                       T.C. Memo. 1998-61



                     UNITED STATES TAX COURT



                ELEANOR A. BURKES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                 CAESAR D. BURKES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 1733-96, 1735-96.       Filed February 12, 1998.



    Madelon Sprague, for petitioner Eleanor A Burkes.

     Daniel M. McCabe and Kevin T. O'Connor, for petitioner

Caesar D. Burkes.

     Katherine Lee Wambsgans, for respondent.
                                 - 2 -


             MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:   Respondent determined duplicate alternative

deficiencies with respect to these consolidated cases.1     The

deficiencies remaining in dispute are the result of the

disallowance of alimony deductions for one petitioner and

inclusion of alimony income to the other with respect to payments

made by the deducting spouse.    Ultimately, only one party will

bear a tax burden with respect to each item, depending on whether

we decide that it is or is not an alimony payment.    The

determined deficiencies, penalties, additions to tax, and taxable

periods for Ms. Burkes and Mr. Burkes are as follows:

Eleanor A. Burkes:
                                             Penalty
     Year             Deficiency           Sec. 6662(a)
     1990             $21,428.90             $4,286
     1991               3,598.00                720

Caesar D. Burkes:
                                  Addition
                                   To Tax         Penalty
     Year      Deficiency       Sec. 6651(a)    Sec. 6662(a)
     1989       $4,256.83          $1,226          $851
     1990       15,728.18            ---            656
     1991        3,774.00           1,058           755

     The parties have settled several adjustments, leaving the

following issues for our consideration:    (1) Whether the divorce

judgment that orders certain payments to be made by Mr. Burkes


     1
       These cases involve a former husband and wife who have a
common controversy over whether certain amounts do or do not
constitute alimony. These cases have been consolidated for
purposes of trial, briefing, and opinion.
                               - 3 -


for Ms. Burke's legal fees and other items meets the requirements

of section 71(b)(1)(D)2 so as to be deductible and includable as

alimony; (2) whether Ms. Burkes was in receipt of certain amounts

during 1990 or 1991; and (3) whether either petitioner is liable

for the accuracy-related penalty of section 6662(a).3

                         FINDINGS OF FACT

     Petitioners were legal residents of Ohio at the time their

petitions were filed in their respective proceedings before this

Court.   Petitioners were divorced by entry of judgment dated

November 13, 1990.   During 1989, a temporary support order was

issued requiring petitioner/husband to, on a monthly basis, pay

$2,000 alimony; $1,000 child support ($250 for each of four minor

children); the mortgage, real estate taxes, and insurance on the

family home; utility bills, other than long-distance telephone

calls; life insurance in force on family members; and gas and

maintenance of automobiles.


     2
       Section references are to the Internal Revenue Code as
amended and in effect for the periods under consideration, and
Rule references are to this Court's Rules of Practice and
Procedure.
     3
       Respondent is in the role of a stakeholder with respect to
most of the alimony issues. Respondent concedes on brief that
Ms. Burkes is not required to report as income the payments made
by petitioner/husband for homeowners insurance and utilities.
Concerning the accuracy-related penalty, respondent argues,
alternatively, that each petitioner is liable, with the exception
that neither petitioner is liable for the penalty as it may
relate to the attorney fees and automobile payment alimony
issues.
                              - 4 -


     The final divorce judgment contained the following pertinent

paragraphs:

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Mr. Burkes] shall pay to * * * [Ms. Burkes] the
     sum of $1,836.00 * * * every month for the support of
     the minor children ($612.00 per month per child). * *
     * In addition * * * [Mr. Burkes] shall pay to * * *
     [Ms. Burkes] the sum of $8,160.00 * * *, per month as
     support alimony, for a term of six (6) years or until
     her earlier death or remarriage, subject to further
     order of Court within said term. * * *

              *     *     *     *     *     *     *

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Ms. Burkes] be and she is hereby awarded the
     real estate located at 2615 Butternut Lane, Pepper
     Pike, Ohio * * * [and Ms. Burkes] shall be responsible
     for the payment of and shall indemnify and hold * * *
     [Mr. Burkes] harmless on the mortgage (principal and
     interest), taxes, and insurance on said real property.

              *     *     *     *     *     *     *

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Ms. Burkes] be and she is hereby awarded as
     alimony (property division) the 1989 Cadillac
     automobile currently in her possession * * *

              *     *     *     *     *     *     *

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Mr. Burkes] shall pay to * * * [Ms. Burkes], as
     and for division of property, the sum of One Million
     Dollars ($1,000,000.00), with six percent (6%) simple
     interest per annum on the unpaid balance, said payments
     to be made as follows: * * * [Specific annual payments
     are set out for consecutive annual payments for 1990
     through 1996.]

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Mr. Burkes] be and he is hereby awarded as
     alimony (property division) the IRA accounts in his
     name * * *
                                - 5 -


          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Mr. Burkes] shall pay, as additional alimony,
     and hold * * * [Ms. Burkes] harmless thereon, the loan
     against the 1989 Cadillac automobile in * * * [Ms.
     Burkes'] possession, and any and all other debts or
     charges he has incurred since the parties' separation.

                *     *     *     *      *     *     *

          IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     * * * [Mr. Burkes] shall pay to * * * [Ms. Burkes] the
     sum of $60,000.00 as additional alimony toward attorney
     fees, for which sum judgment is rendered and execution
     may issue.

     During November 1990, Ms. Burkes filed a garnishment

proceeding against Mr. Burkes seeking a $55,636 judgment for

attorney's fees, and Mr. Burkes' wages were garnished in the

amount of $55,645.82 during 1990.     On December 27, 1990, the

Cleveland Municipal Court issued a $47,668.31 check to Ms.

Burkes' counsel.    On January 8, 1991, the Cleveland Municipal

Court issued a $7,977.51 check to Ms. Burkes' counsel.     The two

checks were received by Ms. Burkes' counsel and deposited in the

counsel's trust account and were not disbursed to Ms. Burkes

until 1991.    The $4,364 balance of the attorney's fees was paid

during 1991 directly from Mr. Burkes to Ms. Burkes.

     Ms. Burkes used the 1989 Cadillac throughout the 1991 year,

and Mr. Burkes paid $8,217 on the Cadillac car loan.     The title

to the 1989 Cadillac during 1991 was in the name of Mr. Burkes'

corporation.

     Ms. Burkes' divorce attorney selected a certified public

accountant and provided the accountant with Ms. Burkes' tax
                               - 6 -


information for purposes of preparing her 1990 Federal income tax

return.   Ms. Burkes did not confer with the accountant in the

course of the preparation of her 1990 income tax return.     Ms.

Burkes relied on her attorney and the accountant to prepare her

return, which she signed and timely filed.

                              OPINION

     Other than with respect to the section 6662(a) penalties,

respondent has taken the position of a stakeholder and has no

preference concerning whether we find that the payments in

controversy are alimony includable by Ms. Burkes or property

settlement and/or child support not deductible by Mr. Burkes.

The other two parties controvert whether certain payments either

were received or, if received, were alimony.

     Transfers of property between spouses (property settlements)

incident to a divorce are generally not taxable events and do not

give rise to deductions or recognizable income.   See sec. 1041.

Gross income, however, does include amounts received as alimony

or separate maintenance payments.   Secs. 61(a)(8), 71(a).

Section 215(a) allows a deduction for the payment of alimony

during a taxable year.   Section 215(b) defines alimony as payment

that is includable in the gross income of the recipient under

section 71.   Section 71(c) provides that section 71(a) does not

apply to any payment that is fixed by the terms of the divorce or

separation instrument as payable for the support of the children
                                   - 7 -


of the payor spouse.    If alimony is includable in the payee

spouse's gross income under section 71(a), the payor spouse is

allowed to deduct the amount of the alimony paid.    Sec. 215(a)

and (b).

     Section 71(b)(1) defines alimony or separate maintenance as

any cash payment meeting the four criteria provided in

subparagraphs (A) through (D) of that section.    Accordingly, if

any portion of the money paid to or on behalf of Ms. Burkes meets

all four enumerated criteria, that portion is alimony.4   If any

portion of the payments made by Mr. Burkes fails to meet any one



     4
         Sec. 71(b)(1) provides:

          SEC. 71(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 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.
                                - 8 -


of the four enumerated criteria, that portion is not alimony and

thus is not deductible or includable.

     Section 71(b)(1)(B) requires that the "divorce or separation

instrument does not designate such payment as a payment which is

not includible in gross income * * * and not allowable as a

deduction under section 215".

     Ms. Burkes argues that with respect to the attorney's fees

question, section 71(b)(1)(A), (B), and (D) is in dispute, and

with respect to the remainder of alimony issues, section

71(b)(1)(B) and (D) is in dispute.      We consider each alimony item

separately.

Payment of Attorney's Fees

     The operative language of the final divorce judgment

concerning the payment of attorney's fees is as follows:     "[Mr.

Burkes] shall pay to * * * [Ms. Burkes] the sum of $60,000.00 as

additional alimony toward attorney fees, for which sum judgment

is rendered and execution may issue."     Ms. Burkes argues that as

a matter of Ohio law the term "alimony" can include both spousal

support and property settlements.    Therefore, she contends that

the State divorce court use of the term alimony here is

inconclusive.   Mr. Burkes agrees that prior to 1991, the term

"alimony", under Ohio law, could refer to either a division of
                                 - 9 -


property or spousal support.5    Mr. Burkes, however, argues that

judgment entries in the final divorce judgment contain specific

differentiation of the items of property settlement and spousal

support.

     Our reading of the final divorce judgment revealed that the

judgment entries did differentiate between alimony that is to be

property settlement or spousal support.    For example, Ms. Burkes

was awarded $8,160 per month for a term of years as "support

alimony", and, conversely, she was awarded a 1989 Cadillac

automobile as "alimony (property division)".    Other examples

where the judgment entry designated a division of property

include a $1 million sum payable over a period of years and an

individual retirement account.    The term "support alimony" was

used for the payment of the monthly support of Ms. Burkes, and

the term "additional alimony" is used in other entries that do

not contain the "property division" designation.    For example,

Mr. Burkes was required to make payments on the Cadillac and all

other debts and charges he incurred since the parties' separation

as additional alimony.   Likewise, the $60,000 for Ms. Burkes'

attorney's fees was designated as "additional alimony".    The only

entry that neither refers to alimony nor alimony with a reference

to a property division is the one awarding certain real estate

     5
       The parties refer to Hoover v. Commissioner, 102 F.3d 842,
847 (6th Cir. 1996), affg. T.C. Memo. 1995-183, as to the state
of pre-1991 Ohio law on the term "alimony".
                              - 10 -


(presumably a residence) to Ms. Burkes and requiring her to pay

the mortgage, taxes, and insurance on the property.

     Accordingly, there is little room for doubt that the pattern

of judgment entries here designates those items that are alimony

and those that are part of the property settlement.   Having made

that distinction, we must consider whether, under Ohio law the

requirement to pay support alimony extends beyond the death of

the payee.   If it does not, then the attorney's fees payments

meet the requirements of section 71(b)(1)(D) and are deductible

by Mr. Burkes and includable by Ms. Burkes.   Under Ohio law there

is no liability to make alimony support payments for any period

after the death of the payee spouse.   See Ohio Rev. Code Ann.

sec. 3105.18(B) (Anderson 1996), and predecessor sections.

     Having decided that the $60,000 constitutes alimony within

the meaning of section 71, we must address Ms. Burkes' secondary

argument that she did not receive any of the $60,000 in

attorney's fees until 1991.   In that regard, Mr. Burkes deducted

$55,636 as alimony, representing attorney's fees, for 1990 and

$4,364 for 1991.   Ms. Burkes reported neither of those amounts,

and respondent determined that Ms. Burkes should have included

the $55,636 for 1990 and $4,364 for 1991.   Ms. Burkes' position

is one of constructive receipt in that she argues that because

the attorney's fees were obtained by means of a judgment and

garnishment of Mr. Burkes' funds and were received late in 1990
                                - 11 -


by Ms. Burkes' attorney, Ms. Burkes did not have the $55,636

available for her benefit until 1991.

     We have found, based on the parties' stipulation of facts,

that the Cleveland Municipal Court garnished $55,645.82 from Mr.

Burkes during 1990.    We have also found that $47,668.31 was

received by Ms. Burkes' attorney as of December 27, 1990, and

that $7,977.51 was not received by Ms. Burkes' attorney until

January 8, 1991.    Additionally, we have found that $4,364 was

received by Ms. Burkes from Mr. Burkes during 1991.    Accordingly,

with respect to the $7,977.51 and $4,364 amounts, Ms. Burkes is

required to include those amounts in her 1991 income.    As to the

$7,977.51 amount, we find respondent's 1990 determination for Ms.

Burkes to be in error.

     As to the $47,668.31 received by Ms. Burkes' attorney as of

December 27, 1990, the principles of constructive receipt dictate

that we hold that Ms. Burkes was required to report that amount

as alimony for 1990 even though she did not actually physically

receive that amount until 1991.

     Receipt of payment by an agent is constructive receipt by

the principal.     Maryland Cas. Co. v. United States, 251 U.S. 342,

346 (1920);   Joyce v. Commissioner, 42 T.C. 628, 639 (1964).

Even if it were agreed between the agent and the principal that

the agent would not distribute the funds received to the

principal until a subsequent year, courts have found constructive
                                - 12 -


receipt by the principal.     Warren v. United States, 613 F.2d 591

(5th Cir. 1980); United States v. Pfister, 205 F.2d 538 (8th Cir.

1953).     Ms. Burkes' attorney was acting as her agent and received

the garnished wages on Ms. Burkes' behalf.    See Estate of Kamm v.

Commissioner, 349 F.2d 953 (3d Cir. 1965), affg. T.C. Memo. 1963-

344.

       Mr. Burkes, on the other hand, is entitled to the alimony

deduction involving the attorney's fees as claimed for 1990 and

1991 and, accordingly, respondent's determination, to that

extent, is in error.    Due to the time delay between the

garnishment and payment of the $7,977.51 amount, some

inconsistencies result concerning the reporting of the alimony in

these consolidated cases.

Car Payments

       The divorce judgment provided that Ms. Burkes was to receive

the 1989 automobile as a division of property, and Mr. Burkes was

to pay, as additional alimony, the loan against the 1989

automobile.    Mr. Burkes made payments of $8,217 in both 1990 and

1991 and claimed alimony deductions in those amounts on his

respective income tax returns.    Ms. Burkes did not include, in

either 1990 or 1991, any part of the $8,217 as alimony.     On

brief, Mr. Burkes argues that he is entitled to only $648.756 for

       6
       The parties used $648.75. However, it appears that
$684.75 would have been the monthly payment. For purposes of
                                                  (continued...)
                              - 13 -


1990 and $8,217 for 1991.   Ms. Burkes argues that the temporary

support order, which was in effect until the beginning of

November 1990, did not require payment of the auto loan.    Mr.

Burkes' concession is likely based on his evaluation of Ms.

Burkes' argument that the final divorce decree did not become

effective until the latter part of 1990.

     Ms. Burkes argues that these payments were a division of

property as opposed to being support alimony, and, accordingly,

those payments would not meet the section 71(b)(1)(D) test that

the payments cease at Ms. Burkes' death.   For the same reasons we

set forth in our discussion of the attorney's fees question, the

payments on the automobile loan constitute support alimony and

not a division of property.   Therefore, Mr. Burkes is entitled to

deduct from income, and Ms. Burkes is required to include in

income $648.75 for 1990 and $8,217 for 1991, attributable to Mr.

Burkes' payments on the automobile loan.

     Respondent also disallowed the $8,217 payment on the

automobile loan claimed by Mr. Burkes for 1989.   Mr. Burkes

conceded, on brief, that the $8,217 amount is not allowable as an

alimony deduction for 1989.




     6
      (...continued)
this case, we accept $648.75 as used by the parties.
                              - 14 -


Utilities and Homeowners Insurance

     Mr. Burkes during 1990, in accord with the temporary support

order, paid $10,846 for residential utilities and $1,000 for

homeowners insurance for 1990.   Respondent determined that these

payments constituted alimony to Ms. Burkes for 1990.    Ms. Burkes

argues that those amounts constitute child support.    On brief,

respondent conceded that Ms. Burkes "is not required to report

homeowners insurance payments and utility payments as income from

alimony."

Accuracy-related Penalty--Section 6662(a)

     With respect to each of petitioners' taxable years in issue,

respondent determined that the entire underpayment for each

taxable year was due to "negligence or disregard of rules or

regulations" under section 6662.   On brief, respondent conceded

that "the accuracy-related penalty under section 6662(a) for

negligence does not apply to the adjustments made relative to the

issue of whether the attorney fees and automobile payments

constitute alimony or a division of marital property."

     Respondent, however, continues to maintain that the

accuracy-related penalty applies "to all other adjustments"

sustained by the Court or agreed pursuant to the parties'

settlement.   Petitioners bear the burden of showing that

respondent's determination is in error, i.e., that the remaining

underpayments are not due to negligence or disregard of rules or
                              - 15 -


regulations, or that there was reasonable cause and good faith

with respect to those underpayments.   Rule 142(a).   If the

penalty is found applicable, section 6662 provides for a 20-

percent addition to those portions of the underpayment that are

attributable to negligence or disregard of rules or regulations.

Due to respondent's concession, Ms. Burkes is not liable for a

section 6662(a) penalty for the 1991 taxable year.

     Ms. Burkes, for the 1990 taxable year, argues that her

failure to include $11,000 of alimony was not due to negligence

or intentional disregard because of her reliance on her divorce

counsel to communicate complete and accurate information to her

return preparer.   Negligence is defined as the lack of due care

or failure to do what an ordinarily prudent person would do under

the circumstances.   Zmuda v. Commissioner, 731 F.2d 1417, 1422

(9th Cir. 1984), affg. 79 T.C. 714 (1982).   Negligence also

includes any failure to make a reasonable attempt to comply with

the provisions of the internal revenue laws.   Reasonable and good

faith reliance on the advice of an accountant or attorney may

offer relief from the imposition of the negligence addition.

United States v. Boyle, 469 U.S. 241, 250-251 (1985).    Reliance

on professional advice, however, is not an absolute defense to

negligence, but rather a factor to be considered.     Freytag v.

Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th

Cir. 1990), affd. 501 U.S. 868 (1991).
                              - 16 -


     Here, Ms. Burkes' situation was very complex in that her

1990 reporting year contained a transitional situation where the

amount reportable was changing and the amounts that were or were

not reportable were subject to some doubt.   In this situation,

Ms. Burkes reasonably relied on her attorney and the accountant

selected for her by the attorney.   There were substantial legal

questions as to which of the numerous items were reportable as

alimony.   These circumstances made it reasonable for Ms. Burkes

to rely on the advice of the two professionals involved.    We

conclude that Ms. Burkes was therefore not negligent within the

meaning of section 6662 for her 1990 taxable year.

     On brief, Mr. Burkes did not make any argument concerning

respondent's determination concerning the section 6662(a)

penalties.   We treat this omission as a concession that, to the

extent not conceded by respondent, Mr. Burkes is liable for the

section 6662(a) penalties as determined.

     To reflect the foregoing and to account for agreements and

concessions of the parties,

                                    Decisions will be entered

                               under Rule 155.
