                  T.C. Memo. 2005-91



                UNITED STATES TAX COURT



            MICHAEL K. BERRY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10804-03.              Filed April 26, 2005.


     P and X were divorced in California. The San
Diego County Superior Court awarded P and X joint legal
and physical custody of their two minor children,
designated X as the primary caretaker of the children,
and ordered P to pay monthly “family support” (combined
but unallocated spousal support and child support) to
X.

     In 1999, P paid X $49,808 in respect of his family
support obligation, consisting of (1) 12 monthly
payments of $3,832, and (2) an additional $3,824
attributable to P’s arrearage from prior years. Also
in 1999, P paid two court-appointed psychologists
$4,302, $4,188 of which the San Diego County Superior
Court subsequently (in 2001) credited to his arrearage.
P contends that all of those payments ($54,110)
constitute alimony as defined in sec. 71(b), I.R.C.,
and that he is therefore entitled to deduct those
payments pursuant to sec. 215, I.R.C. R contends that
none of the payments at issue qualifies as deductible
alimony.
                         - 2 -

     The primary dispute between the parties is whether
P’s family support payments satisfy sec. 71(b)(1)(D),
which provides that a cash payment meeting the
requirements of sec. 71(b)(1)(A)-(C) is alimony only if
(1) there is no liability to make any such payment for
any period after the death of the payee spouse
(“continuing payment” liability) and (2) 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 (“substitute payment” liability).

     Held: P had no continuing payment liability, as
contemplated in sec. 71(b)(1)(D), with respect to the
family support payments at issue.

     Held, further, a payor spouse’s general State law
obligation to continue supporting his or her children
in the event of the payee spouse’s death does not, in
and of itself, give rise to a substitute payment
liability, as contemplated in sec. 71(b)(1)(D), with
respect to an unallocated support obligation such as
California family support.

     Held, further, P had no substitute payment
liability, as contemplated in sec. 71(b)(1)(D), with
respect to the family support payments at issue.

     Held, further, P is entitled to an alimony
deduction for 1999 in the amount of $49,808, consisting
of the 12 monthly payments of $3,832 ($45,984) and the
additional $3,824 payment attributable to his
arrearage; P is not entitled to any alimony deduction
for 1999 in respect of his payments to the court-
appointed psychologists.

     Held, further, P is liable for the addition to tax
under sec. 6651(a)(1), I.R.C., for failure to file
timely his 1999 return.


Gary M. Erickson, for petitioner.

James J. Posedel, for respondent.
                               - 3 -

                        MEMORANDUM OPINION

     BEGHE, Judge:   Respondent determined a deficiency of $19,925

and an addition to tax under section 6651(a)(1) of $2,425 with

respect to petitioner’s Federal income tax for 1999.1

     After giving effect to various concessions,2 the issues

remaining for decision are:

     1.   Whether petitioner is entitled to an alimony deduction

of $54,110 for his 1999 tax year under section 215.     We hold

petitioner’s deduction is limited to $49,808; and

     2.   whether petitioner is liable for the addition to tax

under section 6651(a)(1) for failure to file timely his 1999

return.   We hold petitioner is so liable.

     In deciding the first issue, we hold that the fact that a

payor spouse’s general State law obligation to support his or her



     1
       Unless otherwise specified, all section references are to
the Internal Revenue Code of 1986, as in effect for the year at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All dollar amounts have been rounded to
the nearest dollar.
     2
       On Schedule C, Profit or Loss From Business, to his 1999
return, petitioner claimed deductions of $7,071 for “Office
expense” and $12,096 for “Other expenses”. Petitioner concedes
respondent’s downward adjustments of $388 for “Office expense”
and $9,569 for “Other expenses”. Petitioner agrees with
respondent’s determination in the statutory notice that
petitioner is entitled to the standard deduction in lieu of his
claimed itemized deductions. Petitioner agrees with respondent’s
upward adjustments to his self-employment tax and self-employment
tax deduction resulting from the increase in petitioner’s
Schedule C net income. A computation under Rule 155 is necessary
to give effect to these concessions and our decision.
                                   - 4 -

children survives the death of the payee spouse does not, in and

of itself, cause all or any part of an unallocated support

obligation (such as California family support) to fail to qualify

as alimony by reason of section 71(b)(1)(D).

                                Background

       This case is before the Court fully stipulated under Rule

122.       The stipulation of facts and, except as provided below, the

attached exhibits are incorporated herein by this reference.3

       Petitioner resided in San Diego, California, when he filed

his petition.       During his 1999 taxable (calendar) year and at all

relevant times, petitioner accounted for his Federal income tax

liability using the cash method of accounting.

       Petitioner and his former spouse, Carmen B. De Berry

(Carmen), were married on June 11, 1983.      They had two children:

Anthony M. Berry, who was born on January 22, 1985, and Natalie

M. Berry, who was born on July 10, 1987.

       On May 5, 1994, Carmen filed a petition for legal separation

from petitioner in the San Diego County Superior Court (the

Superior Court), which led to a proceeding for dissolution of

their marriage.

       Petitioner and Carmen eventually agreed to a settlement.

Petitioner’s counsel recited the terms of the settlement in open


       3
       Respondent objects to petitioner’s exhibits 5 and 12 on
the ground of relevance. We address these objections in our
discussion.
                                - 5 -

court on June 13, 1996.   The Superior Court incorporated the

terms of the settlement in a judgment of dissolution of marriage

dated July 25, 1997 (the dissolution judgment).    In the

dissolution judgment, the Superior Court ordered petitioner to

pay Carmen “family support” of $4,030 per month.    The dissolution

judgment provided that petitioner and Carmen would have joint

legal and physical custody of the two children and that Carmen

would be the primary caretaker.

     In an order dated March 25, 1999 (the 1999 order), relating

to a hearing held on January 14, 1999, the Superior Court (1)

declared that “Timeshare for the children of the parties is 42%

to Father”, (2) adjusted petitioner’s family support obligation

to Carmen to $3,832 per month effective August 1, 1998, and (3)

found that, as of December 31, 1998, petitioner was $21,478 in

arrears on his support obligation, which amount included $2,196

of interest.

     Petitioner paid Carmen $49,808 during 1999 pursuant to the

1999 order.    That figure represents 12 monthly payments of $3,832

($45,984) and an additional $3,824 attributable to petitioner’s

support arrearage.

     Petitioner paid two court-appointed psychologists, Drs.

Caffaro and Murphy, $4,188 on Carmen’s behalf during 1999.

Petitioner also paid Dr. Caffaro $114 on October 29, 1999.
                                 - 6 -

     In an order dated March 26, 2001, relating to a hearing held

on February 9, 2001, the Superior Court (1) recited the December

31, 1998, arrearage set by the 1999 order ($21,478),4 and (2)

credited the payments to Drs. Caffaro and Murphy that petitioner

made on Carmen’s behalf during 1999 ($4,188) against the

arrearage.

     On August 2, 2001, petitioner filed a Form 1040, U.S.

Individual Income Tax Return, for his 1999 tax year.    Petitioner

did not seek, nor was he granted, an extension of time to file

his 1999 return.    On his 1999 return, petitioner claimed an

alimony deduction of $50,528.5

     On May 29, 2003, respondent issued petitioner a statutory

notice of deficiency for his 1999 tax year.    In the notice of

deficiency, respondent disallowed in full the $50,528 alimony

deduction that petitioner claimed on his 1999 return, on the

grounds that “you did not establish that the amount shown was (a)

alimony and (b) paid”.

     Petitioner now contends he is entitled to an alimony

deduction of $54,110 for his 1999 tax year, consisting of (1) the

$49,808 he paid Carmen in 1999 pursuant to the 1999 order, (2)

the $4,188 he paid Drs. Caffaro and Murphy on Carmen’s behalf


     4
       The 2001 order does not appear to account for the $3,824
arrearage payment the parties stipulate petitioner made in 1999
“pursuant to” the 1999 order.
     5
         The record does not reveal the derivation of that figure.
                                - 7 -

during 1999, and (3) his $114 payment to Dr. Caffaro on October

29, 1999.

                             Discussion

I.   Alimony Deduction

     A.     Introduction

            1.   Statutory Overview

     Generally, alimony and separate maintenance payments

(hereinafter collectively referred to as alimony) are taxable to

the recipient and deductible by the payor.    Secs. 61(a)(8),

71(a), 215(a).    Section 71(b)(1) defines “alimony” as follows:

            (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.
                               - 8 -

Section 71(c)(1) provides, however, that the general inclusion

rule of section 71(a) does not apply to “that part of any payment

which the terms of the divorce or separation instrument fix (in

terms of an amount of money or a part of the payment) as a sum

which is payable for the support of children of the payor

spouse.”

     The parties agree petitioner’s family support payments to

Carmen6 satisfy the requirements of section 71(b)(1)(A)-(C) for

qualification as alimony.7   They disagree whether those payments

satisfy section 71(b)(1)(D).   For ease of reference, we shall

refer to the types of liability described in the first and second

clauses of section 71(b)(1)(D) as “continuing payment liability”




     6
       We address petitioner’s payments to Drs. Caffaro and
Murphy in part I.E.
     7
       The parties stipulate that $3,824 of the $49,808 paid by
petitioner to Carmen in 1999 “represented amounts paid by
petitioner which were attributable to family support arrearages
from prior years.” That language is potentially broad enough to
include interest (i.e., the $2,196 interest component of
petitioner’s Dec. 31, 1998, arrearage), which, unlike qualifying
alimony, is generally not deductible in this context. See sec.
163(h). The record does not reflect whether the Superior Court
in fact credited the $3,824 to pre-1999 family support
(principal), interest thereon, or both (or neither, for that
matter, see supra note 4). On brief, however, respondent does
not distinguish between petitioner’s payments of current and past
due (pre-1999) family support in 1999, referring to such amounts
in the aggregate as “family support”, the deductibility of which
turns on the application of sec. 71(b)(1)(D). Accordingly, we
deem respondent to have conceded that the arrears paid by
petitioner to Carmen in 1999 were family support rather than
interest.
                               - 9 -

and “substitute payment liability”, respectively (collectively,

“postdeath liability”).

          2.    Historical Context

     Before we begin our analysis, some historical background

would be helpful.   Prior to 1984, the Internal Revenue Code

described taxable alimony as “periodic payments (whether or not

made at regular intervals) received * * * in discharge of, or

attributable to property transferred (in trust or otherwise) in

discharge of, a legal obligation which, because of the marital or

family relationship, is imposed upon or incurred by” the payor

spouse under a divorce or separation instrument.   Sec. 22(k),

I.R.C. 1939, as enacted by the Revenue Act of 1942, ch. 619, sec.

120(a), 56 Stat. 816 (the 1942 Act); see also sec. 71(a)(1) and

(2), I.R.C. 1954, prior to amendment by the Deficit Reduction Act

of 1984, Pub. L. 98-369, sec. 422(a), 98 Stat. 494 (the 1984 Act)

(similar language).   The general rule of inclusion in the

recipient’s income did not apply to “that part of any such

periodic payment which the terms of the decree or written

instrument fix, in terms of an amount of money or a portion of

the payment, as a sum which is payable for the support of minor

children”.   Sec. 22(k), I.R.C. 1939, supra; see also sec. 71(b),

I.R.C. 1954, supra (substantially identical language).

Furthermore, except as otherwise provided, “[i]nstallment

payments discharging a part of an obligation the principal sum of
                                  - 10 -

which is, in terms of money or property, specified in the decree

or instrument” were not considered periodic payments.         Sec.

22(k), I.R.C. 1939, supra; see also sec. 71(c)(1), I.R.C. 1954,

supra (substantially identical language).

        While the exception (to the general rule of inclusion) for

child support did not state that only amounts “fixed” as child

support in the divorce or separation instrument were treated as

such for tax purposes, that was clearly the intent of Congress:

        If, however, the periodic payments * * * are received
        by the wife for the support and maintenance of herself
        and of minor children of the husband without such
        specific designation of the portion for the support of
        such children, then the whole of such amount is
        includible in the income of the wife [i.e., is treated
        as alimony] as provided in section 22(k) * * *.

H. Rept. 2333, 77th Cong., 1st Sess. (1942), 1942-2 C.B. 372,

429; S. Rept. 1631, 77th Cong., 2d Sess. (1942), 1942-2 C.B. 504,

570.8       The Supreme Court gave effect to that intent in

Commissioner v. Lester, 366 U.S. 299 (1961), holding that “[t]he

agreement must expressly specify or ‘fix’ a sum certain or

percentage of the payment for child support before any of the

payment is excluded from the * * * [payee spouse’s] income [i.e.,




        8
       Regulations issued within 2 months of the enactment of the
1942 Act parroted the language quoted above. See sec. 19.22(k)-
1(d), Regs. 103, as amended by T.D. 5194, 1942-2 C.B. 53, 59-60;
see also sec. 1.71-1(e), Income Tax Regs. (identical except for
statutory reference).
                               - 11 -

is not treated as alimony].”   Id. at 303 (emphasis added).9

Furthermore, the Court narrowly construed that requirement,

holding that language in a marital agreement providing for a pro

rata reduction in payments to the payee spouse as each child

became emancipated did not “fix” such amounts as child support as

contemplated in the statute.

     The Court in Commissioner v. Lester, supra at 302,

recognized the pervasive incentive under Federal income tax law

to characterize marital payments as includable, deductible

alimony rather than excludable, nondeductible child support:    “on

the other hand, the wife, generally being in a lower income tax

bracket than the husband, could * * * in the final analysis

receive a larger net payment from the husband if he could deduct

the gross payment from his income.”     In blessing the technique

utilized by Mr. Lester, the Court afforded practitioners great

flexibility in disguising child support as alimony for tax

purposes.   As one California court explained, in the aftermath of

Lester:

     it became a common practice for spousal support awards
     to be “loaded.” That is, a theoretically larger than
     otherwise spousal support payment and a correspondingly
     adjusted-down child support payment was agreed upon in
     order to take advantage of the tax laws and, assumedly,
     to provide adequately for the children through the
     supported, custodial spouse’s increased income.



     9
       In so holding, the Court relied extensively on the
legislative history of the statute, including the passage quoted
above.
                              - 12 -

In re Marriage of Leathers, 221 Cal. Rptr. 78, 81 (Ct. App. 1985)

(unpublished).

     As it turned out, the practice of disguising child support

as alimony for tax purposes conflicted with California law

requiring adequate child support awards.   Id.; see In re Marriage

of Ames, 130 Cal. Rptr. 435 (Ct. App. 1976).   As the court in In

re Marriage of Leathers, supra at 81, continued:

     Not surprisingly, the twain of good tax breaks and good
     domestic relations law did not meet for long. In In re
     Marriage of Ames [citation omitted], the Court of
     Appeal for the Second District held that an inadequate
     child support award could not be justified or sustained
     by reference to a spousal support award allegedly
     inflated to take advantage of federal tax laws on the
     theory that the total income to the custodial spouse is
     adequate for both the wife and the children. [Fn. ref.
     omitted.] * * *

          Ames’ affirmation of the need for an adequate,
     separate child support award was incompatible with the
     “Lester” taxing scheme. * * *

     The California legislature responded in 1981 by creating the

concept of family support, which represents combined, but

unallocated, child support and spousal support.    See 1981 Cal.

Stat. ch. 715, sec. 4 (adding former Cal. Civil Code sec.

4811(d)).   The new California statutory provision effectively

skirted the holding of In re Marriage of Ames, supra, by

providing that a court need not make a separate order for child

support when the parties use the family support technique.10



     10
       That aspect of the 1981 legislation now appears in sec.
3586 of the California Family Code.
                              - 13 -

     In 1984, Congress replaced the periodic payment/installment

payment distinction contained in former section 71(a) and (c)

with the four-pronged definition of alimony set forth in section

71(b)(1) (including the proscription of postdeath liability

contained in subparagraph (D) thereof), reinforced by a recapture

rule (section 71(f)) for “front-loaded” alimony.     Deficit

Reduction Act of 1984, supra, sec. 422(a).     While the exception

(to the general rule of inclusion) for amounts “fixed” as child

support remained essentially unchanged, see sec. 71(c)(1),

Congress did overturn the result in Commissioner v. Lester,

supra, see sec. 71(c)(2) (reduction in support that is clearly

associated with a contingency, specified in the divorce or

separation instrument, that relates to a child will be treated as

an amount fixed as payable for child support).     Lester continues,

however, to stand for the proposition that, subject to section

71(c)(2), amounts will not be treated as child support for

purposes of section 71 unless specifically designated as such in

the governing divorce document.   See, e.g., Lawton v.

Commissioner, T.C. Memo. 1999-243; Raymond v. Commissioner, T.C.

Memo. 1997-219; Ambrose v. Commissioner, T.C. Memo. 1996-128.

     As enacted, section 71(b)(1)(D) closed with the following

parenthetical:   “(and the divorce or separation instrument states

that there is no such liability)”.     Congress dropped that

requirement in 1986, see Tax Reform Act of 1986, Pub. L. 99-514,

sec. 1843(b), 100 Stat. 2853, apparently “to mitigate the effects
                               - 14 -

of sloppy lawyering” by allowing “state law to ‘save’ alimony

arrangements that meet all requirements of § 71(b)(1) except the

explicit statement of termination upon death”.    Hoover v.

Commissioner, 102 F.3d 842, 846 (6th Cir. 1996), affg. T.C. Memo.

1995-183.    Accordingly, while we continue to consult the divorce

documents first in determining a payor spouse’s postdeath

liability for purposes of section 71(b)(1)(D), e.g., Okerson v.

Commissioner, 123 T.C. 258, 264 (2004), we may now look to

applicable State law if those documents are inconclusive, e.g.,

Gilbert v. Commissioner, T.C. Memo. 2003-92, affd. sub nom.

Hawley v. Commissioner, 94 Fed. Appx. 126 (3d Cir. 2004).

      The California legislature has not made any changes in the

California family support regime in response to Congress’s 1984

and 1986 amendments to section 71.

     B.     Continuing Payment Liability With Respect to
            Petitioner’s Family Support Obligation

            1.   Overview

     Under this prong of section 71(b)(1)(D), we seek to

determine whether Carmen’s estate could enforce petitioner’s

family support obligation for any period after Carmen’s death.

See, e.g., Preston v. Commissioner, T.C. Memo. 1999-49 n.6, affd.

in part, vacated and remanded in part on another issue 209 F.3d

1281 (11th Cir. 2000); Human v. Commissioner, T.C. Memo. 1998-

106; Sugarman v. Commissioner, T.C. Memo. 1996-410; see also

Geier, “Simplifying and Rationalizing the Federal Income Tax Law
                              - 15 -

Applicable to Transfers in Divorce”, 55 Tax Law. 363, 398, 422,

427, 449 & n.325 (2002); McMahon, “Tax Aspects of Divorce and

Separation”, 32 Fam. L.Q. 221, 226 (1998).   As a practical

matter, inasmuch as petitioner’s family support obligation is

otherwise open-ended (i.e., has no expressly specified term), the

issue is whether that obligation would terminate automatically at

Carmen’s death or, alternatively, would remain enforceable by

Carmen’s estate until petitioner petitioned the Superior Court

for relief.11

          2.    The Divorce Documents

          a.    Scope of Inquiry

     None of the Superior Court documents in the record (the

divorce documents) addresses the contingency of Carmen’s death.

However, inasmuch as the dissolution judgment incorporates the

terms of petitioner’s and Carmen’s settlement agreement,

petitioner seeks to introduce extrinsic evidence of his and

Carmen’s intent regarding the effect of Carmen’s death on

petitioner’s family support obligation.   Petitioner’s exhibit 5

is a transcript of a June 13, 1996, hearing in the Superior Court




     11
       Although the period of any such interim enforceability
presumably would be brief, any continuing payment liability with
respect to a payment obligation is apparently sufficient to
disqualify as alimony all payments made pursuant to that
obligation, including payments made before the payee spouse’s
death. See sec. 1.71-1T(b), Q&A-10, Temporary Income Tax Regs.,
49 Fed. Reg. 34456 (Aug. 31, 1984).
                                - 16 -

that contains the following exchange between Carmen and her

counsel:

            Q    And you understand that under this agreement,
       that the support of $4,030 payable by husband to you
       will be taxable to you?

            A    Yes.

Petitioner’s exhibit 12 is a copy of Carmen’s 1997 Federal income

tax return, on which she reported $42,055 of “Other income”,

described as “Family Support received”.

       Respondent objects to petitioner’s exhibits 5 and 12 on the

ground of relevance.    In essence, respondent argues that

petitioner’s and Carmen’s belief or understanding that the

payments would be taxable to Carmen, and Carmen’s inclusion of

the payments in the income reported on her 1997 tax return, have

no bearing on the issue of petitioner’s liability to continue

making those payments in the event of Carmen’s death.    For the

reasons discussed below, we shall sustain respondent’s objection.

            b.   Extrinsic Evidence in General

       Before we address respondent’s relevance objection, we

consider the larger issue of whether resort to extrinsic evidence

of intent is appropriate in this case.    In construing divorce

documents under section 71(b)(1)(D) to determine the payor

spouse’s postdeath liability, we are generally prohibited from

considering extrinsic evidence if the operative documents speak

unambiguously to the matter.     Okerson v. Commissioner, supra at

264.    If the documents are silent or ambiguous, we may, to the
                              - 17 -

extent permissible under applicable State law principles,12

consider extrinsic evidence of the parties’ intent regarding such

postdeath liability.   See Wells v. Commissioner, T.C. Memo. 1998-

2; Cunningham v. Commissioner, T.C. Memo. 1994-474; cf. Estate of

Craft v. Commissioner, 68 T.C. 249, 263 (1977) (interpretation of

trust instrument), affd. 608 F.2d 240 (5th Cir. 1979).

     The majority view in California appears to be that a marital

settlement agreement that has been incorporated into a judgment

is treated no differently from any other written agreement for

purposes of determining the admissibility of extrinsic evidence.

Vance & Pierson, Cal. Civ. Prac. Fam. Law Litig., sec. 8.72 (rev.

Oct. 2004); see, e.g., In re Marriage of Simundza, 18 Cal. Rptr.

3d 377, 380-381 (Ct. App. 2004); In re Marriage of Trearse, 241

Cal. Rptr. 257, 260-261 (Ct. App. 1987); but see In re Marriage

of Benson, 217 Cal. Rptr. 589, 591 (Ct. App. 1985).   Accordingly,

inasmuch as the divorce documents do not address the effect of

Carmen’s death on petitioner’s family support obligation, we may

consider petitioner’s exhibits 5 and 12 (offered to establish his

and Carmen’s alleged understanding that the obligation would




     12
       Although we apply the rules of evidence applicable in
trials without a jury in the U.S. District Court for the District
of Columbia, sec. 7453, it is well recognized that the so-called
“parol evidence rule” (limiting the role of extrinsic evidence of
intent in the interpretation of a written instrument) is a rule
of substantive law rather than a rule of evidence. Estate of
Craft v. Commissioner, 68 T.C. 249, 262-263 (1977), affd. 608
F.2d 240 (5th Cir. 1979).
                              - 18 -

terminate automatically at her death),13 subject to respondent’s

relevance objection.

          c.   Respondent’s Relevance Objection

     Evidence is relevant (and therefore generally admissible) if

it has any tendency to make the existence of any fact that is of

consequence to the determination of the action more probable or

less probable than it would be without the evidence.   Fed. R.

Evid. 401 and 402.   If, however, the relevance of the evidence in

question depends on the existence of some other fact, then the

admissibility of such “conditionally relevant” evidence itself

depends on the introduction of evidence sufficient to support a

finding of the existence of that other fact.   See Fed. R. Evid.

104(b) and advisory committee’s note.

     The ultimate factual issue in this case is whether

petitioner and Carmen intended the family support payments to

terminate automatically at Carmen’s death.   Petitioner’s exhibits

5 and 12 certainly tend to increase the factual likelihood that

he and Carmen intended the payments to qualify as alimony for



     13
       We note that we would reach a different conclusion if the
California Family Code required that any such understanding be in
writing. See In re Marriage of Trearse, 241 Cal. Rptr. 257, 259
(Ct. App. 1987) (“A limitation on the admissibility of extrinsic
evidence to prove the intent of the parties to a marital
settlement agreement has been recognized where a statute requires
the parties to the agreement to state certain matters
specifically in writing.”); cf. Cal. Fam. Code sec. 4337 (West
2004), discussed infra (any agreement that a spousal support
obligation will not terminate upon the death of the payee spouse
must be in writing).
                               - 19 -

Federal income tax purposes.   However, that fact could be

relevant to our ultimate factual determination (in that it would

tend to show that petitioner and Carmen intended the payments to

terminate automatically at Carmen’s death) only if petitioner and

Carmen knew their intended tax treatment depended on the effect

of Carmen’s death on petitioner’s payment obligation.14

Petitioner has offered no evidence that would support a finding

of actual knowledge in that regard,15 and we deem it

inappropriate to impute such knowledge in this context.16    Cf.


     14
       We do not fail to recognize that, under the tax law in
effect prior to 1984, we treated a “tax intent” clause in the
divorce documents, providing that the payments would be fully
taxable to the payee, as relevant to the classification of the
payments for tax purposes. See Stevens v. Commissioner, T.C.
Memo. 1982-352, affd. 709 F.2d 12 (5th Cir. 1983).
     15
       Assuming, for the sake of argument, that knowledge of
petitioner’s and Carmen’s respective counsel could be ascribed to
petitioner and Carmen for these purposes, the record contains no
indication that their counsel knew the intended tax treatment
depended on the effect of Carmen’s death on petitioner’s payment
obligation.
     16
       If taxpayers could rely on mutually intended tax
consequences to establish an agreement satisfying sec.
71(b)(1)(D), then they could effectively “opt into” alimony
treatment, a result we believe is not supported by the statute.
See Geier, “Simplifying and Rationalizing the Federal Income Tax
Law Applicable to Transfers in Divorce”, 55 Tax Law. 363, 427
(2002) (while taxpayers can opt out of alimony treatment pursuant
to sec. 71(b)(1)(B), they have no power to opt into alimony
treatment under the statute); cf. Okerson v. Commissioner, 123
T.C. 258, 264-265 (2004) (rejecting the relevance of the State
court’s alleged intent that the payments at issue be deductible
as alimony).

     We do not mean to suggest, however, that evidence of
intended tax consequences (and of tax reporting consistent with
                                                   (continued...)
                              - 20 -

Cunningham v. Commissioner, supra (knowledge of payee spouse’s

counsel that payor spouse intended to deduct payments at issue

does not equate to knowledge that the payments were intended to

terminate on the payee spouse’s death).17   Accordingly, we

sustain respondent’s relevance objection and exclude from

evidence petitioner’s exhibits 5 and 12.    See Fed. R. Evid.

104(b).

          d.   Conclusion

     The divorce documents do not address the contingency of

Carmen’s death, and petitioner has not offered any competent

evidence of his and Carmen’s intent in that regard.   We therefore

turn to California law in order to determine the effect of

Carmen’s death on petitioner’s family support obligation.


     16
      (...continued)
that intent) can never be relevant to a determination of the
intended scope of the payor’s liability. For example, a State
court might find such evidence relevant in a suit by the payee’s
estate to enforce payment after the payee’s death.
     17
       In Cunningham v. Commissioner, T.C. Memo. 1994-474, we
considered the weight to be afforded extrinsic evidence of
intended tax consequences rather than the threshold issue of its
admissibility. Our observations therein are nonetheless
instructive:

     If both parties * * * [wanted the payments to be
     deductible] and had understood the applicable tax
     requirements needed to make them deductible, we could
     infer that they intended the agreement to satisfy those
     requirements. Because neither Mark nor * * * [his
     counsel] appears to have understood that new section 71
     required the support payments to terminate in the event
     of the death of Shirley, we are unable to infer that
     they had considered that requirement when Mark signed
     the settlement agreement. * * * [Emphasis added.]
                                - 21 -

            3.   Family Support Under California Law

            a.   Statutory Overview

     The California Family Code (Family Code) defines “family

support” as “an agreement between the parents, or an order or

judgment, that combines child support and spousal support without

designating the amount to be paid for child support and the

amount to be paid for spousal support.”     Cal. Fam. Code sec. 92

(West 2004).     As discussed supra pp. 11-12, the term entered the

statutory lexicon in 1981 as the result of an attempt by the

California legislature to reconcile principles of California

child support law with Federal income tax law regarding the

deductibility of payments to an ex-spouse.     While portions of the

Family Code are devoted exclusively to the well-established

components of family support, see Cal. Fam. Code secs. 3900–4253,

4300–4360 (West 2004) (child support and spousal support,

respectively), the Family Code contains no comprehensive set of

rules relating to the newfangled amalgam.     In particular, the

Family Code does not specifically address the effect of the

payee’s death on a family support obligation.

            b.   Family Code Section 4337

     Petitioner argues that Family Code section 4337, which

generally operates to terminate spousal support upon the death of

the payee spouse, is broad enough to include family support.18


     18
          In Wells v. Commissioner, T.C. Memo. 1998-2, we
                                                      (continued...)
                               - 22 -

That section provides:    “Except as otherwise agreed by the

parties in writing, the obligation of a party under an order for

the support of the other party terminates upon the death of

either party or the remarriage of the other party.”    (Emphasis

added.)    Notwithstanding that Family Code section 4337 is

contained in a portion of the Family Code (div. 9, pt. 3, secs.

4300-4360) entitled “Spousal Support”,19 petitioner argues that

“if the legislature wanted the operation of Cal. Fam. Code

section 4337 to be limited to spousal support, then ‘spousal

support’ would have been used instead of ‘support of the other

party’.”

     To the extent petitioner is suggesting that the use of the

phrase “support of the other party” in Family Code section 4337

reflects the drafters’ intention to signify family support as

well as spousal support, the history of the provision indicates

otherwise.    The reference in Family Code section 4337 to “support

of the other party” dates from 1951, 30 years before the



     18
      (...continued)
concluded, without discussion, that Family Code sec. 4337
“pertains only to spousal support orders and * * * does not
address family support payments.” Contrary to petitioner’s
assertion, we did not conclude otherwise in Ambrose v.
Commissioner, T.C. Memo. 1996-128.
     19
       Family Code sec. 4330(a) provides that, in ordering a
party to pay for the “support of the other party”, the court is
to “[take] into consideration the circumstances as provided in
Chapter 2 (commencing with Section 4320).” Family Code sec. 4320
lists circumstances the court is to consider “[i]n ordering
spousal support under this part”.
                                - 23 -

California legislature created the concept of family support.

See Hilton v. McNitt, 315 P.2d 1, 3 (Cal. 1957); see also 1951

Cal. Stat. ch. 1700, sec. 7.     Prior to 1951, the then-existing

statutory predecessor of Family Code section 4337, former

California Civil Code section 139, was phrased in terms of the

husband’s obligation to support the wife.        Taliaferro v.

Taliaferro, 270 P.2d 1036, 1039 (Cal. Dist. Ct. App. 1954); see

Cal. Civ. Code sec. 139, as amended by 1933 Cal. Stat. ch. 412,

sec. 1.20   The broadening of the statutory language in 1951

simply rendered the obligation of spousal support gender-neutral.

See Franklin Life Ins. Co. v. Kitchens, 57 Cal. Rptr. 652, 657

(Ct. App. 1967); Newhall v. Newhall, 321 P.2d 818, 822 (Cal.

Dist. Ct. App. 1958).

            c.    Other Family Code Provisions

     Notwithstanding the foregoing, other provisions of the

Family Code display the intention of the California legislature

that family support qualify as deductible alimony under Federal

income tax law.    See, e.g., Cal. Fam. Code sec. 4066 (West 2004)

(orders complying with the statewide uniform guideline for child

support may be phrased in terms of family support “as long as the

amount is adjusted to reflect the effect of additional




     20
       Former Cal. Civ. Code sec. 139 is the immediate statutory
predecessor of former Cal. Civ. Code sec. 4801(b), which is the
immediate statutory predecessor of Family Code sec. 4337.
                               - 24 -

deductibility”).21   Accordingly, one could argue that the Family

Code should be interpreted consistently with that intent whenever

(as is the case with Family Code section 4337) such an

interpretation would not do violence to the plain language of the

statute.   Cf. Cal. Fam. Code sec. 4075 (West 2004) (provisions

regarding the statewide uniform guideline for child support

“shall not be construed to affect the treatment of spousal

support and separate maintenance payments pursuant to Section 71

of the Internal Revenue Code of 1954”).   Because, as discussed

infra, we conclude that petitioner’s family support payments

qualify as deductible alimony without regard to Family Code

section 4337, we need not decide whether a California court would

adopt that interpretive approach.

           d.   Caselaw

     Neither party cites, nor are we aware of, any California

cases addressing the issue of whether, absent an agreement of the

parties or a directive in the divorce decree, an obligation to

pay family support terminates upon the death of the payee spouse.

Petitioner draws support from Danz v. Danz, 216 P.2d 162 (Cal.

Dist. Ct. App. 1950), and Hale v. Hale, 45 P.2d 246 (Cal. Dist.

Ct. App. 1935), cases in which the court limited enforcement of

an unallocated support award to amounts that had accrued prior to

the payee spouse’s remarriage.   While those cases are somewhat


     21
       California enacted its statewide uniform guideline for
child support in 1993. See 1993 Cal. Stat. ch. 219, sec. 138.
                               - 25 -

analogous to this case, we think a more instructive case is In re

Marriage of Benjamins, 31 Cal. Rptr. 2d 313 (Ct. App. 1994).

That case involved a payor spouse’s obligation under a marital

settlement agreement (the terms of which were incorporated in the

divorce decree) to pay the payee spouse, on or before September

1, 1991, an amount equal to her medical insurance premium for the

1-year period commencing on that date.    Although the payee spouse

died in April 1991, her daughter, as successor in interest,

demanded payment of the premium amount ($13,140) under threat of

legal action.   The payor spouse paid the premium amount and then

petitioned the court for reimbursement.   The court held for the

payor spouse, reasoning that the obligation was in the nature of

spousal support which, pursuant to Family Code section 4337,

terminated at the payee spouse’s death.    Id. at 317.

     We believe a California court would similarly reject any

attempt by Carmen’s successor in interest (e.g., her estate) to

enforce petitioner’s family support obligation for any period

after Carmen’s death.   Family support quite simply consists of

spousal support and child support, and it is well settled under

California law that a child support obligation runs to the child

and not to the payee spouse.   In re Marriage of Comer, 59 Cal.

Rptr. 2d 155, 160 (1996); see also Keith G. v. Suzanne H., 72

Cal. Rptr. 2d 525, 529 (Ct. App. 1998); In re Marriage of McCann,

32 Cal. Rptr. 2d 639, 642 (Ct. App. 1994); Hogoboom & King, Cal.
                               - 26 -

Prac. Guide: Fam. Law, sec. 18:40 (2004 ed.).22   It logically

follows that Carmen’s interest in petitioner’s family support

obligation, like the payee spouse’s interest in the premium

obligation at issue in In re Marriage of Benjamins, supra, is in

the nature of spousal support.   Her interest in the award would

therefore terminate at her death, leaving her successor without

an enforceable interest.

          4.   Conclusion

     We conclude that petitioner’s family support obligation does

not entail continuing payment liability as contemplated in

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

     C.   Substitute Payment Liability With Respect to
          Petitioner’s Family Support Obligation

          1.   Overview

     Under this prong of section 71(b)(1)(D), we look beyond the

issue of continuing enforceability in search of any payment

obligation after Carmen’s death that would, in substance,

represent a continuation (in whole or in part) of petitioner’s

family support payments.    See sec. 1.71-1T(b), Q&A-14, Temporary

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

(determination of whether payments commencing, increasing, or

accelerating upon the death of the payee spouse are a substitute




     22
       As discussed infra, the child support component of
petitioner’s family support obligation is more relevant to our
inquiry regarding substitute (as opposed to continuing) payment
liability.
                               - 27 -

for the continuation of payments ostensibly terminating at that

time depends on all of the facts and circumstances).

          2.   Okerson v. Commissioner

     Our recent opinion in Okerson v. Commissioner, 123 T.C. 258

(2004), nicely illustrates the operation of the substitute

payment clause of section 71(b)(1)(D).     The divorce decree in

that case required Mr. Okerson to pay Mrs. Okerson $117,000 “as

alimony necessary for her support” in varying installments over a

period of approximately 10 years.   Id. at 259-260.    Although the

decree specified that “[s]aid alimony” would terminate upon Mrs.

Okerson’s death, another provision obligated Mr. Okerson to pay

the remaining installments in that event “for or on behalf of the

education of the parties’ two children”.     Id. at 260.   A

subsequent decree required Mr. Okerson to pay Mrs. Okerson’s

attorney $33,500 on Mrs. Okerson’s behalf “as alimony necessary

for her support” over a period of 41 months.     Id.   That decree

similarly provided that “[s]aid alimony” would terminate upon

Mrs. Okerson’s death, in which case the remaining installments

would be payable directly to her attorney.     Id. at 260-261.     We

concluded that both postdeath obligations were substitute payment

liabilities, as contemplated in section 71(b)(1)(D), with respect

to the payments to Mrs. Okerson labeled as “alimony” and that,

consequently, the payments to Mrs. Okerson failed to qualify as

deductible alimony.   Id. at 267-268; see also sec. 1.71-1T(b),

Q&A-14, Examples (1) and (2), Temporary Income Tax Regs., supra.
                             - 28 -

          3.   The Child Support Obligation Embedded in Family
               Support

     Unlike Okerson v. Commissioner, supra (as well as the above-

cited examples in respondent’s temporary regulations), this case

does not involve language in a divorce decree that can be

construed as imposing a substitute payment obligation with

respect to the payments at issue.   Rather, the issue in this case

is whether we can infer a substitute payment obligation with

respect to petitioner’s family support payments on the basis of

their undesignated child support component.   While spousal

support generally terminates on the death of the payee spouse,

Cal. Fam. Code sec. 4337 (West 2004), a parent’s duty to support

his or her child generally continues until the child’s

emancipation, Cal. Fam. Code secs. 3900, 3901 (West 2004).

Arguably, then, petitioner’s potential liability for child

support payments in the event of Carmen’s death represents a

substitute payment obligation with respect to a corresponding

portion of his family support payments.

     We essentially adopted the foregoing analysis in Wells v.

Commissioner, T.C. Memo. 1998-2.    In that case, which respondent

urges us to follow, we sustained the Commissioner’s determination

that the taxpayer’s family support payments did not satisfy

section 71(b)(1)(D), relying in part on the following reasoning:
                               - 29 -

     Assuming a “worst case scenario” (i.e., custodial
     parent dies and custody is awarded to someone other
     than the surviving spouse), we cannot believe that
     California law would permit the surviving parent to
     avoid any further support obligations. * * *

See also Hawley v. Commissioner, 94 Fed. Appx. 126 (3d Cir. 2004)

(citing the Pennsylvania equivalent of Cal. Fam. Code secs. 3900

and 3901 for the proposition that “[e]ven if the technical

obligation to make [unallocated support] payments under the order

to [Ms.] Gilbert would have ended upon her death, the obligation

to make substitute payments would have continued because Hawley

would still have been required to support his children”), affg.

Gilbert v. Commissioner, T.C. Memo. 2003-92.

     Petitioner, on the other hand, urges us to reject Wells v.

Commissioner, supra.   He argues, among other things, that “none of

the payments made by Petitioner can be considered ‘child support’

pursuant to either section 71(c)(1) or 71(c)(2) and, therefore,

the payments qualify as alimony under section 71(a).”   That aspect

of petitioner’s argument underscores the incompatibility of the

expansive reading of section 71(b)(1)(D) in Wells and the narrow

reading of section 71(c)(1)’s predecessor in Commissioner v.

Lester, 366 U.S. 299 (1961).   Under the worst case scenario

approach of Wells (which assumes that someone other than the payor

spouse would take custody of the children upon the payee spouse’s

death), the substitute payment clause of section 71(b)(1)(D) will

invariably render the child support element of unallocated support

nondeductible, solely on the basis of the payor’s general State
                               - 30 -

law obligation to support his or her children (i.e., through

payments to the presumed successor custodian).23   In contrast,

Lester stands for the principle, subject now to section 71(c)(2),

that only amounts specifically designated as child support in the

divorce decree will be treated as nondeductible child support

under section 71(c)(1).24   See Lawton v. Commissioner, T.C. Memo.

1999-243 (rejecting the argument that Pennsylvania’s child support

guidelines effectively “fix” a portion of an unallocated support

obligation as child support within the meaning of section

71(c)(1)); see also Simpson v. Commissioner, T.C. Memo. 1999-251

(same).

     This Court has never squarely addressed and resolved the

tension between section 71(b)(1)(D) and (c)(1) in the context of

unallocated support obligations.25   For the reasons discussed

     23
       We are not aware of any jurisdiction in the United States
that does not impose a general obligation on parents to support
their minor children.
     24
       Sec. 71(c)(2) provides that a reduction in support that
is clearly associated with a contingency, specified in the
governing divorce document, that relates to a child will be
treated as an amount fixed as payable for the support of children
within the meaning of sec. 71(c)(1). See supra p. 13.
     25
       Compare Wells v. Commissioner, T.C. Memo. 1998-2,
Gilbert v. Commissioner, T.C. Memo. 2003-92, affd. sub nom.
Hawley v. Commissioner, 94 Fed. Appx. 126 (3d Cir. 2004), and
Miller v. Commissioner, T.C. Memo. 1999-273, affd. sub nom.
Lovejoy v. Commissioner, 293 F.3d 1208 (10th Cir. 2002), with
Ambrose v. Commissioner, T.C. Memo. 1996-128, and Heller v.
Commissioner, T.C. Memo. 1994-463, affd. in part and remanded in
part 78 AFTR 2d 96-7610, 97-1 USTC par. 50,193 (9th Cir. 1996).
See also Kean v. Commissioner, T.C. Memo. 2003-163; Murphy v.
                                                    (continued...)
                              - 31 -

below, we resolve this tension by rejecting the interpretation of

section 71(b)(1)(D) inherent in the worst case scenario approach

of Wells v. Commissioner, supra.   Specifically, we reject the

notion that the applicability of section 71(b)(1)(D) to an

unallocated support obligation is to be determined by invariably

assuming that a third party would take custody of the children

upon the payee spouse’s death, thereby ensuring the existence of a

substitute payment obligation.26

     25
      (...continued)
Commissioner, T.C. Memo. 1996-258.

     Petitioner has brought to our attention that the conflict in
the authorities has not gone unnoticed. See Udrys, “California
Family Support: Tax Consequences after Wells v. Commissioner”,
41 Orange County Law. 36, 41 (1999). See also the comment of the
Court of Appeals in Lovejoy v. Commissioner, supra at 12ll:

           There is no Colorado law squarely addressing the
      treatment of unallocated payments upon the death of the
      payee spouse. The only on-point cases cited by the
      parties address California law and are conflicting.
      Compare Heller v. Commissioner, 103 F.3d 138, 1996 WL
      713049, at *3 (9th Cir. 1996) (unpublished) (holding
      that the obligation to pay unallocated support would
      automatically terminate upon the recipient’s death),
      and Ambrose v. Commissioner, 71 T.C.M. (CCH) 2429 (Mar.
      14, 1996) (same), with Wells v. Commissioner, 75 T.C.M.
      (CCH) 1507 (Jan. 5, 1998) (holding that the obligation
      does not terminate upon death). This split of
      authority interpreting California law is no help to
      Lovejoy’s attempt to show that Colorado law provides
      for the termination of unallocated payments upon the
      payee spouse’s death.

      26
       We observe that the unpublished opinion of Heller v.
Commissioner, supra, by the Court of Appeals for the Ninth
Circuit is not binding precedent in the Ninth Circuit (to which
an appeal in this case would lie). See 9th Cir. R. 36-3(a).
                                                    (continued...)
                               - 32 -

           4.   The Case Against the Worst Case Scenario Approach

           a.   General Principles of Statutory Construction

      The worst case scenario approach of Wells v. Commissioner,

T.C. Memo. 1998-2, renders section 71(c)(1) largely superfluous,

in violation of the general premise that “‘a statute ought, upon

the whole, to be so construed that, if it can be prevented, no

clause, sentence, or word shall be superfluous, void, or

insignificant.’”   Duncan v. Walker, 533 U.S. 167, 174 (2001)

(quoting Market Co. v. Hoffman, 101 U.S. 112, 115-116 (1879)).

Specifically, if the general State law obligation to support one’s

children were the functional equivalent of a substitute payment

obligation in every case (as would obtain if one must assume that

someone other than the payor spouse would take custody of the

children upon the payee spouse’s death), then the only amounts

that section 71(c)(1) could, to the exclusion of section

71(b)(1)(D), render nondeductible would be amounts “fixed” as

child support (taking into account section 71(c)(2)) in excess of

the amount of the general State law obligation.27   Cf. TRW, Inc. v.

     26
      (...continued)
Accordingly, we need not decide whether the doctrine of Golsen v.
Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985
(10th Cir. 1971), would require us to follow Heller.
      27
       Presumably, the amount of the State law obligation would
be determined by reference to the child support guidelines
enacted by the State in compliance with Federal law. See 42
U.S.C. sec. 667 (2000); cf. Lawton v. Commissioner, T.C. Memo.
1999-243 (rejecting payee spouse’s attempt to identify child
support element of unallocated support payments by reference to
                                                    (continued...)
                                 - 33 -

Andrews, 534 U.S. 19, 29 (2001) (rejecting Andrews’s “attempt to

generate some role for the express exception [in the statute]

independent of that [which would be] filled by” the rule of

general application she asked the Court to read into the statute);

Anderson v. Commissioner, 123 T.C. 219, 236-237 (2004) (rejecting

an interpretation of section 3121(b)(20) that would have

effectively denied its beneficial effects to most, if not all,

small fishing boat owners who are the intended beneficiaries of

the provision).

     Expanding the reach of section 71(b)(1)(D) to the extent

suggested by the worst case scenario approach also runs contrary

to the maxim that a specific provision controls over a general

one, particularly when the two are interrelated and closely

situated in the statute.    E.g., HCSC-Laundry v. United States, 450

U.S. 1, 6 (1981) (analyzing section 501(c)(3) and (e)).    Inasmuch

as section 71(c)(1), but not section 71(b)(1)(D), specifically

addresses child support, the foregoing rule of construction

militates against an interpretation of section 71(b)(1)(D) which,

contrary to the specific designation principle of section

71(c)(1), invariably has the effect of converting undesignated

support into child support.

          b.      Legislative History of the 1984 Act

     Notwithstanding the foregoing, the intent of the drafters is

     27
      (...continued)
Pennsylvania’s child support guidelines).
                                 - 34 -

paramount, and, if extrinsic evidence of that intent were to

contradict the implications of the general principles discussed

above, the former would control.    E.g., Beam v. IRS, 192 F.3d 941,

945 (9th Cir. 1999) (although “specific statutes normally trump

conflicting, general statutes”, appellants’ argument relying on

that general principle “ignores the specifically stated intent of

Congress”).    Having said that, we see nothing in the legislative

history of the 1984 Act indicating that, in enacting section

71(b)(1)(D), Congress intended to abandon the specific designation

principle of section 71(c)(1).     Any inference to that effect is

particularly unwarranted in light of the fact that Congress

crafted a narrow exception to that principle as part of the same

legislation.    See sec. 71(c)(2), supra note 24; cf. Chiles v.

United States, 843 F.2d 367, 370 (9th Cir. 1988) (“We cannot

conclude that Congress chose to repeal [I.R.C.] § 2056(c)

expressly and left § 2056(b)(4)(A) intact only to effectuate its

repeal by implication.”).

     To be sure, Congress did contemplate that section 71(b)(1)(D)

could, in derogation of the specific designation principle of

section 71(c)(1), render excludable (and therefore nondeductible)

the portion of a payment that, in substance but not in form,

represents child support:

     A provision for a substitute payment, such as an
     additional amount to be paid as child support after the
     death of the payee spouse will prevent a corresponding
     amount of the payment to the payee spouse from
     qualifying as alimony. * * *
                              - 35 -

H. Rept. 98-432 (Part 2) at 1496 (1984) (the 1984 House Report).28

That example, however, like section 71(c)(2), represents only a

limited departure from the specific designation principle in that

it relies on other language in the governing instrument.    See also

Okerson v. Commissioner, 123 T.C. 258 (2004) (finding substitute

payment obligation based on provision in the divorce decree

requiring payments for children’s education in the event of payee

spouse’s death); sec. 1.71-1T(b), Q&A-14, Example (1), Temporary

Income Tax Regs., supra (finding substitute payment obligation

based on provision in the divorce decree requiring payments to

children’s trust in the event of payee spouse’s death).    Indeed,

the example in the 1984 House Report can be viewed as a corollary

of section 71(c)(2); that is, a provision for additional or

increased child support that is contingent upon the supported

spouse’s death is simply the flip side of a provision for

decreased spousal support that is contingent upon the death or

emancipation of a child.

          c.   1986 Amendment of Section 71(b)(1)(D)

     Finally, one can draw a negative inference from the 1986

repeal of the requirement that the “termination at death”


     28
       That example appears to recharacterize alimony as child
support, notwithstanding that the report elsewhere provides that
the “bill attempts to define alimony in a way that would conform
to general notions of what type [sic] of payments constitute
alimony as distinguished from property settlements”. H. Rept.
98-432 (Part 2) at 1495 (1984) (emphasis added); see discussion
supra pp. 9-10, 12-13.
                                - 36 -

condition of section 71(b)(1)(D) be contained in the governing

instrument.    See supra pp. 13-14.   As we have previously observed

in that regard:

     If Congress had intended that State law could fix the
     amount of child support payments where such amounts are
     not fixed by the terms of the divorce or separation
     instrument, it certainly could have made a similar
     change in the wording of section 71(c)(1). We conclude
     from the absence of such a change that Congress did not
     intend the interpretation that petitioner advocates.
     * * *

Lawton v. Commissioner, T.C. Memo. 1999-243.   As noted above, the

payee spouse taxpayer in that case argued (unsuccessfully) that

Pennsylvania’s child support guidelines operated to “fix” a

portion of an unallocated support obligation as child support

within the meaning of section 71(c)(1).   We similarly conclude

that Congress did not intend the interpretation of section

71(b)(1)(D) suggested by the worst case scenario approach of Wells

v. Commissioner, T.C. Memo. 1998-2.

          d.      Conclusion

     We reject the notion that one must assume a worst case

scenario (under which someone other than the payor spouse would

take custody of the children upon the death of the payee spouse)

in determining the applicability of the substitute payment clause

of section 71(b)(1)(D) to an unallocated support obligation.

Accordingly, we hold that a payor spouse’s general State law

obligation to support his or her children, without more, does not

cause any or all of that spouse’s unallocated support obligation
                                 - 37 -

to fail to qualify as alimony by reason of the substitute payment

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

            5.   No Substitute Payment Liability Attributable to the
                 Embedded Child Support Obligation

     We need not decide whether a general State law obligation to

support one’s children, when viewed in conjunction with additional

statutory provisions of the jurisdiction in question or the facts

of a particular case, could form the basis of a substitute payment

obligation under section 71(b)(1)(D).     That is, even if there may

be circumstances in which such an obligation could have

implications under section 71(b)(1)(D), we are satisfied they are

not present in this case.

     Under California law, a surviving parent is entitled to

custody of his or her children, Cal. Fam. Code sec. 3010(b) (West

2004), even if the predeceasing parent had been awarded sole

custody.    In re Guardianship of Donaldson, 223 Cal. Rptr. 707,

708-709 (Ct. App. 1986); see Hogoboom & King, Cal. Prac. Guide:

Fam. Law, sec. 17:247 (2004 ed.).    Accordingly, even if petitioner

had not been awarded joint legal and joint physical custody of the

children, he would be entitled to immediate custody upon Carmen’s

death.     Compare N.J. Stat. Ann. sec. 9:2-5 (West 2002) (upon the

death of the custodial parent, the care and custody of the

children “shall not revert to the surviving parent without an

order or judgment of the Superior Court to that effect”).    It

follows that there would be no interim period during which
                               - 38 -

petitioner might be required, pending judicial action, to

make payments to a de facto custodian in discharge of his general

State law obligation to support the children.29

     A third party could defeat petitioner’s initial custody right

only by going to court and demonstrating that petitioner’s custody

would be detrimental to the children and that a change in custody

is required to serve the best interest of the children.    See Cal.

Fam. Code sec. 3041 (West 1994); Hogoboom & King, supra, sec.

17:247.   As noted above, the Superior Court awarded petitioner

joint physical, as well as joint legal, custody of the children,

and the 1999 order indicates that petitioner’s “share” of physical

custody at that time was 42 percent.    In the absence of any

evidence that (notwithstanding such court-approved custody) a

third party would have had grounds to challenge petitioner’s

custody rights had Carmen died, we have no reason to believe that

anyone other than petitioner would be entitled to physical custody

of the children for periods after Carmen’s death.    Absent a

successor payee, petitioner would have no substitute payment

liability with respect to the child support element of his family

support obligation.   See Kean v. Commissioner, T.C. Memo. 2003-163


     29
       As we observed in Cunningham v. Commissioner, T.C. Memo.
1994-474, if a payor spouse is required “to make even one
otherwise qualifying payment after the death of the payee spouse,
none of the related payments required before the payee spouse’s
death will be alimony.” See Okerson v. Commissioner, 123 T.C.
258, 267 (2004); sec. 1.71-1T(b), Q&A-13, Temporary Income Tax
Regs., supra; cf. supra note 11.
                               - 39 -

(applying section 71(b)(1)(D) to unallocated support ordered by

New Jersey court; inasmuch as Mr. and Ms. Kean shared physical

custody of the children, “there would be no logical reason for the

New Jersey court to order that Mr. Kean continue to pay support or

for the New Jersey court to order any payment as a substitute for

the unallocated support” had Ms. Kean died).

     We reach the foregoing conclusion without regard to whether,

as is apparently the case with California child support orders,

see In re Marriage of McCann, 32 Cal. Rptr. 2d 639, 641 (Ct. App.

1994), the controlling order would technically remain in effect

after Carmen’s death until petitioner obtained its (prospective)

judicial termination.   Cf. In re Marriage of Trainotti, 261 Cal.

Rptr. 36, 38 (Ct. App. 1989) (payee under child support order

sought to collect amounts that had accrued during the period

between payor’s assumption of sole physical custody of the child

and the judicial termination of the child support order 10 months

later; trial court “erred by refusing to consider whether

appellant [the payor] had satisfied his obligation by furnishing

Christopher [the minor child], with the approval of his former

wife, a home and support that was equal to or in excess of the

court-ordered amount”);30 Jackson v. Jackson, 124 Cal. Rptr. 101

     30
       Although the court may have viewed such direct
expenditures as the functional equivalent of payments under the
child support order, neither party suggests that, for purposes of
the substitute payment clause of sec. 71(b)(1)(D), hypothetical
direct expenditures on behalf of children in one’s custody (i.e.,
                                                    (continued...)
                               - 40 -

(Ct. App. 1975) (similar).

     D.    Conclusion--Deductibility of Family Support Payments

     Given the lack of continuing payment liability and substitute

payment liability with respect to petitioner’s family support

obligation, the family support payments at issue satisfy the

requirements of section 71(b)(1)(D).    Because the parties do not

dispute the applicability of section 71(b)(1)(A)-(C) to those

payments, and respondent does not argue any other grounds for

nondeductibility (e.g., section 71(c)(1)), petitioner is entitled

to deduct the entire amount of family support payments he made to

Carmen in 1999 ($49,808).31

     E.    Payments to Drs. Caffaro and Murphy

           1.   Procedural Issue

     Petitioner’s petition did not include a claim that he is


     30
      (...continued)
following the payee spouse’s putative death) should be treated
the same as hypothetical payments to a successor custodian. We
would reject any such expansive reading of sec. 71(b)(1)(D) for
the same reasons we reject the expansive reading suggested by
Wells v. Commissioner, T.C. Memo. 1998-2. See supra pp. 32-36.
      31
       We recognize that, if Carmen died, petitioner conceivably
could be liable to her estate for at least some portion of his
family support arrearage. If that were so, then the portion of
petitioner’s 1999 payments to Carmen constituting arrears
($3,824) arguably would fail to satisfy sec. 71(b)(1)(D).
However, under well-established caselaw involving pre-1984 sec.
71, payments of alimony arrearages retained the character of the
payments originally due. See, e.g., Olster v. Commissioner, 79
T.C. 456, 462 (1982), affd. 751 F.2d 1168 (11th Cir. 1985).
Absent any indication in the legislative history of the 1984 Act
that Congress intended to change that result, we believe the same
principle would apply under post-1984 sec. 71.
                                 - 41 -

entitled to a deduction for alimony in excess of the amount

claimed on his 1999 return and disallowed by respondent ($50,528),

nor did he move for leave to amend the petition to include such a

claim.   See Rule 41(a).   Normally, we do not consider issues not

raised in the pleadings.    E.g., Christensen v. Commissioner, T.C.

Memo. 1996-254 n.1, affd. without published opinion 142 F.3d 442

(9th Cir. 1998); see Rule 34(b)(4).       However, the parties’

stipulations reflect both the claim for an increased deduction

($54,110) and the basis for that claim (i.e., the amounts paid to

Drs. Caffaro and Murphy), and respondent addressed the issue in

his reply brief.    Accordingly, we shall treat petitioner’s claim

for an increased alimony deduction as having been tried by consent

of the parties.    See Rule 41(b); see also Certified Grocers of

Cal., Ltd., v. Commissioner, 88 T.C. 238, 246 n.17 (1987)

(application of Rule 41(b) in the context of a fully stipulated

case).

            2.   Substantive Analysis

     The record reveals no factual predicate for petitioner’s

claim that his payments to Drs. Caffaro and Murphy in 1999 ($4,188

+ $114 = $4,302) qualify as deductible alimony.       In order so to

qualify, such payments would have to have been made “under a

divorce or separation instrument”.      Sec. 71(b)(1)(A); see sec.

71(b)(2).   Neither the dissolution judgment, the 1999 order, nor

any other document contained in the record (including the parties’

stipulations) reveals any obligation of petitioner to make
                                    - 42 -

payments to Drs. Caffaro and Murphy.32       We therefore conclude that

petitioner’s payments to Drs. Caffaro and Murphy in 1999 ($4,302)

do not qualify as alimony deductible in 1999.

     The fact that the Superior Court subsequently credited (in

2001) the bulk of the Caffaro/Murphy payments ($4,188) to

petitioner’s family support arrearage does not help his case.

Petitioner apparently assumes that if the family support he paid

Carmen in 1999 pursuant to the 1999 order qualifies as deductible

alimony, then any other 1999 outlay credited in a later year

against his family support arrearage must be deductible in 1999 as

well.        If that is his position,33 we are not aware of any authority

to support it.        Cf. Eboli v. Commissioner, 93 T.C. 123, 131-132

(1989) (rejecting Commissioner’s argument that, because

overpayment credited in 1979 against cash basis taxpayer’s

liability for interest on 1970 deficiency was attributable to

payments made in 1975, such deficiency interest was properly

deductible in 1975).

                3.   Conclusion

        We hold petitioner is not entitled to any alimony deduction

for 1999 in respect of his payments to Drs. Caffaro and Murphy.

        32
       Furthermore, the parties’ stipulations do not indicate
that petitioner made the October 1999 payment to Dr. Caffaro
($114) on Carmen’s behalf. See sec. 71(b)(1)(A).
        33
       Despite having effectively put the issue in play, see
supra pp. 40-41, petitioner did not separately address on brief
the deductibility of the Caffaro/Murphy payments credited to his
arrearage.
                               - 43 -

II.   Late Filing Addition to Tax

      Respondent determined that petitioner is liable for the

addition to tax under section 6651(a)(1) for failure to file

timely his 1999 return.   Section 6651(a)(1) imposes an addition to

tax for failing to file a return on or before the specified filing

date unless it is shown that such failure is due to reasonable

cause and not due to willful neglect.   Once the Commissioner

demonstrates the appropriateness of imposing the addition to tax,

thereby satisfying his initial burden of production under section

7491(c), the taxpayer bears the burden of proving the

applicability of the exception for reasonable cause and lack of

willful neglect.   See Higbee v. Commissioner, 116 T.C. 438, 447

(2001).

      The parties stipulated that petitioner did not file his 1999

return until August 2, 2001, and that petitioner did not seek, nor

was he granted, an extension of time to file that return.

Accordingly, respondent has met his burden of production.

      To prove reasonable cause, petitioner must show he exercised

ordinary business care and prudence and was nevertheless unable to

file his 1999 return within the prescribed time.   Charlotte’s

Office Boutique, Inc. v. Commissioner, 121 T.C. 89, 109 (2003);

sec. 301.6651-1(c)(1), Proced. & Admin. Regs.   Petitioner asserts

that the late filing of his 1999 return was due primarily to the

fact that he was in the process of establishing a new business and

was unable to assemble in a timely manner the necessary
                               - 44 -

documentation to support the business deductions claimed on the

return.   There is no record evidence to support that assertion,

and, even if there were, we are not persuaded that petitioner’s

preoccupation with establishing a new business would constitute

reasonable cause for failure to file timely his 1999 return.   See

Polsby v. Commissioner, T.C. Memo. 1998-459; Estate of Bevan v.

Commissioner, T.C. Memo. 1989-256.

     We uphold respondent’s determination that petitioner is

liable for the addition to tax under section 6651(a)(1) for

failure to file timely his 1999 return.   The correct amount of the

addition to tax must be calculated as part of the Rule 155

computation.

      To give effect to the foregoing,



                                          Decision will be entered

                                     under Rule 155.
