                               T.C. Memo. 2013-166



                         UNITED STATES TAX COURT



              JOHN D. NYE AND ROSE M. NYE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2001-11.                          Filed July 15, 2013.



      James L. Chase, for petitioners.

      John W. Sheffield III and Edwin B. Cleverdon, for respondent.



                           MEMORANDUM OPINION


      CHIECHI, Judge: This case is before the Court on respondent’s motion for

summary judgment as supplemented.1 The Court shall grant that motion.


      1
       Respondent filed a motion for summary judgment (respondent’s motion).
Petitioners filed a response to respondent’s motion (petitioners’ response), and
                                                                       (continued...)
                                          -2-

[*2]                                  Background

       The record for purposes of respondent’s motion establishes, the parties

agree with, and/or the parties do not dispute the following factual background.

       Petitioners resided in Florida at the time they filed the petition.

       On September 12, 1990, the Circuit Court in and for the County of Santa

Rosa, Florida (Santa Rosa Circuit Court), issued a final judgment titled “FINAL

JUDGMENT FOR DISSOLUTION OF MARRIAGE” (dissolution judgment) with

respect to the petition for dissolution of marriage that John David Nye (Mr. Nye),

a petitioner herein, had filed in that court. In the dissolution judgment, the Santa

Rosa Circuit Court ordered and adjudged, inter alia, that the marriage between Mr.

Nye and Alice C. Nye was dissolved. The dissolution judgment also ordered and

adjudged “That the parties [Mr. Nye and Alice C. Nye] have freely and voluntarily

entered into a Separation and Property Settlement Agreement dated August 23,




       1
        (...continued)
respondent filed a reply to petitioners’ response (respondent’s reply). The Court
did not find respondent’s motion, petitioners’ response, and respondent’s reply to
be helpful in resolving the issue presented in respondent’s motion. As a result, the
Court ordered the parties to supplement their respective filings. Respondent filed
a supplement to respondent’s motion, and petitioners filed a supplement to
petitioners’ response. Unfortunately, the Court did not find those respective
supplements to be helpful.
                                        -3-

[*3] 1990, the original being attached hereto, incorporated herein, and the parties

shall comply with its terms.”

      The “Separation and Property Settlement Agreement dated August 23,

1990” (property settlement agreement) that the Santa Rosa Circuit Court

incorporated into its dissolution judgment, the terms of which that court required

Mr. Nye and Alice C. Nye to follow, provided in pertinent part:2

      10. ALIMONY: The Husband shall pay to the Wife as and for
      permanent alimony the sum of $3,600.00 per month to be paid on the
      first day of each month beginning with the first day of the first month
      after the execution of this Agreement and continuing in a like manner
      until the Wife dies or, remarries or until the Husband dies. In
      addition to permanent alimony the Husband shall pay rehabilitative
      alimony in the amount of $200.00 per month for thirty (30) months
      beginning with the first day of the first month after execution of this
      Agreement. The rehabilitative alimony shall terminate upon the
      remarriage of the Wife or upon the death of either party.

      11. LUMP SUM ALIMONY: As and for lump sum alimony the
      Husband agrees to assist the Wife in the purchase of a home to be

      2
        The parties herein are in agreement that Mr. Nye and Alice C. Nye agreed
as part of their property settlement agreement that at the earlier of Mr. Nye’s death
or the death of both of his parents Mr. Nye would transfer to Alice C. Nye title to
certain real property titled in his name, subject to any existing mortgage (Mr.
Nye’s real property). They also agree that at the time of the divorce judgment Mr.
Nye’s parents were residing in that real property. In addition, the parties agree
that the estimated value of Mr. Nye’s real property was $60,000, although they
disagree as to when that property was so valued. The parties also disagree about
whether the mortgage loan to which Mr. Nye’s real property was subject at the
time it was so valued was $45,000 or $46,000. Those disagreements are not
material to our determination of whether to grant respondent’s motion.
                                        -4-

      [*4] titled in her name should she choose to buy another home within
      three years of the date of this Agreement. If the Wife elects to
      purchase a home within three years of the date of this Agreement, the
      Husband shall provide for her down payment not to exceed
      $10,000.00. The Wife shall give the Husband no less than 120 days
      notice of her intent to purchase a home and her demand that he
      provide the down payment up to $10,000.00.

      12. MEDICAL INSURANCE FOR WIFE: As additional support for
      the Wife, the Husband shall attempt to obtain and shall maintain
      major medical health insurance for the Wife and provide her with
      proof of insurance and claims information. If the Wife is uninsurable
      or if the Husband is otherwise unable to obtain insurance for her he
      shall pay $150.00 per month directly to the Wife in lieu of providing
      major medical insurance. This insurance obligation shall continue as
      long as the Husband is obligated to pay permanent alimony.

      Around the end of 2006, Alice C. Nye filed with the Santa Rosa Circuit

Court a document titled “SUPPLEMENTAL PETITION FOR MODIFICATION”

(petition for modification of dissolution judgment).3 In that petition, Alice C. Nye

requested that court to modify its dissolution judgment by increasing

      the amount of support payable to her by the Former Husband [Mr.
      Nye] in the form of alimony and in the form of additional funds to
      purchase medical insurance for herself as provided for in the Final
      Judgment [dissolution judgment] which adopted and incorporated the
      parties’ Marital Settlement Agreement [property settlement
      agreement].




      3
       Mr. Nye also filed a petition with the Santa Rosa Circuit Court. The record
does not establish what Mr. Nye sought in that petition.
                                           -5-

[*5] On December 7, 2007, while Alice C. Nye’s petition for modification of

dissolution judgment was pending in the Santa Rosa Circuit Court (dissolution

judgment modification case), she and Mr. Nye signed a document titled

“Mediation Settlement Agreement” (mediation agreement). In that agreement,

Alice C. Nye and Mr. Nye agreed to the following settlement of that dissolution

judgment modification case pending in the Santa Rosa Circuit Court:

            The undersigned parties hereby agree to fully settle this case as
      follows:

      FH [Mr. Nye] to pay FW [Alice C. Nye] $350,000 before March 6,
      2008, (and fully & promptly pay all alimony until FW receives the
      $350,000) and FW to quit claim 2809 Whisper Pine Dr., Gulf Breeze,
      to FH. After payment, no further alimony, insurance & other
      obligations shall be due from FH to FW. Each party to pay own
      attorneys fees and costs. November & December alimony payments
      past due shall be paid no later than December 11, 2007.

      By letter dated December 12, 2007 (Ms. Anderson’s December 12, 2007

letter), Kathleen E. Anderson (Ms. Anderson), the attorney who was representing

Alice C. Nye in the dissolution judgment modification case, notified James L.

Chase (Mr. Chase), who was representing Mr. Nye in that case,4 that, inter alia,

she would not file with, and for consideration by, the Santa Rosa Circuit Court a

proposed final judgment resolving Alice C. Nye’s petition for modification of


      4
          Mr. Chase also is attorney of record for petitioners in the instant case.
                                       -6-

[*6] dissolution judgment until Mr. Nye made on or before March 6, 2008, a

payment of $350,000 to Alice C. Nye to which he had agreed in the mediation

agreement. Ms. Anderson’s December 12, 2007 letter stated:

              We received a telephone call from your office inquiring as to
      the proposed Final Judgment of Modification. Pursuant to my
      previous correspondence to you, I will not file this document until
      your client has paid mine. If your client pays mine prior to the “drop
      dead date” as set forth in the Agreement, then upon receipt of the
      funds due and owing to my client, I will forward the proposed Final
      Judgment of Modification to the Court. I enclose herewith a
      proposed Final Judgment of Modification for your review and
      initialing; however, again, I will not forward this document along to
      the Court until my client has been paid. Similarly, and as previously
      stated in my correspondence to you, my client will not execute the
      Quit Claim Deed of the property to your client until she has received
      the funds due and owing to her as set forth in the Mediated Settlement
      Agreement. I am sure you understand my rationale for this.

      On January 28, 2008, Mr. Nye made a payment of $350,000 ($350,000

payment) to Alice C. Nye to which he had agreed in the mediation agreement.

Thereafter, on February 4, 2008, the Santa Rosa Circuit Court issued a final

judgment titled “Final Judgment of Modification” (modification judgment) in the

dissolution judgment modification case. In the modification judgment, that court

incorporated by reference into that judgment and approved the mediation

agreement between Mr. Nye and Alice C. Nye. The modification judgment

ordered and adjudged: “The parties’ Mediation Settlement Agreement entered
                                        -7-

[*7] into and executed by the respective parties on December 7, 2007, is hereby

adopted by the Court and the parties are ordered to comply with the terms and

conditions set forth in the attached Mediation and Settlement Agreement.”

      Petitioners filed a Federal income tax (tax) return for their taxable year 2008

(2008 return). In that return, they claimed an alimony deduction under section

215(a)5 for the $350,000 payment that Mr. Nye made to Alice C. Nye on January

28, 2008.

      Respondent issued to petitioners a notice of deficiency (notice) with respect

to their taxable year 2008. In that notice, respondent disallowed $346,250 of the

$350,000 payment that petitioners claimed as an alimony deduction in their 2008

return and allowed $3,7506 of that payment as an alimony deduction. In the




      5
        All section references are to the Internal Revenue Code in effect for the
year at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
      6
       The $3,750 of the $350,000 payment that respondent allowed as an
alimony deduction in the notice is equal to the sum of the respective amounts for
permanent alimony ($3,600) and for medical insurance ($150) that Mr. Nye was
required to pay each month under the property settlement agreement that was
incorporated into the dissolution judgment. The $3,750 that respondent allowed
as an alimony deduction in the notice is not at issue in this case.
                                          -8-

[*8] notice, respondent also determined that petitioners are liable for their taxable

year 2008 for the accuracy-related penalty under section 6662(a).7

      In the petition, petitioners alleged error solely with respect to respondent’s

determination that they are not entitled to deduct as alimony for their taxable year

2008 the full amount of Mr. Nye’s $350,000 payment to Alice C. Nye.8 They

alleged no error in the petition with respect to respondent’s determination to

impose on them the accuracy-related penalty under section 6662(a).

                                      Discussion

      The issue presented in respondent’s motion is whether petitioners are

entitled to deduct as alimony under section 215(a) $346,250 (payment at issue)9 of

the $350,000 payment that Mr. Nye made to Alice C. Nye on January 28, 2008,

before the Santa Rosa Circuit Court issued its modification judgment on February

4, 2008, into which that court incorporated the mediation agreement that required

Mr. Nye to make that $350,000 payment to Alice C. Nye.



      7
        Respondent made certain other determinations in the notice, the resolution
of the propriety of which depends on our resolution of the issue under sec. 215(a)
presented in respondent’s motion.
      8
       In fact, petitioners alleged in the petition that “[t]he only issue is the
deductibility of the $350,000 as alimony.”
      9
          See supra note 6.
                                         -9-

[*9] Petitioners do not claim that the Court should deny respondent’s motion on

the ground that there is any genuine dispute as to any material fact for trial that the

Court must first resolve before deciding whether petitioners are entitled to deduct

as alimony under section 215(a) the payment at issue. In fact, in petitioners’

response petitioners ask the Court not only to deny that motion but also to “grant

Summary Judgment in favor of the Petitioners”. The Court agrees with the parties

that there is no genuine dispute as to any material fact for trial. The Court

disagrees with petitioners that it should deny respondent’s motion and that they

are entitled to summary adjudication in their favor on the issue under section

215(a) presented in that motion.

      Section 215(a) allows an individual to deduct “an amount equal to the

alimony or separate maintenance payments paid during such individual’s taxable

year.” Section 215(b) defines the term “alimony or separate maintenance

payment” for purposes of section 215 to mean “any alimony or separate

maintenance payment (as defined in section 71(b)) which is includible in the gross

income of the recipient under section 71.”

      Section 71(b)(1) provides the following definition of the term “alimony or

separate maintenance payment”:
                                      - 10 -

[*10] SEC. 71. ALIMONY AND SEPARATE MAINTENANCE
               PAYMENTS.

            (b) Alimony or Separate Maintenance Payments Defined.--For
      purposes of this section--

               (1) In general.--The term “alimony or separate maintenance
            payment” means any payment in cash if--

                    (A) such payment is received by (or on behalf of) a
                spouse under a divorce or separation instrument,

                     (B) the divorce or separation instrument does not
                designate such payment as a payment which is not
                includible in gross income under this section and not
                allowable as a deduction under section 215,

                     (C) in the case of an individual legally separated from
                his spouse under a decree of divorce or of separate
                maintenance, the payee spouse and the payor spouse are
                not members of the same household at the time such
                payment is made, and

                     (D) there is no liability to make any such payment for
                any period after the death of the payee spouse and there is
                no liability to make any payment (in cash or property) as a
                substitute for such payments after the death of the payee
                spouse.

      Section 71(b)(2) provides the following definition of the term “divorce or

separation instrument” used in section 71(b)(1)(A) and (B):
                                       - 11 -

[*11] SEC. 71. ALIMONY AND SEPARATE MAINTENANCE
               PAYMENTS.

            (b) Alimony or Separate Maintenance Payments Defined.--For
      purposes of this section--

      *          *           *          *          *            *            *

                 (2) Divorce or separation instrument.--The term “divorce
             or separation instrument” means–

                      (A) a decree of divorce or separate maintenance or a
                 written instrument incident to such a decree,

                       (B) a written separation agreement, or

                     (C) a decree (not described in subparagraph (A))
                 requiring a spouse to make payments for the support or
                 maintenance of the other spouse.

      The parties agree that the payment at issue must meet all four requirements

in section 71(b)(1)(A) through (D) in order to constitute an alimony or separate

maintenance payment that is deductible under section 215(a) and includible in the

income of the recipient under section 71(a).10 They disagree as to whether that

payment satisfies the requirement in section 71(b)(1)(A) and the requirement in

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




      10
       Consistent with sec. 71(a), sec. 61(a)(8) defines gross income to mean all
income from whatever source derived, including alimony and separate
maintenance payments.
                                         - 12 -

[*12] It is respondent’s position that the payment at issue satisfies neither section

71(b)(1)(A) nor section 71(b)(1)(D). The Court considers only whether the

payment at issue satisfies the requirement in section 71(b)(1)(D). That is because

resolution of that question resolves the issue of whether petitioners are entitled to

deduct that payment as alimony under section 215(a).

        The parties agree that on December 7, 2007, the effective date of the

mediation agreement between Mr. Nye and Alice C. Nye, that agreement became

binding on Mr. Nye and Alice C. Nye, and Mr. Nye became obligated pursuant

thereto to make the $350,000 payment to Alice C. Nye on or before March 6,

2008.

        The requirement in section 71(b)(1)(D) is satisfied if the payor has “no

liability to make any * * * payment for any period after the death of the payee

spouse and * * * no liability to make any payment (in cash or property) as a

substitute for such payments after the death of the payee spouse.” Whether that

requirement is satisfied is determined by the terms of the applicable instrument or,

if the instrument is silent on the matter, by State law. See Kean v. Commissioner,

T.C. Memo. 2003-163, aff’d, 407 F.3d 186 (3d Cir. 2005).

        The Court turns first to the terms of the mediation agreement. That

agreement is silent as to whether Mr. Nye’s obligation in that agreement to make
                                        - 13 -

[*13] the $350,000 payment to Alice C. Nye would have terminated if she (or he)

had died after December 7, 2007, the effective date of that agreement, and before

the Santa Rosa Circuit Court had decided what, if any, action to take with respect

to Alice C. Nye’s petition for modification of dissolution judgment that was

pending in that court.

      Because the mediation agreement is silent, the Court turns for guidance to

the law of the State of Florida (Florida law). The Court finds Van Boven v. First

Nat’l Bank in Palm Beach, 240 So. 2d 329 (Fla. Dist. Ct. App. 1970), to be

instructive.11 Like the instant case, Van Boven involved a divorced couple who

had entered into a written agreement (Van Boven separation agreement) that

provided, inter alia, for the payment of periodic alimony by the former husband to

the former wife and that the local Florida circuit court (Florida circuit court) had

approved and incorporated into the final decree divorcing them (Van Boven

divorce decree). Id. at 329. As is true in the instant case, in Van Boven the former

husband12 filed in the Florida circuit court a petition for modification of the Van


      11
        The Court’s research did not lead the Court to any opinion of the Florida
Supreme Court, the highest court in Florida, that had, like Van Boven v. First
Nat’l Bank in Palm Beach, 240 So. 2d 329 (Fla. Dist. Ct. App. 1970), facts
essentially the same as the facts involved in the instant case.
      12
        In the instant case, both the former husband and the former wife filed a
petition.
                                       - 14 -

[*14] Boven divorce decree (Van Boven modification proceeding) in which he

sought to modify the amount of the periodic alimony payments that he was

obligated under that divorce decree to make to the former wife. Id. As is also true

in the instant case, in Van Boven during the pendency of the Van Boven

modification proceeding the former husband and the former wife entered into a

written agreement (Van Boven settlement agreement) to settle that proceeding.

Like the mediation agreement involved in the instant case, the Van Boven

settlement agreement involved in the Van Boven case provided that the former

husband agreed to pay a lump sum of money13 to the former wife in exchange for

her agreement to discharge him from his obligation under the Van Boven divorce

decree to pay periodic alimony to her. Id. at 330.

      In contrast to the instant case, however, in Van Boven the former wife died

before the former husband had made full payment to her of the lump sum of

money14 that he was required to pay to her under the Van Boven settlement

agreement and before the Florida circuit court had decided what, if any, action to

take with respect to the Van Boven modification proceeding. Id. After the former


      13
        The lump sum of money that the former husband agreed in the Van Boven
settlement agreement to pay to the former wife was payable in installments. Van
Boven, 240 So. 2d at 330.
      14
           See supra note 13.
                                        - 15 -

[*15] wife died, the executor of her estate was substituted as a party in the Van

Boven modification proceeding and filed a separate petition for modification of

the Van Boven divorce decree. Van Boven, 240 So. 2d at 330. In that petition for

modification, the executor of the former wife’s estate asked the Florida circuit

court to approve the Van Boven settlement agreement, enter a judgment modifying

the Van Boven divorce decree by incorporating that agreement into that decree,

and order the former husband to comply with the modified Van Boven divorce

decree. Id. After concluding that the Van Boven settlement agreement did not

provide for the payment of alimony but instead provided for the payment of a

lump sum of money “in lieu of all claims of alimony”, the Florida circuit court

granted the relief sought in the petition for modification of the Van Boven divorce

decree that the former wife’s estate had filed in that court after she died. Id. The

former husband appealed. Id.

      The Florida district court of appeals framed the issue presented to it on

appeal in Van Boven as follows: “whether a court of equity may modify the

alimony provisions in a final divorce decree subsequent to the death of the former

wife.” Id. The Florida district court of appeals addressed the propriety of the

Florida circuit court’s determination that the Van Boven settlement agreement

provided for the payment of a lump sum of money “in lieu of all claims of
                                         - 16 -

[*16] alimony”. Id. at 331. After examining that agreement, which is similar in

all material respects to the mediation agreement involved in the instant case, the

Florida district court of appeals concluded that the Van Boven settlement

“agreement, when viewed in its proper prospective [sic], could not be for anything

other than lump sum alimony.” Id.

      The Florida district court of appeals observed that if the Florida circuit court

had approved the Van Boven settlement agreement and had entered a judgment

modifying the Van Boven divorce decree by incorporating that agreement into that

decree before the former wife had died, the Florida district court of appeals would

have had “no difficulty in concluding that the modification of the final decree

* * * [by the Florida circuit court] fixed appellant’s [former husband’s] obligation

for the entire lump sum as of the time of the modification, even though * * * [the

former wife’s] death should occur thereafter”. Id. at 332. However, because the

former wife had died before the Florida circuit court had modified the Van Boven

divorce decree by incorporating the Van Boven settlement agreement into that

decree, the Florida district court of appeals held that the Florida circuit court did

not have jurisdiction to modify the periodic alimony provisions in the Van Boven

divorce decree after the death of the former wife. Id. Nonetheless, the Florida

district court of appeals observed several times in Van Boven that under Florida
                                        - 17 -

[*17] law governing contracts (Florida contract law) the executor of the former

wife’s estate might have rights under the Van Boven settlement agreement.15

Moreover, in dismissing the petition for modification of the Van Boven divorce

decree that the executor of the former wife’s estate had filed, the Florida district

court of appeals did so “without prejudice to any rights which appellee [executor

of the former wife’s estate] may have under either of the written contracts [i.e., the

Van Boven separation agreement and the Van Boven settlement agreement]

between appellant [former husband] and his former wife.” Van Boven, 240 So. 2d

at 332.

      Under Florida contract law, when one of the parties to a contract dies, that

party’s rights and obligations under the contract generally survive that party’s

death and become binding on, and enforceable by, the personal representative of

that party’s estate. See, e.g., Frissell v. Nichols, 114 So. 431, 434 (Fla. 1927);

Hiers v. Thomas, 458 So. 2d 322, 323 (Fla. Dist. Ct. App. 1984).

      The Court concludes that under Florida contract law Mr. Nye’s obligation

under the mediation agreement to make the $350,000 payment to Alice C. Nye



      15
        The Florida district court of appeals stated several times that it was not
addressing the issue of the contractual liability of the former husband under the
Van Boven settlement agreement. See Van Boven, 240 So. 2d at 330, 331 n.1,
332.
                                        - 18 -

[*18] would not have terminated if she (or he) had died after December 7, 2007,

the effective date of that agreement, and before the Santa Rosa Circuit Court had

decided what, if any, action to take with respect to Alice C. Nye’s petition for

modification of dissolution judgment pending in that court. The Court further

concludes that the payment at issue does not satisfy the requirement in section

71(b)(1)(D). The Court holds that petitioners are not entitled to deduct the

payment at issue as alimony under section 215(a).

      The Court has considered all of the contentions and arguments of the parties

that are not discussed herein, and we find them to be without merit, irrelevant,

and/or moot.16


      16
         The Court shall address respondent’s argument in respondent’s motion
that petitioners are deemed to have conceded respondent’s determination in the
notice that they are liable for their taxable year 2008 for the accuracy-related
penalty under sec. 6662(a). In support of that argument, respondent relies on Rule
34(b)(4) and caselaw thereunder and points out that petitioners alleged in the
petition that “[t]he only issue is the deductibility of the $350,000 payment as
alimony.” Petitioners counter in petitioners’ response that “[m]ere failure of the
taxpayer to include in his assignments of error the Commissioner’s penalty
determinations did not foreclose the taxpayer from contesting them.” The
authority on which petitioners rely to support that proposition is Birdwell v.
Commissioner, 235 F.2d 112 (5th Cir. 1956), rev’g T.C. Memo. 1955-220.
Birdwell is materially distinguishable from the instant case, and petitioners’
reliance on Birdwell is misplaced. This Court has consistently applied Rule
34(b)(4) and has held that pursuant to that Rule a taxpayer is deemed to have
conceded a determination of the Commissioner of Internal Revenue with respect to
which the taxpayer has not alleged error in the petition. See, e.g., Funk v.
                                                                         (continued...)
                                       - 19 -

[*19] To reflect the foregoing,


                                                An order granting respondent’s

                                        motion as supplemented and decision

                                        for respondent will be entered.




      16
        (...continued)
Commissioner, 123 T.C. 213, 217-218 (2004). The Court concludes that
petitioners are deemed to have conceded the accuracy-related penalty under sec.
6662(a) that respondent determined to impose on them.
       Assuming arguendo that the Court had not concluded that petitioners are
deemed to have conceded respondent’s determination to impose the accuracy-
related penalty on them, the only argument that petitioners advance in their
response to respondent’s motion as to why they are not liable for that penalty is
that “based on the facts, it is Petitioners’ position that the proposed deficiency
determination is incorrect and therefore there is no basis for a proposed
assessment of a negligence penalty.” The Court has sustained respondent’s
determination to disallow the payment at issue as an alimony deduction, and
petitioners have not suggested that there is any other reason the Court should not
sustain the determination under sec. 6662(a). Assuming arguendo that the Court
had not concluded that petitioners are deemed to have conceded respondent’s
determination to impose the accuracy-related penalty on them, the Court would
conclude that petitioners are liable for their taxable year 2008 for that penalty.
