                  T.C. Summary Opinion 2001-69



                     UNITED STATES TAX COURT



                MARSHA K. HUGGINS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4878-00S.                       Filed May 14, 2001.


     Marsha K. Huggins, pro se.

     Ralph W. Jones, for respondent.



     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year at issue.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
                                - 2 -

     Respondent determined a deficiency of $1,363 in

petitioner’s Federal income tax for taxable year 1997.     The sole

issue for decision is whether petitioner is entitled to exclude

from income, the payments she received from a former spouse

incident to a divorce proceeding.

     This case was submitted fully stipulated without trial under

Rule 122.    The accompanying exhibits are incorporated herein by

reference.

                             Background

     Petitioner resided in Astoria, Oregon, at the time her

petition was filed in this case.

     Petitioner's marital relationship with her former husband

was dissolved by a decree of dissolution of marriage (decree) by

the Circuit Court of the State of Oregon, the final and effective

date of which was January 18, 1986.     The decree includes a

provision providing that her former husband will pay to her "a

sum of money equaling one-half of monthly net amount, after

deductions for federal and state taxes, of the U.S. Coast Guard

retirement pension received by [petitioner's former husband].

Payment to [petitioner] shall not be included as taxable income

to [petitioner], nor shall such payments be deductible by

[petitioner's husband]."   The decree directs that the payments be

made directly to petitioner and continue until the mortgage on
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the marital home is paid, or the marital home is sold, or

foreclosed upon by the mortgage holder.

     During 1997, petitioner received the court-ordered payments

directly from the U.S. Coast Guard.1    Petitioner filed timely a

Federal income tax return for 1997 that did not report as income

the receipt of the payments she received under the decree.

     On January 21, 2000, the Internal Revenue Service (IRS)

received an amended tax return from petitioner reporting total

pensions and annuities of $6,563 but showing the taxable amount

as zero.

                           Discussion

     Respondent determined in the statutory notice of deficiency

that petitioner must include in income the payments received from

the U.S. Cost Guard as a result of the decree.    Respondent argues

that what petitioner got under the decree "is simply a right to

receive a future stream of income".

     Under the law of Oregon, the court may issue a decree of

marital dissolution which provides for the division, or other

disposition between the parties, of their real or personal

property "as may be just and proper".    Or. Rev. Stat. sec.

107.105(f)(1999), added to Or. Rev. Stat. in 1983; see Richardson



     1
      By Federal statute, the payments end in accordance with the
court order but not later than the date of death of the retiree
or the former spouse to whom payments are being made. See 10
U.S.C. sec. 1408(d)(4) (1994).
                               - 4 -

v. Richardson, 769 P.2d 179, 183 (Or. 1989).   "A retirement plan

or pension or an interest therein shall be considered as

property."   Or. Rev. Stat. sec. 107.105(f) (1999).

     The U.S. Coast Guard Retirement system is a "government

pension plan".   31 U.S.C. sec. 9502(1)(B)(ii) (1994).   Under the

authority of 10 U.S.C. sec. 1408(c) (1994), payment of retired or

retainer pay in compliance with court orders, the State of Oregon

may treat military2 pension benefits as marital property.    See

Valley v. Valley, 775 P.2d 332 (Or. Ct. App. 1989); Wood v. Wood,

676 P.2d 338 (Or. Ct. App. 1984).

     Gross income includes income from pensions.    Sec. 61(a)(11);

Singleton v. Commissioner, T.C. Memo. 1988-508.     In general,

income is taxable in the year in which it is received.     See sec.

451(a).   Congress has provided specialized rules in the

employees' plan area.   Under section 402(a)(1), the general rule

is that a distribution from an exempt employees' trust (under a

tax-qualified employees' plan) is taxed to the "distributee"

under section 72, which generally provides for current taxation

of distributions as ordinary income.

     The statute does not define the word "distributee" as used

in section 402(a)(1); neither do the regulations.     The Court has

concluded that a distributee of a distribution under a plan


     2
      The Coast Guard is a military service and a branch of the
armed forces of the United States at all times. See 14 U.S.C.
sec. 1 (1994).
                               - 5 -

ordinarily is the participant or beneficiary who, under the plan,

is entitled to receive the distribution.   See Darby v.

Commissioner, 97 T.C. 51, 58 (1991); Estate of Machat v.

Commissioner, T.C. Memo. 1998-154; Smith v. Commissioner, T.C.

Memo. 1996-292.

     Section 402(e)(1)(A), however, provides an exception to this

general rule.   Section 402(e)(1)(A) provides 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 the "alternate payee" under a

"qualified domestic relations order" (QDRO) as defined in section

414(p).   Therefore, a distribution made to such an alternate

payee under a QDRO will be taxable to that alternate payee, and

not to the plan participant, because section 402(e)(1)(A) treats

the alternate payee as the distributee.

     As originally enacted, the QDRO rules did not affect

governmental plans.   See H. Rept. 101-247, 1443 (1989).   In 1989,

however, Congress amended the tax rules relating to governmental

plans to conform them to the qualified plans discussed above,

applying the QDRO rules to distributions from governmental plans.

Omnibus Budget Reconciliation Act of 1989 (OBRA), Pub. L. 101-

239, sec. 7841(a)(2), 103 Stat. 2427-2428.

     Section 414(p)(11) is applicable to transfers of marital

interests after the date of enactment of OBRA, December 19, 1989,
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for tax years ending after the date of enactment.    See OBRA sec.

7841(a)(3), 103 Stat. 2428.    The court order in this case was

issued in 1985; it precedes the effective date of section

414(p)(11) and cannot qualify as a QDRO.

     The decree provided that petitioner is to receive a "sum of

money equaling one-half" of her former spouse's Coast Guard

retirement pension, after deduction of Federal and State taxes,

and that such amount is not to be taxable income to her or

deductible by her former spouse.    The language of the court's

direction that the amount not be taxable to petitioner or

deductible by her former spouse disqualifies the payments from

being considered as alimony.    See sec. 71(b)(1)(B).   The payments

are to continue until the mortgage is paid or the house is sold.

The payments constitute a division of marital property.     Estate

of Goldman v. Commissioner, 112 T.C. 317, 323-324 (1999), affd.

without published opinion sub nom. Schutter v. Commissioner, 242

F.3d 390 (10th Cir. 2000).

     The language of the decree also meets the requirement of 10

U.S.C. sec. 1408(a)(2)(C) (1994) for direct payment to petitioner

out of the retired pay of petitioner's former spouse:

     in the case of a division of property, [the court
     order] specifically [provides] for the payment of an
     amount, expressed in dollars or as a percentage of
     disposable retired pay, from the disposable retired pay
     of a member to the spouse or former spouse of that
     member. [Emphasis supplied].
                                 - 7 -

     The Supreme Court in McCarty v. McCarty, 453 U.S. 210

(1981), held that Federal statutes governing military retirement

pay prevented State courts from treating military retirement pay

as community property.    In direct response to McCarty, Congress

in 1982 enacted the Uniform Services Former Spouses' Protection

Act (Act), 10 U.S.C. sec. 1408 (1994).    Although enacted to

authorize State courts to treat "disposable retired or retainer

pay" of a member of the Armed Forces as community property, the

language also covers property divisions in common law, or

equitable distribution states.    See Mansell v. Mansell, 490 U.S.

581, 584 n.2 (1989); see S. Rept. 97-502 at 2-3.

     For purposes of the Act, the term "disposable retired pay"

means the monthly retired pay "to which a member is entitled"

less stated amounts.3    10 U.S.C. sec. 1408(a)(4) (1994).   The

term "spouse or former spouse" means the husband or wife or

former spouse of a member who was married to the member before

the court order.   10 U.S.C. sec. 1408(a)(6) (1994).   Under 10

U.S.C. sec. 1408(c)(2) (1994), payments to a spouse "with respect

to a division of retired pay as the property of a member and the

member's spouse under this subsection may not be treated as




     3
      The definition of "disposable retired pay" under 10 U.S.C.
sec. 1408(a)(4) (1982), changed after the date of the decree.
See National Defense Authorization Act for Fiscal Year 1991, Pub.
L. 101-510, sec. 555(b), (e)(2), 101 Stat. 1569-1570.
                                 - 8 -

amounts received as retired pay for service in the uniformed

services."

     The above referenced language of the Act leads to the

conclusion that although a State court "may treat disposable

retired pay payable to a member" as property of the member and

his spouse for State law purposes, the retired pay is that of the

member.     The Act itself does not give the former spouse an

interest in the retired pay.     Here, the court ordered payments to

petitioner out of the disposable retired pay of her former

spouse.     The decree did not, and could not, make her the

recipient of "retired pay".     See 10 U.S.C. sec. 1408(c)(1) and

(2) (1994).     Petitioner received a division of property in the

form of monthly payments.     This was not a taxable event.   See

sec. 1041.

         As Oregon is not a community property State,4 the decree

here did not have the effect of dividing a preexisting community

ownership of the retired pay of petitioner's former spouse.      See

Powell v. Commissioner, 101 T.C. 489, 497-499 (1993); Darby v.

Commissioner, 97 T.C. 51, 67 (1991).     Because the retired pay,

out of which petitioner received her payments, is that of

petitioner's former spouse, he remains taxable on his retired




     4
      See, e.g., Swan v. Swan, 720 P.2d 747, 752 (Or. 1986); Wood
v. Wood, 676 P.2d 338, 340 (Or. Ct. App. 1984).
                                - 9 -

pay.    See sec. 61(a)(11); Jones v. Commissioner, 82 T.C. 586

(1984).

       Respondent's position is not sustained, and petitioner may

exclude from income amounts received in 1997 as a division of

property incident to divorce.

       Reviewed and adopted as the report of the Small Tax Case

Division.

                                        Decision will be entered

                                for petitioner.
