                  T.C. Memo. 1997-20



                UNITED STATES TAX COURT



            JERRY L. BURTON, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 6115-95.                    Filed January 13, 1997.



     P received a lump-sum distribution from two
accounts under a qualified pension plan in 1991.
Pursuant to a divorce decree entered shortly
thereafter, part of the distribution was used to pay
off the mortgage on P's former residence and to pay his
ex-wife $30,000. P reported the distribution as income
on his 1991 Federal income tax return, but included the
amount used to satisfy his mortgage obligation and the
amount paid to his ex-wife as part of an alimony
deduction. R disallowed the alimony deduction and
determined that P is taxable on the entire
distribution. P contends that he is not liable for tax
on the portion of the distribution paid to his former
wife and the portion used to satisfy the mortgage
because the payments were made pursuant to a qualified
domestic relations order (QDRO), as defined by sec.
414(p), I.R.C. Held: The divorce decree rendered
after the lump-sum distribution to P does not meet the
requirements of sec. 414(p), I.R.C., and is thus not a
                                - 2 -

     QDRO. Therefore, P is liable for tax on the entire
     lump-sum distribution. Held, further, P is liable for
     additional tax on the entire lump-sum as a result of
     the early distribution from a qualified retirement plan
     pursuant to sec. 72(t), I.R.C.



     John L. Onesto, for petitioner.

     Donald K. Rogers and Matthew J. Fritz, for respondent.



                          MEMORANDUM OPINION

     NIMS, Judge:*   Respondent determined a deficiency in the

1991 Federal income tax of petitioner Jerry L. Burton in the

amount of $53,916, stemming from funds received by petitioner in

connection with the closing of his retirement benefits accounts.

A petition was filed on April 24, 1995.    An Answer was filed on

June 13, 1995.   Respondent thereafter filed an Amendment to

Answer, claiming an increased deficiency of $17,676 based upon

section 72(t).

     Unless otherwise indicated, all section references are to

sections of 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.

     The sole issue for decision is whether the portion of

petitioner's retirement account distribution used to pay off the

mortgage on petitioner's former residence and to pay his ex-wife


     *This case was reassigned to Judge Arthur L. Nims, III, by
Order of the Chief Judge.
                                 - 3 -

$30,000 pursuant to their divorce decree constituted taxable

income to petitioner in the amount of $156,099.46 for 1991.

        This case was submitted to the Court on a full stipulation

of facts, which are so found.    The stipulation of facts and the

attached exhibits are incorporated herein by this reference.    At

the time the petition was filed, petitioner resided in Jackson,

Ohio.

                             Background

     Petitioner's employment with Fluor Daniel, Inc. (Fluor

Daniel) was terminated on March 8, 1991.    Petitioner subsequently

divorced Linda Gayle Burton (Mrs. Burton) on June 11, 1991; an

"Agreed Decree of Divorce" (Decree) was entered with the District

Court of Denton County, Texas.    The Decree divested petitioner of

his entire interest in his former residence located at 2707

Daybreak Drive, Dallas, Texas (2707 Daybreak Drive), and

transferred that interest to Mrs. Burton.    The Decree also

required petitioner to withdraw his entire retirement account

balances at Fluor Daniel, use the proceeds to pay off the

mortgage on 2707 Daybreak Drive (for which petitioner was

personally liable), and pay Mrs. Burton the remaining balance in

an amount not to exceed $30,000.    The Decree states that

petitioner "shall be responsible for all taxes due on the lump

sum retirement withdrawal, and releases * * * [Linda] from any

and all liability concerning the taxes on the retirement

withdrawal."
                                 - 4 -

     The Fluor Daniel retirement plan is and was, at the time of

petitioner's participation, subject to the requirements of the

Employee Retirement Income Security Act of 1974 (ERISA), Pub. L.

93-406, 88 Stat. 829, as amended.    Petitioner had two separate

retirement accounts at Fluor Daniel, the "Retirement Plan" and

the "Savings Investment Plan."    Sometime in March of 1991,

petitioner asked the plan administrator at Fluor Daniel to

distribute to him the entire balance of each retirement account.

By letters dated May 7 and May 13, 1991, the plan administrator

acknowledged petitioner's request and reported to him the amounts

to be distributed based on a valuation date of March 31, 1991.

As of that date, the combined value of the Retirement Plan and

the Savings Investment Plan accounts (plan balance) was

$176,754.88.   Petitioner received this sum sometime at the end of

May 1991 in the form of two checks dated May 24, 1991 and issued

by The Northern Trust Company.    At the time petitioner received

the checks, he was under the age of 59-1/2 and did not attain

that age at any time during 1991.    The record does not disclose

whether petitioner had attained age 55.    See sec. 72(t)(2)(A)(v).

     Petitioner paid off his mortgage debt on 2707 Daybreak Drive

by wire transfer of $126,099.46 from his account at BancOhio

National Bank (BancOhio) to his mortgage account at Bank One

Dallas on June 6, 1991.   Furthermore, on or about July 31, 1991,
                               - 5 -

petitioner sent Mrs. Burton a check drawn on petitioner's account

at BancOhio in the amount of $30,000 to fulfill his obligation

under the Decree.

     On his 1991 Federal income tax return, petitioner reported

the plan balance as dividend income of $138,418.91 and capital

gain income of $38,335.97.   Petitioner also claimed an alimony

deduction with respect to both the $30,000 that he paid directly

to Mrs. Burton and the $126,099.46 he paid to satisfy the

mortgage on 2707 Daybreak Drive.   Petitioner included this amount

as part of the total alimony deduction of $175,394.07 claimed on

the return.   The parties have stipulated that petitioner's

allowable alimony deduction for the taxable year 1991 was $5,425.

     In the Amendment to Answer referred to above, the asserted

increased deficiency of $17,676 represents the imposition of

additional tax under section 72(t) on petitioner's premature

retirement benefits distribution of $176,754.88.     Since

respondent asserts an increased deficiency, she has the burden of

proof on this issue.   Rule 142(a).    However, the parties

stipulated that $20,655.42 of that distribution is taxable income

to petitioner.   The parties further stipulated that if the Court

holds that the total amount of the retirement accounts

distribution ($176,754.88) is taxable to petitioner, then

petitioner is liable for the additional tax under section 72(t).
                               - 6 -

                            Discussion

     We must decide whether the Decree is a qualified domestic

relations order (QDRO) within the meaning of section 414(p), thus

relieving petitioner of liability for tax pursuant to section

402(a)(9) on the $156,099.46 portion of the lump-sum distribution

used to satisfy his mortgage and pay his ex-wife, and the $17,676

additional tax under section 72(t).    For the reasons which

follow, we hold that the Decree does not constitute a QDRO.

     Ordinarily, any funds distributed from an exempt employees'

trust (under a tax qualified employees' plan) are taxable to the

plan participant or beneficiary who is entitled to receive the

distribution under the plan.   Darby v. Commissioner, 97 T.C. 51,

58 (1991).   However, section 402(a)(9) (now section 402(e)(1)(A))

states an exception to this general rule, providing that an

alternate payee (who is the spouse or former spouse of the plan

participant) shall be treated as the distributee of any

distribution or payment made to such payee under a QDRO.

Accordingly, the tax liability for the distribution from the

Fluor Daniel retirement accounts will be allocated either to

petitioner or to Mrs. Burton depending upon whether the Decree

meets the statutory definition of a QDRO.
                               - 7 -

     The Retirement Equity Act of 1984 (REA), Pub. L. 98-397,

sec. 204(b), 98 Stat. 1445, added section 414(p), which defines a

QDRO.   Section 414(p) provides, in pertinent part, the following:

     SEC. 414(p). Qualified Domestic Relations Order
     Defined.--For purposes of this subsection and section
     401(a)(13)--

           (1) In General.--

               (A) Qualified Domestic Relations Order.--The
           term "qualified domestic relations order" means a
           domestic relations order--

                   (i) which creates or recognizes the
                existence of an alternate payee's right to,
                or assigns to an alternate payee the right
                to, receive all or a portion of the benefits
                payable with respect to a participant under a
                plan, and

                     (ii) with respect to which the
                requirements of paragraphs (2) and (3) are
                met.

                (B) Domestic Relations Order.--The term
           "domestic relations order" means any judgment,
           decree, or order (including approval of a property
           settlement agreement) which --

                     (i) relates to the provision of child
                support, alimony payments, or marital
                property rights to a spouse, former spouse,
                child, or other dependent of a participant,
                and

                     (ii) is made pursuant to a State
                domestic relations law (including a community
                property law).

          (2) Order Must Clearly Specify Certain Facts.--A
     domestic relations order meets the requirements of this
     paragraph only if such order clearly specifies--
                                 - 8 -

               (A) the name and the last known mailing
          address (if any) of the participant and the name
          and mailing address of each alternate payee
          covered by the order,

               (B) the amount or percentage of the
          participant's benefits to be paid by the plan to
          each such alternate payee, or the manner in which
          such amount or percentage is to be determined,

               (C) the number of payments or period to which
          such order applies, and

               (D) each plan to which such order applies.

          (3) Order May Not Alter Amount, Form, Etc, Of
     Benefits.--A domestic relations order meets the
     requirements of this paragraph only if such order--

               (A) does not require a plan to provide any
          type or form of benefit, or any option, not
          otherwise provided under the plan,

               (B) does not require the plan to provide
          increased benefits (determined on the basis of
          actuarial value), and

               (C) does not require the payment of benefits
          to an alternate payee which are required to be
          paid to another alternate payee under another
          order previously determined to be a qualified
          domestic relations order.

     Thus, to qualify as a QDRO, a domestic relations order must

meet the following tests:   First, it must be a domestic relations

order that creates, recognizes, or assigns, to an alternate

payee, rights under a qualified employee benefit trust otherwise

payable to a plan participant.    Second, the QDRO must clearly

specify certain facts, namely, the names and last known mailing

addresses of the participant and the alternate payee; the amount
                               - 9 -

or percentage of the benefits to be paid or the manner in which

such amount or percentage is to be determined; the number of

payments; and each plan to which the order applies.   Third, the

QDRO may not alter the amount, form, etc., of the benefits.

     Generally, benefits under qualified plans are subject to

prohibitions against assignment or alienation (so-called

"spendthrift provisions").   S. Rept. 98-575, at 19 (1984), 1984-2

C.B. 447, 456.   Before the enactment of section 414(p), the IRS

had ruled that the spendthrift provisions are not violated when a

plan trustee complies with a court order requiring the

distribution of benefits of a participant in "pay status" to the

participant's spouse or children in order to meet the

participant's alimony or child support obligations, but the IRS

had taken no position with respect to this issue in cases in

which the participant's benefits are not in pay status.     The

Senate report indicates that section 414(p) was enacted "to

provide rational rules for plan [administrators]".    Id.    Congress

believed it necessary to establish guidelines for determining

whether the exception to the spendthrift rules applies, to ensure

that only those domestic relations orders that are excepted from

the spendthrift provisions are not preempted by ERISA.      Id.

     The facts in this case do not comport with the requirements

of section 414(p)(1).   Petitioner's employment with Fluor Daniel
                              - 10 -

was terminated on March 8, 1991.   During that same month

petitioner asked the Fluor Daniel plan administrator to

distribute to him--petitioner--the entire plan balance.     In mid-

May of that year the plan administrator acknowledged petitioner's

request and reported to him the amounts to be distributed based

upon a March 31 valuation date.    Petitioner received two checks,

both dated May 24, 1991, which terminated his interest in the

plan.   It is not clear why the plan administrator agreed to this

termination of petitioner's entire interest in the plan; one

possibility is that the termination of petitioner's interest was

permissible as being related to his separation from service with

Fluor Daniel.   In any event, since the plan proceeds were

distributed to petitioner and not to Mrs. Burton, and in advance

of the Decree (which was dated June 11, 1991), it cannot be

argued that the distribution was made by the plan administrator

to an alternate payee in response to the Decree.

     Rodoni v. Commissioner, 105 T.C. 29 (1995), involved a

similar situation.   The domestic relations order in dispute in

that case was not executed until after the taxpayer had received

a lump-sum distribution terminating his interest in a profit

sharing plan.   We held that the domestic relations order in that

case could not create or recognize rights that no longer existed

at the time of the order.   Id. at 35.   The same is true in this
                                - 11 -

case.     See also to the same effect Karem v. Commissioner, 100

T.C. 521 (1993).

        Nowhere is there any indication that the Decree was

presented to the plan administrator, even in draft form, prior to

the distribution of the plan proceeds to petitioner.     We have

stated, in Rodoni v. Commissioner, supra at 36, that implicit in

the procedural rules relating to employee benefit plan provisions

(contained in sections 414(p)(6)(B) and 414(p)(7)(B)) is the

requirement that a domestic relations order be presented to the

plan administrator and adjudged "qualified" before any

distribution is made by the plan to the spouse or former spouse.

There is no evidence that this occurred in the case before us.

        For the foregoing reasons, we hold that the Decree did not

effectively create or recognize Mrs. Burton's right as an

alternate payee, within the meaning of section 414(p), to receive

petitioner's qualified plan benefits.     The directions in the

Decree to turn over the disputed part of the plan proceeds could

only have been effectively addressed to petitioner, who already

had the proceeds, and not to the plan administrator.     As a

consequence of this holding, the total amount of the plan

distribution to petitioner is taxable to him in 1991.
                              - 12 -

     Having so held, we do not reach the question of whether the

Decree clearly specifies facts as required by section 414(p)(2),

or alters the amount, form, etc., of the benefits, as prohibited

by section 414(p)(3).

     In Hawkins v. Commissioner, 86 F.3d 982 (10th Cir. 1996),

the Court of Appeals disagreed with our holding in Hawkins v.

Commissioner, 102 T.C. 61 (1994), that the domestic relations

order in that case did not create or recognize the existence of

an alternate payee's right, or assign to an alternate payee the

right, to receive employee plan benefits, and did not satisfy the

clearly specified facts requirement of section 414(p)(2).

However, in that case the disputed domestic relations order

preceded the plan distribution, which makes this case

distinguishable from Hawkins in a way that is fatal to

petitioner's position.   The Court of Appeals in Hawkins v.

Commissioner, 86 F.3d at 990-991, itself recognized a similar

disabling distinction under the facts of Karem v. Commissioner,

100 T.C. 521, 523 (1993):

     In Karem [v. Commissioner, 100 T.C. 521 (1993)], a consent
     judgment was entered by a state divorce court in order to
     partition the community property of Mr. and Mrs. Karem. 100
     T.C. at 523. The consent judgment provided that Mrs. Karem
     was to receive an interest in her ex-husband's pension plan,
     but it stated the following condition:

          "She shall receive that interest pursuant to a
          qualified Domestic Relations Order to be prepared by
          Robert Louis Karem. Until the Qualified Domestic
                              - 13 -

          Relations Order is completed, Robert Louis Karem shall
          pay Barbara Wiechman Karem her interest in the pension
          plan immediately when he receives it."

     Id. After being assessed a deficiency in his gross income
     based on a lump-sum plan distribution paid to Mrs. Karem,
     Mr. Karem filed a petition in the Tax Court arguing that the
     consent judgment was a QDRO. The court rejected this
     argument, noting that "the consent judgment directs that a
     QDRO be drafted * * *; the consent judgment itself is not a
     QDRO." Id. at 525-526 * * *.

The Court of Appeals went on to observe that there was thus no

written order in existence at the time of the distribution that

would satisfy the requirements of section 414(p).     Hawkins v.

Commissioner, supra at 991.

     On brief petitioner argues that he received the plan

benefits as agent for Mrs. Burton.     However, since the Decree did

not qualify as a QDRO, the possibility raised by this argument

becomes moot.

     As noted above, the parties stipulated that if the Court

holds that the total amount of the retirement accounts

distribution is taxable to petitioner, then petitioner is also

liable for the additional tax under section 72(t).    Consistent

with this stipulation, we so hold.

                                     Decision will be entered

                              for respondent.
