                        T.C. Memo. 2008-299



                      UNITED STATES TAX COURT



               GREGORY H. HAUBRICH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24079-06.             Filed December 30, 2008.



     Frederick J. O’Laughlin, for petitioner.

     William F. Castor, for respondent.



                        MEMORANDUM OPINION


     MARVEL, Judge:   Petitioner timely petitioned this Court for

redetermination of an income tax deficiency of $2,245 for 2004

determined by respondent in a notice of deficiency dated

August 22, 2006.   The deficiency is attributable to the

disallowance of a $12,625 alimony deduction petitioner claimed on

his 2004 Federal income tax return.   The issues for decision are
                                - 2 -

whether petitioner is entitled to a deduction for alimony paid

during 2004 pursuant to section 2151 and if so, the amount.

                              Background

     The parties submitted this case fully stipulated pursuant to

Rule 122.    Our findings of fact consist of the stipulated facts

and facts drawn from stipulated exhibits.

     Petitioner resided in Oklahoma when he petitioned the Court.

Petitioner’s Divorce Decree

     In 2001 Betty A. Haubrich (Ms. Haubrich) filed for divorce

from petitioner in the District Court of Oklahoma County,

Oklahoma (district court).    On August 13, 2003, the district

court entered a decree of divorce dissolving the marriage of Ms.

Haubrich and petitioner and approving a Joint Custody Plan that

was attached to the divorce decree as Exhibit A and incorporated

therein and that set forth the custody arrangements regarding the

two minor children of petitioner and Ms. Haubrich--MMH and ODH.

     Among other things, the divorce decree provided the

following:

     1.   Petitioner and Ms. Haubrich have joint custody over the

children, but Ms. Haubrich is the primary custodial parent and




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -

has physical custody of the children, subject to the agreed

visitation rights of petitioner.

     2.   Petitioner must pay Ms. Haubrich child support of $1,000

per month starting June 1, 2003, and continuing on the first day

of each month thereafter for MMH through age 18 and for ODH until

her 21st birthday or further order of the Court.

     3.   Petitioner must pay a $3,500 child support arrearage2 at

the rate of $250 per month starting July 15, 2003, and continuing

on the 15th day of each month thereafter until the arrearage is

fully paid.

     4.   Petitioner must pay Ms. Haubrich support alimony of

$72,000, at the rate of $1,000 per month starting July 2003 and

continuing each month thereafter until the full alimony award is

satisfied.

     5.   Petitioner and Ms. Haubrich are to share responsibility

for the children’s medical insurance premiums and health expenses

not compensated by insurance in the following percentages:

petitioner (75 percent) and Ms. Haubrich (25 percent).   If

petitioner or Ms. Haubrich pays more than the required

percentage, the other party has to reimburse the payor within 30

days of receipt of the appropriate expense documentation

(reimbursement obligation).



     2
      The arrearage arose under an Agreed Temporary Order that
had been entered in the divorce proceeding on Jan. 4, 2002.
                                - 4 -

Petitioner’s 2003 Payment Obligations and Payments

     The divorce decree required petitioner to make installment

payments of $14,500 ($7,000 of child support, $6,000 of support

alimony, and $1,500 toward the child support arrearage) during

2003.    However, petitioner made payments of only $5,375, leaving

a payment shortfall of $9,125 for 2003.    Ms. Haubrich, who kept

spreadsheets of payments due under the divorce decree, applied

the 2003 payments of $5,375 to child support ($2,675), support

alimony ($2,325), and arrearage ($375).

     After accounting for the 2003 payments, Ms. Haubrich’s

spreadsheets showed that petitioner owed the following unpaid

amounts for 2003:    Child support ($4,325), support alimony

($3,675), and child support arrearage ($1,125).

     On March 8, 2004, the district court entered an order

awarding Ms. Haubrich a judgment against petitioner of $12,825,3

representing the unpaid child support, support alimony, and child

support arrearage through February 2004.

Petitioner’s 2004 Payment Obligations and Payments

     The divorce decree required petitioner to make total

installment payments during 2004 of $26,000 ($12,000 of child

support, $12,000 of support alimony, and $2,000 toward the child

support arrearage).    The divorce decree also required petitioner



     3
      Ms. Haubrich’s spreadsheets showed a delinquency totaling
$12,875 for the same period.
                               - 5 -

to pay his reimbursement obligation, which totaled $6,022.49

according to Ms. Haubrich’s spreadsheets.4    Petitioner, however,

made payments under the divorce decree during 2004 totaling only

$17,962.82, $14,059.67 less than the divorce decree required.

Ms. Haubrich applied the 2004 payments as follows:    $4,325 to

2003 child support, $12,000 to 2004 child support, $142.64 to the

child support arrearage, $1,495.18 to petitioner’s reimbursement

obligation, and none to support alimony.5    After applying the

2004 payments as described above, Ms. Haubrich’s spreadsheets

showed the following balances due from petitioner as of the end

of 2004:   Unpaid child support installments from 2003 and 2004--

none; unpaid support alimony from 2003 and 2004--$15,675; unpaid

balance of child support arrearage--$3,982.36;6 unpaid balance of

petitioner’s share of children’s health expenses--$4,527.31.




     4
      According to Ms. Haubrich’s spreadsheet, which was a
stipulated exhibit, the children’s medical/dental expenses for
2004 totaled $8,029.98, and petitioner’s share totaled $6,022.49
(75 percent x $8,029.98).
     5
      Petitioner stipulated that his reimbursement obligation for
2004 was at least $1,495.18. However, he did not object to the
admission of Ms. Haubrich’s spreadsheets, and he did not
stipulate that he disputed the accuracy of any items on the
spreadsheets.
     6
      The total child support arrearage resulting from the
temporary order was $3,500. The divorce decree required
petitioner to pay the arrearage in 14 equal monthly payments of
$250. Ms. Haubrich’s spreadsheets record 18 payment
installments, resulting in what appears to be an incorrect
balance.
                              - 6 -

Petitioner’s 2004 Return; Notice of Deficiency

     Petitioner filed a Form 1040, U.S. Individual Income Tax

Return, for 2004 on which he claimed an alimony deduction of

$12,625 for alimony he claimed he paid to Ms. Haubrich.    In the

notice of deficiency that was issued to petitioner for 2004,

respondent disallowed the alimony deduction in full.

                           Discussion

     A taxpayer who receives alimony payments during a taxable

year must include those payments in his or her gross income for

the year in which the payments are received.   Sec. 71(a).   A

taxpayer who makes alimony payments that satisfy the requirements

of section 215 may deduct those payments on the income tax return

for the year in which the payments are made.   Sec. 215.

     Section 71(b)(1) defines the term “alimony” as follows:

          SEC. 71(b). Alimony or Separate Maintenance
     Payments Defined.--For purposes of this section--

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

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

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

                    (C) in the case of an individual legally
               separated from his spouse under a decree of
               divorce or separate maintenance, the payee
                                - 7 -

                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.

However, section 71(c)(1) provides that alimony does not include

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 as child support.

See also Daley v. Commissioner, T.C. Memo. 1991-555, affd.

without published opinion 982 F.2d 528 (10th Cir. 1992).    If any

payment is less than the required child support payment specified

in the relevant divorce or separation instrument, then the

payment is applied first to satisfy the payor’s child support

obligation.   Sec. 71(c)(3); see also Hazam v. Commissioner, T.C.

Memo. 2000-71; Thornton v. Commissioner, T.C. Memo. 1992-286;

Daley v. Commissioner, supra.

     The divorce decree required petitioner to make total

installment payments of $26,000 during 2004, consisting of child

support payments of $12,000, payments of $2,000 toward the child

support arrearage that had accumulated because of petitioner’s

failure to make child support payments under the temporary order,

and support alimony of $12,000.   The divorce decree also required

petitioner to pay his reimbursement obligation, which totaled
                                - 8 -

$6,022.49 for 2004 according to Ms. Haubrich’s spreadsheets.    In

addition, because petitioner paid only $5,375, which should have

been applied to his 2003 child support and arrearage obligation

of $8,500, petitioner still owed $3,125 in unpaid child

support/arrearage for 2003.7

     Petitioner paid only $17,962.82 during 2004.    The issue we

must decide is whether petitioner properly deducted any portion

of that amount as alimony under section 215.    The answer is no.

Under section 71(c)(3) payments must first be applied to a

taxpayer’s unpaid child support obligation, and any payments so

applied are not alimony.    Petitioner’s unpaid child support

obligation (including the unpaid child support arrearage and

petitioner’s reimbursement obligation) before application of

petitioner’s 2004 payments were as follows:

         2004 child support obligation          $12,000.00
         2004 child support arrearage             2,000.00
         2003 unpaid child support                3,125.00
         2004 reimbursement obligation            6,022.49
           Total child support obligation due    23,147.49

Because petitioner’s total payments for 2004 of $17,962.82 were

less than the total child support that he owed for 2004

(including arrearages and reimbursement obligation), the payments

must be allocated to child support and may not be deducted as



     7
      Because his payments should have been applied first to his
2003 child support obligation and to his child support arrearage,
see sec. 71(c)(3), petitioner also owed $6,000 of support alimony
for 2003.
                                 - 9 -

alimony under section 215.   Sec. 71(c)(3); see also Hazam v.

Commissioner, supra.8

     To reflect the foregoing,

                                         Decision will be entered for

                                 respondent.




     8
      In making this analysis, we have disregarded Ms. Haubrich’s
allocation of the 2003 and 2004 payments she received. Although
Ms. Haubrich allocated a portion of the 2003 payments to alimony,
sec. 71(c) specifies the rules we must follow in determining
whether a payment is treated as child support instead of alimony
for Federal income tax purposes. However, even if we were to
accept Ms. Haubrich’s allocation as controlling, we would still
conclude that petitioner is not entitled to an alimony deduction
for 2004 because petitioner’s unpaid child support obligation
(including petitioner’s reimbursement obligation) in 2004 using
Ms. Haubrich’s figures was even higher than the figure calculated
herein.
