                      T.C. Memo. 1999-126



                  UNITED STATES TAX COURT



               FRED J. PETTID, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3716-97.               Filed April 16, 1999.



     James R. Brown and Thomas R. Brown, for petitioner.

     Henry N. Carriger and Albert B. Kerkhove, for

respondent.



          MEMORANDUM FINDINGS OF FACT AND OPINION

     WHALEN, Judge:   Respondent determined the following

deficiencies in petitioner's Federal income tax for the

years in issue:
                              -2-

                    Year        Deficiency

                    1993            $19,578
                    1994             18,964
                    1995             19,578

     After concessions, the sole issue for decision is

whether monthly payments that petitioner made to Ms. Inga

Wagner during the years in issue are properly treated as

alimony and deductible under section 215(a) of the Internal

Revenue Code, as petitioner contends, or as nondeductible

payments in settlement of a claim for damages, as

determined by respondent.    Unless stated otherwise, all

section references in this opinion are to the Internal

Revenue Code in effect for the years in issue.      Ms. Wagner

was formerly known as Inga Wagner Bartling, and in various

documents constituting the record of this case, Ms. Wagner

is sometimes referred to as Ms. Bartling.


                     FINDINGS OF FACT

     This case was submitted fully stipulated pursuant to

Rule 122 of the Tax Court Rules of Practice and Procedure.

All Rule references in this opinion are to the Tax Court

Rules of Practice and Procedure.       The stipulation of facts,

supplement to stipulation of facts, and the attached

exhibits are incorporated herein by this reference.

Petitioner resided in Omaha, Nebraska, at the time he filed

his petition in this case.
                               -3-

     Petitioner married his first wife, Ms. Wilma Rae

Pettid, on October 20, 1962.     Slightly more than 19 years

later, on March 12, 1982, the District Court of Douglas

County, Nebraska (herein referred to as the district

court), entered a decree dissolving this marriage.

     On or about May 5, 1982, petitioner obtained a license

from the district court to marry Ms. Wagner.       Petitioner

and Ms. Wagner were purportedly married in a solemnization

ceremony conducted on May 8, 1982, less than 2 months after

the decree dissolving petitioner's marriage to his first

wife.   Nebraska law provides that "a decree dissolving a

marriage shall become final and operative * * * six months

after the decree is rendered".       Neb. Rev. Stat. sec. 42-372

(1988).   Thus, at the time petitioner and Ms. Wagner were

purportedly married, the decree dissolving petitioner's

marriage to his first wife had not yet become final.

     Approximately 9½ years later, on or about January 14,

1992, petitioner filed a petition for declaratory judgment

in the district court seeking to have his putative marriage

to Ms. Wagner declared void.     The petition identifies

petitioner as plaintiff and Ms. Wagner as defendant.       The

petition alleges in pertinent part as follows:


          3. On March 12, 1982, the marriage of
     Plaintiff, Frederick J. Pettid to Wilma Rae
     Pettid was decreed dissolved by the a [sic]
                             -4-

     Decree of the District Court of Douglas County,
     Nebraska, at Doc. 777, No. 168.

          4. On May 5 [sic], 1982, Plaintiff and
     Defendant were purportedly married in the city
     of Omaha, County of Douglas, Nebraska.

          5. Pursuant to applicable Nebraska
     statutes, Plaintiff, Frederick J. Pettid was
     under absolute disability to marry the Defendant
     on May 5 [sic], 1982.

          6. On or about January 13, 1992, in
     contemplation of instituting an action for
     dissolution of the above-noted alleged marriage,
     Defendant removed from a joint banking account of
     the parties $50,000, all of which was earned by,
     and belonged to, the Plaintiff herein.

          7. Defendant made no contribution to
     said monies which she has now taken and whose
     whereabouts are not known to Plaintiff.


     The petition requests the following relief from the

court:   To declare the purported marriage between

petitioner and Ms. Wagner void; to determine that the

$50,000 removed by Ms. Wagner, as alleged in paragraph 6 of

the above-quoted petition, is the property of petitioner;

to determine that Nebraska divorce law does not apply to

this action; and to determine that petitioner and

Ms. Wagner each be entitled to the property that he or she

personally accumulated during the purported marriage.    The

declaratory judgment action, including amendments thereto

described below, is referred to herein as the annulment

proceeding.
                            -5-

     On April 20, 1992, Ms. Wagner filed a petition against

petitioner in the district court.   Ms. Wagner's petition

alleges in pertinent part as follows:


          3.   During the years 1981 and 1982, Pettid
     dated and courted Bartling [viz, Wagner].

          4.   During the courtship, Bartling was a
     single person, having been legally divorced from
     a previous marriage.

          5.   At all times during the courtship,
     Pettid represented himself to Bartling as a
     single person, who had been divorced pursuant
     to a dissolution of a previous marriage.

          6.   During the courtship, Pettid estab-
     lished himself in a position of trust and
     confidence with Bartling which resulted from
     the courtship relationship.

          7.   In or around August, 1981, Pettid
     asked Bartling to marry him, promising to marry
     her and cohabitate as husband and wife.

          8.   Bartling accepted the good faith of
     Pettid and relied upon his representation to her
     that he was legally capable of entering into an
     agreement to marry her. Bartling, therefore
     having reasonably and justifiably given Pettid
     her trust and confidence, and accepting his good
     faith, agreed to marry Pettid pursuant to his
     proposal.

          9.   In anticipation of her planned marriage
     to Pettid, and with Pettid's knowledge and
     encouragement, Bartling resigned her employment
     in the Fall of 1981.

          10. In anticipation of her planned marriage
     to Pettid, and with Pettid's knowledge and
     agreement, Bartling sold her residence in the
     Fall of 1981 and moved into her parents' house,
     planning to remain a resident there until the
     marriage was solemnized.
                       -6-

     11. In anticipation of her planned marriage
to Pettid, and at Pettid's specific request,
Bartling gave funds to Pettid for business
purposes, including his purchase of his medical
practice and the purchase of certain real estate.

     12. Throughout the entire courtship and
until March 12, 1982, Pettid knew that he was
not legally divorced from his first wife, Wilma
Pettid. Pettid knowingly and intentionally
concealed his true marital status from Bartling
throughout their courtship and continued to
conceal until January 14, 1992.

     13. On March 12, 1982, Pettid was decreed
divorced from his first wife, Wilma, by the
District Court of Douglas County, Nebraska. The
decree was not effective for six months from
its date. Pettid knowingly and intentionally
concealed this fact from Bartling from the date
of the decree until January 14, 1992.

     14. On or about May 5, 1982, Pettid and
Bartling made application to the Douglas County
Clerk for a marriage license. Pettid knowingly
and falsely stated the date of his divorce decree
as February 16, 1981. Bartling made application
for such marriage license in good faith, based on
her reliance on Pettid's affirmative statements
that Pettid was legally capable of entering into
the proposed marriage.

     15. On May 8, 1982, knowing himself to be
under a legal prohibition from entering into a
marriage, Pettid arranged a marriage ceremony in
which Pettid and Bartling exchanged marriage vows
in Douglas County, Nebraska * * *.

     16. Bartling participated in the
solemnization ceremony and the reception without
knowledge that Pettid's divorce was not final and
without knowledge that Pettid was not legally
capable of entering into a valid marriage.
Bartling accepted Pettid's good faith and
representations concerning his marital status in
entering into and participating in the marriage
ceremony with Pettid, and thereafter relied on
the legitimacy of the marriage ceremony.
                       -7-

      17. Subsequent to May 8, 1982, and as a
result of Pettid's fraudulent representations to
Bartling that they were legally married and the
purported marriage between Bartling and Pettid,
Bartling was induced to live with Pettid as his
wife.

     18. In reliance on the validity of the
marriage and by reason of Pettid's fraudulent
misrepresentations to Bartling that they were
legally married, Bartling undertook certain
actions, including, but not limited to the
following:

          a.   Bartling assumed Pettid's last
     name * * *;

               b.   Bartling changed her
          status from that of a single
          person to a married woman, thereby
          being required to live
          meretriciously with Pettid;

          c.   Bartling filed federal and state
     income tax returns as the spouse of
     Frederick J. Pettid for the years 1982
     through 1990;

     d.   Bartling performed normal duties as
     Pettid's spouse, including housekeeping,
     cooking, laundry, tending to family
     activities, being active in civic and social
     groups as Pettid's wife;

          e.   Bartling assisted in Pettid's
     medical practice development activities by
     being active in the medical community's
     social and charitable activities and
     assisting in the introduction of Pettid to
     other members of the medical profession, all
     of which assisted Pettid in the development
     of his medical practice;

          f.   Bartling forsook her career in
     order to tend to her responsibilities as
     Pettid's wife;
                             -8-

                g.   Bartling held herself out as a
           married woman * * *.

                h.   By virtue of holding herself out
           as a married woman, Bartling thereby lost
           certain inheritances from her parents she
           would have had if she had been a single
           person at the time of their deaths.


Based upon the above allegations, Ms. Wagner's petition

sets forth four separate grounds for relief:   (1) Inten-

tional infliction of emotional distress; (2) fraud and

deceit and misrepresentation of capacity to marry; (3)

breach of promise to marry; and (4) quantum meruit.     The

action instituted by Ms. Wagner is referred to herein as

the Bartling lawsuit.

     On March 6, 1992, petitioner amended his declaratory

judgment action into a petition for annulment of marriage.

On or about April 27, 1992, petitioner filed a second

amended petition for annulment of marriage (Domestic Law).

The prayer for relief of the amended petition states as

follows:


          WHEREFORE, Petitioner prays that the Court
     decree that the marriage of the parties be null
     and void; that each party should receive all
     property, whether real or personal, and moneys,
     securities and other valuable items of all types
     that each party personally accumulated during the
     period since May 5 [sic], 1982; and for such
     other and further relief that the Court may deem
     just and proper.
                             -9-

     On November 19, 1992, petitioner and Ms. Wagner

executed a Settlement Agreement and Mutual Release (the

Annulment Agreement).   This agreement provides in

pertinent part as follows:


                          RECITALS

          WHEREAS, on the 12th day of March, 1982,
     Pettid [i.e. Petitioner] was divorced pursuant to
     a Decree of Dissolution entered in the District
     Court of Douglas County, Nebraska, in a matter
     entitled Wilma Rae Pettid, Petitioner vs.
     Frederick J. Pettid, Respondent (hereinafter
     referred to as "the Divorce"), contained at
     Docket 777, No. 168; and

          WHEREAS, on the 8th day of May, 1982, Pettid
     entered into a marriage ceremony with Wagner
     (hereinafter referred to as "the Marriage
     Ceremony"); and

          WHEREAS, the Marriage Ceremony took place
     during the six-month interlocutory period of the
     Divorce; and

          WHEREAS, Wagner was unaware of Pettid's
     legal inability to enter into a valid marriage
     and is an innocent party as otherwise referred to
     in Neb. Rev. Stat. § 42-378 (Reissue 1988); and

          WHEREAS, Pettid filed a Petition for
     Declaratory Judgment which was amended to a
     Petition for Annulment of Marriage in a legal
     pleading entitled Frederick J. Pettid, Plaintiff,
     vs. Inga W. Bartling, a/k/a Inga W. Pettid, con-
     tained at Docket 903, Page 208, in the District
     Court of Douglas County, Nebraska (hereinafter
     referred to as "the Annulment Lawsuit"); and

          WHEREAS, Wagner has filed a civil suit for
     deceit, fraud, breach of contract and quantum
     meruit against Pettid in an action entitled
     Inga Bartling Pettid, Plaintiff, vs. Frederick
                         - 10 -

J. Pettid, Defendant, in the District Court of
Douglas County, Nebraska, at Docket 905, No.
797 (hereinafter referred to as "the Bartling
Lawsuit"); and

     WHEREAS, the parties desire to resolve all
differences pertaining to the Annulment Lawsuit
and the Bartling Lawsuit between themselves.

     NOW, THEREFORE, in consideration of the
above and foregoing, the parties agree as
follows:

     1. Payment from Pettid to Wagner. Pettid
agrees to transfer real and personal property and
to pay Wagner, as full and complete settlement
toward the claims in the Annulment Lawsuit and
the Bartling Lawsuit, as follows:

     a)   Real Estate Commonly Known As 972 South
          4th Street. * * *

      *     *     *        *       *      *   *

     b)   IRA.   * * *

     c)   Household Goods.        * * *

     d)   Dean Witter.     * * *

     e)   Insurance.     * * *

      *     *     *        *       *      *   *

     f)   Periodic Support Payments. Commencing
          on December 1, 1992, and continuing on
          the first (1st) day of each and every
          month thereafter, Pettid shall pay
          Wagner periodic support payments of
          Four Thousand and No/100 Dollars
          ($4,000.00) per month for a period of
          eighty-four (84) months.

     g)   House Account.       * * *

      *     *     *        *       *      *   *
                      - 11 -

     i)   Cash Payment.       * * *

      *     *     *       *       *   *   *

     5. Release. Wagner, in consideration of
the compromise and settlement of her claim
against Pettid, releases and forever discharges
Pettid, his successors, legal representatives
and assigns from all claims, demands and causes
of action, including any arising in tort or
contract, law or equity, that Wagner may now
have or that might subsequently accrue to Wagner,
known or unknown, arising out of or connected
with, directly or indirectly, the marriage of
the parties which took place on May 8, 1982, in
any way connected with the relationship of the
parties. This release includes, but is not
limited to, all claims and actions based on the
allegations contained in the Bartling Lawsuit and
the claims of an innocent spouse in the Annulment
Lawsuit. This release shall forever settle,
adjust and discharge all claims of Wagner against
Pettid pertaining to the Bartling Lawsuit or the
Annulment Lawsuit.

     Pettid, in consideration of the compromise
and settlement of any claims he may have against
Wagner, releases and forever discharges Wagner,
her successors, legal representatives and assigns
from all claims, demands and causes of action,
including any arising in tort or contract, law
or equity, known or unknown, that Pettid may now
have or might subsequently accrue to Pettid
arising out of or in any way associated
therewith. This release shall forever settle,
adjust and discharge any claims that Pettid may
have against Wagner by virtue of said marriage
and all elements relating thereto.

      *     *     *       *       *   *   *

     9. Full Agreement. This agreement repre-
sents the complete understanding of the parties
and constitutes a full and final settlement of
all claims or claims against the other, known or
unknown, without any reservation of any rights,
either in law, equity, tort, contract, or in any
                           - 12 -

    other fashion, and may not be modified except in
    writing and signed by all of the parties.

          10. Binding Agreement. This agreement
     shall be binding upon the parties, their respec-
     tive heirs, successors, administrators, assigns
     and personal representatives.

           *     *     *     *      *     *     *

          13. Waiver of Breach. No waiver of any
     breach by either party of the terms of this
     Agreement shall be deemed a waiver of any
     subsequent breach. No modification of this
     Agreement shall be binding upon either of the
     parties unless reduced to writing and subscribed
     by both parties, unless ordered by the Court.


The payments at issue in this case are the monthly payments

made pursuant to paragraph 1.f) above.

     On the same day that the Annulment Agreement was

executed, the district court entered a decree which

annulled petitioner's marriage to Ms. Wagner.   The

district court found that petitioner was legally married

to Ms. Wilma Rae Pettid at the time of his marriage to

Ms. Wagner; therefore, the marriage of petitioner and

Ms. Wagner was void as a matter of law.   The district court

stated that it had examined the Annulment Agreement and


     finds the same to be fair, just, reasonable and
     not unconscionable and hereby approves the same,
     which Agreement is not being filed with the
     Court, but shall be adhered to by all parties as
     though said * * * Agreement * * * were filed with
     the Court and set forth in its entirety in this
     Agreement; that in the event either party shall
     fail to abide by the terms of the * * * Agreement
                           - 13 -

     * * *, the aggrieved party may file said Agree-
     ment with the Court and be entitled to all relief
     which would otherwise be made available for the
     enforcement of a judgment, including contempt.


The district court further stated:


     IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [petitioner] and * * * [Ms. Wagner] shall
     each abide by and adhere to the terms and
     conditions of the * * * [Annulment] Agreement
     which has been reviewed by the Court and has
     been found to be fair, just, reasonable and not
     unconscionable, and which Agreement shall not be
     filed with the Court as provided for in Neb. Rev.
     Stat. sec. 42-366(4)(b) (Reissue 1988).


     Respondent issued a notice of deficiency to petitioner

with respect to his 1993, 1994, and 1995 returns.   The

notice of deficiency sets forth the following explanation

for the adjustment disallowing the deduction petitioner

claimed for the payments made during 1993:


     Alimony Deduction:

     Payments totaling $48,000.00 which you made in
     the taxable year 1993 to Inga Wagner, are not
     alimony payments, but are payments in settlement
     of a claim for damages. Accordingly, the
     payments are not deductible and your taxable
     income is increased $48,000.00.


The notice of deficiency contains identical explanations

for taxable years 1994 and 1995.
                            - 14 -

                           OPINION

     The issue for decision is whether monthly payments

made by petitioner to Ms. Wagner in each of the years in

issue, pursuant to the Annulment Agreement, are properly

characterized as deductible alimony under section 215(a),

as petitioner contends, or as nondeductible payments in

settlement of a claim for damages, as determined by

respondent.   Petitioner bears the burden of proving

respondent's determination wrong.    See Rule 142(a).


Evidentiary Issues

     As a preliminary matter, we must decide respondent's

objection to the introduction of 18 joint exhibits.     Four

of the joint exhibits relate to the divorce proceeding

between petitioner and Ms. Wilma Rae Pettid.    They are

described as follows:


     5-E   Decree dissolving petitioner's marriage to
           Ms. Wilma Rae Pettid, issued by the District
           Court of Douglas County, Nebraska, on March
           12, 1982.

     6-F   Property Settlement Agreement executed by and
           between petitioner and Ms. Wilma Rae Pettid.

     7-G   Answers to Interrogatories filed in the divorce
           proceeding.

     8-H   Affidavit RE: Application for Support, Fees,
           Custody, Etc. and Financial Statement, filed in
           the divorce proceeding.
                             - 15 -

Fourteen of the joint exhibits relate to the purported

marriage of and subsequent annulment proceeding between

petitioner and Ms. Wagner.   They are described as follows:


     9-I   Marriage License issued to petitioner and
           Ms. Wagner on May 5, 1982, by the Office of
           the County Judge for Douglas County, Nebraska.

    10-J   Excerpt from a record containing Ms. Wagner's
           testimony taken in a deposition in connection
           with the annulment proceeding.

    12-L   Affidavit RE: Application for Support, Fees,
           Custody, Etc. and Financial Statement, filed
           by petitioner in the annulment proceeding.

    13-M   Affidavit RE: Application for Support, Fees,
           Custody, Etc. and Financial Statement, filed
           by Ms. Wagner in the annulment proceeding.

    15-O   Motion for temporary support filed by Ms. Wagner
           in the annulment proceeding.

    16-P   Temporary Order issued by the District Court
           of Douglas County, Nebraska, in the annulment
           proceeding.

    17-Q   Certificate of Readiness for Trial prepared
           by Ms. Wagner's attorney in the annulment
           proceeding.

    23-W   Draft of the Settlement Agreement and Mutual
           Release.

    24-X   Letter from petitioner's attorney to Ms. Wagner's
           attorney, dated February 24, 1992.

    25-Y   Letter from petitioner's attorney to Ms. Wagner's
           attorney, dated October 6, 1992.

    26-Z   Letter from Ms. Wagner's attorney to petitioner's
           attorney, dated October 19, 1992.

   27-AA   Letter from petitioner's attorney to Ms. Wagner's
           attorney, dated November 3, 1992.
                            - 16 -

   28-AB   Acknowledgment of Receipt and Release, executed
           by Ms. Wagner on July 1, 1994, and filed on
           July 12, 1994.

   29-AC   Ms. Wagner's Answer to Request for Admission,
           dated August 11, 1992, executed in connection
           with the annulment proceeding.


     Respondent's counsel set forth his objection to the

exhibits in paragraph 7 of the stipulation of facts and

paragraph 55 of the supplement to stipulation of facts,

which state as follows:


           7. Respondent also objects to admission
     into evidence of Joint Exhibits 5-E, 6-F, 7-G.
     8-H, 9-I, 10-J, 12-L, 13-M, 15-O, 16-P, 17-Q,
     23-W, 24-X, 26-Z, 27-AA, and 28-AB on the
     grounds that the Annulment Agreement * * *
     represents the complete understanding of the
     parties and constitutes a full and final
     settlement of all claims or claims against the
     other, known or unknown, without any reserva-
     tion of any rights, either in law, equity, tort,
     contract, or in any other fashion, and may not
     be modified except in writing and signed by all
     of the parties. Joint Exhibits 5-E, 6-F, 7-G,
     8-H, 9-I, 10-J, 12-L, 13-M, 15-O, 16-P, 17-Q,
     23-W, 24-X, 26-Z, 27-AA, and 28-AB could not be
     admitted as parole [sic] evidence in an action
     between Pettid and Wagner to alter the construc-
     tion of the Annulment Agreement or to show its
     unenforceability because of mistake, undue
     influence, fraud, duress, etc. Commissioner
     v. Danielson, 378 F.2d 771, 775 (3rd Cir. 1967).
     * * *

           55. In paragraph 7 of the Stipulation of
     Facts, Respondent objected to admission of
     several Joint Exhibits into evidence. Respondent
     continues to object to all of the Joint Exhibits
     listed in paragraph 7 of the Stipulation of Facts
     and now adds Joint Exhibits 25-Y and 29-AC.
     * * *
                             - 17 -

     Although nominally phrased in terms of the parol

evidence rule, respondent's objection is based on the

application of the court's holding in Commissioner v.

Danielson, 378 F.2d 771 (3d Cir. 1967), vacating and

remanding 44 T.C. 549 (1965).     In that case, the taxpayers

executed covenants not to compete and a purchase agreement

in connection with their sale of stock.      The documents

specifically allocated a portion of the total consideration

to the covenants not to compete.      Nevertheless, on their

tax returns, the taxpayers reported the entire amount

received from the buyer as proceeds from the sale of stock.

The taxpayers argued that the allocation of the buyer's

consideration in the covenants not to compete and the

purchase agreement had no basis in fact or economic reality

and that taxation should be based on the substance of the

transaction.    In response to the taxpayers' argument, the

Court of Appeals adopted the following rule:


     a party can challenge the tax consequences of his
     agreement as construed by the Commissioner only
     by adducing proof which in an action between the
     parties to the agreement would be admissible to
     alter that construction or to show its
     unenforceability because of mistake, undue
     influence, fraud, duress, etc. * * *

Id. at 775.    This Court has not adopted the rule enun-

ciated by the Court of Appeals for the Third Circuit in
                            - 18 -

Commissioner v. Danielson, supra.    See Norwest Corp.

v. Commissioner, 111 T.C. 105, 142 (1998); Coleman v.

Commissioner, 87 T.C. 178, 202 n.17 (1986), affd. without

published opinion 833 F.2d 303 (3d Cir. 1987); Elrod v.

Commissioner, 87 T.C. 1046, 1065 (1986); G.C. Servs. Corp.

v. Commissioner, 73 T.C. 406, 412 n.2 (1979).

     On brief, respondent's counsel expanded the basis

for his objection to include two additional theories:

The "strong proof" rule and the holding of Grummer v.

Commissioner, 46 T.C. 674 (1966).    Under the "strong proof"

rule, adopted by this Court, a taxpayer can ignore the

unambiguous terms of a binding agreement only if the

taxpayer presents "strong proof," that is, more than a

preponderance of the evidence, "that the terms of the

written instrument" do "not reflect the actual intention of

the parties thereto."   G.C. Servs. Corp. v. Commissioner,

73 T.C. at 412; Meredith Corp. & Subs. v. Commissioner,

102 T.C. 406, 440 (1994); Major v. Commissioner, 76 T.C.

239, 247 (1981).   Similarly, the holding in Grummer v.

Commissioner is stated as follows:


     extrinsic evidence designed to alter the language
     of a divorce decree or separation agreement will
     not be considered in determining whether payments
     constitute alimony or child support when the
     agreement of the parties specifically and
     unequivocally fixes the character of such
     payments. * * *
                             - 19 -

Grummer v. Commissioner, 46 T.C. at 680.   In that case, the

Court found "no ambiguity of the agreement."    Id. at 679.

     The Danielson rule, the "strong proof" rule, and the

Grummer holding all relate to the same issue:   whether a

party to a binding agreement should be permitted to avoid

the tax consequences that would otherwise flow from the

unambiguous terms of the agreement.   The Danielson rule and

the "strong proof" rule differ in the level of proof

necessary to challenge the tax consequences of an

agreement.   The Grummer case adopts a rule prohibiting

consideration of extrinsic evidence in interpreting the

unambiguous language of a divorce decree or separation

agreement.

     None of the three theories relied upon by respondent

apply to the instant case.   All three theories apply only

in the case of an unambiguous agreement.   However, we find

paragraph 1.f) of the Annulment Agreement to be ambiguous

because it does not state whether, or to what extent, the

"periodic support payments" are in settlement of a claim

for damages under the Bartling lawsuit or are payments in

connection with the annulment of petitioner's purported

marriage to Ms. Wagner.   Paragraph 1 of the Annulment

Agreement states that the transfers of property and
                            - 20 -

payments are in "full and complete settlement toward the

claims in the Annulment Lawsuit and the Bartling Lawsuit."

     Petitioner is not attempting to alter the unambiguous

terms of the Annulment Agreement and, thus, avoid the tax

consequences that flow from this Agreement.   Rather, by

introducing the joint exhibits into evidence, petitioner

seeks to produce evidence contrary to respondent's position

that the subject payments are "in settlement of a claim for

damages" (i.e., the Bartling lawsuit) and to prove that the

parties to the Annulment Agreement intended the "periodic

support payments" to qualify as "alimony or separate

maintenance."   Accordingly, we overrule respondent's

objection to the joint exhibits.

     Respondent also objects to paragraph 6 of the

stipulation of facts and paragraph 53 of the supplement to

stipulation of facts, relating to respondent's treatment of

the payments received by Ms. Wagner.   Paragraph 6 of the

stipulation of facts states in pertinent part as follows:


          6. Pettid (i.e. Petitioner) asserts that
     for the same three tax years [1993, 1994, and
     1995], the Commissioner * * * determined that the
     same $4,000.00 monthly payments that Pettid made
     to Wagner were alimony includable in her gross
     income. * * *


Paragraph 53 of the supplement to stipulation of facts

provides in pertinent part as follows:
                           - 21 -

          53. On November 27, 1996, Respondent
     issued a notice of deficiency to Inga Wagner,
     for tax years 1993 and 1994, in which Respondent
     determined that Inga Wagner was liable for tax
     on the payments she received from Petitioner,
     Fred J. Pettid, in response to paragraph 1.f)
     of the Annulment Agreement. * * *


Respondent objects to the above-quoted statements on the

ground that the determinations made by the Commissioner

with respect to the treatment of the payments in

Ms. Wagner's returns are not probative as to the treat-

ment of the payments in petitioner's returns.

     Petitioner did not address respondent's objection on

brief, and, thus he has conceded it.   See Lime Cola Co.

v. Commissioner, 22 T.C. 593, 606 (1954) (stating that

because petitioners did not address transferee liability

on brief, petitioners had conceded the issue); Levert v.

Commissioner, T.C. Memo. 1989-333 (stating that respondent

had conceded the taxpayer's liability for an addition to

tax that was determined in the notice of deficiency by

failing to discuss the issue on brief).   Accordingly, we

sustain respondent's objection to the admission of

paragraph 6 of the stipulation of facts and paragraph 53

of the supplement to stipulation of facts.
                             - 22 -

Alimony or Separate Maintenance

     The principal issue in this case is whether the

payments made by petitioner to Ms. Wagner are properly

characterized as "alimony or separate maintenance pay-

ments," deductible under section 215(a).   Section 215(b)

provides that the term "alimony or separate maintenance

payment" means "any alimony or separate maintenance payment

(as defined by section 71(b)) which is includible in the

gross income of the recipient under section 71."   Section

71(b) provides 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 of separate main-
               tenance, the payee spouse and the payor
               spouse are not members of the same house-
               hold at the time such payment is made,
               and
                              - 23 -

                     (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.


If the payments made by petitioner fail to meet each of the

four criteria enumerated by section 71(b)(1), then the

payments are not "alimony or separate maintenance payments"

and are not deductible by petitioner under section 215(a).

     As stated in respondent's reply brief, "Both

petitioner and respondent agree that payments made by

petitioner meet the requirements contained in I.R.C. sec.

71(b)(1)(A), (B), and (C)."     Therefore, the sole question

remaining is whether the subject payments satisfy the

requirements of subparagraph (D).

     Respondent takes the position that the requirements

of subparagraph (D) are not satisfied for the following two

reasons:   "First, there is no reference in the Annulment

Agreement which requires the termination of the support

payments upon Wagner's death.      Second, there appears to

be a specific requirement in the agreement for Pettid to

continue the payments should Wagner die."

     Contrary to respondent's first position, we conclude

that petitioner's liability to make payments under para-

graph 1.f) of the Annulment Agreement terminates upon
                            - 24 -

the death of Ms. Wagner by operation of Neb. Rev. Stat.

section 42-365, which provides as follows:


     Decree; alimony; division of property; criteria;
     modification; revocation; termination. When
     dissolution of marriage is decreed, the court
     may order payment of such alimony by one party
     to the other and division of property as may be
     reasonable, having regard for the circumstances
     of the parties, duration of the marriage, a
     history of the contributions to the marriage by
     each party * * * and interruption of personal
     careers or educational opportunities * * *
     Except as otherwise agreed by the parties in
     writing or by order of the court, alimony orders
     shall terminate upon the death of either party or
     the remarriage of the recipient.

          The purpose of alimony is to provide for the
     continued maintenance or support of one party by
     the other when the relative economic circum-
     stances and the other criteria enumerated in this
     section make it appropriate. [Emphasis added.]


Neb. Rev. Stat. sec. 42-365 (1988).


Neb. Rev. Stat. section 42-365 provides that the payor's

liability to make payments under "alimony orders"

terminates by operation of law upon the death of either

spouse or the remarriage of the recipient spouse, "except

as otherwise agreed by the parties in writing or by order

of the court".   We note that respondent does not argue that

the district court's decree is not an "alimony order."    In

this case, neither the Annulment Agreement nor the Decree

of Annulment provides for the termination of the payments
                               - 25 -

required under paragraph 1.f) of the Agreement.       Thus,

petitioner’s liability to make the payments terminates by

operation of Neb. Rev. Stat. section 42-365 upon

Ms. Wagner’s death.

       Under Nebraska law, there is a distinction between

"annulment" and "divorce".     Annulment is the declaration

by a court that a purported marriage is null and void, as

if the marriage had not occurred.       See Neb. Rev. Stat.

sec. 42-119 (1988).    Divorce is the termination of a valid

and binding marriage.    See Neb. Rev. Stat. sec. 42-347(2)

(1988).    Notwithstanding this distinction, annulment

actions are brought in the same manner as divorce actions

and are subject to the same provisions of the Nebraska

Divorce and Alimony Law.    See Neb. Rev. Stat. sec. 42-373

(1988).

       Our interpretation of Neb. Rev. Stat. section 42-365

is supported by the holding in Euler v. Euler, 295 N.W.2d

397 (Neb. 1980).    The issue in Euler v. Euler was whether,

under Neb. Rev. Stat. section 42-365, the remarriage of the

ex-wife caused the termination of the payment of alimony to

her.    The court held that:


       Neither the property settlement nor the decree
       provides for the termination of alimony upon the
       occurrence of a specified event set out in the
       agreement, nor does either state that the agree-
       ment shall not be subject to amendment or
                              - 26 -

     revision. Section 42-365 clearly states that
     alimony payments will terminate by operation of
     law when a decree is silent on the effect of
     death or remarriage. [Emphasis added.]

Id. at 400.


     Respondent attempts to distinguish Euler v. Euler by

noting that the agreement in that case expressly permitted

modification.    Respondent argues that the court in Euler v.

Euler concluded that termination language could be added to

the agreement.    In this case, on the other hand, respondent

argues that the Annulment Agreement does not permit

modification, and that language terminating petitioner's

liability to make the subject payments upon the death of

Ms. Wagner cannot be added.

     We disagree.   We do not agree that the statutory

direction set forth in Neb. Rev. Stat. section 42-365 can

be defeated by a general contractual provision prohibiting

modification of the agreement.         If Neb. Rev. Stat. section

42-365 applies, a payor's liability to pay alimony

terminates automatically by operation of law upon the death

of the payee.    As the court stated in Kingery v. Kingery:


     The words, “terminate upon the death of either
     party or the remarriage of the recipient,”
     clearly show that this portion of the statute
     needs no order of court to effect termination.
     The alimony terminates by operation of law when
     the condition occurs.
                             - 27 -

Kingery v. Kingery, 320 N.W.2d 441, 443 (Neb. 1982).

Thus, if Neb. Rev. Stat. section 42-365 applies, liability

to make the payments terminates without a court order.

Similarly, the termination takes place without “modifica-

tion” of the Annulment Agreement or the Decree of

Annulment.

     Respondent cites Watters v. Foreman, 284 N.W.2d 850

(Neb. 1979), in support of his position that section

71(b)(1)(D) is not satisfied because paragraph 1.f) of

the Annulment Agreement does not explicitly provide for

termination of the subject support payments upon the death

or remarriage of Ms. Wagner.    The issue in Watters v.

Foreman, supra, was whether the remarriage of the payee

spouse resulted in the termination of alimony by operation

of Neb. Rev. Stat. section 42-365.    The court decree stated

that the payments would cease upon the payee's death, but

it was silent about remarriage.

     In support of his position that his obligation to pay

alimony terminated upon his ex-wife's remarriage, the

payor, Foreman, argued that Neb. Rev. Stat. section 42-365

required termination of the alimony payments upon the

remarriage of his ex-wife.   The court in Watters v.

Foreman, supra, held:
                           - 28 -

     Where the parties by their agreement in writing,
     or the court by its decree, provide that a
     specific amount of alimony shall be paid for a
     specific period of time, and shall terminate only
     upon the occurring of a specific event set out in
     the agreement or decree and otherwise shall not
     be subject to amendment or revision, the payments
     of such alimony shall terminate only upon the
     happening of the event set out in the agreement
     or decree.

Id. at 854.


     Respondent notes that in Watters v. Foreman, supra,

the parties to the written agreement did not include the

remarriage of the ex-wife as a ground for termination, and

the agreement stated that it was final and complete and not

subject to revision or amendment.   According to respondent,

the same result should follow in the instant case because

the Annulment Agreement likewise does not include the death

of Ms. Wagner as a ground for termination and states that

it is final and complete and not subject to revision or

modification.

     We believe that Watters v. Foreman, supra, is dis-

tinguishable from the instant case.   In Watters v. Foreman,

supra, the decree fit within the "Except as otherwise

agreed by the parties in writing or by order of the court"

language of Neb. Rev. Stat. section 42-365 because the

decree expressly dealt with termination and provided that

termination would occur upon the death of the payee spouse.
                             - 29 -

In the instant case, on the other hand, the Annulment

Agreement is silent about termination and is silent about

the effect that the death or remarriage of Ms. Wagner will

have on the payments required under paragraph 1.f).        Thus,

the parties to the Annulment Agreement have not "otherwise

agreed" in writing regarding the effect of the death or

remarriage of Ms. Wagner on petitioner's liability to

make payments under paragraph 1.f).        In such a case, by

operation of Neb. Rev. Stat. section 42-365, the payments

automatically terminate upon the death of petitioner or of

Ms. Wagner or remarriage of Ms. Wagner.

     Respondent further argues that section 71(b)(1)(D) is

not satisfied because petitioner, or his estate “may be

required to make payments [under the Annulment Agreement]

after Ms. Wagner's death.”   To support this argument

respondent makes three points.        First, respondent notes

that paragraph 10 of the Annulment Agreement provides:

"This Agreement shall be binding upon the parties, their

respective heirs, successors, administrators, assigns and

personal representatives."   Second, respondent argues

that, because the Annulment Agreement provides that it

cannot be modified, it is equivalent to a judgment on

which Ms. Wagner's heirs could bring an action.        Third,

respondent asserts that “the Annulment Agreement is a
                            - 30 -

settlement of the Bartling Lawsuit”, a “tort suit,” and

the payments in issue “are simply the periodic payment of

a damage award” that could be enforced against petitioner

by Ms. Wagner's heirs.

     Unlike respondent, we do not believe that any

provision of the Annulment Agreement or the Decree of

Annulment requires petitioner to continue making the

monthly payments under paragraph 1.f) of the Agreement

after Ms. Wagner’s death.   As to the first and second

points raised by respondent, we do not agree that the

"binding agreement" provision or the “no modification”

provision of the Annulment Agreement can be read so broadly

as to require the payments to continue after Ms. Wagner's

death or to constitute an agreement of the parties that the

alimony order will not terminate on Ms. Wagner's death, as

otherwise required by Neb. Rev. Stat. section 42-365.

     We also disagree with respondent’s third point, that

the Annulment Agreement is a settlement of the Bartling

lawsuit, a tort action, and the payments in issue are

periodic payments of a damage award that could be enforced

by Ms. Wagner’s heirs.   While we agree that the Bartling

lawsuit was settled in the Annulment Agreement, we do not

agree that it was necessarily a tort action or that the

subject payments relate to an award of damages.
                           - 31 -

     Accordingly, by operation of Neb. Rev. Stat. section

42-365, the payments described by paragraph 1.f) of the

Annulment Agreement terminate upon the death of Ms. Wagner.

Thus, the payments constitute "alimony" under section 71(b)

because "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" as required by section 71(b)(1)(D).     Therefore,

we find that the subject payments constitute “alimony or

separate maintenance payments” within the meaning of

section 71(b) and are deductible under section 215(a).

     To reflect the foregoing,


                                    Decision will be entered

                           under Rule 155.
