                        T.C. Memo. 1996-179



                      UNITED STATES TAX COURT



                 LARICK A. HILL AND FAWNI LITTLE,
                A.K.A. FAWNI HILL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2004-94.             Filed April 11, 1996.



     Karen L. Hawkins, William E. Taggart, Jr. (specially

recognized), and Paul J. Barulich, for petitioners.

     Bryce Kranzthor and Debra K. Estrem, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined that petitioners are

liable for deficiencies in Federal income tax of $7,557 for 1990

and $14,314 for 1991, and penalties under section 6662 of $1,511

for 1990 and $2,863 for 1991.
                                 - 2 -


     After concessions,1 we must decide whether payments by James

Little to Fawni Hill from August 1, 1990, to December 31, 1991,

were alimony as respondent contends, or child support or other

nonalimony payments as petitioners contend.    We hold that the

payments were alimony.

     References to petitioner are to Fawni Hill, formerly Fawni

Little.    Section references are to the Internal Revenue Code in

effect for the years in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

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

A.   Petitioners

     Petitioners lived in Woodside, California, when they filed

their petition.

     Petitioner worked full time as an office manager from 1968

to 1973.    She obtained a bachelor’s degree at age 32.   After

college, she started a business not otherwise described in the

record.    She later worked 2 years for a space-planning firm.    In




     1
       Respondent concedes that petitioners are not liable for
penalties under sec. 6662(a) for 1990 and 1991.
                                - 3 -


1988, petitioner earned $30,000.   At the time of trial, she

worked as an interior designer.

B.   Petitioner's Marriage to James Little

     Petitioner married James Little on December 18, 1967.     They

had two children:   Lindsey, born on August 6, 1968; and

Christina, born on December 21, 1973.

     James Little was chairman of the board and president of

Pacific Compensation Insurance Co. (Pacific Compensation) in

San Bruno, California, until November 9, 1991.   He then became

president and chief executive officer of Fremont Indemnity Co.,

which acquired Pacific Compensation.    James Little earned about

$230,000 in 1988 and less than $200,000 in 1989.   He earned more

than $450,000 from Pacific Compensation and Fremont Indemnity Co.

in 1990.    Fremont Indemnity Co. paid James Little about $399,000

in 1991.

C.   Petitioner's Divorce From James Little, the Marital
     Settlement Agreement, and the Judgment of Dissolution

     In 1989, petitioner and James Little decided to end their

marriage.   Petitioner and James Little and their lawyers

negotiated a marital support agreement.   The negotiation took

about 6 months.   Christina lived with petitioner at that time.

Petitioner and James Little agreed that they would have joint

legal custody of Christina and that petitioner would have primary

physical custody of her.
                               - 4 -


     On November 14, 1989, petitioner and James Little and their

lawyers signed a marital settlement agreement.   The Superior

Court for the County of San Mateo, California, issued a judgment

of dissolution on November 22, 1989, divorcing petitioner and

James Little.   The judgment of dissolution included the marital

settlement agreement.

     The judgment of dissolution required James Little to pay

petitioner $5,253 per month in spousal support beginning

November 1, 1989, and continuing until petitioner or James Little

died, petitioner remarried or cohabited with an unrelated member

of the opposite sex for more than 30 consecutive days, or

January 1, 2009, whichever occurred first.

     The marital settlement agreement required petitioner to sign

a $69,336 promissory note with a 9-percent annual interest rate

to James Little for her one-half of a line of credit with

Security Pacific Bank.   Under the promissory note, petitioner

was required to pay James Little $1,329 per month with payments

credited first to interest and second to principal.   The judgment

of dissolution gave joint custody of Christina to petitioner and

James Little, gave physical custody of Christina to petitioner,

and gave reasonable visitation rights to James Little.   The

judgment of dissolution required James Little to pay child

support of $1,739 per month to petitioner from November 1, 1989,

until further order of the court, Christina’s death, her marriage
                                - 5 -


or emancipation, her reaching age 19, or her reaching 18 and no

longer being a full-time high school student living with a

parent, whichever came first.

     The marital settlement agreement prohibited James Little

from taking any offsets or credits against his child support

payments to petitioner.   The judgment of dissolution provided

that if petitioner remarried before child support ended by

operation of law, child support would automatically increase to

$3,000 per month.

     Christina was 15 years old and lived with petitioner on

November 22, 1989, when her parents divorced.   James Little

remarried in January 1990.   Christina lived with James Little

from mid-February to early April 1990.

     Petitioner met Larick Hill in 1986.   She first considered

marrying him late in 1989 or early in 1990.   Under the marital

settlement agreement, James Little would no longer have to pay

petitioner the $5,253 per month in spousal support if she

remarried.

D.   Negotiations To Change the Marital Settlement Agreement

     In the spring or summer of 1990, petitioner and James Little

began to negotiate changes to the judgment of dissolution.

Petitioner and James Little discussed modifying the spousal

support provision in the marital settlement agreement.   James

Little offered to remove a financial impediment to petitioner’s
                              - 6 -


remarriage by proposing that spousal support payments continue

for a period of time after she remarried.   Petitioner proposed

that James Little make the payments for 36 months.    James Little

offered to extend the payments for 18 months.    Petitioner asked

James Little to put his proposal in writing.    On July 9, 1990,

James Little wrote the following in a letter to petitioner:

     We have two outstanding issues.   They are:

     1.   The appropriate adjustment to child support
          payments effective August 1, 1990.

     2.   Proposed adjustments to the Marital Separation
          Agreement should you remarry prior to
          September 30, 1990.

     Regarding item 1, to save both you and I legal expense,
     I would be prepared to try an interim adjustment
     between you and I as follows:

          On the 5th of each month, beginning August 5,
          1990, you will pay me $1,400.00, in the form
          of a cashier’s check, as reimbursement for
          child support expenses.

     If we make an adjustment to the spousal support
     agreement, as contemplated in item 2, we could also
     formalize the child support changes in the documents we
     file with the court. Please be advised that if this
     temporary child support solution is unacceptable, I
     will have to seek relief for the child support payments
     through the judicial process. May I hear from you
     regarding the child support issue by Saturday, July 14,
     1990?

     The following is my proposal covering adjustments to
     the Marital Separation Agreement referenced as item 2:

     A.   Fawni acknowledges JEL has 90+% physical custody
     of CNL.

     B.   JEL child support payments to FLL terminate.
                              - 7 -


     C.   JEL waives child support payments from FLL.

     D.   If FLL remarries before September 30, 1990, on the
     date of her marriage her debt to JEL is forgiven and
     JEL will then pay $4,000.00 per month spousal support
     through January 31, 1992 unless child support payments
     by JEL for CNL are resumed for any reason.

     E.   If child support payments are resumed after FLL
     has remarried, the $4,000 per month shall be reduced by
     1.55 times the amount of child support.

     F.   JEL life insurance/annuity obligation to FLL to
     cease upon FLL remarriage.

     Petitioner and James Little lived a mile apart when James

Little sent his written proposal.     On July 11, 1990, petitioner

responded to James Little’s letter as follows:

     This is in response to your letter to me of yesterday
     regarding child support and spousal support.

     Item 1. Commencing August 1, 1990, child support can
     be adjusted to reflect JEL having physical custody
     (80%) under the following conditions:

          A.   FLL receives a letter from Christina stating
          that she wishes to reside primarily with JEL until
          age 18.

          B.   Child support payments to FLL to be based on
          20% custody at JEL’s current compensation rate for
          the same duration as specified in the MSA, due on
          the 1st of each month, or promissory note to JEL
          to be forgiven.

          C.   All legal expenses related to the above
          transactions to be the sole responsibility of JEL,
          including but not limited to reversing the above
          should Christina wish to change her primary
          residence prior to age 18.

          D.   JEL will assume 100% responsibility for
          Christina’s educational expenses as well as
          medical and dental expenses.
                         - 8 -


                          OR

Item 2:   With regard to a spousal support adjustment
if FLL remarries prior to 30 September 1990, the
following conditions are to be accepted:

     A.   Upon receipt of a letter from Christina
     stating her desire to reside primarily with JEL,
     FLL to acknowledge that JEL has physical custody
     of Christina until such time as Christina reaches
     18 or reverses her decision, whichever comes
     first.

     B.   Child support to cease with the clear
     understanding that JEL will be responsible for
     100% of Christina’s educational expenses as well
     as medical and dental expenses.

     C.   N/A

     D.   1. N/A The debt is forgiven automatically
     in the event of remarriage per MSA.

          2. JEL to pay FLL adjusted spousal support
     on the 1st of each month following FLL’s
     remarriage in the amount of not less than $3,000
     net to Fawni based on her tax bracket (33+9%) not
     JEL’s. (28%) through May 31, 1992. JEL to provide
     all legal expenses associated with this
     modification to the MSA.

     E.   Should Christina desire to change her primary
     residence prior to age 18, the amount of
     spousal/child support will be determined by JEL’s
     compensation at that time, but will not be less
     than the amount of spousal support paid to FLL
     following remarriage. JEL will be responsible for
     all legal expenses associated with such change,
     should it occur.

     F.   JEL’s life insurance obligation to FLL will
     cease and he will provide Christina with a minimum
     of $500,000 life insurance until age 25.

     G.    The necessary legal work to accomplish the
     above is completed and accepted prior to 20 July
     1990.
                                - 9 -


     Petitioner wrote the counterproposal without consulting with

her lawyer.

E.   Modification of Judgment of Dissolution

     Petitioner and James Little discussed a stipulation to

modify the marital settlement agreement after writing the

letters.   Sheldon Lodmer, James Little’s divorce attorney, and

John Carter, James Little’s accountant and financial adviser,

drafted a stipulation to modify the marital settlement agreement.

Petitioner’s attorney reviewed it late in July 1990.      Petitioner

told her attorney that she wanted to protect Christina’s standard

of living.    Petitioner’s attorney told her that it was alright to

sign it.   Petitioner had an accountant at the time, but did not

ask him to review the stipulation.      Petitioner reviewed the

stipulation before she signed it.

     On August 1, 1990, the Superior Court for the County of

San Mateo filed petitioner and James Little’s “Stipulation Re

Modification of Judgment of Dissolution of Marriage, Entered

November 22, 1989” (stipulation re modification of judgment of

dissolution), which provided:

          1.   All child support payments by Respondent,
     pertaining to the minor, CHRISTINA NOEL LITTLE, born
     December 21, 1973, as indicated in Paragraph III(A)
     of the aforementioned Judgment, shall terminate on
     August 1, 1990. Petitioner acknowledges that
     Respondent has physical custody of said minor more
     than 90% of the time.

          2.   In the event that Petitioner remarries prior
     to August 30, 1990, the spousal support shall be
                                - 10 -


     reduced to $4,000 per month and shall continue through
     January 31, 1992, at which time all spousal support
     shall terminate and the Court shall not retain
     jurisdiction to extend the same. Except as hereinafter
     indicated, this spousal support order is non-
     modifiable.

               (A) The foregoing notwithstanding, in the
     event that child support payments are resumed by
     Respondent to Petitioner after Petitioner remarries,
     the amount of spousal support paid by Respondent shall
     be reduced by 1.55 times the amount of said child
     support, up to a maximum reduction of $4,000.00 per
     month.

          3.   The life insurance obligation of Respondent
     referenced in Paragraph I(B) of the Judgment of
     Dissolution of Marriage shall terminate upon
     Petitioner’s remarriage.

     At the time of the negotiations that led to the adoption

of the stipulation re modification of judgment of dissolution,

petitioner was interested in remarrying, especially when

Christina lived with her father.    Petitioner did not believe

that Christina would live with James Little for a long time.

     Petitioner and Larick A. Hill were married on August 10,

1990.

     Christina returned to live with petitioner around October

1990, and remained there throughout the years in issue.    James

Little moved to Southern California on January 5, 1991.

Christina visited him there about six times per year.    She was

there 3 to 7 days per visit.    Christina graduated from high

school in the spring of 1991.    In the summer of 1991, after
                                - 11 -


she graduated from high school, Christina worked as a

receptionist/typist.    She earned more than $3,000.

     Christina began attending college full time at the

University of Oregon in September 1991.    Petitioner and James

Little each paid one-half of Christina's college tuition for

the 1991-92 school year.

     Under the judgment of dissolution, James Little paid spousal

support to petitioner of $36,771 and child support of $12,173

from January 1, 1990, to July 31, 1990.    Under the stipulation re

modification of judgment of dissolution, James Little paid

spousal support to petitioner of $20,000 from August 1 to

December 31, 1990, and $48,000 in 1991.

     Petitioner reported that she received alimony of $28,000 in

1990.

                                OPINION

A.   Contentions of the Parties

        James Little made 17 $4,000 monthly payments from August 1,

1990, to January 31, 1992, as required by the stipulation re

modification of judgment of dissolution.    We must decide whether

those amounts are alimony as respondent contends or child support

or other nonalimony payments as petitioners contend.
                                - 12 -


B.   Background

     Alimony is taxable to the recipient and is deductible by

the payor.   Secs. 71(a), 215(a).     Alimony payments are not child

support payments.    Sec. 71(c).    Child support payments are

neither includable in income under section 71 nor deductible

under section 215.    Child support is that part of a payment which

the divorce instrument fixes 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),”

sec. 71(c)(2)(A), or “at a time which can clearly be associated

with a contingency of a kind specified in subparagraph (A),” sec.

71(c)(2)(B).

     The parties agree that this case should be decided by

applying section 72(c)(2)(B) and section 1.71-1T(c), Q&A-18,

Temporary Income Tax Regs., 49 Fed. Reg. 34457 (Aug. 31, 1984).2

     2
       Sec. 1.71-1T(c), Q&A-18, Temporary Income Tax Regs., 49
Fed. Reg. 34457 (Aug. 31, 1984), provides:

          Q-18. When will a payment be treated as to be
     reduced at a time which can clearly be associated with
     the happening of a contingency relating to a child of
     the payor?

          A-18.   There are two situations, described below,
                                                    (continued...)
                        - 13 -




2
 (...continued)
in which payments which would otherwise qualify as
alimony or separate maintenance payments will be
presumed to be reduced at a time clearly associated
with the happening of a contingency relating to a child
of the payor. In all other situations, reductions in
payments will not be treated as clearly associated with
the happening of a contingency relating to a child of
the payor.

     The first situation referred to above is where
the payments are to be reduced not more than 6 months
before or after the date the child is to attain the
age of 18, 21, or local age of majority. The second
situation is where the payments are to be reduced on
two or more occasions which occur not more than one
year before or after a different child of the payor
spouse attains a certain age between the ages of 18
and 24, inclusive. The certain age referred to in
the preceding sentence must be the same for each such
child, but need not be a whole number of years.

     The presumption in the two situations described
above that payments are to be reduced at a time clearly
associated with the happening of a contingency relating
to a child of the payor may be rebutted (either by the
Service or by taxpayers) by showing that the time at
which the payments are to be reduced was determined
independently of any contingencies relating to the
children of the payor. The presumption in the first
situation will be rebutted conclusively if the
reduction is a complete cessation of alimony or
separate maintenance payments during the sixth post-
separation year (described in A-21) or upon the
expiration of a 72-month period. The presumption may
also be rebutted in other circumstances, for example,
by showing that alimony payments are to be made for a
period customarily provided in the local jurisdiction,
                                               (continued...)
                             - 14 -


Payments which would otherwise qualify as alimony are presumed to

be child support if they are reduced within 6 months of the

child’s 18th or 21st birthday or legal age of majority.   Sec.

1.71-1T(c), Q&A-18, Temporary Income Tax Regs., supra.

Respondent concedes that the payments at issue are presumed to be

child support under the temporary regulations because the

stipulation re modification of judgment of dissolution eliminated

alimony on January 31, 1992, which was within 6 months of

December 21, 1991, Christina's 18th birthday.



     2
      (...continued)
     such as a period equal to one-half the duration of the
     marriage.

          Example: A and B are divorced on July 1, 1985,
     when their children, C (born July 15, 1970) and D (born
     September 23, 1972), are 14 and 12, respectively.
     Under the divorce decree, A is to make alimony payments
     to B of $2,000 per month. Such payments are to be
     reduced to $1,500 per month on January 1, 1991 and to
     $1,000 per month on January 1, 1995. On January 1,
     1991, the date of the first reduction in payments, C
     will be 20 years 5 months and 17 days old. On January
     1, 1995, the date of the second reduction in payments,
     D will be 22 years 3 months and 9 days old. Each of
     the reductions in payments is to occur not more than
     one year before or after a different child of A attains
     the age of 21 years and 4 months. (Actually, the
     reductions are to occur not more than one year before
     or after C and D attain any of the ages 21 years 3
     months and 9 days through 21 years 5 months and 17
     days.) Accordingly, the reductions will be presumed to
     clearly be associated with the happening of a
     contingency relating to C and D. Unless this
     presumption is rebutted, payments under the divorce
     decree equal to the sum of the reductions ($1,000 per
     month) will be treated as fixed for the support of the
     children of A and therefore will not qualify as alimony
     or separate maintenance payments.
                              - 15 -


C.   Whether Respondent Rebutted the Presumption Under Section
     1.71-1T(c), Q&A-18, Temporary Income Tax Regs., That the
     Payments Are Child Support

     Petitioners contend that there was no evidence introduced at

trial to rebut the presumption.3   We disagree.

     Section 1.71-1T(c), Q&A-18, Temporary Income Tax Regs.,

supra, provides that the taxpayer or the Commissioner may rebut

the presumption “by showing that the time at which the payments

are to be reduced was determined independently of any

contingencies relating to the children of the payor.”    Respondent

has done so by showing that the parties chose January 31, 1992,

as part of eliminating a financial impediment to petitioner’s

remarriage and that it is purely coincidental that January 31,

1992, is within 6 months of Christina's 18th birthday.

     Petitioner testified that the modification gave her a

financial incentive to remarry.    The stipulation re modification

of judgment of dissolution does not refer to Christina's 18th

birthday, and, by its terms, it ends her child support.   The

parties apparently did not discuss Christina's 18th birthday when

they negotiated the stipulation re modification of judgment of

dissolution.   James Little testified as follows:




     3
       Petitioners also contend that respondent determined that
the payments at issue here are alimony because respondent allowed
James Little to deduct the amounts in issue in a year that is
closed by the statute of limitations.
                                 - 16 -


           Q    The date that was agreed upon for the
      duration of the spousal support payments was
      January 31st, 1992. How was that date agreed upon?

           A    My recollection is, like most items in this,
      it was a negotiated settlement. And her -- Mrs. Hill's
      original request was for thirty-six months. And there
      was some dialogue back and forth which I don't remember
      the specifics on, but we finally -- my position was to
      split the difference, and that's what it's going to be.

      Petitioner testified as follows:

           Q    Did you ever discuss with him why that
      particular -- why he chose that particular date?

           A    It wasn't a date that he really chose. We
      had discussed over the phone during these several
      conversations sort of a timeframe. And thinking about
      Christina become -- becoming eighteen, I wanted it to
      at least cover that period of time. Christina was very
      young. She was graduating from high school at age
      seventeen. At that point I didn't know if she was
      going to be going away to college her first year.

                     *   *   *     *      *   *   *

           And I wanted to be -- to have a lifestyle for her
      that she would be comfortable with, should I remarry.

                     *   *   *     *      *   *   *

           I wasn't concerned about having compensation for
      myself for eighteen months or five years or twenty
      years. It was for Christina. It was for Christina's
      expenses.

      Petitioner testified that she told her divorce attorney that

she wanted to have funds to support Christina until she became

18.

      Petitioner's and James Little's testimony shows that they

negotiated how long James Little would pay spousal support to

petitioner after she remarried.     James Little did not say whether
                                - 17 -


he considered Christina's 18th birthday.    Petitioner said that

she considered Christina's 18th birthday.    Neither petitioner nor

James Little testified that they discussed Christina's birthday

with each other.   The stipulation re modification of judgment of

dissolution does not say that the parties considered Christina's

18th birthday.   We conclude that the fact that January 31, 1992,

was within 6 months of Christina's 18th birthday was a

coincidence, and was not a contingency related to Christina.

Thus, the payments at issue are not presumed to be child support.

     Our conclusion is consistent with the labels used by the

parties in the written agreement.    The stipulation re

modification of judgment of dissolution states:    "In the event

that Petitioner remarries prior to August 30, 1990, the spousal

support shall be reduced to $4,000 per month and shall continue

through January 31, 1992."   The parties agreed to end child

support payments made by James Little.

     The stipulation re modification of judgment of dissolution

states:   "All child support payments by * * * [Little] shall

terminate on August 1, 1990."    Petitioner was represented by

counsel who reviewed the document and said it was alright for

petitioner to sign it.   Christina lived with James Little when he

and petitioner negotiated the stipulation re modification of

judgment of dissolution.   The words petitioner and James Little

chose fit the substance of the arrangement that existed at the

time.
                               - 18 -


     Petitioners contend that the stipulation re modification of

judgment of dissolution is ambiguous.     Petitioners point out

that the stipulation re modification of judgment of dissolution

contains a formula which, if child support is resumed later,

reduces spousal support by 1.55 times the amount of any child

support.    This provision does not lead us to conclude that

payments made before child support resumes are child support.

The stipulation re modification of judgment of dissolution

clearly states that the payments at issue are spousal support and

that child support ended on August 1, 1990.

     Petitioners contend that respondent must show that

petitioner and James Little chose the termination date based on a

specific event in Christina's or James Little's life other than

her 18th birthday.    We disagree.   Section 1.71-1T(c), Q&A-18,

Temporary Income Tax Regs., 49 Fed. Reg. 34457 (Aug. 31, 1984),

does not require that payments terminate based on a specific

event to overcome the presumption that payments which terminate

within 6 months of a child's 18th birthday are child support.      It

provides that a party may overcome the presumption by showing

that the date the payments are to be reduced was chosen

independently of any contingencies relating to the children.

Respondent has done so by showing that it is merely a coincidence

that January 31, 1992, was within 6 months of Christina's 18th

birthday.
                                - 19 -


     Petitioners contend that respondent erroneously relied on

the fact that James Little had primary physical custody of

Christina when he and petitioner agreed to the stipulation re

modification of judgment of dissolution.     Petitioners argue that

this was an error because the obligation to pay child support in

California does not always depend on who has primary physical

custody if the noncustodial spouse lacked resources to adequately

care for the child.     See In re Marriage of Katz, 201 Cal. App. 3d

1029, 1038-1039 (1988).     We disagree that we may not consider the

fact that James Little had primary physical custody of Christina.

In California, a parent generally meets his or her child support

obligation by maintaining custody of the child.     In re Marriage

of Rasmussen, 155 Cal. App. 3d 805, 812 (1984).     Petitioner has

not shown that she lacked resources to adequately care for

Christina similar to the example given by the court in In re

Marriage of Katz, supra.     The fact that James Little had physical

custody is not dispositive, but we believe it is relevant to

deciding whether he and petitioner intended the payments at issue

to be child support.

     Petitioners contend the stipulation re modification of

judgment of dissolution must be construed against James Little

because his advisers drafted it.     Cal. Civil Code sec. 1654

(West 1985); 2 Restatement, Contracts 2d, sec. 206 (1981); 4

Williston, A Treatise on the Law of Contracts, sec. 621 (3d ed.

1961).   We disagree.    An agreement is construed against its
                                - 20 -


drafters only to resolve ambiguities in the agreement.

Williston, supra.   The stipulation re modification of judgment of

dissolution clearly states that the payments at issue are spousal

support and that child support ends.

     Petitioners contend that we should not rely on the language

in the stipulation re modification of judgment of dissolution

because petitioner had much less educational and business

background than James Little.    We disagree.    Petitioner and her

attorney reviewed the stipulation re modification of judgment of

dissolution before they signed it.       Petitioner has a bachelor’s

degree and business experience.

     We conclude that respondent has rebutted the presumption

that the payments at issue are child support.

D.   Whether the Payments at Issue Are Alimony

     Petitioners contend that, even if respondent rebuts the

presumption that the payments at issue are child support, they

are not alimony under section 71(b).      We disagree.

     Petitioners bear the burden of proving that respondent's

determination that the payments at issue are alimony is

incorrect.   Rule 142(a).   Alimony is 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,
                               - 21 -


     (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.

Sec. 71(b)(1).

     The payments at issue meet each of these requirements.

First, petitioner received payments under a divorce or separation

agreement.   Second, the stipulation re modification of judgment

of dissolution does not state that petitioner need not include

the payments in gross income or that James Little may not deduct

the payments.    Third, petitioner and James Little lived apart

when James Little made the payments at issue.     Fourth, the

provision in the judgment of dissolution that payments were to

terminate when petitioner or James Little died was not modified

by the stipulation re modification of judgment of dissolution.

The stipulation re modification of judgment of dissolution

states:   “the spousal support shall be reduced to $4,000 per

month and shall continue through January 31, 1992”.     The

modification relates to the marital settlement agreement.       The

judgment of dissolution provides that spousal support terminates

if petitioner or James Little dies.     The stipulation re

modification of judgment of dissolution did not change this
                                - 22 -


clause.   Thus, the payments at issue meet all of the requirements

for alimony.   Sec. 71(b)(1).

     Petitioners contend that James Little was required to

continue the payments through January 31, 1992, even if

petitioner or James Little died before that date.   We disagree.

The stipulation re modification of judgment of dissolution did

not modify the provision in the judgment of dissolution that

spousal support payments were to terminate when petitioner or

James Little died.

     Petitioners assert that James Little's testimony shows that

the stipulation re modification of judgment of dissolution had

that effect.   We disagree.   James Little said:

          Q    * * * As part of your understanding of
     the modification agreement, do you think that your
     obligation to pay the $4,000 a month would have
     terminated, had Mrs. Hill died prior to January 31st
     of 1992? Do you still have the agreement?

          A     Uh-huh.

          Q     Do you need a copy?

          A    I would have assumed so. We probably would
     have had to go back to court, but I would have assumed
     it would have stopped.

          Q    But you're not saying that from anything
     you find in the modification agreement; you're just
     assuming?

          A     Yes.

          Q    What do you assume would have happened to
     those $4,000 a month payments had Christina died before
     January 31st, 1992?

          A     Nothing.
                                - 23 -


          Q    Do you have any idea whether your estate
     would have been obligated to continue the $4,000 a
     month payments required by that modification had you
     died prior to December 31st of 1992?

          A     I don’t recall specifically having talked
     about that subject; no. And I’m not qualified to
     speculate.

          Q    Well, I’m mostly asking whether you find it
     in the agreement. I don’t want you to speculate.

           A    Oh.   It’s not in the agreement.

This testimony does not establish or even suggest that his estate

would have been required to continue making payments until

January 31, 1992, if he had died before then.

     Petitioners contend that, if respondent rebuts the

presumption, then the payments were neither alimony nor child

support.   Petitioners give no reason that the amounts at issue

are not alimony except to restate their belief that the payments

at issue do not terminate when petitioner or James Little dies.

We conclude that the payments at issue are alimony for purposes

of sections 71(a) and 215(a).

     Petitioners contend that the payments at issue are not

alimony because petitioner and James Little orally agreed to

modify the stipulation re modification of judgment of dissolution

in October 1990.   We disagree.

     Petitioners’ contention is inconsistent with their 1990 tax

return on which they reported that petitioner received $28,000 in

alimony.   Under petitioners’ contention, petitioner would have

received $44,771 in alimony in 1990.
                              - 24 -


     Petitioner testified that James Little told her on the

telephone that they could treat the payments at issue as child

support.   James Little denied that he said that.   Petitioner and

James Little communicated in writing when dealing with important

financial matters.   We think it is highly unlikely that they

would have orally agreed to this change.    We conclude that

petitioner and James Little did not orally modify the stipulation

re   modification of judgment of dissolution.

     Petitioners contend that the $4,000 per month payments at

issue were child support payments because the child support

payment requirements in the judgment of dissolution were not

changed by the stipulation re modification of judgment of

dissolution.   We disagree.

     The stipulation re modification of judgment of dissolution

provided that child support payments by James Little pursuant to

paragraph III(A) of the judgment of dissolution would terminate

on August 1, 1990.   Thus, the stipulation re modification of

judgment of dissolution changed James Little's child support

requirements by ending his obligation to pay child support to

petitioner of $1,739 per month.

     To reflect concessions and the foregoing,


                                                Decision will be

                                           entered under Rule 155.
