                         T.C. Memo. 2005-50



                       UNITED STATES TAX COURT



            PAUL H. & JUDY E. ROGERS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11696-02.              Filed March 17, 2005.


     Paul H. & Judy E. Rogers, pro se.

     James L. May, for respondent.



                         MEMORANDUM OPINION


     HOLMES, Judge:    For alimony to be deductible, the obligation

to pay it must end with the life of its recipient.    But when Paul

Rogers divorced his first wife, in 1992, he agreed to pay her

$225 a week for ten years with no express condition that she be

alive to receive it.   Rogers and his current wife then deducted

those payments as alimony on their 2000 tax return.   The

Commissioner disallowed the deduction because he concluded the
                               - 2 -

payment obligation would not end upon the first Mrs. Rogers’

death.   Rogers disagrees and says that his obligation to pay

would end on her death as a matter of state law.1

     Deciding this Federal tax case therefore requires us to

closely examine the divorce law of Tennessee, the State where

Rogers wed, divorced, remarried, and resided when he filed the

petition in this case.

                            Background

     Rogers’ first wife sued him for divorce in 1991 and quickly

moved to get alimony pendente lite.    In July 1991, the Tennessee

Circuit Court handling her case ordered Rogers to pay $225 per

week while the case was pending.   The order specifically provided

that the “payments are to be made directly from the ABC Insurance

Center to the plaintiff.   The entire amount paid by ABC Insurance

Center shall be taxable income to the defendant.”

     The estranged couple soon negotiated a Marital Dissolution

Agreement, which was adopted by the Circuit Court as part of its

final decree granting the divorce in March 1992.    The Dissolution

Agreement continued Rogers’ weekly obligation:

          The Husband shall pay as lump sum alimony to
          the Wife in installments two hundred twenty-
          five and no/100ths ($225.00) dollars per
          week, beginning immediately, and continuing


     1
       Paul Rogers’ second wife, Judy, is a petitioner only
because she filed a joint return with him for the 2000 tax year.
All references to “Rogers” are to him alone.
                          - 3 -

           each week hereafter through July, 2002. Said
           alimony payments shall be received by the
           Wife directly from Husband’s payment from the
           ABC Insurance Center. Should the Husband die
           prior to the full payment of this alimony,
           the Wife shall continue to receive said
           payment directly from ABC Insurance Center
           through the term of the contract.

The Circuit Court issued an Agreed Final Decree in September 1992

which changed some provisions in the original Dissolution

Agreement--mostly those dividing marital property--but left

intact the paragraph requiring Rogers to pay $225/week through

July 2002.

     The parties stipulated all the facts, including the fact

that the payments continued to be made throughout 2000, and the

case was submitted for decision under Rule 122.2

                            Discussion

     Payments incident to a divorce traditionally fell into one

of two categories for Federal tax law:   property settlements or

alimony.   Property settlements are a division of marital

property, and for many years have been neither deductible from

the income of the paying spouse nor includible in the income of

the receiving spouse.   Alimony is a division of income, and for

many years has been deductible by the paying spouse and

includible by the receiving spouse.   See, e.g., Yoakum v.


     2
       All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code as in effect for 2000, unless otherwise noted.
                               - 4 -

Commissioner, 82 T.C. 128, 134 (1984).

     Sections 215 and 71 of the Code are where these general

principles take specific shape in the current Code.    Section 215,

which allows a deduction for alimony paid, defines “alimony” as a

payment that meets the four tests spelled out in section 71(b).

One of these is section 71(b)(1)(D), which requires that “there

[be] no liability to make any such payment for any period after

the death of the payee spouse.”3   Sec. 71(b)(1)(D).   Limiting

deductibility to obligations that end with the death of the payee

stops taxpayers from disguising property settlements as alimony.

But one recurring problem has been how to tell whether a

particular obligation to pay alimony really would stop at death.

For a time, the Code had a strict bright-line test:

deductibility was denied unless there was an express provision in

the divorce decree or separation instrument itself ending

payments upon the death of the payee spouse.   26 U.S.C. sec.

71(b)(1)(D) (1984).   In 1986, though, Congress softened section

71(b) to allow deductibility without such an express provision,

but only if state law would end the obligation at death anyway.



     3
       We note that under sec. 1.71-1T(b) A-5, Temporary Income
Tax Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984), “Transfers of
services or property (including a debt instrument of a third
party or an annuity contract) * * * do not qualify as alimony or
separate maintenance payments.” The parties never addressed
whether weekly payments made from an insurance company to a
former wife fall within this exclusion, and neither do we.
                                 - 5 -

     The first difficulty in this area of law is that different

states define “alimony” differently--in some states it means what

it does in Federal tax law, but in others it can mean something

quite different.   See, e.g., Hoover v. Commissioner, T.C. Memo.

1995-183 (1995), (Ohio using “alimony” to mean both property

settlements and periodic support payments), affd. 102 F.3d 842

(6th Cir. 1996).   And the dichotomy between property settlements

and alimony that tax law draws--grows steadily murkier as

different types of post-divorce payments proliferate.    Tennessee

divorce law, for example, used to classify all alimony as either

in solido (roughly equivalent to property settlements) or in

futuro (roughly equivalent to section 71 alimony).   Bryan v.

Leach, 85 S.W.3d 136, 145 (Tenn. Ct. App. 2001).   Then, in 1984,

the Tennessee legislature created “rehabilitative alimony,”

explaining in the new statute:

          It is the intent of the general assembly
          that a spouse who is economically
          disadvantaged, relative to the other spouse,
          be rehabilitated whenever possible by the
          granting of an order for payment of
          rehabilitative, temporary support and
          maintenance. * * *

Acts 1984, ch. 818, secs. 1-3, codified in Tenn. Code Ann. sec.

36-5-101(d)(1) (2001 & Supp. 2004); see also Cranford v.

Cranford, 772 S.W.2d 48, 50-51 (Tenn. Ct. App. 1989), revd. on

other grounds at Bogan v. Bogan, 60 S.W.3d 721 (Tenn. 2001);

Gotten v. Gotten, 748 S.W.2d 430 (Tenn. Ct. App. 1987).
                               - 6 -

     It is unsurprising, then, that the parties in this case

fight their battle as one of classification--the Commissioner

argues that the disputed payments are alimony in solido, see

Towner v. Towner, 858 S.W.2d 888, 891 (Tenn. 1993), that the

obligation to pay alimony in solido does not end with the death

of the payee spouse under Tennessee law, and that the payments

are thus just part of the nondeductible property settlement

between the Rogers.   Rogers insists that the payments are

rehabilitative alimony, and so would end at his former wife’s

death by the express command of Tennessee law that

“rehabilitative support and maintenance shall terminate upon the

death of the recipient.”   Tenn. Code Ann. sec. 36-5-101(d)(2).

     We disagree at the outset with Rogers on this point.      The

section he cites became part of Tennessee law in 1993, after the

divorce proceedings between him and his former wife were

complete.   1993 Tenn. Pub. Acts 243.   Under Tennessee law,

substantive changes in divorce law will not affect divorces that

occur before the enactment of the law.    Waddey v. Waddey, 6

S.W.3d 230, 232 n.1. (Tenn. 1999); Bryan v. Leach, 85 S.W.3d 136,

143 (Tenn. Ct. App. 2001).   So we must refine our analysis to try

to determine what a Tennessee court would do under the law in

effect in 1992.

     Under the law as it stood before the 1993 amendment,

however, it was less than clear whether the legislature had made
                               - 7 -

rehabilitation a new goal of existing forms of alimony or made a

new form of alimony called “rehabilitative”.   Then, in the early

1990s, the Tennessee Supreme Court held in a pair of cases that

Tennessee still recognized only two forms of alimony--in solido

and in futuro.   In Isbell v. Isbell, 816 S.W.2d 735 (Tenn. 1991),

the Court created a default rule of construction for awards of

rehabilitative alimony like the one at issue in this case:

           But where the rehabilitative award has been
           made for a fixed amount, the award must be
           considered non-modifiable, even if it is to
           be paid in installments and not in a lump
           sum. The certainty that results from such a
           rule benefits both parties, allowing each to
           make long-range financial plans for their own
           futures and for the future of any children
           affected * * *.

Id. at 739.4

     Shortly after Isbell, the Court decided Self v. Self, 861

S.W.2d 360 (Tenn. 1993).   Self also arose from an order to pay a

fixed sum for a fixed term, in this case $3,000 per month for 48

months.   The trial court that ordered these payments explicitly

stated that it meant then to allow Mrs. Self to become

financially independent:

           the wife is both capable of and entitled to


     4
       The Court did emphasize that this was only a default rule
--carefully observing that a trial court could place conditions
on the award of rehabilitative alimony or ensure that the default
rule wouldn’t apply by not making the award for a sum certain.
Isbell, 816 S.W.2d at 739 n.1. It also noted that the parties
themselves could impose conditions on rehabilitative alimony by
their own agreement. Id. at 739.
                          - 8 -

           rehabilitation * * * [t]his will, if Mrs.
           Self desires, allow support for her in an
           amount sufficient to allow her to be self
           supporting and obtain a Bachelor’s Degree in
           a field of her choosing. The Court feels
           that * * * she should be rehabilitated to
           such an extent that she can be gainfully
           employed and after four years take her place
           in the economic market place. * * *

Id.   On these facts, Mrs. Self had a strong argument that the

payments--fixed in amount and term--were rehabilitative alimony:

The Court had made a specific finding that she was capable of

rehabilitation and fixed the payments to pay for rehabilitation.

Unlike the Rogers’ case, moreover, the trial court’s order in

Self expressly stated that the payments would cease upon Mrs.

Self’s death or remarriage.   Then, four years after the trial

court entered its order, Mrs. Self moved to keep the alimony

payments coming because, despite a good faith effort, she had yet

to be rehabilitated.   The trial court dismissed her petition,

holding that it lacked jurisdiction because rehabilitative

alimony was a form of alimony in solido, and alimony in solido is

unmodifiable under Tennessee law.   See McKee v. McKee, 655 S.W.2d

164, 165 (Tenn. Ct. App. 1983).

      The Tennessee Supreme Court agreed.   It reasoned that

           [t]he critical factor in determining whether
           an award for the support and maintenance of a
           former spouse is subject to modification is
           the initial finding by the trial court
           regarding the relative economic conditions of
           the parties and the feasibility of
           rehabilitation of the disadvantaged spouse.
                                - 9 -

Self, 861 S.W.2d at 361.   The Court explained that under

Tennessee law, the only situation justifying long-term support

and maintenance would be where there was economic disadvantage to

one of the parties and rehabilitation was “not feasible.”    Thus,

the trial court’s finding that Mrs. Self was eligible for

rehabilitation precluded the awarding of open-ended, long-term

support in the form of alimony in futuro.     Thus the Court found

the alimony in Self to be unmodifiable.     See also Campbell v.

Campbell, 832 S.W.2d 31, 32 (Tenn. Ct. App. 1991) (unmodifiable

even if rehabilitation prevented by onset of serious illness).

     Isbell and Self indicate that, for a 1992 divorce, alimony

like the payments here--fixed in amount and for a definite term--

would be classified as alimony in solido even if made with a

rehabilitative purpose.    And, as a general rule, an obligation to

pay alimony in solido does not end with the death of the payee

spouse.   Isbell, 816 S.W.2d at 739.    Applying this general rule

to the stipulated facts of this case strongly suggests that even

if Rogers is right in characterizing the disputed payments as

rehabilitative alimony, he would still lose because that would

just make them alimony in solido.

     The discerning reader, though, would have noted that this

characterization is true only as a default rule--in Self itself,

the Court ordered the payments to stop on the death of Mrs. Self.

And the parties here argue about whether a similar intent can be
                                - 10 -

found in the Rogers’ Dissolution Agreement and Final Decree.

     The general rule in Tennessee is that a divorce decree is to

be construed like other written instruments.   And this means that

the parol evidence rule applies:

           The general rules of evidence regarding the
           admission of parol evidence and the
           construction of written instruments also
           apply to the admission of parol evidence in
           the construction of a divorce decree. The
           test as to the application of the parol
           evidence rule is whether the testimony as to
           oral agreements or negotiations varies or
           contradicts the instrument in question or
           merely explains it.

Hale v. Hale, 838 S.W.2d 206, 208-209 (Tenn. Ct. App. 1992)

(internal citations omitted).

     The instruments we are construing would have benefited from

an explanation.   The testimony of Rogers or his former wife or

anyone else familiar with the original divorce proceeding, and

the production of her tax returns or the ABC Insurance Center

contract would have gone far in establishing the intent of the

parties.   But as the record currently stands, we are forced to

draw inferences from the stipulations and documents that have

been submitted by the parties.    (There is correspondence in the

record between Rogers and respondent's counsel asserting that

Rogers' ex-wife included the payments as income on her own

return, but this is at most hearsay, and has at most an

attenuated connection to what the Rogers intended would happen if

Rogers' ex-wife died, see Cunningham v. Commissioner, T.C. Memo.
                              - 11 -

1999-474.)

     We begin, as do the parties, with the language of the order

pendente lite.   For Rogers, this order’s language supports his

position that the Circuit Court recognized that his ex-wife was

in a position of relative financial disadvantage.   She had spent

her entire adult life as a housewife reliant upon his income, and

at age 52 was ten years too young to collect Social Security.     He

argues that the weekly payments could only have been justified

under Tennessee law if the Circuit Court judge found them to be

needed for support and maintenance of a financially struggling

spouse.   1 Tenn. Jur. Divorce & Alimony § 35 (2003).   He then

asks us to infer that when this temporary obligation was

continued in the final decree it reflected an implicit finding by

the Circuit Court that his ex-wife would continue to be

economically disadvantaged.   He implies that we should reason

from this that the Rogers intended the rehabilitative alimony in

this case be classified as alimony in futuro--the sort of alimony

that in 1992 Tennessee would stop at the death of the payee

spouse.

     We disagree, and side with the Commissioner on this point.

The better conclusion from the evidence at hand is that the

alimony here wasn’t even intended to be rehabilitative.    The

Commissioner emphasizes language added in the Dissolution

Agreement and Final Decree that refers to the weekly payments as
                               - 12 -

"lump sum alimony."    According to him, "lump sum alimony" is a

synonym in Tennessee law for alimony in solido.     And while Rogers

is right that the labels that divorced couples attach to their

payments are not determinative, Bowers v. Bowers, 1997 WL 530771

(Tenn. Ct. App., Aug 28, 1997), they are at least evidence of a

couple’s intent, Cunningham, T.C. Memo. 1999-474.

     We also find support in the sentence in the order granting

alimony pendente lite that states that the $225/week would be

taxable to Rogers.    When read together with the description in

the Dissolution Agreement of the payments as to be received

directly from ABC Insurance Center through the term of the

contract, this does look more like an assignment of income from

property (i.e., the contract with ABC Insurance Center) that in

some way remained Rogers’.    This undermines Rogers’ argument that

the pendente lite award necessarily indicates the Circuit Court

had in mind an award of rehabilitative alimony--to the contrary,

it suggests that the trial court in the divorce proceeding viewed

the award as a division of property.    It is true that the clause

stating the payments would be taxable to Rogers is not in the

final decree, but even if we infer from the deletion of that

language that they were intended to be taxable to his ex-wife, we

can still find no clear intent regarding what would happen had

she died.
                             - 13 -

      We therefore conclude that the payments at issue do not

satisfy the requirement of section 71(b)(1)(D).   They are

therefore nondeductible under section 215.

                              Decision will be entered

                         for Respondent.
