                          T.C. Memo. 1995-500



                        UNITED STATES TAX COURT



                  DEBORAH LYNN ISRAEL, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 7488-94.               Filed October 17, 1995.



        Deborah Lynn Israel, pro se.

        Lyle B. Press, for respondent.



                          MEMORANDUM OPINION


        DINAN, Special Trial Judge:      This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1


        1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable year in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioner's 1990

Federal income tax in the amount of $5,285 and an accuracy-

related penalty in the amount of $1,012.

     After concessions by respondent,2 the sole issue for

decision is whether $13,808 of rental payments paid by

petitioner's former spouse pursuant to the terms of a separation

agreement constitute taxable alimony under section 71.

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

The stipulations of fact and attached exhibits are incorporated

herein by this reference.   Petitioner resided in New York, New

York, on the date the petition was filed in this case.

     Petitioner and her former spouse, Dr. Israel, were married

on June 28, 1970, and one son was born of their marriage.

Marital difficulties arose and petitioner and Dr. Israel

ultimately separated.

     On June 10, 1987, petitioner and Dr. Israel entered into a

separation agreement.   Article III of the separation agreement

labeled "Maintenance" in pertinent part stated as follows:

          a. [Dr. Israel] agrees to pay, and [petitioner] agrees
     to accept the sum of one hundred fifty ($150.00) dollars per
     week as and for maintenance (alimony). Same shall be due and
     payable the first Friday after the execution of this
     agreement, and shall continue to [be] payable until the
     earliest of the following:


     2
          Respondent conceded that the amount in issue is
$13,808, that petitioner is entitled to claim head of household
filing status, and that petitioner is not liable for the
accuracy-related penalty under section 6662(a).
                              - 3 -

          1.   Payment of same for a total of one hundred thirty
               (130) weeks; or

          2.   [Dr. Israel's or petitioner's] death; or

          3.   [Petitioner's] remarriage

          b. Additionally, [Dr. Israel] agrees to pay as
     additional maintenance, [petitioner's] rent at 167 E. 82nd
     Street. [Emphasis added.]

     Article III, paragraph c, of the separation agreement

further provided that Dr. Israel was to make scheduled lump-sum

maintenance payments to make up for arrearages in maintenance.

The separation agreement stated that the scheduled lump-sum

maintenance payments were income to petitioner.   On June 10,

1990, Dr. Israel made a $5,000 scheduled maintenance payment to

petitioner.

     Article III, paragraph d, of the separation agreement stated

that, in the event that their son resided with Dr. Israel for

more than half the year, Dr. Israel's "obligation under paragraph

b of this Article shall be reduced to 1/3 of the rental

obligation".

     Article IV provided for numerous contingencies in the event

that the apartment "is offered for conversion or sale" and in

pertinent part provided as follows:

          [Dr. Israel] may, at his option, purchase the apartment
     at the insider price. If he does, upon resale [petitioner]
     shall receive: (a) 42 1/2% of the difference between the
     insider & outsider price as set forth in the final
     prospectus (blackbook) and (b) 10% of the net gain over and
     above the insider price. In the event the net sale price is
     less than the outsider price, [petitioner] shall receive
                                - 4 -

     42 1/2% of the difference between the net sale price and the
     insider price. Net sale price shall be defined as sale
     price less closing costs and reasonable attorneys fees.


     Additionally, Article VI of the separation agreement

provided for child support.

     On August 4, 1988, by Judgment of Divorce, petitioner was

divorced from Dr. Israel (Judgment of Divorce).3   The separation

agreement was incorporated by reference but not merged into the

Judgement of Divorce.   On June 24, 1994 the Judgment of Divorce

was modified (modification).4    The modification in pertinent

part stated:

          6. The parties acknowledge that [Dr. Israel] may
     have overstated the amount of maintenance he had paid
     to [petitioner] during calendar years 1990, 1991 and
     1992. To the extent that the amount claimed by [Dr.
     Israel] as a maintenance deduction exceeded the amount
     he was entitled to claim in accord with the
     [separation] Agreement, [Dr. Israel] agrees to
     indemnify and hold harmless [petitioner] for any
     liability imposed by the Internal Revenue Service, the
     State of New York and the City of New York for such
     overstatement. [Emphasis added.]

     During 1990, Dr. Israel paid petitioner $5,000,5 which

petitioner reported on her 1990 Federal return as taxable

alimony.   Also, during the year in issue, pursuant to the terms

     3
          Judgment of Divorce dated August 4, 1988, by the
Supreme Court of the State of New York in and for the County of
New York.
     4
          By Court Order Dated June 24, 1994, from the Family
Court of the State of New York, County of New York.
     5
          The $5,000 maintenance payment was made pursuant to
Article III, paragraph c, of the separation agreement.
                               - 5 -

of Article III, paragraph b, of the separation agreement, Dr.

Israel paid petitioner's rent totaling $13,808 for the apartment

she and their son occupied at 167 East 82nd Street in New York

City.

     The only issue for decision is whether the rental payments

of $13,808 made by Dr. Israel constitute taxable alimony.

Petitioner contends that because of the contingencies in the

separation agreement, the rental payments constitute a property

settlement or child support.   Respondent contends that the rental

payments constitute alimony.

     Petitioner bears the burden of proving that respondent's

determination is incorrect. Rule 142(a); Welch v. Helvering, 290

U.S. 111 (1933).

     Section 71(a) provides that gross income includes amounts

received as alimony or separate maintenance payments.   In

general, an alimony or separate maintenance payment is any cash

payment received by the payee spouse or made to a third party "on

behalf of" the payee spouse that meets the four requirements of

section 71(b)(1).

     Section 71(b)(1) provides:

          (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
                               - 6 -

           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
           the payments after the death of the payee spouse.

     The regulations provide that, assuming the four requirements

are satisfied, a payment of cash by the payor spouse to a third

party under the terms of a divorce or separation instrument will

qualify as a payment of cash which is received "on behalf of" a

spouse.   Moreover, "cash payments of rent * * * made under the

terms of the divorce or separation instrument will qualify as

alimony or separate maintenance payments."   Sec. 1.71-1T(b),

Q&A-6, Temporary Income Tax Regs., 49 Fed. Reg. 34455 (Aug. 31,

1984).

     However, section 71(c)(2) states:

          * * * if any amount specified in the instrument will
     be reduced--

               (A) on the happening of a contingency
     specified in the instrument relating to a child   (such
     as attaining age, marrying, dying, leaving   school, or
     a similar contingency) * * *

     an amount equal to the amount of such reduction will be
     treated as an amount fixed as payable for the support of
     children of the payor spouse.
                                - 7 -

     Child support payments are not included in the payee

spouse's gross income as amounts received as alimony or separate

maintenance.   Sec. 71(c).

     First, the rental payments were made pursuant to a

separation instrument as required by section 71(b)(1)(A).

     Secondly, the separation agreement did not designate the

payment as one that is excluded from treatment as alimony under

section 71 and section 215.    Sec. 71(b)(1)(B).   In this case, to

the contrary, the separation agreement designates the rental

payments as "additional maintenance" and therefore meets the

section 71(b)(1)(B) requirement.

     Thirdly, the parties were legally separated and not members

of the same household during 1990; thus the provisions of section

71(b)(1)(C) are satisfied.

     Finally, Dr. Israel is not obligated to pay petitioner's

rent after her death.

     Petitioner testified that "the lease has always been in

[her] ex-husband's name."    Upon the death of petitioner, Dr.

Israel as lessee may continue to be contractually obligated on

the lease, but the lease payments would not continue to be made

"on behalf of" petitioner.    We find that Dr. Israel's obligation

to pay petitioner's rent "on behalf of" petitioner would cease on

petitioner's death.

     The rental payments satisfy the section 71(b) requirements.

We find that petitioner's contention that the rental payments are
                                 - 8 -

a property settlement because of the contingencies contained in

Article IV of the separation agreement is without merit.       There

is no evidence in the record that the payments are anything other

than rental payments.   Furthermore, we note that the subsequent

modification does not affect our decision.

     However, pursuant to Article III, paragraph d of the

separation agreement Dr. Israel's obligation to pay petitioner's

rent is reduced to one-third of the rental obligation in the

event their son resided with Dr. Israel for more than half the

year.   Therefore, two-thirds of the rental payments are treated

as child support as they are dependent on the contingency of

their son residing with petitioner for at least half the year.

Sec. 71(c).

     Accordingly, we find that of the $13,808 in rental payments

made by Dr. Israel under the terms of the separation agreement,

as incorporated into the Judgment of Divorce, only one-third, or

$4,603, is includable in petitioner's income as alimony under

section 71.

     To reflect the foregoing,

                                         Decision will be entered

                                         under Rule 155.
