                   T.C. Summary Opinion 2003-167



                      UNITED STATES TAX COURT



           CHARLES W. AND NANCY T. SMITH, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 15754-02S.              Filed December 17, 2003.


     Charles W. and Nancy T. Smith, pro se.

     Susan Smith Canavello, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect at the time the petition was

filed.1   The decision to be entered is not reviewable by any

other court, and this opinion should not be cited as authority.

     Respondent determined a deficiency of $7,146 in petitioners'

Federal income tax for 2000.


     1
          Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year at issue.
                               - 2 -


     The sole issue for decision is whether a payment of $32,000

by Charles W. Smith (petitioner) to his former wife during 2000

constitutes alimony or a separate maintenance payment deductible

as an adjustment to gross income under section 215(a).   That

issue is resolved by whether the $32,000 payment satisfies the

definition of "alimony or separate maintenance payment" under

section 71(b)(1)(D).2

     Some of the facts were stipulated.   Those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.   At the time the petition was filed, petitioners were

legal residents of Auburndale, Florida.

     Petitioner was formerly married to Sheila Doreen Wells from

May 20, 1978, until their divorce on April 25, 2000.   They had

two children of their marriage: Dawn Majetta Smith and Jeremy

Wiley Smith.

     At the time of their divorce, petitioner and his former wife

entered into a marital settlement agreement dated April 25, 2000.

That agreement was incorporated into the divorce decree of the

same date, entitled Final Judgment of Dissolution of Marriage

(the divorce decree).   Petitioner and his former wife were

residents of Florida and were divorced by a Florida State court.


     2
          Other adjustments in the notice of deficiency, the
disallowance of a child care credit and a decrease in itemized
deductions are computational and will be resolved by the Court's
holding on the principal issue.
                                - 3 -


     The settlement agreement and the divorce decree contained

numerous provisions wherein petitioner and his former wife agreed

to the custody and sharing of parental responsibility of their

two children; however, no child support was required of either

party.    The agreement and the divorce decree also contained

several provisions with respect to the division of their property

and liability for marital debts.     None of those provisions,

however, affect the issue in this case.       At issue are two

provisions in the settlement agreement and the divorce decree

relating to a $32,000 payment by petitioner to his former spouse

that petitioners contend constituted alimony and, therefore, is a

deductible adjustment to their gross income.       The two provisions

(in both the marital settlement agreement and the divorce decree)

are as follows:


          16. PENSION/RETIREMENT. Both parties agree that the
     Husband shall pay to the Wife one-half (½) of the Husband's
     current 401K Plan which as of October 1, 1999, had a balance
     of $150,000.00. Accordingly, the Wife shall receive
     $75,000.00, plus an additional $32,000.00 representing lump-
     sum alimony, for a total amount due the Wife from the
     Husband's 401K of $107,000.00. The Husband shall retain the
     remainder of his 401K account.

         *       *       *       *        *         *       *

          19. ALIMONY. The Husband agrees to pay the Wife as
     lump-sum alimony, the amount of $32,000.00 payable from his
     401K as delineated above in paragraph 16.
                               - 4 -


     Petitioner paid the $32,000 to his former spouse during

2000.   On their joint Federal income tax return for 2000,

petitioners claimed a deduction for the $32,000 lump-sum alimony

payment.   In the notice of deficiency, respondent disallowed the

deduction on the ground that the $32,000 payment was not alimony

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

     For tax purposes, the term "alimony or separate maintenance

payment" is defined in section 71(b)(1) as any payment in cash

meeting the following four criteria:


          (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.


Petitioner's deduction for alimony is allowable only if the four

criteria of section 71(b)(1) are met.   Jaffe v. Commissioner,

T.C. Memo. 1999-196.   Respondent agrees that the requisites of

section 71(b)(1)(A), (B), and (C) have been met, but argues that
                               - 5 -


the requirement of section 71(b)(1)(D) has not been satisfied

because the settlement agreement and the divorce decree are

silent with respect to the obligation of petitioner to pay the

$32,000 in the event of the prior death of his former spouse.

Respondent further argues that, under Florida law, petitioner's

obligation to make the $32,000 payment would have continued in

the event of the prior death of petitioner's former spouse;

therefore, under the facts and the State law of Florida, the

payment does not satisfy section 71(b)(1)(D).   Petitioners

contend that, under Florida law, the prior death of the former

spouse would have terminated petitioner's obligation to pay the

$32,000; therefore, section 71(b)(1)(D) was satisfied.3

     As noted above, the settlement agreement and the divorce

decree are silent with respect to petitioner's obligation to pay

the $32,000 in the event his former spouse died before the

payment was made.   Section 71(b)(1)(D) requires, as a condition

to qualify as alimony, that the obligation to pay terminates upon

the death of the former spouse.   If the payer is liable for even

one otherwise qualifying payment after the recipient's death,

none of the related payments required before death will be

alimony.   Sec. 1.71-1T(b), Q&A-13, Temporary Income Tax Regs., 49


     3
          Respondent does not contend that the $32,000
represented a division of property between petitioner and his
former spouse, in which event, the payment would not constitute
alimony.
                                - 6 -


Fed. Reg. 34456 (Aug. 31, 1984).   Whether such obligation exists

may be determined by the terms of the applicable instrument, or

if the instrument is silent on the matter, by looking to State

law.    Morgan v. Commissioner, 309 U.S. 78, 80 (1940); Gilbert v.

Commissioner, T.C. Memo. 2003-92; Kean v. Commissioner, T.C.

Memo. 2003-163.

       The Court agrees with respondent that the $32,000 payment at

issue is not alimony under section 71(b)(1)(D) because, under

Florida law, petitioner's obligation to make the payment would

have continued if his former spouse died prior to payment of the

$32,000.    In Canakaris v. Canakaris, 382 So.2d 1197, 1200 (Fla.

1980), the Florida Supreme Court stated:


            Although the award of lump sum alimony is not dependent
       upon a finding of a prior vested right, there does arise
       upon the entry of a final judgment of a lump sum award a
       vested right which is neither terminable upon a spouse's
       remarriage or death nor subject to modification. It may
       consist of real or personal property, or may be a monetary
       award payable in installments. Jurisdiction may be
       expressly retained, however, to terminate lump sum alimony
       installment payments upon a spouse's remarriage or death
       when the parties agree to such a provision in a property
       settlement agreement. Further, jurisdiction may be retained
       to enter periodic alimony if found necessary after such
       termination of lump sum alimony installment payments. * * *


Not only did the separation agreement and the divorce decree fail

to provide that petitioner's obligation for payment of the

$32,000 would cease upon the prior death of his former wife,

there were also no reservations in either of the documents that
                               - 7 -


would have allowed the parties thereafter to incorporate such a

condition upon petitioner's liability for the $32,000.    The fact

that the $32,000 payment is described in the agreements between

petitioner and his former spouse as "alimony" is not controlling

for Federal income tax purposes as this Court has held in

Benedict v. Commissioner, 82 T.C. 573, 577 (1984), that labels

used by taxpayers in an instrument are not controlling.

     At trial, petitioner acknowledged that, in negotiations with

his former wife leading up to the separation agreement, his

former wife sought alimony of $500 per month "until she died".

Petitioner rejected that offer and instead offered to pay her the

lump sum of $32,000.   His offer was accepted, and that obligation

was incorporated in the settlement agreement.   The Court is

satisfied from this testimony that it was not intended that, upon

the death of the former spouse, petitioner would have been

relieved of the obligation of paying the $32,000.   Since payment

of the $32,000 was an enforceable obligation upon petitioner, and

that obligation would not have been extinguished by the prior

death of petitioner's former spouse, it follows that the $32,000

obligation is not alimony under section 71(b)(1)(D).   Respondent

is sustained on this issue.
                             - 8 -


    Reviewed and adopted as the report of the Small Tax Case

Division.



                                          Decision will be entered

                                     for respondent.
