                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

COMMISSIONER OF INTERNAL             
REVENUE,                                  No. 05-76004
             Petitioner-Appellant,
               v.                         Tax Ct. No.
                                             4448-03
JOHN MICHAEL DUNKIN,                        OPINION
             Respondent-Appellee.
                                     
              Appeal from a Decision of the
                United States Tax Court

                  Argued and Submitted
           June 13, 2007—Pasadena, California

                  Filed August 31, 2007

    Before: Dorothy W. Nelson, Stephen Reinhardt, and
            Pamela Ann Rymer, Circuit Judges.

             Opinion by Judge D.W. Nelson;
               Dissent by Judge Reinhardt




                          11131
                COMMISSIONER OF IR v. DUNKIN            11133


                         COUNSEL

Deborah K. Snyder and Richard Farber, United States Depart-
ment of Justice, Tax Division, Washington D.C., for the
appellant.

John M. Dunkin, Ladera Ranch, California, pro se.


                         OPINION

D.W. NELSON, Senior Circuit Judge:

   The Commissioner of Internal Revenue (“Commissioner”)
appeals from a decision of the United States Tax Court allow-
ing John Michael Dunkin (“John” or “appellant”) to reduce
his taxable income for the 2000 tax year by $25,511—the
amount he paid his former spouse Julie Green (“Julie”) inci-
dent to a division of community property assets upon marital
dissolution. In 1997, a California Superior Court (“divorce
court”) awarded Julie one half of the marital community’s
interest in pension benefits provided by John’s employer.
However, because John chose to continue working and did
not terminate his participation in the plan following divorce,
the pension administrator did not begin making distributions
11134               COMMISSIONER OF IR v. DUNKIN
straight away. California courts have recognized that an
employee spouse like John might attempt to defeat a non-
employee spouse’s community interest in a pension by contin-
uing to work. As a result, under California law, Julie was not
required to await John’s actual retirement and instead
demanded monthly payments in lieu of her community pen-
sion interest pursuant to In re Marriage of Gillmore, 629 P.2d
1 (Cal. 1981). In 2000, John used $25,511 of the wages he
earned by continuing to work to satisfy Julie’s “Gill-
more rights.” We must decide whether John was entitled to
reduce his taxable income by the amount paid over to Julie in
2000.1 We conclude that he was not and reverse the Tax
Court’s contrary holding.

                          BACKGROUND

   John Dunkin and his former wife Julie married on August
26, 1967, separated on February 19, 1996, and were divorced
on August 19, 1997. For most of this period and continuing
until his retirement in 2002, John was employed by the Los
Angeles Police Department (“L.A.P.D.”). As part of his
L.A.P.D. compensation package, John participated in a
defined benefit plan administered by the Los Angeles Board
of Pension Commissioners (“pension board”). Under the plan,
upon retirement, John was entitled to receive monthly pay-
ments for life, based on the length of his service, his rank, and
his monthly salary. As of May 19, 1989, John’s pension rights
were fully vested and mature.2 The pension benefits earned
  1
     The record does not reveal whether Julie reported the $25,511 she
received in 2000 as income.
   2
     Pension rights are “vested” where they would survive the discharge or
voluntary termination of the employee. In re Marriage of Bergman, 214
Cal. Rptr. 661, 664 n.4 (Cal. Ct. App. 1985). Such rights are “mature”
where “all the conditions precedent to the payment of . . . benefits have
taken place or are within the control of the employee.” Gillmore, 629 P.
2d at 3 n.2 (quotations and citations omitted). Because John had accrued
twenty years of service in 1989, his rights were mature, i.e., the only con-
dition precedent to his receiving benefits was his actual retirement—an
event entirely within his control.
                 COMMISSIONER OF IR v. DUNKIN             11135
during marriage were community property. Gillmore, 629
P.2d at 3; In re Marriage of Benson, 116 P.3d 1152, 1156
(Cal. 2005) (explaining that pension benefits represent “de-
ferred compensation for work . . . performed during the mar-
riage”).

  Under California law, upon the dissolution of a marriage,
a divorce court is required to divide the community estate
equally. Cal. Fam. Code § 2550. In addition, the court may
order spousal support, commonly referred to as “alimony.”
Cal. Fam. Code § 4330(a). In this case, the divorce court
explicitly declined to order spousal support.

   As part of the division of community property, the divorce
court awarded one half of the community’s interest in the pen-
sion to each spouse. A California court may value and distrib-
ute a community’s interest in a pension in a number of
different ways. A court may, for example, award the
employee spouse the full pension and award an offsetting
lump-sum representing one half of the present value of the
pension to the non-employee spouse (usually out of other
community assets if the estate is sufficiently large). Gillmore,
629 P.2d at 7; In re Marriage of Skaden, 566 P.2d 249, 253-
54 (Cal. 1977); Bergman, 214 Cal. Rptr. at 664-65; In re Mar-
riage of Shattuck, 184 Cal. Rptr. 698, 699 (Cal. Ct. App.
1982) (noting that this represents the “preferable mode of
division”(internal citation omitted)). Alternatively, a court
may decline to calculate the present value of the pension and
simply order a division of each payment as it comes due. Gill-
more, 629 P.2d at 7; In re Marriage of Stenquist, 582 P.2d 96,
105 (Cal. 1978).

   Of course, pension payments typically do not come due
until the employee spouse has retired. Further, the employee
spouse alone may decide whether and when to retire. In Gill-
more, the California Supreme Court recognized that an
employee’s ability to unilaterally delay retirement, and
thereby deprive the non-employee of his or her interest in a
11136            COMMISSIONER OF IR v. DUNKIN
pension, presented an opportunity for abuse. 629 P.2d at 4. As
a result, in California, if an employee spouse chooses to con-
tinue to work following divorce, the non-employee spouse
may demand reimbursement for his or her share of the bene-
fits that would have been forthcoming if the employee spouse
had retired. Id. at 6-7.

   In this case, the divorce court did not calculate the present
value of the pension and, instead, awarded an in-kind division
of benefits. The court calculated the community’s interest as
$4,123.43 per month—the benefit that would have been forth-
coming had John retired on the date of trial—and Julie’s share
as $2,072. Julie exercised her rights under Gillmore, and John
was ordered to reimburse his ex-spouse for the amounts she
lost as a result of his decision to continue working. The court
also ordered the pension board to make similar payments to
Julie following John’s retirement. Because these payments
were related to Julie’s community property interests and were
not alimony, there was no provision for their cessation upon
her death or remarriage. Instead, John was required to make
payments until he retired, and the pension board was ordered
to make payments for as long as benefits were payable, even
if Julie died in the interim, in which case benefits would flow
to her designated beneficiaries.

   In 2000, John paid $25,511 to Julie pursuant to the divorce
court’s order. While he was free to use any property at his dis-
posal, he funded the payments out of the wages he earned in
exchange for his continued employment with the L.A.P.D.
John claimed this amount as deductible alimony on his federal
income tax return and the IRS disallowed the deduction. He
then sought and was granted relief by the United States Tax
Court which allowed him to “reduce” his income by $25,511
without specifying whether appellant was entitled to exclude
a portion of his wages from gross income or deduct, as ali-
mony or otherwise, the payments made to his ex-spouse.
Dunkin v. Comm’r, 124 T.C. 180 (T.C. 2005).
                   COMMISSIONER OF IR v. DUNKIN            11137
                         DISCUSSION

I.    Jurisdiction and Standard of Review

   We have jurisdiction over the final judgment of the United
States Tax Court under I.R.C. § 7482(a). We review decisions
of the tax court on the same basis as we would any decision
rendered by a district court in a civil bench trial. Condor
Intern., Inc. v. Comm’r, 78 F.3d 1355, 1358 (9th Cir. 1996).
Therefore, we review the court’s factual findings for clear
error, its discretionary rulings for abuse of discretion, and its
conclusions of law de novo. Id.

  Under the Internal Revenue Code, income taxes are
assessed based on a person’s “taxable income,” defined as
gross income less deductions allowed by the Code. I.R.C.
§§ 1, 63(a). Broadly speaking, the question in this case is
whether John was entitled to exclude from gross income the
$25,511 in wages that he paid over to Julie in 2000 or, if not,
whether he was entitled to deduct the payments as alimony.

II.       Appellant’s Gross Income for 2000 Included the
          Wages that were Paid Over to his Ex-Spouse

     A.    General Principles

   The first step in arriving at taxable income is to determine
an individual’s “gross income.” Although the term is defined
broadly (and somewhat circularly) to include “all income
from whatever source derived,” I.R.C. § 61(a), certain acces-
sions to wealth that would ordinarily constitute income may
be excluded by statute or other operation of law. See I.R.C.
§§ 101-140 (listing items specifically excluded from gross
income). However, given the clear Congressional intent to
“exert . . . the full measure of its taxing power,” Comm’r v.
Glenshaw Glass Co., 348 U.S. 426, 430 (1955) (internal cita-
tions and quotation marks omitted), exclusions from gross
11138            COMMISSIONER OF IR v. DUNKIN
income are construed narrowly in favor of taxation. Merkel v.
Comm’r, 192 F.3d 844, 848 (9th Cir. 1999).

   [1] There is no statutory provision that could plausibly be
said to exclude from gross income the accessions to wealth at
issue in this case, i.e., the wages paid by the L.A.P.D. to John
during the year 2000. Indeed, wages received in exchange for
labor are the very paradigm of income. I.R.C. § 61(a)(1).
Although John owed a debt to Julie which he satisfied out of
his monthly wages, standing alone, this is not a reason to
exclude the wages from his gross income. Alex v. Comm’r,
628 F.2d 1222, 1224 (9th Cir. 1980) (“It is not true that one’s
paycheck is . . . excludable from gross income whenever it is
‘spoken for’ by creditors.”).

  B.    Attribution of Income in the Marital Context

    Although the mere fact that John used a portion of his
wages to satisfy a debt does not justify any exclusions from
his income, the fact that the payments were made to his ex-
spouse under the direction of a divorce court makes this case
seem difficult. Federal tax is imposed on the income “of”
individuals. I.R.C. § 1. In Poe v. Seaborn, the Supreme Court,
noting that “ ‘of’ denotes ownership,” 282 U.S. 101, 109
(1930), held that where the community property laws of a
state create in married persons “vested property right[s] in the
. . . income of the community, including salaries or wages of
either husband or wife, or both,” id. at 111, each has taxable
income in the amount of one-half of such inflows. See also,
e.g., United States v. Mitchell, 403 U.S. 190, 197 (1971)
(“[W]ith respect to community income . . . federal income tax
liability follows ownership. In the determination of owner-
ship, state law controls.” (citations omitted)); Leonard v.
Comm’r, 76 T.C.M. (CCH) 255 (T.C. 1998) (“Community
property income is attributable 50 percent to each spouse.”);
but see, e.g., I.R.C. §§ 879, 1402(a)(5) (disregarding commu-
nity property for some purposes).
                    COMMISSIONER OF IR v. DUNKIN                    11139
   Under Seaborn and its progeny, if a portion of the wages
John earned in 2000 was community property under Califor-
nia law, then the correct tax treatment would be to attribute
half of that income to John and half to Julie. Put another way,
it would be correct to exclude from John’s gross income the
fifty percent paid over to his ex-spouse. In the instant case the
tax court seems to have reasoned that because John’s obliga-
tion arose out of an exercise of Julie’s Gillmore rights, the
funds at issue belonged to Julie and not John under California
community property law and were therefore not income to
John under the logic of Seaborn. 124 T.C. at 185-86.

   [2] Unfortunately for John, the tax court was wrong. Under
California law, “[a]fter entry of a judgment of legal separation
of the parties, the earnings or accumulations of each party are
the separate property of the party acquiring the earnings or
accumulations.” Cal. Fam. Code § 772. The wages at issue in
this case were clearly “earnings or accumulations” acquired
by John after legal separation.

   In Gillmore, the California Supreme Court did not create a
new species of community property consisting of those post-
divorce wages earned by an employee spouse that displace a
stream of pension income that would have flowed to the com-
munity had the employee retired.3 Instead, the Court noted
   3
     In dicta the Court noted that “[o]ne commentator argues that when an
employee who is eligible to retire chooses to continue working, part of his
[post-divorce] salary is actually attributable to community effort. ‘(F)rom
an economist’s perspective, the employee spouse’s compensation for con-
tinued employment is not the full amount of his paycheck. Rather, his
compensation is only that amount above the pension benefits that he will
not receive while he continues working.’ ” 629 P.2d at 6 n.7 (quoting
Note, In re Marriage of Stenquist: Tracing the Community Interest in Pen-
sion Rights Altered by Spousal Election, 67 Cal. L. Rev. 856, 879 (1979)).
The tax court quoted from this footnote while omitting the “one commen-
tator argues that” language, leaving the impression that the California
Supreme Court had adopted this point of view as part of the Gillmore
holding. 124 T.C. at 184 n.7. However, it is manifest that the California
11140              COMMISSIONER OF IR v. DUNKIN
that when an employee spouse facing a Gillmore election
chooses to continue working, he may “use separate property
to reimburse” the non-employee spouse. 629 P.2d at 6
(emphasis added). The Court continued,

      [the employee spouse’s] situation is not unlike that
      faced by a couple ordered to divide a house that they
      own as community property. If one of the spouses
      chooses to keep the house, he or she is free to use
      separate property to purchase the other’s interest.
      Here, [the employee spouse] must divide his retire-
      ment benefits with [the non-employee spouse]. If
      [the employee spouse] does not wish to retire, he
      must pay . . . an amount equivalent to [the non-
      employee spouse’s] interest.

Id.

   Neither Eatinger v. Commissioner, 59 T.C.M. (CCH) 954
(T.C. 1990), nor Powell v. Commissioner, 101 T.C. 489 (T.C.
1993), provides any support for John’s position. Both cases
addressed the tax consequences of actual distributions of pen-
sion benefits in the context of community property division.
Both held that a non-employee spouse’s share of such distri-

Supreme Court was merely reporting the views of a commentator and not
establishing that post-divorce wages that displace a pension are them-
selves community property. Indeed, to do so would fly in the face of Cali-
fornia Family Code § 772. Further, the main text of the Gillmore opinion
makes clear that an employee spouse uses his or her separate property to
satisfy a non-employee spouse’s Gillmore election where the employee
continues to work and hands over some of his or her wages. 629 P.2d at
6; see also Shattuck, 184 Cal. Rptr. at 700 (“The [Gillmore] court did not
create a fiction that [an employee spouse] be deemed to have received his
monthly pension payments, and was therefore bound to pay over [the non-
employee’s share]. Gillmore says no more than that: ‘If he does not wish
to retire, he must [upon dissolution of the marriage and her demand] pay
her an amount equivalent to her interest.’ ” (quoting Gillmore, 629 P.2d
at 6)).
                    COMMISSIONER OF IR v. DUNKIN                     11141
butions would be taxable to him or her notwithstanding the
fact that the payments were first distributed to the employee
spouse who then, acting as a conduit, turned the funds over
to the non-employee. See Powell, 101 T.C. at 497-99
(explaining that because distributions from a pension plan are
community property under California law an employee
spouse would be deemed to “receive[ ] the distribution[s] . . .
on behalf of the community [so] that his later payment to [his
ex-spouse would be] a transfer to her of funds that at all times
belonged to her”).

   Eatinger and Powell are readily distinguishable. There is
no question that under California law, actual distributions of
pension benefits earned during marriage are community prop-
erty. It follows under Seaborn that such distributions are tax-
able to the spouses in proportion to their community property
shares. In this case, however, the pension board made no dis-
tributions whatsoever in the year 2000. Rather, John made the
choice to continue working and made the additional choice to
satisfy Julie’s Gillmore demand for reimbursement out of his
wages. Because those wages were unquestionably John’s sep-
arate property under California law, Seaborn, Eatinger, and
Powell do not apply.4

   [3] We hold that appellant was not entitled to exclude from
his gross income any of the wages that he used to satisfy his
ex-spouse’s demand for compensation under Gillmore.
  4
   The tax court’s discussion of the fungibility of money, 124 T.C. at 186-
87, is beside the point. Although the source of funds used to pay an other-
wise deductible expense may be irrelevant for federal income tax pur-
poses, none of the payments at issue in this case was deductible under any
provision of the code. See Section III infra. In contrast, the attribution of
income between spouses under Seaborn depends entirely on the source
and character of income under state law.
11142            COMMISSIONER OF IR v. DUNKIN
III.    Appellant was not Entitled to Claim a Deduction for
        the Amounts Paid to his Former Spouse

   The next step in determining taxable income is to subtract
certain outlays that are deemed deductible under the Code.
“Deductions . . . are a matter of legislative grace and exist
only by virtue of specific legislation.” Max Sobel Wholesale
Liquors v. Comm’r, 630 F.2d 670, 671 (9th Cir. 1980). The
only deduction that might plausibly apply to the outlays in
this case is the deduction for alimony payments under I.R.C.
§ 215.

   Under § 215, a taxpayer may deduct an amount equivalent
to payments made during the tax year that would be included
in the recipient’s gross income under I.R.C. § 71(b). Section
71(b) defines as alimony only those payments made (1) in
cash, (2) under a divorce or separation instrument that does
not designate the payments as non-alimony, (3) to a person
who is not a member of the payor’s household, and (4) where
there is “no liability to make any such payment for any period
after the death of the payee spouse.” I.R.C. § 71(b).

  [4] In this case, the divorce court declined to award ali-
mony. Further, the court unambiguously required John to
make payments for as long as he was employed by the
L.A.P.D. even if Julie died before his retirement. Because
John’s liability was not conditioned on Julie’s survival, the
payments were not “alimony” within the meaning of § 71(b).

IV.     Conclusion

   The wages earned in exchange for John’s continued
employment in the year 2000 were clearly income under the
Internal Revenue Code. That John owed money to a creditor
—in this case his ex-spouse—does not justify excluding any
amount of his wages from income. Because California com-
munity property law does not denominate any portion of
John’s post-divorce wages as community property, Seaborn
                  COMMISSIONER OF IR v. DUNKIN               11143
and the cases applying its reasoning do not apply. Finally,
because John’s liability was not conditioned on Julie’s sur-
vival, the payments were not deductible as alimony.

  REVERSED.



REINHARDT, Circuit Judge, dissenting:

   The majority passes over the existence of a significant
ambiguity regarding an issue of California state law that has
not been addressed by the state’s highest court. The question
is whether a portion of a divorced employee’s wages should
be treated as community property when it is used solely for
the payment of an ex-spouse’s court ordered pension benefits
that are community property; in such cases, the former spouse
would have received the amount in question as pension bene-
fits (i.e. community property) if her ex-husband had retired at
the time he became eligible to do so. Alternatively, the
amount of wages that is paid over to the ex-wife as pension
benefits could be considered to be exclusively the husband’s
wages and he would have to pay full taxes on that income
even though he neither uses nor benefits from it. The majority
chooses the latter option. I respectfully dissent. I would cer-
tify the question of how to treat the money involved under
California law to the California Supreme Court.

   The majority opinion imposes negative tax consequences
on a police officer who chooses to work past retirement eligi-
bility age and thus to defer collection of his pension. It
requires him to pay full income taxes on the part of his salary
that he pays over to his former wife as her community interest
in his pension benefits — a result that defies reason, not to
mention fairness. If the payment were considered to be what
it actually is, a distribution of the ex-wife’s interest in the pen-
sion benefits, the husband would not have to pay any taxes on
the amount in question. If the question were certified, I think
11144            COMMISSIONER OF IR v. DUNKIN
there is a reasonable chance that the California Supreme
Court would not decide it the way the majority does. All the
California court need do in order to achieve an equitable
result is to declare as a matter of state law what is the fact —
that in circumstances such as those in which Officer Dunkin
finds himself, the part of his salary that he receives and then
pays to his ex-wife as reimbursement of the share of pension
benefits to which she is entitled under the California court
order constitutes the receipt and payment of her interest in
community benefits.

                               I.

   In 2000, John Dunkin paid his ex-wife $25,511, her share
of the annual pension benefits he would have received if he
had not decided to continue serving the Los Angeles Police
Department beyond his retirement age. He did so because his
former wife elected immediate payment of her share of those
benefits (a “Gillmore election”). No California Supreme
Court case addresses the question whether the portion of his
salary that an employee devotes exclusively to compensating
his former spouse for her share of his pension benefits that
she would directly receive as community property were he
retired should itself be treated as community property. An
analysis of several California court of appeal decisions dis-
cussing Gillmore elections reveals the considerable ambiguity
surrounding the question.

   As support for its position, the majority points to the Cali-
fornia Supreme Court’s statement that when an employee fac-
ing a Gillmore election continues working “he may use
separate property to reimburse” the non-employee spouse.
Gillmore, 629 P.2d at 6. This statement itself does not decide
the issue, and another statement in the same opinion creates
uncertainty. The Gillmore court acknowledged in a footnote
the argument that the portion of an employee’s salary that he
uses to compensate his former spouse for her share of the pen-
sion benefits should be considered community property and
                  COMMISSIONER OF IR v. DUNKIN              11145
not part of his separate income. 629 P.2d at 6 n.7 (citing Note,
In re Marriage of Stenquist: Tracing the Community Interest
in Pension Rights Altered by Spousal Election, 67 Cal. L.
Rev. 856, 879 (1979)). The majority is correct in saying that
the Gillmore court did not adopt this analysis, but the court
did not reject it either. Rather, the court stated that it was not
necessary to reach the question and left open the possibility
that such a rule could be established in the future.

   Subsequent cases in the California court of appeal create
additional uncertainty. In In re Marriage of Shattuck, the
court found that the Gillmore court did not create the rule that
the employee “be deemed to have received his monthly pen-
sion payments, and was therefore bound to pay over [his
spouse’s] community property share of them.” 134 Cal. App.
3d 683, 700 (Ct. App. 1982). More than ten years later,
another California court asserted that such a rule had been
adopted in other cases when calculating payments owed to
former spouses. Nice v. Nice, 230 Cal. App. 3d 444, 450 n.2
(Ct. App. 1991) (citing Marriage of Scott, 156 Cal. App. 3d,
251, 253 (Ct. App. 1984) (holding that the non-employee
spouse is entitled to the benefits that she would have received
“had [her former husband] actually retired on the date she
elected to receive her interest”); In re Marriage of Jacobson,
161 Cal. App. 3d 465, 475 (Cal. Ct. App. 1984) (holding that
a present election payment was properly calculated as though
the employee spouse retired at the time of trial and the non-
employee spouse must forego future appreciation in the pen-
sion’s value); In re Marriage of Castle, 180 Cal. App. 3d 206,
210-11, 216-17 (Cal. Ct. App. 1986) (holding that when a
non-employee spouse elects a present benefit, her payment is
to be calculated as though the employee spouse retired at the
time of trial)). If courts create the rule that the pension is dis-
tributed as community property when calculating payments,
there is no reason to think that they would not use the same
principle to determine that the portion that is to be used to sat-
isfy the pension interest is distributed as community property
as well.
11146            COMMISSIONER OF IR v. DUNKIN
  Because of the uncertainty in the law, and because federal
courts traditionally defer to the states on questions of family
law, see In re Marriage of Castle, 180 Cal. App. 3d 206, 210-
11, 213 (Cal. Ct. App. 1986), it is appropriate to certify this
question to the California Supreme Court.

                               II.

   The majority’s approach places the employee former
spouse in an unfortunate position. If he elects to retire instead
of continuing to serve the Los Angeles police department, he
will not have to pay taxes on income he does not receive. See
Scott, 156 Cal. App. 3d at 253. If he elects to continue to
work, however, he will. At a time when the federal govern-
ment is encouraging postponing retirement due to a looming
Social Security shortfall, and police forces nationwide are fac-
ing officer shortages as officers retire at a younger and youn-
ger age and take (or divide) their pension benefits and go off
to obtain higher paying jobs in private industry, the majority
adopts a rule that discourages divorced officers (and there are
many) from continuing to serve the Los Angeles and other
police departments. I would hope that the California Supreme
Court would not create such perverse incentives if it were to
decide the question.

   Because this case presents a question of first impression
that falls squarely in the realm of state law in a subject area
in which federal courts defer to state court decisions, I believe
that we should certify the question to the California Supreme
Court. Certainly, it could not arrive at a less fair and reason-
able decision. Therefore I respectfully dissent.
