                  T.C. Summary Opinion 2011-75



                     UNITED STATES TAX COURT



          MARTIN FRANCIS GROSJEAN, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3426-10S.              Filed June 27, 2011.



     Howard O. Bernstein and Arlene M. Cress French, for

petitioner.1

     Michael T. Garrett, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in




     1
        Mr. Bernstein and Ms. French entered their appearances
after this case had been tried and then filed a brief on
petitioner’s behalf.
                               - 2 -

effect when the petition was filed.2     Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined a deficiency in petitioner’s Federal

income tax for 2007 of $14,241 and an accuracy-related penalty

under section 6662(a) and (b)(1) of $2,848.3     The deficiency

stems from the disallowance of a deduction for alimony paid.

After a concession by respondent,4 the sole issue for decision is

whether petitioner properly deducted a $50,000 mortgage principal

reduction payment (the $50,000 payment) as alimony paid to his

ex-wife in 2007.

                            Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.

     At the time the petition was filed, petitioner resided in

Colorado.




     2
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
     3
         All dollar amounts are rounded to the nearest dollar.
     4
        Respondent concedes the accuracy-related penalty under
sec. 6662(a).
                                - 3 -

     Petitioner and Manju Nilsson Grosjean (Ms. Grosjean), were

married in June 1997.    Shortly thereafter petitioner and Ms.

Grosjean jointly purchased a home subject to a mortgage.

Petitioner and Ms. Grosjean had two children together:    twin sons

born in 1998.

     After separating in August 2002, petitioner and Ms. Grosjean

were divorced in March 2003.    Petitioner and Ms. Grosjean entered

into a Separation Agreement (the agreement), which was attached

to the divorce decree.    With respect to alimony, and as relevant

herein, the agreement states:

          1.2. Martin and Manju hereby state that the
     purpose of a maintenance award is to enable Manju to
     stay in the marital home with the minor children. The
     goal of the support payment is to enable Manju with the
     maintenance payment and the child support payment to
     pay the house payment and meet the child care expenses.
     Martin agrees to provide enough funds to Manju, as
     contractual, non-modifiable maintenance, to enable
     Manju to meet the mortgage payment on the present
     marital home. Martin further agrees as and for child
     support to minimally meet the child care expenses for
     the two minor children. Martin agrees to pay
     maintenance to Manju until the children reach the age
     of 19 years of age or are otherwise emancipated. To
     accomplish this goal, Martin agrees to pay to Manju as
     maintenance the sum of $2,333.46 per month which
     represents the house payment on the present mortgage on
     the marital home * * *.

The agreement states that the maintenance ceases, inter alia,

upon Ms. Grosjean’s death or if the children are no longer living

with Ms. Grosjean and that the maintenance payments are

deductible by petitioner pursuant to sections 71 and 215.    The

agreement further states that Ms. Grosjean will refinance the
                                - 4 -

home within 5 years of signing the agreement and have

petitioner’s name eliminated from the loan, but that petitioner

will continue to make the mortgage payment on the refinanced

mortgage.   The agreement also provides for a proportional

reduction of maintenance with any increase in Ms. Grosjean’s

income, but states that maintenance is contractual and may not be

modified by any court for any reason.   Finally, the agreement

provides for monthly child support of $2,436, which amount may be

modified by petitioner and Ms. Grosjean as needed.

     During 2007, petitioner made all of the monthly mortgage

payments on the marital home for a total of $29,583.    That same

year Ms. Grosjean informed petitioner that she was unable to

fulfill her obligation to refinance the mortgage because she

“could not qualify for a mortgage at the principal level”.

Petitioner and Ms. Grosjean orally agreed that petitioner would

make the $50,000 payment so that Ms. Grosjean could qualify to

refinance the mortgage.    As a result, petitioner made the $50,000

payment in October 2007.

     On his 2007 Federal income tax return, petitioner claimed an

alimony deduction of $79,583 for the amounts paid on the mortgage

in 2007.    Although petitioner advised Ms. Grosjean to include the

$50,000 payment in her income as alimony, she did not do so;
                              - 5 -

rather, she reported receiving $29,582 as alimony payments on her

2007 Federal income tax return.5

     In an Arbitration Award dated March 15, 2010, the arbitrator

found that the $50,000 payment was maintenance and not child

support.

     In a notice of deficiency respondent determined that the

$50,000 payment was not alimony and therefore disallowed the

claimed deduction to that extent.   Respondent also determined

that petitioner was liable for the accuracy-related penalty based

on negligence or disregard of rules or regulations.

                           Discussion6

     Section 215(a) allows a deduction for alimony payments paid

during the payor’s taxable year.    Alimony means any “payment (as

defined in section 71(b)) which is includible in the gross income

of the recipient under section 71.”   Sec. 215(b).    An alimony

payment is defined as any payment in cash that satisfies the four

requirements listed under section 71(b)(1).   The first such

requirement is that the payment be received by or on behalf of a




     5
        Ms. Grosjean rounded down the amount of mortgage payments
received. The difference is not at issue in this case.
     6
        The issue for decision under these facts is essentially
legal in nature; therefore, we decide this case without regard to
the burden of proof.
                               - 6 -

spouse under a divorce or separation instrument.7    Sec. 71(b)(1)(A).

     Section 71(b)(2) defines a divorce or separation instrument

as a decree of divorce or a written instrument incident to such a

decree, a written separation agreement, or a decree requiring a

spouse to make payments for the support or maintenance of the

other spouse.   A divorce or separation agreement must be made in

writing.   Herring v. Commissioner, 66 T.C. 308, 311 (1976);

Leventhal v. Commissioner, T.C. Memo. 2000-92; Ellis v.

Commissioner, T.C. Memo. 1990-456.     A payment made pursuant to an

oral agreement is not a payment made pursuant to a divorce or

separation instrument unless there is some type of written

instrument memorializing the agreement.     Herring v. Commissioner,

supra at 311; Osterbauer v. Commissioner, T.C. Memo. 1982-266.

     Although a payment may be made pursuant to a divorce or

separation instrument, section 71(c)(1) provides that alimony

does not include payments fixed by a divorce instrument that are

payable for the support of children of the payor spouse.    A



     7
        In addition to requiring that payments be received by or
on behalf of a spouse under a divorce or separation instrument,
sec. 71(b)(1) generally requires that: (1) The divorce or
separation instrument not designate a payment as one that is not
includable in gross income under sec. 71 and not allowable as a
deduction under sec. 215; (2) the payee spouse and the payor
spouse must not be members of the same household at the time the
payments are made; and (3) there be no liability to make payments
for any period after the death of the payee spouse. Respondent
does not dispute that these requirements have been met.
                                - 7 -

payment is treated as payable for the support of the children of

the payor spouse if the amount of the payment will be reduced on

the happening of a contingency specified in the divorce

instrument relating to a child, such as attaining a specific age,

marrying, dying, leaving school, or other similar contingency.

See sec. 71(c)(2)(A); see also sec. 1.71-1T(c), Q&A-17, Temporary

Income Tax Regs., 49 Fed. Reg. 34456 (Aug. 31, 1984).

     Respondent argues that the $50,000 payment is not alimony

because it was not made pursuant to a divorce or separation

instrument.    Respondent further argues that even if the $50,000

payment were made pursuant to the agreement, the $50,000 payment

is not deductible as alimony because petitioner’s maintenance

payments under the agreement are tied to conditions related to

petitioner’s twin sons.8

     Petitioner contends that the $50,000 payment is deductible

as alimony under the agreement and the arbitration award.

     It is well settled that labels assigned to payments by the

parties or a divorce court are not determinative for Federal

income tax purposes.    Beard v. Commissioner, 77 T.C. 1275, 1283-

1284 (1981).   Moreover, State court adjudications retroactively


     8
        Although it is respondent’s position that sec. 71(c)(2)
and the conditions in the agreement preclude petitioner from
deducting the $50,000 payment and that such argument is equally
applicable to the remaining portion of petitioner’s deduction for
alimony, respondent did not contest at trial or on brief the
$29,583 in monthly mortgage payments allowed in the notice of
deficiency.
                               - 8 -

designating payments as alimony and not child support (or vice

versa) are generally disregarded for Federal income tax purposes.

See Gordon v. Commissioner, 70 T.C. 525, 530 (1978).     Thus, we

disregard the retroactive designation by the arbitration award,

and it is the express terms of the agreement that dictate the

Federal income tax consequences of the $50,000 payment.

     It appears that the $50,000 payment was made pursuant to an

oral agreement between petitioner and Ms. Grosjean in order to

facilitate the refinance of the home mortgage.    Therefore, it

would appear that the $50,000 payment was not made under a

divorce or separation instrument as required by section

71(b)(1)(A).

     But even if the $50,000 payment was a maintenance payment

made pursuant to the agreement as required in section

71(b)(1)(A), the agreement contains an explicit contingency

related to the children with respect to the maintenance payments;

i.e., petitioner agrees to pay maintenance to Ms. Grosjean “until

the children reach the age of 19 years of age or are otherwise

emancipated.”   See sec. 1.71-1T(c), Q&A-16, Temporary Income Tax

Regs., supra.   The existence of the contingency triggers the

application of section 71(c)(1) and makes petitioner’s

maintenance payments not deductible under section 215.    See,

e.g., Hammond v. Commissioner, T.C. Memo. 1998-53; Fosberg v.

Commissioner, T.C. Memo. 1992-713.     Therefore, even if the
                                 - 9 -

$50,000 payment were considered a maintenance payment made

pursuant to a divorce or separation instrument, it would not be

deductible.   See sec. 71(c)(2)(A).

     Accordingly, we hold that petitioner is not entitled to

deduct as alimony the $50,000 payment made in 2007.

                            Conclusion

     We have considered all of the arguments made by petitioner,

and, to the extent that we have not specifically addressed them,

we conclude that they do not support a holding contrary to that

reached herein.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent as to the

                                         deficiency in tax and for

                                         petitioner as to the accuracy-

                                         related penalty.
