                         T.C. Memo. 2003-294



                       UNITED STATES TAX COURT



                 RANDOLPH S. SIMPSON, I, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 2832-01.                Filed October 21, 2003.


     Randolph S. Simpson I, pro se.

     Gordon P. Sanz, for respondent.



                          MEMORANDUM OPINION


     COUVILLION, Special Trial Judge: Respondent determined a

deficiency of $4,453 in petitioner’s Federal income tax for the

year 1997.    In an amendment to answer, respondent seeks to

increase the deficiency by $5,012, for a total deficiency of

$9,465.1


     1
           Unless otherwise indicated, section references are to
                                                    (continued...)
                                   - 2 -


       After a concession by petitioner,2 the issues for decision

are:       (1) Whether petitioner is liable for the 10-percent

additional tax on an early distribution from a qualified

retirement plan under section 72(t)(1) for the year at issue, and

(2) whether petitioner is entitled to deduct $17,900 paid to his

former spouse during 1997 as alimony.       The second issue arises

out of respondent’s amendment to answer.       The undisputed facts in

the record permit the Court to decide the issues without regard

to the burden of proof.

       Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.       At the time the petition was filed, petitioner's

legal residence was Houston, Texas.

       During the year at issue, petitioner was employed as a

shuttle bus driver for Avis Rent-A-Car (Avis).       From 1987 to

1996, according to petitioner, Avis established and maintained a

qualified Employee Stock Ownership Plan (ESOP) in which

petitioner was a participant.       In 1996, the employees of Avis

voted to sell their stock held in the ESOP to a private company.



       1
      (...continued)
the Internal Revenue Code in effect for the year at issue.
       2
          Petitioner conceded an unreported $469 distribution
from the Teachers Retirement System of Texas that was received
during 1997, as well as the 10-percent addition to tax under sec.
72(t) attributable to that distribution.
                               - 3 -


As a result of the sale, petitioner received a lump-sum

distribution from U.S. Trust Co. of California in October 1997.

The amount of the distribution was $42,805.55, out of which 20

percent Federal income tax was withheld.   Petitioner received a

check in the net amount of $34,244.44 and was thereafter issued

Form 1099-R, Distributions From Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Petitioner was 47 years old at the time of the distribution.

     At the time of the sale, petitioner was in the midst of a

divorce proceeding with his wife, Lucille R. Simpson (Ms.

Simpson).   A Final Decree of Divorce (divorce decree) was decreed

on November 7, 1997, by the District Court of Harris County,

Texas.   In the divorce decree, petitioner is also referred to as

“petitioner” and his former wife, Ms. Simpson, is referred to as

“respondent”.   The parties in this case agree that Texas is a

community property State.   The divorce decree provided:   “The

Court * * * finds that the parties have agreed to the terms of

this Final Decree of Divorce and have stipulated that its terms

and provisions are contractual.”

     Under the section of the divorce decree entitled “Division

of Community Estate”, petitioner was awarded as his sole and

separate property:
                                - 4 -


     Any and all sums, whether matured or unmatured, accrued or
     unaccrued, vested or otherwise, together with all increases
     thereof, the proceeds therefrom, and any other rights
     related to any profit-sharing plan, retirement plan, pension
     plan, employee stock option plan, employee savings plan,
     accrued unpaid bonuses, or other benefit program existing by
     reason of Petitioner’s past or present employment.


The divorce decree contained a similar provision in favor of Ms.

Simpson.    The decree further awarded Ms. Simpson a money judgment

of $17,900 to effect “a just and right division of the community

estate.”    The divorce decree further provided, however, that the

money judgment “is part of the division of the community estate

between the parties and does not constitute, nor shall it be

interpreted to be, any form of spousal support, alimony or child

support.”   The payment of $17,900 by petitioner to his former

spouse in satisfaction of the money judgment was acknowledged in

the decree.   To pay the money judgment to Ms. Simpson, petitioner

used part of the proceeds he had received from the ESOP

distribution.

     On his 1997 Federal income tax return, petitioner claimed

head-of-household filing status, reported $23,818 wage income,

and claimed the standard deduction.     On line 16a, Total pensions

and annuities, petitioner reported $42,806 and reported the

entire amount as taxable on line 16b, Taxable amount.    On line

30a, Alimony paid, petitioner claimed an adjustment to income of

$17,900 for alimony paid.   No other income or adjustments were
                              - 5 -


reported, yielding an adjusted gross income of $48,724.

Petitioner entered "-0-" on line 50, Tax on qualified retirement

plans (including IRAs) and MSAs.   He did not attach Form 5329,

Additional Taxes on Qualified Plans (Including IRAs) and Other

Tax-Favored Accounts, to his return.

     In the notice of deficiency and accompanying explanations,

respondent determined that the 10-percent additional tax under

section 72(t) was due on the premature distribution from the

United States Trust Co. of America.    In the amendment to answer,

respondent claims the $17,900 paid by petitioner to his former

wife is not deductible as alimony.

     The first issue is whether petitioner is liable for the 10-

percent additional tax on the distribution from the qualified

retirement plan under section 72(t)(1).   Section 72(t) provides

for a 10-percent additional tax on early distributions from

qualified retirement plans, as follows:


          (1) Imposition of additional tax.-–If any taxpayer
     receives any amount from a qualified retirement plan (as
     defined in section 4974(c)), the taxpayer’s tax under this
     chapter for the taxable year in which such amount is
     received shall be increased by an amount equal to 10 percent
     of the portion of such amount which is includible in gross
     income.


The term “qualified retirement plan” includes any plan described

in section 401(a), which includes qualified stock bonus plans

such as the ESOP in which petitioner participated.   Sec.
                               - 6 -


4974(c)(1).   Petitioner does not dispute that he received a

distribution from a qualified plan.     However, he contends that

his former wife should bear the burden of the 10-percent addition

to tax with respect to the $17,900 payment he made to her under

the divorce decree.

     The 10-percent addition to tax does not apply to certain

distributions, including those made “to an alternate payee

pursuant to a qualified domestic relations order (within the

meaning of section 414(p)(1)).”   Sec. 72(t)(2)(C).    A “domestic

relations order” is defined in pertinent part as any judgment

that relates to the provision of marital property rights to a

spouse, or former spouse, of a participant and is made pursuant

to a State domestic relations law.     Sec. 414(p)(1)(B).   A

qualified domestic relations order, or QDRO, is a specific type

of domestic relations order that in pertinent part (1) creates an

alternate payee’s right to receive all or part of the benefits

payable with respect to a participant under a plan, (2) clearly

specifies certain facts, and (3) does not alter the amount of the

benefits under the plan.   Sec. 414(p)(1)(A), (2), and (3).

Section 414(p)(8) defines the term “alternate payee” as any

spouse, former spouse, child or other dependent of a participant

who is recognized by a domestic relations order as having a right

to receive all, or a portion of, the benefits payable under a

plan with respect to such participant.
                                 - 7 -


     Although petitioner did not allege or contend that the

$17,900 was paid pursuant to a QDRO, petitioner in any event does

not qualify for the section 72(t)(2)(C) exception to the

additional tax.    Although the divorce decree is a domestic

relations order, it is not a QDRO.       Rather than recognizing an

alternate payee with respect to petitioner’s qualified plan, the

decree divested Ms. Simpson of any rights to such property and

deemed that property to be petitioner’s sole and separate

property.   Sec. 414(p)(1)(A).   Because no alternate payee was

named in the divorce decree, the decree was not a QDRO.

     Moreover, the distribution of funds from petitioner’s

qualified plan was not made to an alternate payee as required by

section 72(t)(2)(C).    By contrast, the funds were disbursed by

the plan administrator directly to petitioner.       The Court rejects

petitioner’s argument that, because he used funds received in the

plan distribution to pay Ms. Simpson, she should be responsible

for a proportionate share of the additional tax.       Petitioner’s

argument ignores the definitional elements of alternate payee in

section 414(p)(8), and he points to no legal authority to support

his position.   As previously noted, Ms. Simpson was not an

alternate payee.    Bougas v. Commissioner, T.C. Memo. 2003-194.

Petitioner does not fall within the section 72(t)(2)(C) exception

to the section 72(t) additional tax on an early distribution from

a qualified retirement plan, nor does he contend that he
                               - 8 -


qualifies under any other exception.     He alone is responsible for

the section 72(t) additional tax.      Respondent is sustained on

this issue.

     The second issue is whether petitioner is entitled to a

deduction for the $17,900 paid to his former spouse during 1997

as alimony.   Amounts received as alimony or separate maintenance

are includable in the recipient’s gross income under sections

61(a)(8) and 71(a) and are deductible by the payor under section

215(a) in the year paid.   On the other hand, payments

representing a property settlement are neither deductible to the

payor nor includable in income by the recipient.     Sec. 1041.     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 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.
                               - 9 -


Section 71 was amended by the Deficit Reduction Act of 1984, Pub.

L. 98-369, sec. 422(a), 98 Stat. 494, 795, to establish an

objective standard to distinguish between a payment received in

the division of property (which is not includable in gross

income) and a payment received as spousal support (which is

includable in gross income).   Hoover v. Commissioner, 102 F.3d

842, 845 (6th Cir. 1996), affg. T.C. Memo. 1995-183; H. Rept. 98-

432 (Part II), at 1495 (1984) (“The committee bill attempts to

define alimony in a way that would conform to general notions of

what type of payments constitute alimony as distinguished from

property settlements and to prevent the deduction of large, one-

time lump-sum property settlements”.).

     In this case, the $17,900 payment petitioner made to Ms.

Simpson in 1997 was a property settlement and not deductible

alimony.   Although the transfer was made under a divorce or

separation instrument, the payment was designated in the divorce

decree as part of the division of the community estate between

the parties.   The divorce decree specifically stated that the

payment “does not constitute, nor shall it be interpreted to be,

any form of spousal support, alimony, or child support.”   In

ascertaining the applicability of subparagraph (B) of section

71(b)(1), “the divorce or separation instrument need not mimic

the statutory language of the subparagraph (e.g., the instrument

need not specifically refer to sections 71 and 215).”   Estate of
                               - 10 -


Goldman v. Commissioner, 112 T.C. 317, 323 (1999), affd. sub nom.

Schutter v. Commissioner, 242 F.3d 390 (10th Cir. 2000).       Rather,

the divorce or separation instrument contains a nonalimony

designation if the substance of such a designation is reflected

in the instrument.   Id.   The Court finds that petitioner’s

divorce decree contains a nonalimony designation within the

meaning of section 71(b)(1)(B).   Thus, petitioner’s payment of

$17,900 to Ms. Simpson was not alimony but rather a property

settlement between the spouses.   Respondent is sustained on this

issue.



                                          Decision will be entered

                                     for respondent.
