                  T.C. Memo. 2003-163



                UNITED STATES TAX COURT



            PATRICIA P. KEAN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

          ROBERT W. KEAN, III, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 8966-00, 9144-00.      Filed June 4, 2003.



     R determined deficiencies for W’s 1992, 1993,
1994, 1995, and 1996 taxable years. R determined
deficiencies for H’s 1995 and 1996 years. R’s
determinations were based upon R’s inconsistent
position that payments made by H to W, pursuant to
pendente lite unallocated support orders, were
includable in the gross income of W as alimony
received, and not deductible by H as alimony paid.

     Held: The payments H made to W meet the criteria
of sec. 71(b)(1), I.R.C. Specifically, the payments
were received by W and, pursuant to State law, would
have terminated at W’s death. Consequently, the
payments are alimony for Federal income tax purposes,
and are deductible by H, under sec. 215, I.R.C., and
includable in the gross income of W, under secs.
61(a)(8) and 71(a), I.R.C.
                                 - 2 -


     Alan R. Adler, for petitioner in docket No. 8966-00.

     Jeffrey M. Garrod and Eugenia Yudanin, for petitioner in

docket No. 9144-00.

     Joseph J. Boylan, for respondent.



                          MEMORANDUM OPINION


     NIMS, Judge:     Respondent determined deficiencies in the

Federal income tax of petitioner Patricia P. Kean (Ms. Kean) for

taxable years 1992, 1993, 1994, 1995, and 1996 of $14,299,

$17,419, $20,116, $18,390, and $4,393, respectively.    Respondent

also determined additions to tax pursuant to section 6651(a)(1)

for 1992 and 1994 of $3,557 and $5,029, respectively.    Respondent

determined deficiencies in the Federal income tax of petitioner

Robert W. Kean III (Mr. Kean) for the taxable years 1995 and 1996

of $27,584 and $16,781, respectively.

     After concessions, the issue remaining to be decided is

whether any part of the unallocated support payments constitutes

alimony under section 71 that is deductible by the payor spouse,

Mr. Kean, under section 215, and includable in the gross income

of the payee spouse, Ms. Kean, under sections 61(a)(8) and 71(a).

In the notices of deficiency respondent took inconsistent

positions, in that respondent disallowed deductions to Mr. Kean

and required Ms. Kean to report alimony income.    On brief,
                                - 3 -

however, respondent argues that Mr. Kean should be allowed the

deductions and Ms. Kean should report alimony income.

     These cases have been consolidated for purposes of briefing

and opinion because they involve common questions of law and fact

arising from the separation and divorce of Mr. Kean and Ms. Kean

(hereinafter collectively referred to as petitioners).

     Unless otherwise indicated, all section references are to

sections of the Internal Revenue Code in effect for the years in

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     These cases were submitted fully stipulated pursuant to Rule

122, and the facts are so found.    The stipulations of the

parties, with accompanying exhibits, are incorporated herein by

this reference.

                              Background

     Ms. Kean resided in Lawrenceville, New Jersey, when she

filed her petition.    Mr. Kean resided in Far Hills, New Jersey,

when he filed his petition.

     Petitioners were married on September 12, 1970, in Glen

Cove, New York.    Petitioners have three children born in the

marriage:    (1) Robert W. Kean IV (born January 26, 1979), (2)

Philip E. Kean (born August 23, 1982), and (3) Cristina D. Kean

(born September 4, 1984) (collectively referred to as the

children).
                               - 4 -

     Ms. Kean brought an action for divorce from Mr. Kean on

October 1991, in the Superior Court of New Jersey, Chancery

Division-Family Part, Somerset County.   On April 7, 1992, Graham

T. Ross, J.S.C., P.J.F.P. (Judge Ross), issued an order (April 7,

1992, Order), which required that Mr. Kean deposit no less than

$6,000 each month into a joint checking account, which was

maintained in the names of Mr. Kean and Ms. Kean.   The April 7,

1992, Order granted Ms. Kean unlimited access to the joint

checking account and checkbook, and she was ordered to use funds

from the joint checking account to maintain herself, the

children, and the household.   The April 7, 1992, Order also

required that Mr. Kean:   (1) Pay all household expenses,

including, but not limited to, the mortgage, taxes, and

utilities; (2) pay all expenses for the children, including, but

not limited to, private school tuition; and (3) maintain

insurance coverage and pay all unreimbursed expenses for health

and medical needs of Ms. Kean and the children.

     On November 25, 1992, Judge Ross issued an order (November

25, 1992, Order), which denied Mr. Kean and Ms. Kean’s separate

applications for physical custody of the children, required that

Mr. Kean and Ms. Kean continue existing custodial arrangements,

and required that Mr. Kean and Ms. Kean share equally in the

legal authority and responsibility for major decisions concerning

the children.
                               - 5 -

     On March 5, 1993, Judge Ross issued an order (March 5, 1993,

Order), which granted Ms. Kean exclusive use of the $6,000 Mr.

Kean deposited into the joint checking account and required that

the money from that account be used to support Ms. Kean, the

children, and the household.   The March 5, 1993, Order enjoined

Mr. Kean from using the money deposited into the joint account to

pay a note at National State Bank or to pay any other expense.

     On April 23, 1993, Judge Ross issued an order (April 23,

1993, Order), which defined the obligations to be paid from the

$6,000 Mr. Kean deposited into the joint checking account as all

shelter, transportation, and personal expenses of Ms. Kean and

the children.

     On January 30, 1995, Judge Ross issued an order (January 30,

1995, Order), which required that Mr. Kean make future payments

to Ms. Kean through the applicable probation department.

     On January 9, 1996, Judge Ross issued an order (January 9,

1996, Order), which continued Mr. Kean and Ms. Kean’s joint legal

custody of the children and specified how physical custody of the

children should be shared between Mr. Kean and Ms. Kean.

     On April 11, 1996, Judge Ross issued an order (April 11,

1996, Order), which reduced the pendente lite support Mr. Kean

was to pay to Ms. Kean from $6,000 to $1,600, effective April 1,
                               - 6 -

1996.   The April 11, 1996, Order also required that Mr. Kean pay

all household bills and expenses of the children, effective April

1, 1996.

     Judge Ross issued a Final Judgment of Divorce on February

19, 1997.

     For the taxable year 1992, Mr. Kean made payments to Ms.

Kean, pursuant to the April 7, 1992, Order, in the amount of

$54,000, by either depositing checks into the joint checking

account or issuing checks to Ms. Kean, which were thereafter

deposited into the joint checking account.   Ms. Kean reported no

alimony income on her 1992 U.S. Individual Income Tax Return.

     For taxable year 1993, Mr. Kean made payments to Ms. Kean,

pursuant to the April 7, 1992, Order and the March 5, 1993,

Order, in the amount of $57,388, by either depositing checks into

the joint checking account or issuing checks to Ms. Kean, which

were thereafter deposited into the joint checking account.    Ms.

Kean reported no alimony income on her 1993 U.S. Individual

Income Tax Return.

     For the taxable year 1994, Mr. Kean made payments to Ms.

Kean, pursuant to the April 7, 1992, Order and the March 5, 1993,

Order, in the amount of $71,500, by either depositing checks into

the joint checking account or issuing checks to Ms. Kean, which
                                - 7 -

were thereafter deposited into the joint checking account.     Ms.

Kean reported no alimony income on her 1994 U.S. Individual

Income Tax Return.

     From January 1 through February 10, 1995, Mr. Kean made

payments to Ms. Kean, pursuant to the April 7, 1992, Order and

the March 5, 1993, Order, in the amount of $9,000, by either

depositing checks into the joint checking account or issuing

checks to Ms. Kean, which were thereafter deposited into the

joint checking account.   From March 6 through December 7, 1995,

Mr. Kean made payments, pursuant to the April 7, 1992, Order, the

March 5, 1993, Order, and the January 30, 1995, Order, through

the Somerset County Probation Department, to Ms. Kean, in the

amount of $61,200.   Ms. Kean reported no alimony income on her

1995 U.S. Individual Income Tax Return.   Mr. Kean claimed a

deduction for alimony paid of $72,000 on his 1995 U.S. Individual

Income Tax Return.

     For the taxable year 1996, Mr. Kean made payments, pursuant

to the April 7, 1992, Order, the March 5, 1993, Order, the

January 30, 1995, Order, and the April 11, 1996, Order, through

the Somerset County Probation Department, to Ms. Kean, in the

amount of $32,400.   Ms. Kean reported $14,400 in alimony income

on her 1996 U.S. Individual Income Tax Return.   Mr. Kean claimed

a deduction for alimony paid of $37,715 on his 1996 U.S.

Individual Income Tax Return.
                                - 8 -

     For taxable years 1992 through 1996, Mr. Kean and Ms. Kean

were not legally separated under a decree of divorce or separate

maintenance.

     Pursuant to court orders, the payments made by Mr. Kean to

Ms. Kean during the period of April 7, 1992, through February

1995, were deposited into the joint checking account.    Pursuant

to court order, during the period of March 6, 1995, through

December 1996, Mr. Kean made payments to the account of Ms. Kean

with the Somerset County Probation Department.    The checks

received by Ms. Kean from the Somerset County Probation

Department were deposited by her into the joint checking account.

     From at least March 5, 1993, through December 1996, Mr. Kean

did not make any withdrawals or write any checks on the joint

checking account.

     Ms. Kean filed her U.S. Individual Income Tax Return for

1992 late on June 8, 1998.   Ms. Kean filed her U.S. Individual

Income Tax Return for 1993 on January 22, 1996.    Respondent did

not determine a penalty for failure timely to file an income tax

return for 1993.    Ms. Kean filed her U.S. Individual Income Tax

Return for 1994 late on January 29, 1996.   Ms. Kean filed her

U.S. Individual Income Tax Return for 1995 on October 11, 1996.

Her 1995 return was filed within a permitted extension of time to

file.   Ms. Kean timely filed her U.S. Individual Income Tax

Return for 1996 on April 15, 1997.
                                 - 9 -

      Mr. Kean filed his U.S. Individual Income Tax Return for

1995 on July 8, 1996.   Mr. Kean submitted Form 4868, Application

for Automatic Extension of Time to File U.S. Individual Income

Tax Return, which provided an automatic extension of time to file

his 1995 return to August 15, 1996.      Mr. Kean filed his U.S.

Individual Income Tax Return for 1996 on October 17, 1997.

Respondent did not determine a penalty for failure timely to file

an income tax return for 1996.

      From January 1 through September 1992, the children resided

with both Mr. Kean and Ms. Kean at 144 Lake Road, Far Hills, New

Jersey (the marital residence).    During October and November

1992, the children resided with Ms. Kean outside the marital

residence.   In December 1992, Ms. Kean and the children returned

to the marital residence, where the children resided with Mr.

Kean and Ms. Kean until at least January 1996.

                             Discussion

I.   General Rules

      We consider whether certain payments (disputed payments),

made pursuant to court orders issued during the pendency of a

divorce proceeding, are to be treated as alimony for Federal

income tax purposes.    Generally, alimony and separate maintenance

payments (hereinafter collectively referred to as alimony) are
                               - 10 -

taxable to the recipient and deductible by the payor.    Secs.

61(a)(8), 71, 215.   Whether a payment constitutes alimony is

determined by reference to section 71(b).

     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 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.
                               - 11 -

II.    Parties’ Contentions

       The disputed payments were made pursuant to orders that did

not specifically allocate a portion of the amount as alimony or

as child support, but, rather, required that the money be used to

maintain Ms. Kean, the children, and the household.    Respondent

and Mr. Kean argue that these payments should be treated as

alimony.    Ms. Kean argues that the payments should not be treated

as alimony.

       The parties agree that the disputed payments meet the

requirements of section 71(b)(1)(B).    The parties agree that the

requirements of section 71(b)(1)(C) do not apply because Mr. Kean

and Ms. Kean were not legally separated under a decree of divorce

or separate maintenance when the disputed payments were made.

Ms. Kean argues that the disputed payments do not satisfy the

requirements of section 71(b)(1)(A) or (D).    Respondent and Mr.

Kean argue that the disputed payments satisfy these requirements.

III.    Section 71(b)(1)(A)

       As to the requirements of section 71(b)(1)(A), Ms. Kean

argues that she did not receive the payments.    Despite this

contention, Ms. Kean stipulated that Mr. Kean made each of the

disputed payments to her by either depositing money directly into

the joint checking account; issuing checks to her, which were

then deposited into the joint checking account; or making a

payment on her behalf with the Somerset County Probation
                                 - 12 -

Department.     In light of these stipulations, we find disingenuous

Ms. Kean’s current claim not to have received payments from Mr.

Kean.     Consequently, we find that the disputed payments satisfy

the requirements of section 71(b)(1)(A).

IV.   Section 71(b)(1)(D)

        The remaining dispute involves the requirements of section

71(b)(1)(D).     These requirements are satisfied if Mr. Kean had

“no liability to make any such payment for any period after the

death of the payee spouse [Ms. Kean] and there * * * [was] no

liability to make any payment (in cash or property) as a

substitute for such payments after the death of the payee

spouse.”     Sec. 71(b)(1)(D).   If the payor is liable for even one

otherwise qualifying payment after the recipient’s death, none of

the related payments required before death will be alimony.      Sec.

1.71-1T(b), Q&A-13, Temporary Income Tax Regs., 49 Fed. Reg.

34456 (Aug. 31, 1984).      Whether such obligation exists may be

determined by the terms of the applicable instrument, or if the

instrument is silent on the matter, by looking to State law.

Morgan v. Commissioner, 309 U.S. 78, 80 (1940); Gilbert v.

Commissioner, T.C. Memo. 2003-92.

        The orders issued by Judge Ross did not indicate whether the

disputed payments would terminate at Ms. Kean’s death.      We agree
                              - 13 -

with the stipulation made by the parties that the orders should

be interpreted under New Jersey law since they were issued by a

New Jersey court.

     New Jersey has a support statute authorizing courts to award

alimony or child support, either pending the divorce suit or

after final judgment.   N.J. Stat. Ann. sec. 2A:34-23 (West 2003).

Generally, divorce proceedings abate with the death of either

party.   Carr v. Carr, 576 A.2d 872, 875 (N.J. 1990).   Despite the

general rule that divorce proceedings abate with the death of

either party, “Some New Jersey courts have recognized that in

highly unusual circumstances some aspects of statutory equitable

distribution and related forms of relief may precede a divorce

judgment or survive a spouse’s death before divorce.”     Id.

     The obligation to pay alimony ends at the recipient’s death.

See Jacobson v. Jacobson, 370 A.2d 65, 66 (N.J. Super. Ct. Ch.

Div. 1976).   The obligation to pay child support survives the

death of either spouse.   See Kiken v. Kiken, 694 A.2d 557, 561-

562 (N.J. 1997); Jacobson v. Jacobson, supra at 66.     Regarding

the death of the custodial parent, New Jersey statutory law

provides:

          In case of the death of the parent to whom the
     care and custody of the minor children shall have been
     awarded by the Superior Court, or in the case of the
     death of the parent in whose custody the children
     actually are, when the parents have been living
     separate and no award as to the custody of such
     children has been made, the care and custody of such
                             - 14 -

     minor children shall not revert to the surviving parent
     without an order or judgment of the Superior Court to
     that effect. * * * [N.J. Stat. Ann. sec. 9:2-5 (West
     2003).]

     New Jersey law does not specify whether unallocated support

payments terminate on the death of the payee spouse.   Ms. Kean

relies on Gonzales v. Commissioner, T.C. Memo. 1999-332, in which

this Court held that New Jersey law would not necessarily have

relieved the payor spouse of his obligation to pay family support

had the payee spouse died before entry of the divorce judgment,

under the particular circumstances of that case.

     Respondent and Mr. Kean argue that the decision in Gonzales

is not applicable to the instant case.   They argue that Gonzales

was wrongly decided and, alternatively, that the facts of the

instant case distinguish it from the facts of Gonzales.   The

factual distinction highlighted by respondent and Mr. Kean

involves custody of the children.   In Gonzales, the payee spouse

had primary residential custody of the children.   In the instant

case, Mr. Kean and Ms. Kean shared a residence with the children

for most of the period during which the disputed payments were

made, and the orders make it clear that they shared custody of

the children during the period when the disputed payments were

made.

     The Court in Gonzales v. Commissioner, supra, concluded that

“The fact that the unallocated support order is modifiable and

temporary tells us, at the least, that a court might have reduced
                              - 15 -

Dr. Gonzales’ payments rather than terminate them altogether.

Indeed, there are no counterindications.”   The Court also stated,

however, that had the payee spouse “died before the superior

court entered the divorce decree, Dr. Gonzales, as the

noncustodial parent of three children, could have remained liable

to pay family support, whether in full or in diminished amounts.”

(Emphasis added.)

     Conceivably, the facts in Gonzales could fall within the

“highly unusual circumstances” referred to by the New Jersey

Supreme Court in Carr v. Carr, supra at 875, that provide an

exception to the general rule that divorce proceedings abate with

the death of either party.   In any event, the holding of Gonzales

was essentially based upon the fact that the payor spouse was a

noncustodial parent.   Since, under N.J. Stat. Ann. sec. 9:2-5

(West 2003), quoted above, custody does not automatically revert

to the noncustodial parent when the custodial parent dies, the

Carr v. Carr, supra, exception could perhaps be held to apply

under facts like those in Gonzales, and, assuming such

applicability, a New Jersey court would continue to have

jurisdiction to modify the pendente lite order to provide

continuing family support.

     In the instant case, Mr. Kean and Ms. Kean shared custody of

the children.   The November 25, 1992, Order denied both Mr. Kean

and Ms. Kean’s separate applications for pendente lite physical

custody of the children, and ordered Mr. Kean and Ms. Kean to
                                - 16 -

continue existing custodial arrangements, reduce the custodial

arrangements to writing, and share equally in the legal authority

and responsibility for major decisions concerning the children.

There is no evidence in the record that Mr. Kean and Ms. Kean

ever reduced the custodial arrangements to writing pursuant to

the November 25, 1992, Order.    For 2 months in 1992, Ms. Kean and

the children lived in a residence apart from Mr. Kean.    That Ms.

Kean and the children lived apart from Mr. Kean for 2 months does

not necessarily mean that Mr. Kean was not a custodial parent.

During the time when they lived apart, Judge Ross issued the

November 25, 1992, Order, denying both Mr. Kean and Ms. Kean’s

separate applications for physical custody, thereby confirming

that Mr. Kean and Ms. Kean were both custodial parents.

     As of December 1992, Ms. Kean and the children resumed

living in the marital residence with Mr. Kean.   The January 9,

1996, Order, was the first of the orders issued by Judge Ross to

determine physical custody as an issue separate from legal

custody.   In the January 9, 1996, Order, Judge Ross ordered that

Mr. Kean and Ms. Kean share physical custody and set out the

particular schedule that they should use to share physical

custody.   There is no indication in the record that Mr. Kean was

a noncustodial parent at any time during the divorce proceeding.

Because Mr. Kean was a joint custodial parent, N.J. Stat. Ann.

sec. 9:2-5 (West 2003), quoted above, would have had no
                              - 17 -

applicability upon the death of Ms. Kean, and the general rule

that divorce proceedings abate with the death of either party

would continue to apply.   At this point, the New Jersey court

would no longer have jurisdiction to modify the support order.

     Mr. Kean would have received sole custody of the children if

Ms. Kean had died during the pendency of the divorce proceeding.

Consequently, and in contrast to the situation in Gonzales v.

Commissioner, supra, even with jurisdiction there would be no

logical reason for the New Jersey court to order that Mr. Kean

continue to pay support or for the New Jersey court to order any

payment as a substitute for the unallocated support that Mr. Kean

paid during the pendency of the divorce proceeding.

     In summary, based upon the general rule that divorce

proceedings terminate with the death of either spouse, and absent

unusual circumstances, the New Jersey court would not have had

continuing jurisdiction or reason to enforce or modify any

support order upon Ms. Kean’s death.   Even though the series of

orders was both temporary and modifiable during the divorce

proceeding, upon Ms. Kean’s death, the divorce proceeding would

have abated, and Mr. Kean’s obligations under the orders would

have terminated.

     Since the disputed payments would have terminated at Ms.

Kean’s death, they meet the requirements of section 71(b)(1)(D).

Consequently, the disputed payments are alimony for Federal
                              - 18 -

income tax purposes.   The disputed payments are deductible by Mr.

Kean, under section 215, and includable in the gross income of

Ms. Kean, under sections 61(a)(8) and 71(a).

     Given the unique factual circumstances of the instant case,

Miller v. Commissioner, T.C. Memo. 1999-273, affd. sub nom.

Lovejoy v. Commissioner, 293 F.3d 1208, 1212 (10th Cir. 2002),

decided under Colorado law, and Gilbert v. Commissioner, T.C.

Memo. 2003-92, decided under Pennsylvania law which is no longer

in effect, do not support a different result.

     To reflect the foregoing and the parties’ concessions,


                                         Decisions will be entered

                                    under Rule 155.
