                       T.C. Memo. 2000-174



                     UNITED STATES TAX COURT



               CATHLEEN C. SHEPHERD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.   18560-98.                    Filed May 25, 2000.


     Cathleen C. Shepherd, pro se.

     Eric B. Jorgensen, for respondent.



                        MEMORANDUM OPINION



     DEAN, Special Trial Judge:   Respondent determined

deficiencies in petitioner’s Federal income taxes of $6,727,

$6,420, and $8,106 for taxable years 1993, 1994, and 1995,
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respectively.    Respondent also determined accuracy-related

penalties under section 6662(a) for taxable years 1993 and 1994.1

     At trial, respondent conceded that petitioner is not liable

for penalties under section 6662(a).      The sole issue remaining

for decision is whether payments totaling $28,800 in each of the

years at issue made by petitioner’s ex-husband to petitioner are

alimony or nontaxable child support.

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by reference.   Petitioner resided in Atlanta,

Georgia, at the time her petition was filed.

                             Background

     Petitioner was married to James H. Shepherd, Jr. (Mr.

Shepherd) from 1977 until she obtained a divorce on April 18,

1989.    Two children were born of the marriage:    James H. Shepherd

III, born on December 23, 1979, and Julie H. Shepherd, born on

September 5, 1981.    Petitioner filed for divorce on January 27,

1988.    A temporary order was entered by agreement of the parties

on May 11, 1988, providing for payment to petitioner of temporary

alimony of $3,000 per month.

     Petitioner and Mr. Shepherd thereafter engaged in settlement

negotiations through their attorneys to arrive at an agreement

regarding the equitable division of their marital property,


     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue.
                                - 3 -

payment of alimony and child support, and custody of the

children.   At least two written offers in settlement, the first

dated September 16, 1988, and the second dated January 13, 1989,

were proposed by petitioner’s divorce counsel.   In proposing

alimony terms, the offers make no reference to the parties’

children.   The first offer proposes a 10-year term for alimony

payments, and the second offer proposes a reduced amount to be

paid as alimony but is silent as to the period of time over which

payments are to be made.   The settlement negotiations eventually

resulted in a settlement agreement between the parties which was

signed on April 17, 1989, and entered as part of the Final

Judgment and Decree of Divorce on April 18, 1989.

     The settlement agreement required Mr. Shepherd to make

monthly payments, characterized as “alimony for the support and

maintenance of Wife”, in the amount of $2,400 to petitioner for

10 years beginning May 1, 1989, and ending April 30, 1999.    Under

the agreement, the payments terminate immediately upon the death

of Mr. Shepherd or petitioner, or upon petitioner’s remarriage or

her engaging in “a meretricious relationship as defined by

O.C.G.A. §19-6-19”.    The agreement also states that Mr. Shepherd

was under no obligation to make substitute payments following the

death of petitioner.   The end of the 10-year period in which

petitioner was to receive the payments was within 6 months of

September 5, 1999-–Julie Shepard’s (Julie) 18th birthday.
                               - 4 -

     The settlement agreement further provided that petitioner

would have custody of the children and receive monthly “child

support for the benefit of the minor children” in the amount of

$650 per child from Mr. Shepherd with annual increases

commensurate with increases in the consumer price index.    Under

the terms of the agreement, child support payments were to

continue for each child as long as petitioner had custody of that

minor child or until the child died, married, or reached the age

of 18, whichever occurred first.    In addition, if the alimony

payments were to cease due to petitioner’s remarriage or because

she engaged in a meretricious relationship, the child support

payments would immediately increase to $1,200 per month per

child.

     Petitioner filed U.S. individual income tax returns for

1993, 1994, and 1995, and treated the $28,800 in “alimony”

received each year from Mr. Shepherd under the terms of the

settlement agreement as nontaxable child support.    Respondent

maintains that the payments were in fact alimony and thus should

be included in petitioner’s taxable income.

                            Discussion

     Alimony is taxable to the recipient and is deductible by the

payor.   See secs. 71(a), 215(a).   Child support payments, on the

other hand, are neither includable in income under section 71 nor
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deductible under section 215.   See sec. 71(c).   Alimony is 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 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. [Sec. 71(b)(1).]


     Child support is that part of a payment which the divorce or

separation instrument fixes as payable for the support of the

children of the payor spouse.   See sec. 71(c)(1).   An amount is

treated as fixed under section 71(c)(1) and thus treated as child

support if it will be reduced “on the happening of a contingency

specified in the instrument relating to a child (such as

attaining a specified age, marrying, dying, leaving school, or a

similar contingency),” sec. 71(c)(2)(A), or “at a time which can

clearly be associated with [such] a contingency.”    Sec.

71(c)(2)(B).

     Temporary regulations promulgated under section 71 provide

that payments which would otherwise qualify as alimony are
                               - 6 -

presumed to be child support if they are reduced within 6 months

of the date the payor’s child turns 18, 21, or the local age of

majority.   See sec. 1.71-1T(c), Q&A-18, Temporary Income Tax

Regs., 49 Fed. Reg. 34451, 34457 (Aug. 31, 1984).    This

presumption can be overcome if the facts indicate that the time

of the reduction in payments “was determined independently of any

contingencies relating to the children of the payor.”       Id.; see

Hill v. Commissioner, T.C. Memo. 1996-179.    The time is selected

independently of any contingencies relating to the children if it

is merely a coincidence that the date payments are reduced falls

near a child’s birthday.   See Hill v. Commissioner, supra.

     Petitioner contends that the payments at issue are child

support even though the settlement agreement labels them alimony

because she accepted the settlement agreement based on the fact

that the payments would terminate within 6 months of her

daughter’s 18th birthday and based on her understanding that this

fact would cause the payments to be deemed child support for

purposes of Federal income tax treatment.    Petitioner does not

dispute that the payments otherwise would constitute alimony.

     Respondent concedes that the payments are presumed to be

child support under the temporary regulations because they

terminate within 6 months of Julie’s 18th birthday.    Respondent,

however, maintains that the presumption is overcome by the facts

surrounding petitioner’s settlement negotiations with her ex-
                               - 7 -

husband which indicate that it was merely a coincidence that the

alimony payments terminated within 6 months of Julie’s 18th

birthday.

     We agree with respondent that the presumption that the

payments are child support is overcome by evidence that the

termination of the payments to petitioner was determined

independently of any contingency relating to petitioner and

Mr. Shepherd’s children.

     The settlement agreement provides for alimony payments for a

term of 10 years and makes no reference to Julie’s 18th birthday

in its alimony provision.   Likewise, the proposed offers in

settlement from petitioner’s attorney, which preceded the final

settlement agreement, make no reference to the parties’ two

children in their proposed alimony provisions.   The settlement

offers suggest that the only disputed term of the alimony

payments was their amount and not the period of time over which

the payments would occur.

     Moreover, there is no evidence of any discussion between the

parties of Julie’s 18th birthday in conjunction with the

negotiation of alimony payments.   Mr. Shepherd’s divorce counsel

testified that he was “absolutely positive” there was never any

discussion that alimony would terminate on the 18th birthday of

either of the parties’ two children.   He further testified that

the 10-year term of alimony was requested when negotiations first
                                 - 8 -

began and that the only point of contention regarding alimony was

the amount that would be paid.

     The record does indicate that Julie’s 18th birthday and

petitioner’s understanding of the Federal tax implications of the

termination date of the alimony payments factored into

petitioner’s decision to consent to the terms of the settlement

agreement.   Petitioner’s lead divorce counsel testified that

petitioner was concerned with having the alimony payments

continue until her children were finished with school.       He

further testified that he had discussed with petitioner the

presumption arising under the temporary regulations that payments

coinciding with a child’s 18th birthday would be considered to be

child support, and he indicated that petitioner’s willingness to

enter into the settlement agreement was based on her

understanding of this presumption.       Neither petitioner nor her

lead divorce counsel, however, indicated that this issue was

discussed with Mr. Shepherd or with his attorney.

     Petitioner’s consideration of Julie’s 18th birthday without

any discussion of its significance with Mr. Shepherd or with his

attorney is not enough under the facts of this case for us to

conclude that it was anything more than a coincidence that the

10-year term of the alimony payments ended within 6 months of

September 5, 1999.   See Hill v. Commissioner, supra.      If Mr.

Shepherd had accepted petitioner’s September 16, 1988, offer in
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settlement, a final settlement agreement would have been reached

before April 17, 1989, and the 10-year term of the “alimony”

payments would not have expired within 6 months of Julie’s 18th

birthday.   We thus conclude that the payments at issue are

alimony and includable in petitioner’s income.

     To reflect the foregoing,

                                 Decision will be entered for

                          respondent for the deficiencies in tax

                          and for petitioner for the penalties

                          under section 6662(a).
