                       T.C. Memo. 1999-190



                     UNITED STATES TAX COURT



                 LINDA J. BAXTER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

       JIMMY R. BAXTER AND JANET S. BAXTER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 18403-97, 18749-97.           Filed June 10, 1999.



     James Allen Brown, for petitioner in docket No. 18403-97.

     James W. Smith, for petitioners in docket No. 18749-97.

     Donald E. Edwards, for respondent.



                       MEMORANDUM OPINION

     CARLUZZO, Special Trial Judge:    These consolidated cases

were heard pursuant to the provisions of section 7443A(b)(3) of

the Internal Revenue Code of 1986, as amended and in effect at

the time that the petitions were filed, and Rules 180, 181, and
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182 of the Tax Court Rules of Practice and Procedure.         Unless

otherwise indicated, subsequent section references are to the

Internal Revenue Code in effect for the years 1993 and 1994.

     Respondent determined deficiencies in petitioners' Federal

income taxes as follows:

     Petitioner(s)                         Year          Amount

  Linda   J.   Baxter                      1993          $4,800
  Linda   J.   Baxter                      1994           2,055
  Jimmy   R.   & Janet S. Baxter           1993           9,922
  Jimmy   R.   & Janet S. Baxter           1994           4,450

     The issue for decision is whether during each year in issue

certain payments made by Jimmy R. Baxter to or on behalf of Linda

J. Baxter must be included in her income as alimony and may be

deducted by him as such.      The resolution of this issue depends

upon whether the liability of Jimmy R. Baxter to make the

payments terminates upon the death of Linda J. Baxter.

Background

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

Petitioners resided in Benton, Arkansas, at the time the

petitions were filed in these consolidated cases.

     Linda J. Baxter (Linda) and Jimmy R. Baxter (Ray), were

divorced from each other on May 16, 1991.         The divorce decree

incorporated by reference the terms of a "Child Custody, Support

& Property Settlement Agreement" entered into by Linda and Ray,

dated April 17, 1991 (the agreement).         The agreement is
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characterized as a property settlement agreement in paragraph 6

of the divorce decree.

     Relevant for our purposes, paragraph 5 of the agreement

provides as follows:

          [Ray] will quitclaim to * * * [Linda] any and all
     interests that he may have in the parties' marital home
     and the contents therein, with the exception of his
     personal effects * * *. Additionally, * * * [Ray] will
     pay the remaining indebtedness on this home at Benton
     Savings and Loan Association, provided that * * *
     [Linda] and the parties' children continue to live
     therein. This obligation to continue making these
     house payments would terminate should * * * [Linda] and
     the parties' children move from this residence or
     should * * * [Linda] remarry. Additionally, * * *
     [Ray] shall pay the costs of necessary and reasonable
     yard maintenance on this dwelling during the next three
     years or until such time as * * * [Linda] should move
     therefrom with the parties' children or remarry,
     whichever is shorter.

In accordance with the above provisions, Ray conveyed his

interest in the marital home to Linda.   The references to

"children" in paragraph 5 of the agreement are to the son and

daughter (who were minors during all relevant periods) of Ray and

Linda.

     As a result of a custody dispute, in 1994 the children moved

from the marital home; Linda continued to live there throughout

the years in issue.

     Subsequent to the divorce decree, Linda and Ray were

involved in several disputes with respect to support (spousal and

child) and custody.    The local court that had jurisdiction over
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these disputes construed Ray's obligations under paragraph 5 of

the agreement to continue as long as Linda did not remarry or

move from the marital home, even though the children had moved

(the consequence of Linda's death was not addressed).

     During the years in issue Ray made the following payments to

or on behalf of Linda pursuant to paragraph 5 of the agreement:

                                 1993           1994

     Home mortgage             $23,384        $13,691
     Yard maint.                   940            -0-
       Total payments           24,324         13,691

     Ray deducted as alimony the total payments (the payments)

for each year on the joint Federal income tax return that he

filed for those years with Janet S. Baxter (Janet).     Linda did

not include these amounts as alimony income on her Federal income

tax returns for those years.

     Respondent took inconsistent positions in the notices of

deficiency upon which these consolidated cases are based.     In the

notice of deficiency sent to Ray and Janet, respondent disallowed

the alimony deductions attributable to the payments upon the

ground that the payments did not constitute alimony within the

meaning of section 71(b), and, therefore, could not be deducted

under section 215.   In the notice of deficiency issued to Linda,

respondent determined that the payments must be included in her

income for the appropriate year as alimony under section 71.
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Discussion

     Gross income includes amounts received as alimony.    See

secs. 71(a), 61(a)(8).   Amounts includable as alimony in a payee

spouse's gross income are deductible to the payor spouse.      See

secs. 71, 215.   There is no dispute among the parties on these

points.   Linda and Ray, of course, disagree as to the

characterization of the payments for Federal income tax purposes.

Respondent now takes the position that the payments fit within

the definition of alimony.

     The definition of alimony for Federal income tax purposes is

contained in section 71(b)(1).    A payment constitutes alimony

within the meaning of that section if the payment is made in cash

(including checks and money orders payable on demand, see sec.

1.71-1T(a), Temporary Income Tax Regs., 49 Fed. Reg. 34455 (Aug.

31, 1984)), and (1) such payment is received by (or on behalf of)

a spouse under a divorce or separation instrument; (2) the

divorce or separation instrument does not designate such payment

as a payment that is not includable in the payee's gross income

under section 71 and is not allowable as a deduction to the payor

under section 215; (3) if the individual and the spouse are

legally separated, they are not members of the same household;

and (4) the payor has no liability to make any such payment for

any period after the death of the payee.    See secs. 71(b),

215(b).   The parties agree that the payments satisfy all but the
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last requirement, that is, whether Ray would be liable to make

the payments for any period after Linda's death.

     Ray and Linda could have expressly provided for the effect

of her death upon his liability to make the payments otherwise

provided for in paragraph 5 of the agreement, but for whatever

reason, they did not.   They now disagree as to what was intended

by that paragraph.

     According to Linda, as long as the children resided in the

marital home, Ray would be required to make the payments

regardless of whether she was dead or alive.   Linda further

argues that Ray's obligation to make the payments was part and

parcel of the property settlement between them and on that ground

should not be considered alimony.

     Ray and respondent disagree with Linda on both points.    They

argue that if Linda died, Ray's obligation to make the payments

would terminate because, obviously, she would no longer be living

in the marital home.    They further contend that the payments were

not part of the property settlement but for the support of Linda.

     The language of paragraph 5 of the agreement is susceptible

to different interpretations because of the use of the word "and"

both in the sentence that establishes Ray's obligation to make

the payments ("[Ray] will pay the remaining indebtedness on [the

marital home]* * * provided that * * * Linda and the * * *

children continue to live therein"), as well as in the sentence
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that terminates that obligation ("This obligation to continue

making these house payments would terminate should * * * [Linda]

and the * * * children move from * * * [the marital home]").

(Emphasis added.)   Furthermore, Ray was obligated to pay for

reasonable yard maintenance for the marital home "during * * * [a

specified period] or until such time as * * * [Linda] should move

therefrom with the * * * children or remarry, whichever is

shorter." (Emphasis added.)

     As long as the children resided in the marital home, one

construction of the above language would require Ray to make the

payments regardless of whether Linda continued to live there.

Under this construction, Linda's death would be of no

significance.   On the other hand, if the children moved from the

marital home, which they did in 1994, Ray's obligation to make

the payments would only continue as long as Linda continued to

live there, which, obviously, she could not do after her death.

     Because paragraph 5 of the agreement does not expressly

address Ray's liability to make the payments in the event of

Linda's death, we look to Arkansas law in order to determine his

liability in that regard.   See Sampson v. Commissioner, 81 T.C.

614, 618 (1983), affd. per curiam without published opinion 829

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

     In Arkansas, "Questions relating to the construction,

operation, and effect of separation agreements between husband
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and wife are governed, in general, by the rules and provisions

applicable in the case of other contracts".     Sutton v. Sutton,

771 S.W.2d 791, 792 (Ark. Ct. App. 1989).    "[D]ifferent clauses

of a contract must be read together and construed so that all of

its parts harmonize if that is possible."     Dodson v. Dodson, 825

S.W.2d 608, 611 (Ark. Ct. App. 1992); see also Floyd v. Otter

Creek Homeowners Association, 742 S.W.2d 120 (Ark. Ct. App.

1988).    Furthermore, where there is some ambiguity in the

provisions of a separation agreement, it is the court's duty to

determine the intent of the parties.     Sutton v. Sutton, supra at

792.

       An Arkansas court has never addressed what Ray and Linda

intended by the above cited portion of paragraph 5 of the

agreement with respect to Ray's liability to make the payments

for any period after Linda's death.     We are bound, nevertheless,

to reach a result that would be consistent with that of

Arkansas's highest court if the issue were presented to that

court for resolution.    See Commissioner v. Estate of Bosch, 387

U.S. 456, 465 (1967); Boyter v. Commissioner, 74 T.C. 989, 995

(1980), remanded on another issue 668 F.2d 1382 (4th Cir. 1981).

In so doing, for the following reasons, we find that Ray's

liability to make the payments terminates upon the death of

Linda.
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     Ignoring irrelevant contingencies, reading paragraph 5 of

the agreement as a whole makes it apparent that Linda and Ray

intended for him to make the payments only while she lived there.

Because the agreement provided that the payments would terminate

upon the occurrence of contingencies other than Linda's death

(e.g., remarriage or relocation), a reasonable interpretation of

the provisions would lead to the conclusion that the payments

were for her support.   Obviously, at the time that the agreement

was entered into, Ray and Linda anticipated that the children

would reside with her at the marital home, but Ray's liability

was not dependent upon it.   Even after the children moved from

the house, Ray was required by local court order to continue the

payments.   We think it unreasonable to construe the agreement in

such a manner as to require that the payments continue in a

situation in which Linda would move from the marital home, but

the children would remain.   Such a construction would be

necessary to support Linda's position in this case.

     As we would expect the highest court of Arkansas would do,

we find that the most reasonable construction of the relevant

portion of paragraph 5 of the agreement leads to the conclusion

that the Linda and Ray did not intend for him to make the

payments after her death.    That being so, Ray's liability to make

the payments pursuant to the relevant portion of paragraph 5 of

the agreement would not continue for any period after Linda's
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death.   It follows and we hold that the payments constitute

alimony within the meaning of sections 71 and 215 that for the

years in issue must be included in Linda's income and are

deductible by Ray.

     To reflect the foregoing,

                                         Decisions will be entered

                                    for petitioners in docket No.

                                    18749-97 and for respondent in

                                    docket No. 18403-97.
