                        T.C. Memo. 2000-85



                      UNITED STATES TAX COURT



                  MARY K. HECKAMAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5829-99.                   Filed March 13, 2000.



     John J. Wernet, for petitioner.

     Angela J. Kennedy, for respondent.



                        MEMORANDUM OPINION


     ARMEN, Special Trial Judge:     Respondent determined a

deficiency in petitioner's Federal income tax for the taxable

year 1995 in the amount of $5,970.    After a concession by

respondent,1 the issue for decision is whether certain payments


     1
         Respondent concedes that petitioner is entitled to a
                                                    (continued...)
                               - 2 -


received by petitioner are includable in her gross income as

alimony under section 71.2   We hold that they are.

Background

     This case was submitted fully stipulated under Rule 122, and

the facts stipulated are so found.     Petitioner resided in

Chicago, Illinois, at the time that her petition was filed with

the Court.

     Petitioner and her ex-husband, James D. Heckaman (Mr.

Heckaman), were separated on February 14, 1995.     Petitioner and

Mr. Heckaman filed for divorce in the Whitley Circuit Court of

Whitley County, Indiana, (the Divorce Court) later that year.

Petitioner has not resided in the same household as Mr. Heckaman

since their separation.   Petitioner was divorced in 1997.

     In August 1995, the Divorce Court issued its “Findings of

Fact and Conclusions of Law for Preliminary Orders” (the

provisional order) in the divorce proceeding involving petitioner

and Mr. Heckaman.   The provisional order provided as follows:

          Maintenance and Indebtedness. [Petitioner] is
     entitled to receive maintenance during the pendency of
     this action retroactive to the date of the filing of


     1
      (...continued)
dependency exemption for her daughter, Rebecca Heckaman.
     2
        Except as otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All amounts are rounded to the nearest
dollar.
                              - 3 -


     the Petition for Dissolution of Marriage. The Court
     finds that [Mr. Heckaman] has paid $6,000.00 per month
     through the date of the hearing in this matter and that
     he is current in his maintenance and support obligation
     through July 7, 1995.

          The Court further determines that beginning August
     15, 1995, through the pendency of this action, or until
     the marital residence is sold, whichever first occurs,
     that [Mr. Heckaman] shall pay an amount of maintenance
     in the sum of $800.00 per week.

          *    *    *    *    *       *   *

          [Mr. Heckaman] shall maintain in full force and
     effect the medical insurance for the family, all life
     insurance and disability insurance for himself and the
     family, automobile and home insurance for the family
     pending further Order of the Court. The Court will
     defer until final hearing the ultimate responsibility
     for said expenses.

          *    *    *    *    *       *   *

          [Mr. Heckaman] shall reimburse [petitioner] for
     all sums advanced by her for her Ivy Tech tuition,
     books, and fees dating from her enrollment in January,
     1995. Reimbursement to [petitioner] shall occur for
     all sums presently due and owing within 30 days of this
     Order. [Mr. Heckaman] shall reimburse [petitioner]
     within 14 days for all subsequent Ivy Tech expenses.

     The provisional order did not indicate how the payments made

pursuant to it should be treated for tax purposes, or whether the

payments would terminate at petitioner’s death.

     As required by the provisional order, Mr. Heckaman made a

total payment of $39,365 to petitioner during the year in issue,

as follows: (1) “Maintenance” payments in the amount of $36,000;

(2) premiums for a life insurance policy owned by petitioner in
                                - 4 -


the amount of $1,900; and (3) reimbursement for petitioner’s fall

semester educational expenses in the amount of $1,465.

     On her 1995 separate return, petitioner did not include in

her gross income any amount as alimony or separate maintenance

payments.

     In the notice of deficiency, respondent determined that

petitioner was required to report as gross income, pursuant to

section 71, the total payment of $39,365 that she received from

Mr. Heckaman during 1995.

Discussion

     Section 71(a) provides that gross income includes amounts

received as alimony or separate maintenance payments.      See also

sec. 61(a)(8).    Section 71(b)(1) defines alimony or separate

maintenance payments as follows:

          (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
            decree of divorce or of separate
            maintenance, the payee spouse and the
            payor spouse are not members of the same
                                 - 5 -


          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.

     If the payments received by petitioner meet the four

enumerated criteria, they will be considered alimony and

includable in petitioner’s income.       There appears to be no

dispute between the parties concerning the requirements of

section 71(b)(1)(A), (B), and (C).       As pertinent to our

discussion, a divorce decree constitutes a "divorce or separation

instrument", see sec. 71(b)(2)(A), and the parties do not dispute

that the provisional order of the Divorce Court constitutes a

separation instrument.

     On the other hand, the parties dispute whether the

requirement of section 71(b)(1)(D) has been satisfied.         The

history of section 71(b)(1)(D) establishes that it was enacted to

distinguish alimony, deductible by the payor and includable in

the payee’s gross income, from payments in the nature of property

settlements, which are nondeductible by the payor and excludable

from the payee’s gross income.

     In 1984, Congress revised section 71 in an attempt to

minimize the differences in Federal tax consequences created by

differences in State laws and to establish an objective and
                               - 6 -


uniform Federal standard as to what constitutes alimony.    See

sec. 422(a) of the Deficit Reduction Act of 1984 (DRA 1984), Pub.

L. 98-369, 98 Stat. 795.   See also H. Rept. 98-432, Part 2, 1495,

1496 (1984), wherein the House Ways and Means Committee

articulated the purpose of the 1984 amendment as follows:

     The Committee bill attempts to define alimony in a way
     that would conform to general notions of what type of
     payments constitute alimony as distinguished from
     property settlements and to prevent the deduction of
     large, one-time lump-sum property settlements.

                 *   *     *   *   *   *   *

          In order to prevent the deduction of amounts which
     are in effect transfers of property unrelated to the
     support needs of the recipient, the bill provides that
     a payment qualifies as alimony only if the payor * * *
     has no liability to make any such payment for any
     period following the death of the payee spouse. * * *

     DRA 1984 amended section 71 to its present form, except that

under section 71(b)(1)(D), as amended by DRA 1984, there was also

a parenthetical requirement that in order for payments to

constitute alimony, the divorce or separation instrument state

that there is no liability on the payor spouse to make the

payments after the death of the payee spouse.3   However, under


     3
        As amended by the Deficit Reduction Act of 1984, Pub. L.
98-369, 98 Stat. 795, sec. 71(b)(1)(D) provided as follows:

          (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 (and the divorce or
                                                   (continued...)
                                - 7 -


the statutory law of most States, alimony terminates at the death

of the payee spouse unless the separation agreement or the

divorce decree provides to the contrary.   Therefore, in 1986,

Congress struck the parenthetical under section 71(b)(1)(D) that

provided for alimony treatment only if the divorce or separation

instrument stated that there is no liability on behalf of the

payor spouse to make the payments after the death of the payee

spouse.   See sec. 1843(b) of the Tax Reform Act of 1986, Pub. L.

99-514, 100 Stat. 2085, 2853.   But even after the 1986 amendment,

if an obligation to make payments survives the death of the payee

spouse under either the terms of the divorce decree or State law,

then such payments will not be considered alimony.   Thus, the

1986 amendment injected State law into the section 71(b) inquiry

because, in order to distinguish alimony from property

settlement, it may sometimes become necessary to consider State

law to decide whether an obligation to make support payments

survives the death of the payee spouse.

     The issue before us is whether the payments petitioner

received pursuant to the provisional order were for her support,

thus constituting alimony, or in the nature of a property

settlement and therefore excludable from her gross income.



     3
      (...continued)
     separation instrument states that there is no such
     liability).
                               - 8 -


Specifically, we must decide whether under the terms of the

provisional order, Mr. Heckaman would have been liable for

payment of the amounts in issue in the event of petitioner’s

death.   Because the Divorce Court’s provisional order fails to

address termination of payments in the event of petitioner’s

death, we must refer to Indiana State law.   See Morgan v.

Commissioner, 309 U.S. 78, 80 (1940); Sampson v. Commissioner, 81

T.C. 614, 618 (1983), affd. per curiam without published opinion

829 F.2d 39 (6th Cir. 1987).

     We begin with the operative Indiana statute, Ind. Code sec.

31-1-11.5 to 7 (1995), pursuant to which the Divorce Court issued

the provisional order.   As pertinent here, Ind. Code sec. 31-1-

11.5 to 7(a) (1995), provides that in any pending divorce

proceeding, either party may make a motion for, inter alia,

temporary maintenance.   In turn, Ind. Code sec. 31-1-11.5 to 7(d)

(1995), provides that the “court may issue an order for temporary

maintenance or support in such amounts and on such terms as may

seem just and proper”.   Finally, Ind. Code sec. 31-1-11.5 to 7(f)

(1995) provides as follows:

          The issuance of a provisional order shall be
     without prejudice to the rights of the parties or the
     child as adjudicated at the final hearing in the
     proceeding. Its terms may be revoked or modified prior
     to final decree on a showing of the facts appropriate
     to revocation or modification, and it shall terminate
     when the final decree is entered subject to right of
     appeal or when the petition for dissolution or legal
     separation is dismissed. [Emphasis added.]
                               - 9 -


     Indiana statutory law does not specifically speak as to

whether temporary maintenance shall terminate upon the death of

the payee spouse.   However, in an Indiana divorce proceeding, any

cause of action terminates with the death of either spouse, see

Hilton v. Shafford, 459 N.E.2d 744, 744-745 (Ind. Ct. App. 1984);

Stoup v. Stoup, 35 N.E.2d 112 (Ind. Ct. App. 1941), as does a

provisional order issued in such a proceeding.   See Johnson v.

Johnson, 653 N.E.2d 512, 516 (Ind. Ct. App. 1995); Fitzgerald v.

Travelers Ins. Co., 567 N.E.2d 159, 161-162 (Ind. Ct. App. 1991)

which holds:

          Unlike a final dissolution where all of the rights
     and interest of the parties have been fully adjudicated
     prior to the issuance of the decree, a provisional
     order is only designed to maintain the status quo of
     the parties and is not intended to be an ultimate
     determination of property rights. Pursuant to statute,
     the provisional order terminates when the petition for
     dissolution of marriage is dismissed. When a party
     dies prior to a grant of dissolution, the cause of
     action also dies. Divorce proceedings terminate
     entirely with the death of one of the parties. We hold
     that when [the payor spouse] died, the cause of action
     for dissolution of marriage died, as did the
     provisional order. [Citations omitted.]

     Petitioner contends that Indiana law is ambiguous as to

whether payments provided for pursuant to a provisional order

survive the payee’s death.   In this regard she refers us to State

Ex Rel Paxton v. Porter Superior Court, 467 N.E.2d 1205 (Ind.

1984), wherein the Indiana Supreme Court held that there are

certain exceptions to the general rule that divorce proceedings
                               - 10 -


terminate in their entirety upon the death of one of the parties.

Petitioner compares State Ex Rel Paxton v. Porter Superior Court,

supra, to Fitzgerald v. Travelers Ins. Co., supra, and concludes

that because Fitzgerald does not contemplate an exception to the

general rule of termination upon death, the two cases are in

conflict.   We disagree.

     As respondent correctly points out, both of the foregoing

cases have as their foundation the general rule that a divorce

proceeding terminates when a party to such proceeding dies, but

State Ex Rel Paxton v. Porter Superior Court, supra, simply

creates a narrow exception to such rule.    State Ex Rel Paxton v.

Porter Superior Court, supra, drew a distinction between the

underlying divorce proceeding and the award of fees; the case

held that the award of attorneys fees is not related to the

merits of the action and does not, “strictly speaking”, form a

part of the judgment or decree in the cause.   The court then

concluded that a taxpayer could be obligated for his or her

spouse’s attorney’s fees even after the death of the spouse.

     A recent Indiana case, Johnson v. Johnson, supra, reiterated

the general rule that all causes of action in a divorce

proceeding in Indiana terminate on the death of one of the

parties.    Specifically, Johnson v. Johnson, supra, considered the

Indiana Supreme Court’s decision in Ex Rel Paxton v. Porter
                             - 11 -


Superior Court, supra, and concluded that under Indiana law only

three narrow exceptions exist to the general rule that all

divorce proceedings terminate on the death of one of the parties.

None of those exceptions are present in petitioner’s case.    It

follows, therefore, that the provisional order here in issue

would have ceased to have any effect in the event of petitioner’s

death and that Mr. Heckaman’s obligation to make any payments

pursuant to it would have necessarily terminated.

     Further, what is most pertinent to our inquiry is that under

Indiana law a provisional order is simply for the purpose of

maintenance and is distinct from a property settlement.   Numerous

Indiana cases have held that “maintenance” is for the purpose of

supporting the receiving spouse.   See Thatcher v. Thatcher, 496

N.E.2d 411 (Ind. Ct. App. 1986); Hicks v. Fielman, 421 N.E.2d

716, 721 (Ind. Ct. App. 1981); Wendorf v. Wendorf, 366 N.E.2d

703, 705 (Ind. Ct. App. 1977).   “It follows that maintenance, the

only other mechanism for transferring money, has no purpose other

than the support of the receiving spouse”.   Hicks v.

Fielman, supra at 721.

     Fitzgerald v. Travelers Ins. Co., supra at 162, states:

     Unlike a final decree which is entered after either a
     full hearing on all of the issues or after negotiation
     and agreement by the parties, a provisional order is
     only designed to maintain the status quo of the
     parties. I.C. 31-1-11.5-7(f). Thus a final decree
     divides the parties’ property, whereas a provisional
     order does not.
                                - 12 -



     And, in Johnson v. Johnson, supra at 516, the Indiana Court

of Appeals stated as follows:

          We believe that the legislature did not intend for
     trial courts to retain jurisdiction over dissolution
     actions following the death of one of the parties for
     the purpose of resolving property matters between the
     parties and their successors in interest. The property
     settlement is part and parcel of a final decree of
     dissolution. Once the marriage is ended by the death
     of one of the parties before the judgment is rendered,
     no final decree can be attained. Without a final
     decree, there can be no property settlement.
     * * * [Citation omitted.]

     Therefore, it follows that any obligation for support of the

payee spouse ceases with the death of such spouse.   Thus, we

think that an Indiana court would hold that Mr. Heckaman’s

obligation to make the payments here in issue would have ceased

in the event of petitioner’s death because petitioner would not

have required any maintenance after her death (or required

tuition or life insurance premium reimbursement with respect to

any period after her death).    The payments therefore are taxable

to petitioner pursuant to section 71.

     To reflect our disposition of the disputed issue, as well as

respondent’s concession,



                                     Decision will be entered

                                under Rule 155.
