                        T.C. Memo. 2003-92



                     UNITED STATES TAX COURT



                    JANE GILBERT, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

                 RICHARD C. HAWLEY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 1592-01, 4178-01.      Filed March 28, 2003.



     John W. Schmehl, for petitioner in docket No. 1592-01.

     Charles F. Blumenstock, Jr., for petitioner in docket No.

4178-01.

     Jack T. Anagnostis, for respondent.



                        MEMORANDUM OPINION


     WELLS, Chief Judge:   Respondent determined deficiencies in

the Federal income tax of petitioner Jane Gilbert, formerly Jane
                               - 2 -

Hawley (Ms. Gilbert), for the taxable years 1993, 1994, and 1995

of $7,163, $8,922, and $6,157, respectively.    Respondent

determined deficiencies in the Federal income tax of petitioner

Richard C. Hawley, M.D. (Mr. Hawley), for the taxable years 1993,

1994, and 1995 of $21,644, $23,261, and $19,355, respectively.1

     After concessions, the issue remaining to be decided in the

instant cases is whether any part of the unallocated child and

spousal support payments constitutes alimony under section 712

that is deductible by the payor spouse, Mr. Hawley, under section

215, and includable in the gross income of the payee spouse, Ms.

Gilbert, under sections 61(a)(8) and 71(a).    In the notices of

deficiency and on brief, respondent has taken inconsistent

positions, in that respondent disallowed deductions to Mr. Hawley

and required Ms. Gilbert to report alimony income.    Respondent

asks us to allocate the subject payments consistently between

petitioners.   Moreover, if we find that the payments constitute

alimony, then we must decide whether Ms. Gilbert is liable under

section 55 for alternative minimum tax because of the increase in

her gross income from the alimony adjustment.




     1
      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 petitioners.
     2
      All section references are to the Internal Revenue Code, as
amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                 - 3 -

                            Background

     The parties submitted the instant case fully stipulated,

without trial, pursuant to Rule 122.     The parties’ stipulations

of facts are hereby incorporated by this reference and are found

as facts in the instant case.3

     Petitioners were residents of Pennsylvania when they

petitioned this Court.   On April 25, 1977, petitioners were

married in Buchanan, Georgia.    Three children were born of

petitioners’ marriage:   Charles R. Hawley (born September 7,

1978), Katherine G. Hawley (born July 9, 1980), and Margaret G.

Hawley (born August 25, 1983).

     On September 22, 1990, petitioners separated and thereafter

were not members of the same household.     On October 23, 1990, Ms.

Gilbert sued Mr. Hawley for divorce.     On October 25, 1990, Mr.

Hawley answered and counterclaimed against Ms. Gilbert for

divorce.   At the time petitioners initiated the divorce

proceedings, they were residents of Schuylkill County,

Pennsylvania.

     On February 4, 1992, the Court of Common Pleas of Schuylkill

County entered an agreement and order of support (hereinafter the

February 4, 1992, separation instrument), which stated:


     3
      Respondent objects on grounds of relevance to stipulations
12, 13, and 23. Both Ms. Gilbert and respondent object on
grounds of relevance to stipulation 25. This Court finds these
objections to be moot because this Court does not rely upon those
stipulations in reaching our decision.
                         - 4 -

     AND NOW, this 4th day of February, 1992, upon
agreement of the parties, it is hereby ORDERED that the
Defendant is directed to pay the sum of $2,077.00 bi-
weekly for and toward the support of wife and three (3)
minor children. In addition, the Defendant is directed
to pay the sum of $100.00 bi-weekly on account of
accumulated arrearages, for a total sum of $2,177.00
bi-weekly. The first payment in the sum of $2,177.00
is to be made February 5, 1992 and a like sum each
second Wednesday thereafter.

     As of February 5, 1992 the arrearage balance shall
be $2,224.00

     This Order is to be effective February 5, 1992.

     All payments are to be made to the Domestic
Relations Section of this Court and mailed to P.O. Box
1192, Pottsville, PA 17901. The number 18758 must
appear on all payments and correspondence mailed to
this office.

     The parties are directed to make available to all
dependents named in this Order any employer-provided
medical or other benefits available at no cost as a
benefit of employment or at a reasonable cost. The
parties are directed to notify the Domestic Relations
Section in writing within seven (7) days of obtaining
coverage or any change in coverage.

     Both parties shall inform the Domestic Relations
Section in writing of any change in employment, change
of address or change of address of a child receiving
support within seven (7) days of such change.

     An automatic wage attachment shall be issued
without notice on Defendant upon default of an amount
equal to one month’s support obligation or at such
other time as the Court may designate.

     Plaintiff will be responsible to pay the first
$1,000.00 per year for uninsured medical expenses
including dental, orthodontic, optical and prescription
drugs. Any uninsured medical expenses in excess of
$1,000.00 per year shall be divided between the
parties: Plaintiff 35% and Defendant 65%.
                              - 5 -

          Commencing with the payment due March 1, 1992
     Plaintiff shall be obligated to make the monthly
     mortgage payments on the residence located at 365
     Pershing Drive, Orwigsburg, Schuylkill County,
     Pennsylvania.

     Mr. Hawley deducted $54,100 in 1993, $54,100 in 1994, and

$51,565 in 1995 as alimony paid to Ms. Gilbert.

     Ms. Gilbert did not report the receipt of any payments from

Mr. Hawley for 1993, 1994, and 1995.4

     On July 18, 1995, petitioners divorced.   On November 20,

1995, pursuant to a petition to the Court of Common Pleas of

Schuylkill County, that court terminated Mr. Hawley’s obligation

to provide spousal support for Ms. Gilbert and transferred the

matter to the Domestic Relations Office for “a determination of

the appropriate amount of child support.”5




     4
      Ms. Gilbert filed tax returns for 1993 and 1995 but not for
1994. Ms. Gilbert qualified for head-of-household filing status
for 1993, 1994, and 1995.
     5
      The order granting Mr. Hawley’s petition to terminate
spousal support stated:

     AND NOW, this 20th day of November, 1995, at 9:00 a.m.,
     the Court hereby ORDERS the following:

          1. The defendant’s Petition To Terminate Spousal
     Support is GRANTED as the obligation for spousal
     support is terminated as a matter of law by the entry
     of the July 18, 1995 Decree in Divorce; and

          2. This matter is TRANSFERRED to the Domestic
     Relations Office for a determination of the appropriate
     amount of child support.
                                    - 6 -

                                  Discussion

       We must decide whether all or any part of the predivorce

unallocated support payments made by Mr. Hawley to Ms. Gilbert

qualify as alimony to the payee spouse, Ms. Gilbert, includable

in gross income under sections 61(a)(8)6 and 71(a)7 and

deductible by the payor spouse, Mr. Hawley, under section 215.8

       To be considered alimony unallocated support payments must

conform to the requirements of section 71(b).           Lovejoy v.

Commissioner, 293 F.3d 1208 (10th Cir. 2002), affg. Miller v.

Commissioner, T.C. Memo. 1999-273; Zinsmeister v. Commissioner,

T.C. Memo. 2000-364; Gonzales v. Commissioner, T.C. Memo. 1999-

332.       Section 71(b) provides in part:

            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–



       6
            SEC. 61(a). General Definition.--Except as otherwise
       provided in this subtitle, gross income means all income
       from whatever source derived, including (but not limited to)
       the following items:

                    *    *    *     *       *   *   *

               (8) Alimony and separate maintenance payments; * * *
       7
            SEC. 71(a). General Rule.-–Gross income includes
       amounts received as alimony or separate maintenance
       payments.
       8
            SEC. 215(a). General Rule.–-In the case of an
       individual, there shall be allowed as a deduction an amount
       equal to the alimony or separate maintenance payments paid
       during such individual’s taxable year.
                               - 7 -

               (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.

     In the instant case, the parties agree that the unallocated

support payments meet the requirements subparagraphs (A), (B),

and (C) of section 71(b)(1).   The parties, however, dispute the

application of subparagraph (D) of section 71(b)(1).     If Mr.

Hawley is obligated to make one or more substitute payments after

the death of Ms. Gilbert, then none of the unallocated support

payments will be considered alimony.   See Gonzales v.

Commissioner, supra; sec. 1.71-1T(b), Q&A-13, Temporary Income

Tax Regs., 49 Fed. Reg. 34456 (Aug. 31, 1984).9

     9
      Mr. Hawley contends that we should follow Simpson v.
Commissioner, T.C. Memo. 1999-251 (Pa. case), and Lawton v.
Commissioner, T.C. Memo. 1999-243 (Pa. case), which held that
unallocated payments are considered alimony. However, those
cases considered the application of sec. 71(c) and did not
directly address the application of subpar. (D) of sec. 71(b)(1)
                                                   (continued...)
                                - 8 -

     In deciding whether the payments were alimony, we examine

the language of the February 4, 1992, separation instrument to

ascertain whether it contains a termination upon death condition,

and, if it does not, whether State law supplies such a condition.

Hoover v. Commissioner, 102 F.3d 842, 847 (6th Cir. 1996), affg.

T.C. Memo. 1995-183; see Gonzales v. Commissioner, supra; see

also Cunningham v. Commissioner, T.C. Memo. 1994-474.

     State law determines certain rights of the parties, and

Federal law determines the Federal income tax consequences of

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

Lucas v. Earl, 281 U.S. 111 (1930).     The February 4, 1992,

separation instrument does not explicitly order that payments

terminate upon Ms. Gilbert’s death, and, thus, we examine

Pennsylvania law to determine whether the payments would

terminate by operation of Pennsylvania law.     Hoover v.

Commissioner, supra at 847.

     When examining a matter of State substantive law, we will

look to a State’s highest court to determine the rights of

parties under State law.    See Estate of Bosch v. Commissioner,

387 U.S. 456, 465 (1967).   The Pennsylvania Supreme Court has not

decided the narrow legal issue of whether an unallocated support


     9
      (...continued)
in deciding that the unallocated payments were alimony.
Therefore, those cases provide only limited guidance on the issue
before us.
                               - 9 -

order covering spousal and child support terminates upon the

death of the payee custodial spouse.

     Mr. Hawley contends that we must apply Pa. R.C.P. 1910.16-

4(f)(3), 42 Pa. Cons. Stat. Ann. (West 2002), to the instant

case, which provides: “Unallocated charging orders for child and

spousal support, or child support and alimony pendente lite,

shall terminate upon the death of the payee spouse or payee ex-

spouse.”   Pa. R.C.P. 1910.16-4(f)(3) became effective on June 5,

2001.   The years in issue are Mr. Hawley’s and Ms. Gilbert’s

1993, 1994, and 1995 tax years.   Pennsylvania statues shall not

be construed to apply retroactively “unless clearly and

manifestly so intended by the General Assembly.”   1 Pa. Cons.

Stat. Ann. sec. 1926 (West 1995); see Barnes v. Barnes, 597 A.2d

89, 92 (Pa. 1991); see also Commonwealth v. Rockwell

Manufacturing Co., 140 A.2d 854 (Pa. 1958).   Pa. R.C.P. 1910.16-

4(f)(3) does not indicate that it will have retroactive effect,

and consequently we will not apply it retroactively.

     Twenty-three Pa. Cons. Stat. Ann. section 4352(a) (West

2001), which addresses the jurisdiction of Pennsylvania courts

over divorce proceedings, provides:

     SEC. 4352.   Continuing jurisdiction over support orders

          (a) General rule.-– The court making an order of
     support shall at all times maintain jurisdiction of the
     matter for the purpose of enforcement of the order and
     for the purpose of increasing, decreasing, modifying or
                              - 10 -

     rescinding the order unless otherwise provided by Part
     VIII (relating to uniform interstate family support) or
     VIII-A (relating to intrastate family support) without
     limiting the right of the obligee, or the department if
     it has an assignment or other interest, to institute
     additional proceedings for support in any county in
     which the obligor resides or in which property of the
     obligor is situated. The Supreme Court shall by
     general rule establish procedures by which each
     interested party shall be notified of all proceedings
     in which support obligations might be established or
     modified and shall receive a copy of any order issued
     in a case within 14 days after issuance of such order.
     A petition for modification of a support order may be
     filed at any time and shall be granted if the
     requesting party demonstrates a substantial change in
     circumstances.

     Twenty-three Pa. Cons. Stat. section 4352 does not

explicitly provide that a Pennsylvania court’s jurisdiction

terminates upon the death of either party to a divorce

proceeding.   It does, however, grant Pennsylvania courts

continuing jurisdiction over support proceedings.   A party

seeking modification or termination of a support order must

petition the Pennsylvania court with jurisdiction over the

divorce proceedings.   Barnes v. Barnes, supra at 92 (petition to

modify); see Soncini v. Soncini, 612 A.2d 998, 1000 (Pa. Super.

Ct. 1992) (petition to modify); see also Benjamin v. Benjamin,

596 A.2d 877, 878 (Pa. Super. Ct. 1991) (petition to terminate);

Mosier v. McCaughtry, 564 A.2d 241 (Pa. Super. Ct. 1989).

Twenty-three Pa. Cons. Stat. section 4352(a) provides strong

indication that a Pennsylvania court would retain jurisdiction

over a divorce.   This would continue, at least temporarily, if
                                - 11 -

the payee custodial spouse died, because the statute and caselaw

grant courts continuing jurisdiction over support matters and

require a petition to modify or terminate support payments.    See

Edelstein v. Edelstein, 582 A.2d 1074, 1077 (Pa. Super. Ct.

1990).    In Gonzales v. Commissioner, T.C. Memo. 1999-332, we held

(applying New Jersey law) that, when a separation instrument is

modifiable, the noncustodial payor spouse could have remained

liable to pay support under the separation agreement after the

payee spouse’s death.

     Mr. Hawley contends that the doctrine of abatement applies

to the instant cases, and thus the unallocated support order

would terminate upon Ms. Gilbert’s death.    Before the entry of

divorce in Pennsylvania, divorce actions abate upon the death of

one of the parties.     Haviland v. Haviland, 481 A.2d 1355, 1356

(Pa. Super Ct. 1984) (citing Matuszek v. Matuszek, 52 A.2d 381

(Pa. Super. Ct. 1947)).10    Economic claims for equitable



     10
      Haviland v. Haviland, 481 A.2d 1355 (Pa. Super Ct. 1984),
held that the Pa. Divorce Code applies in pari materia with the
Probate Code, and the Divorce Code applies only to living
spouses. Id. at 1357. However, in dicta, Teribery v. Teribery,
516 A.2d 33, 37-38 (Pa. Super. Ct. 1986), stated that “Should
either party die or become disabled, for example, a petition for
modification can be filed to reflect changed circumstances.” A
court need not consider all contingencies in ordering unallocated
support, because it may consider a change in circumstances, such
as death, when raised by petition. Edelstein v. Edelstein, 582
A.2d 1074, 1077 (Pa. Super. Ct. 1990) (citing Teribery v.
Teribery, supra). Under those cases, unallocated support
payments may continue after the death of the payee custodial
spouse, at least temporarily, until there has been a petition
filed to modify the unallocated support order.
                               - 12 -

distribution of marital property also abate upon the death of a

party to the divorce action.   Reese v. Reese, 506 A.2d 471, 474

(Pa. Super. Ct. 1986); see Myers v. Myers, 580 A.2d 384, 385 (Pa.

Super. Ct. 1990) (ancillary economic claims abate).   But see

Pastuszek v. Pastuszek, 499 A.2d 1069, 1070-1071 (Pa. Super. Ct.

1985) (no abatement if death occurs after a divorce decree, but

before the disposition of equitable claims).

     Twenty-three Pa. Cons. Stat. Ann. section 3707 (West 2001),

which codifies the doctrine of abatement, provides:   “Upon the

death of the payee party, the right to receive alimony pursuant

to this chapter shall cease.”11   We note, however, that a

similar provision does not exist for the termination of child

support pursuant to a divorce proceeding.   See Garney v. Estate

of Hain, 653 A.2d 21, 23 (Pa. Super. Ct. 1995).   In Pennsylvania,

both parents are equally responsible for their children who are

unemancipated and under the age of 18.   23 Pa. Cons. Stat. Ann.




     11
      We have examined a state statute similar to 23 Pa. Cons.
Stat. Ann. sec. 3707 (West 2001). See Ambrose v. Commissioner,
T.C. Memo. 1996-128 (Cal. Fam. Code sec. 4337 (West 1994) held to
terminate unallocated support payments upon death of custodial
spouse). But see Wells v. Commissioner, T.C. Memo. 1998-2 (Cal.
Fam. Code sec. 4337 does not automatically terminate unallocated
support payments upon death of payee custodial spouse).
                                  - 13 -

sec. 4321 (West 2001);12 see Oeler v. Oeler, 594 A.2d 649, 651

(Pa. 1991).     In construing an unallocated support agreement, a

Pennsylvania court must promote the best interests of the

parties' children, Oeler v. Oeler, supra, and assure their

uninterrupted maintenance, Ritter v. Ritter, 518 A.2d 319, 322-

323 (Pa. Super. Ct. 1986).       For the tax years in issue, the

treatment of an unallocated support instrument is ambiguous under

Pennsylvania law.      If the instrument addressed only alimony, Mr.

Hawley’s duty to make payments would terminate on Ms. Gilbert’s

death.     See 23 Pa. Cons. Stat. sec. 3707.     However, the

unallocated separation agreement also covers child support, and

Pennsylvania law is ambiguous on that issue.13         See Garney v.

Estate of Hain, supra (an equivalent to 23 Pa. Cons. Stat. sec.

3707 does not exist for child support); see also Oeler v. Oeler,

supra (courts must promote the best interests of children);

Ritter v. Ritter, supra (court must ensure the uninterrupted


     12
          SEC. 4321.   Liability for support.

     Subject to the provisions of this chapter:

                  *     *    *     *    *    *     *

          (2) Parents are liable for the support of their
     children who are unemancipated and 18 years of age or
     younger.
     13
      Pennsylvania law treats alimony support orders and child
support orders differently. Pa. R.C.P. 1910.16(b), 42 Pa. Cons.
Stat. Ann. (West 2002), provides that child support orders are
considered to be final and immediately appealable, whereas
support orders are considered to be interlocutory. Mosier v.
Mosier, 518 A.2d 843, 847 n.1 (Pa. Super. Ct. 1986).
                               - 14 -

maintenance of children).    Furthermore, State courts maintain

continuing jurisdiction over separation instruments, and

petitions are required for modification of such instruments.      23

Pa. Cons. Stat. sec. 4352; see Barnes v. Barnes, 597 A.2d 89 (Pa.

1991).

      For the years in issue, Pennsylvania State law does not

provide an explicit termination condition on separation

instruments.   Nor do we find such a condition in the language of

the February 4, 1992, separation instrument itself.

     In pertinent part, the February 4, 1992, separation

instrument orders:    “An automatic wage attachment shall be issued

without notice on Defendant upon default of an amount equal to

one month’s support obligation or at such other time as the Court

may designate.”    Mr. Hawley is designated the defendant in the

February 4, 1992, separation instrument.    The unallocated support

payments do not necessarily cease upon the death of Ms. Gilbert

because the Pennsylvania court may attach Mr. Hawley’s wages for

failure to pay an unallocated support obligation, or attach Mr.

Hawley’s wages “at such other time as the Court may designate.”

As a result of such an attachment, Mr. Hawley’s liability under

the February 4, 1992, separation instrument may extend beyond Ms.

Gilbert’s death.

     In Miller v. Commissioner, T.C. Memo. 1999-273, we examined

a provision of an unallocated support order arising from a
                              - 15 -

divorce in Colorado, which ordered that unallocated support

payments continue “until further Order of Court.”     We conclude

that the provision in issue in Miller, is similar to the

provision in issue in the instant case because the unallocated

support payments may continue beyond the death of the payee

spouse at the discretion of the Pennsylvania court.

Consequently, we have no reason to conclude that Mr. Hawley’s

obligation to make unallocated support payments under the

February 4, 1992, separation instrument terminates upon the death

of Ms. Gilbert.   See generally Hoover v. Commissioner, 102 F.3d

at 848.

     Accordingly, we hold that Mr. Hawley’s obligation to provide

unallocated support to Ms. Gilbert and their children may

continue after the death of Ms. Gilbert and consequently hold

that subparagraph (D) of section 71(b)(1) has not been satisfied.

Having found the unallocated support payments do not constitute

alimony, we hold that Ms. Gilbert is not liable for the section

55 alternative minimum tax.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, or moot.

     To reflect the foregoing,


                                      Decisions will be entered

                                 under Rule 155.
