                  T.C. Summary Opinion 2005-170



                     UNITED STATES TAX COURT



          DAVID K. AND ALICE VANARSDALL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7943-04S.            Filed November 21, 2005.


     Vicki L. Anderson, for petitioners.

     Angela J. Kennedy, for respondent.




     COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.



     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue.
                                   - 2 -

       Respondent determined a deficiency of $5,306 in petitioners’

Federal income tax for 2000.

       The sole issue for decision is whether a payment of $18,3982

by petitioner David Vanarsdall (Mr. Vanarsdall) to his former

wife, Debra Vanarsdall (the former spouse), during 2000

constitutes alimony deductible under section 215(a).       That issue

is resolved by whether the $18,398 payment satisfies the

definition of “alimony or separate maintenance payment” under

section 71(b)(1)(D).3

       The parties submitted this case fully stipulated under Rule

122.       The stipulated facts are so found, and those facts, with

the annexed exhibits, are incorporated herein by reference.       At

the time the petition was filed, Mr. Vanarsdall was a legal

resident of Marathon, Florida.

       Petitioner’s divorce was finalized June 29, 1987, and was

rendered by an Indiana State court.        A Separation and Property

Settlement Agreement (the Agreement), which was incorporated into

the Dissolution Decree, was offered as a stipulated exhibit.        In



       2
      Petitioners originally claimed an alimony deduction for
$28,398 on their 2000 joint Federal income tax return.
Petitioners amended their 2000 return to reduce the deduction to
$18,398. A copy of Form 1040X, Amended U.S. Individual Income
Tax Return, reflecting the latter amount was admitted into
evidence.
       3
      Another adjustment in the notice of deficiency, a decrease
in itemized deductions, is computational and will be resolved by
the Court’s holding on the principal issue.
                                 - 3 -

the Agreement, Mr. Vanarsdall retained total ownership of his 50-

percent interest in the William A. Schmadeke-David K. Vanarsdall

Partnership (the partnership).    Article III, entitled Division of

Property, section 2 of the Agreement stated that, until January

1, 2000, Mr. Vanarsdall would make yearly payments to his former

spouse amounting to 60 percent of his portion of the ordinary

income generated by the partnership.      After January 1, 2000, Mr.

Vanarsdall agreed to pay annually his former spouse 50 percent of

his portion of the ordinary income generated by the partnership.

The Agreement required the former spouse to reimburse Mr.

Vanarsdall for his share of the taxes “due on the moneys payable

to Wife pursuant to this Section 2”.

     The Agreement was silent as to the duration of the payments

from Mr. Vanarsdall to his former spouse; however, the Agreement

provided that, if Mr. Vanarsdall’s death preceded her death, his

partnership interest would be placed in a trust for their three

daughters.   The former spouse, however, would receive the income

from the trust until her death.    Furthermore, Article V, section

4 of the Agreement, entitled Miscellaneous Provisions, also

provided that “except as otherwise provided herein, this

Agreement shall be binding upon and run for the benefit of the

heirs, personal representatives, executors and assigns of the

parties hereto”.   Finally, and more specifically, Article III,

section 18 of the Agreement stated:      “All payments due from
                               - 4 -

Husband to Wife under the provisions of this Article shall

constitute property settlement and not maintenance or alimony”.

     During the year 2000, Mr. Vanarsdall made cash payments to

the former spouse from his portion of the partnership income

totaling $18,398.   On his 2000 joint Federal income tax return,

petitioner claimed an alimony deduction for the entire amount.

In the notice of deficiency, respondent disallowed the deduction

and made no other adjustments (except for the computational

adjustments on the itemized deductions).

     The sole issue is whether the payments to the former spouse

during 2000 constitute alimony under section 215(a).4

     Section 71(a) provides generally that alimony payments are

included in the gross income of the payee spouse, and section

215(a) provides generally that alimony payments are deductible by

the payor spouse.   Section 215(b) provides in pertinent part that

the term “alimony” means any alimony, as defined in section

71(b), which is includable in the gross income of the recipient

under section 71.   Section 71(b) defines alimony as follows:


          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–-


     4
      The facts are not in dispute, and the issue is a question
of law; therefore, with respect to the burden of proof, the Court
need not address the applicability of sec. 7491. Higbee v.
Commissioner, 116 T.C. 438 (2001).
                               - 5 -


                    (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
               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.


     Petitioners’ deduction for alimony is allowable only if all

four criteria of section 71(b)(1) are met.     Jaffe v.

Commissioner, T.C. Memo. 1999-196.     Thus, for our purposes here,

if the divorce or separation instrument provides that the payment

by one spouse to the other spouse is not includable in the gross

income of the receiving spouse and is not allowable as a

deduction to the payer spouse, the payments do not constitute

deductible alimony.   Sec. 71(b)(1)(B).

     Respondent contends that Mr. Vanarsdall’s payments to the

former spouse do not constitute alimony because the parties

specifically stated in Article III, section 18 of the Agreement
                               - 6 -

that such payments constituted property settlement payments and

not alimony or maintenance payments.   The Court agrees.

     Petitioners argue that, nonetheless, Article III, section 18

of the Agreement is not conclusive because it does not

specifically state that the payments are not alimony for Federal

income tax purposes.   In support of that argument, petitioner

relies on Richardson v. Commissioner, 125 F.3d 551, 556 (7th Cir.

1997), affg. T.C. Memo. 1995-554, where the court stated:    “In

common usage, the term designate means ‘to make known directly’.

* * *   For a legal instrument to make known directly that a

spouse’s payments are not to be treated as income, we believe

that the instrument must contain a clear, explicit and express

direction to that effect”. Petitioners also argue that this Court

has held that the mere labeling of a payment as a property

settlement does not dictate the Federal income tax consequences

of the payments.   Baker v. Commissioner, T.C. Memo. 2000-164.

Petitioner is correct in stating that this Court will not declare

a payment nonalimony merely because of a general label, with no

further clarification; however, petitioners’ reliance on and

interpretation of both Richardson and Baker is incorrect.

     In Richardson, the payments at issue that were made from one

ex-spouse to the other were pursuant to a State court’s decree

that made no mention of the nature or characterization of the

payments.   Richardson v. Commissioner, supra at 553.
                                - 7 -

Consequently, that Court held that, because the court order did

not specifically designate the payments as nonalimony, thereby

making them tax free to the recipient, the payments would be

treated as alimony for Federal income tax purposes.    In this

case, the Agreement was not silent as to the designation of

payments from Mr. Vanarsdall to the former spouse.    On the

contrary, the Agreement specifically stated that the payments

“shall constitute property settlement and not maintenance or

alimony”.   This designation is a “clear, explicit, and express

direction” that the payments were not alimony for Federal income

tax purposes.

     Furthermore, petitioners’ reliance on Baker in support of

their assertion is misplaced.   In Baker, payments between the

former spouses were made pursuant to a Judgment of Divorce that

labeled the payments “property settlement”.   This Court held that

this blanket label, without further clarification, “does not

clearly inform us that the parties considered the Federal income

tax consequences of the payments under sections 71, [and] 215".

Baker v. Commissioner, supra.    Petitioner and the former spouse

did not simply label the payments between them a property

settlement without further discussion.   On the contrary, the

Agreement specifically states that such payments are “not

maintenance or alimony”.   The Agreement further provides that the

former spouse reimburse Mr. Vanarsdall for her portion of the
                               - 8 -

taxes that Mr. Vanarsdall would have to pay on the income from

the partnership.   Clearly, unlike Baker, petitioner and the

former spouse considered the tax consequences of their nonalimony

designation and made provisions thereof in the Agreement.

     Because petitioner and the former spouse specifically agreed

that payments from Mr. Vanarsdall to the former spouse were not

alimony, the requirement of section 71(b)(1)(B) has not been

met;5 therefore, respondent is sustained.     Petitioners are not

entitled to deduct the $18,398 as alimony.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                            Decision will be entered

                                       for respondent.




     5
      The Court need not look to Indiana State law because the
terms of the Agreement were clear that the payments between
petitioner and the former spouse were not alimony or maintenance
payments. Cunningham v. Commissioner, T.C. Memo. 1994-474.
