parties

separated in 2004, and Ms. Wilmoth later initiated divorce proceedings.




         2
        In the notice of deficiency, respondent disallowed petitioner’s head of
household filing status and petitioner’s claimed dependency exemption deduction
for his adult son. Petitioner does not contest these determinations.
                                         -3-

      In April 2009 the court (trial court) exercising jurisdiction over petitioner’s

divorce proceedings issued a memorandum (memorandum) identifying and

distributing the marital estate and awarding support. With respect to child and

spousal support, the trial court ordered petitioner to pay Ms. Wilmoth $2,414 per

month. The trial court further ordered petitioner “to provide for Mrs. Tucker’s

health insurance in the amount of $1,400 per month.”

      In August 2009 the trial court issued the final divorce decree (final decree)

and affirmed, ratified and incorporated by reference its own memorandum,

ordering that

      [U]pon entry of the Final Decree of divorce, * * * [husband] shall pay
      to * * * [wife] the sum of $1,400 per month in addition to spousal
      support to assist * * * [wife] in paying health insurance premiums.
      This is not in the nature of spousal support and shall not be taxable to
      * * * [wife] nor deductible to * * * [husband] for income tax
      purposes. [Emphasis added].

      Petitioner appealed the trial court’s order in the final decree, in pertinent

part, because of the language characterizing the health insurance premium

payments as not in the nature of spousal support. Petitioner alleged that the trial

court lacked the authority to order him to make health insurance premium

payments that were “not in the nature of spousal support” and that the trial court

failed to properly characterize the payments as either a distribution of property or
                                        -4-

in the nature of spousal support. Upon appeal, the Court of Appeals of Virginia

(appeals court) determined that “the trial court did not err upon inclusion of the

phrase ‘not in the nature of spousal support’” in the final decree. The appeals

court explained in an analogous case that although health insurance premium

payments may be labeled as spousal support for bankruptcy purposes (and may be

“labeled” as such in a separation agreement or divorce decree), a court may also

simultaneously characterize these payments as “not in the nature of spousal

support” for income tax purposes only. Stacy v. Stacy, 669 S.E.2d 348 (Va. Ct.

App. 2007).

      The appeals court went on to explain the rationale for the simultaneous yet

contradictory characterization for a payment. A Virginia State court may

designate a payment as “in the nature of spousal support” to prevent, for example,

a discharge of such an obligation in bankruptcy proceedings. However, the court

may also designate the same payment as “not in the nature of spousal support” for

income tax purposes, thereby limiting the payor spouse’s ability to claim a

deduction for the payment. The appeals court concluded that it would not decide

whether the language in the final decree was sufficient to avoid potential tax

consequences but that it seemed apparent that the language was included for that

purpose. The appeals court then found that the health insurance premium
                                         -5-

payments were in the nature of spousal support and upheld the trial court’s

characterization of the payments as nondeductible by the husband and not

includible in income by the wife.

      The appeals court affirmed the trial court’s order in the final decree

regarding the health insurance premium payments and reversed and remanded on

other issues. The trial court on remand issued a final order affirming its language

in the final decree, stating that “the order for health insurance payments to the

plaintiff from the defendant in the sum of $1,400.00 per month as set forth on page

4 of the final decree is affirmed and said order shall continue in full force and

effect.” The trial court’s final order retained the original language in the final

decree which specified that the health insurance premium payments were “not in

the nature of spousal support and shall not be taxable to *** [wife] nor deductible

to *** [husband] for income tax purposes.”

      For the 2010 tax year petitioner paid $16,632 in health insurance premiums

on behalf of Ms. Tucker.3 On his 2010 Federal income tax return petitioner


      3
       Respondent notes that the $16,632 disallowed in the notice of deficiency is
not representative of the 12 monthly health insurance premium payments of
$1,400 petitioner made because 12 multiplied by $1,400 equals $16,800.
Respondent disallowed $16,632 because it was the difference between what was
allowed ($29,968) as an alimony deduction and the total amount petitioner
claimed on his 2010 Federal income tax return ($45,600).
                                        -6-

claimed a deduction for “alimony paid” on behalf of Ms. Tucker for her health

insurance premiums.

      In a notice of deficiency dated July 2, 2012, respondent disallowed

petitioner’s claimed deduction for the health insurance premium payments.

      The parties agree that petitioner and Ms. Wilmoth lived in separate

households at all relevant times and that the obligation to make payments to Ms.

Wilmoth will automatically terminate upon her death. In addition, petitioner’s

obligation to make health insurance premium payments on behalf of Ms. Wilmoth

is provided for in a divorce or separation instrument. Respondent contends that

because the final decree specifies that the health insurance premium payments are

“not in the nature of spousal support”, such payments are nondeductible by

petitioner and not includible in income for Ms. Wilmoth.

                                     Discussion

      Generally, the Commissioner’s determinations are presumed correct, and the

taxpayer bears the burden of proving that those determinations are erroneous.

Rule 142(a); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch

v. Helvering, 290 U.S. 111, 115 (1933). In some cases the burden of proof with

respect to factual issues may shift to the Commissioner under section 7491(a).

Because there is no factual dispute in this case, section 7491 is inapplicable.
                                       -7-

Alimony Payments

      Section 215(a) allows a deduction for alimony paid during the payor’s

taxable year. Section 215(b) defines alimony or separate maintenance as any

“payment (as defined in section 71(b)) which is includible 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:

            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,

                         (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.
                                        -8-

      Payments are deductible as alimony only if all four requirements of section

71(b)(1) are met. Section 71 was originally enacted to provide a uniform

definition of alimony so that alimony payments could be distinguished from

property settlements, which receive different tax treatment. H.R. Rept. No. 98-432

(Part 2), at 1495 (1984), 1984 U.S.C.C.A.N. 697, 1137; see also Kean v.

Commissioner, 407 F.3d 186, 189 (3d Cir. 2005), aff’g T.C. Memo. 1995-183.

Congress specifically intended to eliminate the subjective inquires into intent and

the nature of payments that had plagued the courts in favor of a simpler, more

objective test. Hoover v. Commissioner, 102 F.3d 842, 845 (6th Cir. 1996), aff’g

T.C. Memo. 1995-183.

      The parties are in agreement that petitioner’s payments were made pursuant

to a divorce or separation instrument, that petitioner and his former wife were not

members of the same household during the year at issue, and that the obligation to

make the payments will not survive the death of the payee spouse. The parties

disagree, however, as to whether the divorce or separation instrument designates

the payments as not includible in gross income for the payee and not allowable as

a deduction for the payor.

      Petitioner acknowledges that caselaw does not allow a deduction for

payments made to a former spouse if the instrument ordering such payments
                                         -9-

specifies that the payments are nondeductible by the payor spouse. Petitioner

contends that even though the final decree characterizes the payments as

nondeductible by the payor spouse, the spouses themselves must first intend such

a designation. Petitioner cites section 1.71-1T(b), Q&A-8, Temporary Income Tax

Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984), in support of his proposition that the

spouses must intend such a designation.

      Section 1.71-1T(b), Q&A-8, Temporary Income Tax Regs., supra, provides

that “spouses may designate that payments otherwise qualifying as alimony or

separate maintenance payments shall be nondeductible by the payor and

excludible from gross income by the payee by so providing in a divorce or

separation instrument”. Petitioner emphasizes that the phrase “spouses may

designate” (emphasis added) demonstrates that the trial court lacked the authority

to include such language without the consent of the parties. Petitioner further

alleges that despite the “income tax” language in the final decree, the trial court

had not contemplated an income tax designation for these payments. Accordingly,

petitioner urges this Court to look beyond the four corners of the final decree to

determine whether the parties intended to include language characterizing the

health insurance premium payments as nondeductible by the payor and not

includible in income by the payee.
                                         - 10 -

      Petitioner’s argument that the regulations constrain a trial court’s ability to

characterize such a payment as nondeductible and excludible from income is

without merit. Section 1.71-1T(b), Q&A-8, Temporary Income Tax Regs., supra,

provides that the parties to a separation may agree that payments in the form of

alimony are nondeductible by the payor and not includible in income by the payee.

The regulations allow for parties to agree but do not provide spouses with

complete authority to define such payments in a State court matter. Furthermore,

the regulations do not contemplate or regulate the ability of a State trial court, in

its discretion, to designate a payment as alimony, as child support, or as an

equitable division of property under State law. The appeals court recognized that

the trial court had broad discretion in characterizing the payments made pursuant

to the separation instrument, and the trial court used its discretion in characterizing

the payments as nondeductible by petitioner and not includible in income by Ms.

Wilmoth. On remand, the trial court specifically affirmed, in full force and effect,

its characterization in the final decree regarding the health insurance premium

payments.

       Finally, section 71(b) provides a uniform definition of alimony, and this

Court will not revert to the inquiry that courts wrestled with before the enactment
                                       - 11 -

of section 71(b) by looking to the intent of the parties in determining whether

health insurance premium payments are in the nature of spousal support.

      As discussed above, section 71 requires, as one of the conditions to qualify

as alimony, that the divorce instrument not designate a payment as not includible

in gross income and not allowable as a deduction under section 215. The final

decree is conclusive in characterizing the health insurance premium payments as

nondeductible by the payor spouse and not includible in income by the payee

spouse, thus excluding the payments from the definition of alimony pursuant to

section 71(b)(1)(B). The health insurance premium payments are not alimony

under section 71(b) and are, therefore, not deductible by petitioner.

      To reflect the foregoing,


                                                    Decision will be entered for

                                                respondent.
