                   T.C. Memo. 2006-105



                  UNITED STATES TAX COURT



CAROL A. JOHANSON AND ALFRED F. MELZIG, JR., Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



 Docket No.   2490-05.             Filed May 15, 2006.



      C and J entered into a Marital Settlement
 Agreement in connection with a divorce terminating
 their marriage, which was characterized as a marriage
 of long duration under California law. Cal. Fam. Law
 Code sec. 4336 (West 2004). The Agreement provided
 that J would make monthly spousal support payments of
 $5,250 each from a date specified in the Agreement
 through October 31, 2010. The Agreement contained no
 provision regarding continuation or termination of the
 payments in the event of C’s death before November 1,
 2010. The Cal. Fam. Law Code, sec. 4337, provides that
 in the absence of an agreement in writing, support
 payments terminate upon the death of the payee spouse.
 Sec. 71(b)(1)(D), I.R.C., provides that to constitute
 alimony or separate maintenance payments, there must be
 no liability to make any such payment for any period
 after the death of the payee spouse.
                               - 2 -

          Held: Since J has no liability to make payments
     after the death of C, the periodic payments to C
     constitute gross income includable as alimony payments
     under sec. 71, I.R.C. They are therefore taxable to C.


     Marjorie A. O’Connell, for petitioners.

     Jeffrey E. Gold and Ann M. Welhalf, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     NIMS, Judge:   By deficiency notice dated November 10, 2004,

respondent determined a deficiency in petitioners’ income tax for

2002 in the amount of $20,475, and a penalty under section

6662(a) and (b)(1) in the amount of $4,095.    Unless otherwise

indicated, all section references are to sections of the Internal

Revenue Code in effect for all relevant times hereunder.    Rule

references are to Rules contained in the Tax Court Rules of

Practice and Procedure.

     Respondent concedes the aforementioned penalty.

Consequently, the only issue remaining for decision is whether

the payments totaling $63,000 which petitioner Carol A. Johanson

(petitioner or Carol) received in 2002 from her former spouse,

John Weiler (John), are taxable as alimony under section 71.

     Petitioners resided in California when they filed their

petition.
                              - 3 -

                         FINDINGS OF FACT

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

     Petitioner and John (the Parties) were married on February

18, 1966, and separated on or about November 11, 1995.   At the

time of the separation, the Parties had one minor child, Seth

Weiler, born May 14, 1980.

     On December 15, 1995, the Parties each filed a petition in

the Superior Court of California, County of Santa Clara, for

dissolution of the marriage, which actions were then

consolidated.

     The Parties subsequently executed a Marital Settlement

Agreement (Agreement), and the Superior Court thereafter, on

August 12, 1996, entered a Judgment of Dissolution approving and

incorporating by reference the Agreement.   The Agreement recited

that it was to be subject to and interpreted under the laws of

California.

     As required by the Agreement, John made payments to

petitioner totaling $63,000 as “spousal support” in 2002.

     The purpose of the Agreement is stated to be “to make a

final and complete settlement of all rights and obligations

arising out of our marital relationship”.   Among other things,

the Agreement provides
                                - 4 -

     --“[t]hat the terms of this Agreement constitute a fair and

equal division of the assets and debts and that neither party

owes an equalization payment to the other”.

     --carefully spelled out arrangements for child custody and

support.    These arrangements are separate and apart from the

provisions for spousal support, see infra.

     --that John would receive all of the stock of Sea Supreme,

Inc., a company in which the Parties owned a 50-percent interest,

and would hold Carol harmless from its debts and obligations.

Carol agreed with John’s valuation “in the vicinity of $1.2

million”.

     --Detailed provisions for spousal support.

     The provisions for spousal support are as follows:

                        IV.   SPOUSAL SUPPORT

          25. Each party is aware of the right of each
     party to receive spousal support from the other party
     based upon the relative income and needs of the parties
     and the duration of the marriage.

          26. Both parties are aware that this marriage is
     one considered and characterized as a marriage of long
     duration. As a result, certain responsibilities for
     support may exist between the parties for some unknown
     length of time after separation and after a dissolution
     is entered unless both parties freely and voluntarily
     waive their rights to support and agree to the
     termination of the courts [sic] jurisdiction over the
     issue of spousal support. Once this waiver and
     agreement is entered, it is non-reversible and may work
     a considerable hardship on either one or both of the
     parties.

          26. Being aware of the above, the court will
     retain jurisdiction over John’s right to collect
                         - 5 -

spousal support from Carol until May 31, 2011 at which
time his right to collect such support shall
permanently terminate. This termination date is
absolute and non-modifiable under any circumstances.

     27. Being aware of the above, John agrees to pay
spousal support to Carol in the amount of $5,250.00 per
month beginning the first month following the sale of
the residence (close of escrow). Spousal support shall
be due, one-half on the first of each and every month
and one-half on the 15th of each and every month.
Spousal support shall continue at this amount through
October 31, 2010 at which time Carol’s right to collect
spousal support from John will permanently terminate.
This termination date is absolute and non-modifiable
under any circumstances. Spousal support shall be
payable by wage assignment which shall be issued along
with the entry of the agreement as a Judgment. Service
of the wage assignment is stayed unless and until John
is ten (10) days or more late with any support payment.
In the event John is ever ten (10) days or more late
with any support payment, the wage assignment shall be
served with no further notice to John.

     28. The duration of spousal support is non-
modifiable and the court will not have jurisdiction to
modify the length of time John will pay spousal support
to Carol. Specifically, the court does not have
jurisdiction to award any spousal support payable from
John to Carol for any period beyond October 31, 2010,
regardless of the circumstances that may arise and
regardless of whether any motion to modify spousal
support is filed before, on or after October 31, 2010.
The court also does not have jurisdiction to modify the
amount of spousal support payable from John to Carol
except for two circumstances, John’s death, prolonged
unemployment or John’s disability. Upon John’s death,
spousal support will terminate permanently. Upon
John’s prolonged unemployment, the court has the
jurisdiction to lower the amount of support for the
length of the unemployment provided appropriate efforts
are being made by John to find employment. Upon John’s
disability, the court has the jurisdiction to lower the
amount of support for the length of the disability.
Disability is defined as the inability to pursue an
occupation because of physical or mental impairment.
If such a modification is sought by John and ordered by
the court, the court may increase or decrease the
                                - 6 -

     amount of support as the circumstances warrant but
     under no circumstances does the court have the
     jurisdiction or the authority to raise spousal support
     over the amount of $5,250.00 per month.

     MEDICAL INSURANCE

          29. Carol acknowledges that she is responsible
     from [sic] her own medical insurance and expenses
     * * *.

                               OPINION

     This case is another chapter in the long saga of cases

decided by this Court involving the failure of parties to divorce

settlement agreements to specify what happens to payments should

the payee-spouse die.    See, e.g., Berry v. Commissioner, T.C.

Memo. 2005-91; Kean v. Commissioner, T.C. Memo. 2003-163, affd.

407 F.3d 186 (3d Cir. 2005); Hoover v. Commissioner, T.C. Memo.

1995-183, affd. 102 F.3d 842 (6th Cir. 1996).    By failing to so

specify, the divorce litigants simply abdicate making a serious

financial decision that others may then make for them, as here.

     John and Carol both testified in this case, and,

unsurprisingly, their testimony was contradictory on most points.

The testimony of the respective Parties was, for the most part,

aimed at supporting, explaining, or modifying the express terms

of the Agreement.   Consequently, we base our decision solely on

the terms of the Agreement itself, rather than on any extrinsic

evidence proffered by the Parties’ testimony.
                                 - 7 -

     We must decide whether payments from John to Carol, in 2002,

totaling $63,000, were alimony, a property settlement

installment, or part of a guaranteed stream of payments for a

fixed term to Carol or her estate.       In the Agreement, the

payments were specifically denominated “spousal support”.

     Alimony or separate maintenance payments are taxable to the

recipient (section 71(a)) and deductible by the payor (section

215(a)), so the proper characterization of the payments is very

significant.    The correct tax treatment of any other type of

payments, periodic or otherwise, is not at issue here.

     Alimony or separate maintenance payments are defined in

section 71(b), which provides:

     SEC. 71.   ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.

          (a)    General Rule.   * * *

          (b) Alimony or Separate Maintenance Payments
     Defined.--For purposes of this section--

               (1) In general.--The term ‘alimony or
          separate maintenance payment’ means 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
                                 - 8 -

                  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.

     The parties agree that the requirements of section

71(b)(1)(A), (B), and (C) have been met.    They disagree as to

whether section 71(b)(1)(D) has been met.    That subparagraph

requires that the payor spouse have no liability to make any

payment for any period after the death of the payee spouse, or to

make any substitute therefor after the death of the payee spouse.

     Cal. Fam. Law Code sec. 4337 (West 2004) provides:

     Sec. 4337.    Termination of support order; death;
                   remarriage

          Except as otherwise agreed by the parties in
     writing, the obligation of a party under an order for
     the support of the other party terminates upon the
     death of either party or the remarriage of the other
     party.

     While the Parties made specific provision in the Agreement

for termination or modification of spousal support in the event

of John’s death, or prolonged unemployment or disability, they

made no provision regarding termination of support payments in

the event of Carol’s death.    Consequently, the California statute

will apply should she die before November 1, 2010.    The support
                               - 9 -

obligation of John under the Agreement, which, as previously

stated, was incorporated by reference into the Superior Court’s

Judgment of Dissolution, will terminate under the California

statute if Carol dies during the term of his obligation.

     Payments which are a property settlement are not taxable to

the recipient under section 71.   Hoover v. Commissioner, T.C.

Memo. 1995-183, affd. 102 F.3d 842 (6th Cir. 1996).   Petitioner

seeks to convince us that “this stream of cash payments, totaling

nearly $900,000, payable in 181 monthly installments, was for

* * * [Carol’s] 25 percent ownership interest in * * * Sea

Supreme”.

     There is nothing in the Agreement that remotely connects the

$5,250 monthly spousal support payments to Carol to her interest

in Sea Supreme.   The Agreement recites that John estimated the

value of Sea Supreme to be “in the vicinity of $1.2 million”, and

that “Carol agrees with this valuation”.   Since, previous to the

divorce, Carol owned 25 percent of Sea Supreme, the value of her

interest would be in the neighborhood of $300,000, a far cry from

the total support payments Carol expected to receive under the

Agreement.

     The Agreement recites, under “EQUALIZATION PROVISION”, that

“the Parties agree that the terms of this agreement constitute a

fair and equal division of the assets and debts and that neither

party owes an equalization payment to the other”.   The Agreement
                               - 10 -

contains a careful division of the marital assets, including an

agreement that John would receive “all of the stock in * * * [Sea

Supreme] as his sole and separate property”.      It would be

illogical to suppose that the Parties intended the spousal

support payments to Carol to be a disguised form of property

payments.

     The Agreement recites that “Each party is aware of the right

of each party to receive spousal support from the other party

based upon the relative income and needs of the parties and the

duration of the marriage”.    (There is a presumption under

California law that a marriage of 10 years or more is a marriage

of “long duration”.   Cal. Fam. Law Code sec. 4336 (West 2004).)

The Agreement contains under SPOUSAL SUPPORT a carefully detailed

spelling out of the Parties’ respective rights and obligations

with regard to spousal support.    There is nothing in the

Agreement that would lead one to conclude, either by express

statement or inferentially, that the payments in question are

intended as anything other than support payments.

     By the same token there is nothing in the Agreement to

suggest that John’s payments to Carol are periodic installments

on an overall lump-sum obligation.      No lump-sum amount is

referred to anywhere in the Agreement, nor is there any basis for

inferring that such exists.    We therefore reject petitioner’s

arguments on this point.
                              - 11 -

     The parties dispute whether the burden of proof in this case

has been shifted to respondent pursuant to section 7491.    Section

7491(a) imposes the burden of proof on respondent if the taxpayer

introduces credible evidence with respect to any factual issue

and complies with the requirements of section 7491(a)(2)(A) and

(B) to substantiate all items at issue, maintain required

records, and cooperate with reasonable requests of respondent.

We find it unnecessary to decide whether petitioners have met the

prerequisites of section 7491(a), because the record in this case

is not evenly weighted and the resolution of the issues in

controversy does not depend upon which party bears the burden of

proof.   We render a decision on the preponderance of the evidence

in the record.   See, generally, Higbee v. Commissioner, 116 T.C.

438 (2001); Goode v. Commissioner, T.C. Memo. 2006-48.

     We hold that the spousal support payments by John to Carol

constitute alimony under section 71, since there is no liability

on John’s part to make any such payment for any period after the

death of Carol, the payee spouse, as provided by section

71(b)(1)(D).

     To give effect to the foregoing,


                                    Decision will be entered

                               under Rule 155.
