                        T.C. Memo. 1999-154



                      UNITED STATES TAX COURT



                HELEN C. HOPKINSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9931-97.                        Filed May 5, 1999.



     Helen C. Hopkinson, pro se.

     David Delduco, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined deficiencies in and

penalties on petitioner's Federal income taxes as follows:

                                        Penalty
          Year        Deficiency      Sec. 6662(a)
          1993         $7,665            $1,533
          1994         11,207             2,241
                                 - 2 -


Unless otherwise indicated all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

     In the instant case, the issues we must decide are:   (1)

Whether amounts paid to petitioner, or on her behalf, by her

former husband, Peter S. Hopkinson, and excluded by petitioner

from her gross income on her income tax returns for the years in

issue are includable in her gross income as alimony; and (2)

whether petitioner is liable for the accuracy-related penalty

pursuant to section 6662(a) for the years in issue.

                          FINDINGS OF FACT

     Some of the facts and certain exhibits have been stipulated

for trial pursuant to Rule 91.    The parties' stipulations of fact

are incorporated by reference and are found as facts in the

instant case.

     At the time she filed the petition in the instant case,

petitioner resided in Alpharetta, Georgia.

     On October 31, 1992, in anticipation of divorce, petitioner

and her former husband entered into a settlement agreement

(settlement agreement).   The relevant parts of the settlement

agreement provide:
                           - 3 -


                            4.

                          ALIMONY

4.01. Alimony.

     (a) Amount. Husband shall pay to Wife as alimony
for her support and maintenance the sum of Five
Thousand Dollars ($5,000.00) per month commencing on
December 15, 1992. This amount shall be paid through
and including December 15, 1994, at which time it shall
be reduced to the sum of Four Thousand Dollars
($4,000.00) per month through and including December
14, 2002.

     *      *       *      *        *    *     *

     (c) Duration. Alimony payments shall cease in the
event of Wife's death, Husband's death or Wife's
remarriage.

     (d) Tax Treatment of Alimony Payments. Said
payments shall be deductible by Husband on any federal
or state tax return commencing in the year 1992, and
continuing each year that alimony is paid, pursuant to
Internal Revenue Code Regulations and Wife agrees and
acknowledges she shall include this sum as income on
any federal or state income tax return that she
executes. Both parties further agree from this time
forward not to assert a position in the preparation and
filing of their tax returns, whether singly or jointly
with another, inconsistent with the terms and
provisions of this paragraph.

     *      *       *      *        *    *     *

                            5.

                 WIFE'S EDUCATION EXPENSES

5.01. Wife's Education Expenses. Husband shall pay to
Wife all expenses for Wife to complete a four (4) year
college degree, to include only the actual tuition,
books, laboratory fees and matriculation fees, activity
fees, and other fees charged by the institution
selected by Wife, which is presently Oglethorpe
University of Georgia in Atlanta. He shall pay these
                                 - 4 -


     expenses directly to the institution or other
     institution she may transfer or attend, if possible,
     not later than five (5) days after being presented by
     Wife with evidence of the amount due and grades from
     the prior semester. If certain expenses cannot be paid
     directly to the institution, and Wife pays them, then
     Husband shall be responsible for reimbursement of any
     expenses paid by Wife within ten (10) days after Wife
     has presented him with a canceled check or receipt
     evidencing her payment. Such obligation shall not
     exceed the sum of Forty Four Thousand Eight Hundred
     Dollars ($44,800.00). Husband's obligation shall not
     be terminated in the event Wife chooses to attend
     college on a part time basis, but will terminate after
     the summer quarter of 1999. Husband's obligation shall
     also continue only so long as Wife maintains an average
     of "C" or better, as defined by the institution which
     she attends. The Husband shall pay the Wife $3000.00
     toward the current semester's costs contemporaneous
     with the execution of this Agreement.

          *      *      *        *       *    *     *

                                  11.

                            ATTORNEYS' FEES

     11.01. Attorneys' Fees. Husband shall pay to Wife
     Twenty Four Thousand dollars ($24,000.00) as attorneys
     fees, which is calculated in Wife's alimony payment of
     Five Thousand ($5,000.00) per month for two (2) years.
     In addition, Husband shall pay to the Wife's attorneys
     the sum of $5,000.00 as non-alimony at the time this
     Agreement is executed, plus $3,500.00 as additional
     alimony on or before December 31, 1992, from any bonus
     he may receive. Each party shall be responsible
     thereafter for payment of his or her own attorneys'
     fees.

     On November 4, 1992, the Superior Court of DeKalb County,

Georgia, entered petitioner's Final Judgment and Decree of

Divorce (divorce decree) which incorporated the settlement

agreement.
                               - 5 -


     During 1993, the following amounts were received from or

paid on petitioner's behalf by her former husband:   (1) $12,000

($1,000 per month for 12 months), as reimbursement for attorney's

fees; (2) $5,201.81, to reimburse her for tuition and college

expenses she paid personally; and (3) $3,520, paid as tuition to

Oglethorpe University.

     During 1994, the following amounts were received or paid on

petitioner's behalf by her former husband:   (1) $12,000 ($1,000

per month for 12 months), as reimbursement for attorney's fees;

(2) $3,015.91, to reimburse her for tuition and college expenses

which she paid personally; and (3) $8,678.50, paid as tuition to

Oglethorpe University.

     The payments described above were received directly by

petitioner, or paid on her behalf, in cash or by check and were

paid pursuant to the divorce decree and settlement agreement.

     During the years in issue, petitioner did not live in the

same household as her former husband and did not file a joint

income tax return with her former husband.

     On November 14, 1994, petitioner filed a Form 1040 for

taxable year 1993.   For the 1994 taxable year, petitioner timely

filed a Form 1040.

     On February 20, 1997, respondent issued two notices of

deficiency determining unreported income in the amounts of

$28,383 for taxable year 1993 and $45,786 for taxable year 1994.
                               - 6 -


By stipulation, respondent conceded a portion of the deficiency

as determined in the statutory notice of deficiency.

     The amount unreported income remaining in dispute for 1993

is $20,721.81, which includes $12,000 paid by petitioner's former

husband as attorney's fees pursuant to paragraphs 4.01 and 11.01

of the settlement agreement and $8,721.81 paid by petitioner's

former husband as tuition pursuant to paragraph 5.01 of the

settlement agreement.   The $8,721.81 tuition payment includes

$3,520 paid as tuition directly to Oglethorpe University on

behalf of petitioner and $5,201.81 paid to petitioner to

reimburse her for tuition and college expenses she paid

personally.

     The amount of unreported income remaining in dispute for

taxable year 1994 is $23,691.41, which includes $12,000 paid by

petitioner's former husband as attorney's fees pursuant to

paragraphs 4.01 and 11.01 of the settlement agreement and

$11,694.41 paid as tuition pursuant to paragraph 5.01 of the

settlement agreement.   The $11,694.41 tuition payment includes

$8,678.50 paid as tuition directly to Oglethorpe University on

behalf of petitioner and $3,015.91 paid to petitioner to

reimburse her for tuition and college expenses she paid

personally.

     Respondent further determined that petitioner was liable,

pursuant to section 6662(a), for an accuracy-related penalty in
                               - 7 -


the amount of $1,533 for taxable year 1993 and $2,241 for taxable

year 1994.   On brief, respondent concedes that for both years in

issue petitioner is only liable for the accuracy-related penalty,

pursuant to section 6662(a) on the $12,000 of unreported alimony

income.

                              OPINION

     Section 71 provides in pertinent part:

     SEC. 71.   ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.

          (a) General Rule.--Gross income includes amounts
     received as alimony or separate maintenance payments.

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

               (1) In general.--The term "alimony or
          separate maintenance payments" 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
                              - 8 -


                    (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.

          *      *      *      *        *     *      *

          (e) Exception for Joint Returns.--This section and
     section 215 shall not apply if the spouses make a joint
     return with each other.

     The educational expenses paid by petitioner's former husband

to petitioner and to Oglethorpe University (tuition payments)

satisfy all of the requirements of section 71 for inclusion of

the tuition payments in gross income:    (1) The tuition payments

were made by check which is a cash equivalent, see sec. 1.71-

1(T)(b), Temporary Income Tax Regs., Q&A-5, 49 Fed. Reg. 34455

(Aug. 31, 1984); (2) the tuition payments were received by

petitioner, or on her behalf, pursuant to paragraph 5.01 of the

settlement agreement, that was incorporated into the divorce

decree, see sec. 1.71-1(T)(b), Temporary Income Tax Regs., Q&A-6,

49 Fed. Reg. 34455 (Aug. 31, 1984); (3) the settlement agreement

does not designate the tuition payments as amounts which are not

includable in petitioner's gross income for federal tax purposes;

(4) at the time the tuition payments were made, petitioner and

her former husband lived in separate households; (5) the tuition

payments terminate on the death of petitioner because they are
                               - 9 -


contingent on petitioner's attending school; and (6) petitioner

and her former husband did not file joint returns for the taxable

years in issue.

     Similarly, the amounts paid to petitioner as reimbursement

for attorney's fees (attorney's fees payments) satisfy the

requirements of section 71 for inclusion of the attorney's fees

payments in gross income:   (1) The attorney's fees payments were

made by cash or check; (2) the attorney's fees payments were

received by petitioner pursuant to paragraphs 4.01 and 11.01 of

the settlement agreement, that was incorporated into the divorce

decree; (3) the settlement agreement does not designate the

attorney's fees payments as amounts which are not includable in

petitioner's gross income for Federal tax purposes.   On the

contrary, paragraph 11.01 of the settlement agreement

specifically provides that the attorney's fees payments are to be

part of the alimony paid to petitioner.   Moreover, paragraph

4.01(d) of the settlement agreement provides that petitioner will

include the payments designated as alimony in her gross income;

(4) at the time the payments were made, petitioner and her former

husband lived in separate households; (5) paragraph 4.01(c) of

the settlement agreement provides that payment of all alimony

payments ceases upon petitioner's death; and (6) petitioner and

her former husband did not file joint returns for the taxable

years in issue.
                                - 10 -


     Petitioner argues that she properly excluded the payments in

issue from her gross income because they were intended by the

parties to be a property settlement and not alimony.    Prior to

1985, payments were characterized as alimony or as property

settlement by considering all of the surrounding facts and

circumstances.   See Beard v. Commissioner, 77 T.C. 1275, 1284

(1981).   During 1984, Congress enacted the Deficit Reduction Act

of 1984 (DEFRA), Pub. L. 98-369, sec. 422, 99 Stat. 494, 795,

effective for divorce and separation agreements entered into

after December 31, 1984.   The House Committee on Ways and Means,

in its report on H.R. 4170, 98th Cong. 1st Sess., explained the

reason for the enactment of DEFRA section 422 as follows:

          The committee believes that the present law
     definition of alimony is not sufficiently objective.
     * * * The committee believes that a uniform Federal
     standard should be set forth to determine what
     constitutes alimony for Federal tax purposes. This
     will make it easier for the Internal Revenue Service,
     the parties to a divorce, and the courts to apply the
     rules to the facts in any particular case and should
     lead to less litigation. 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
     * * * .

H. Rept. 98-432 (Part 2), at 1495 (1984).

     The settlement agreement in the instant case was entered

into after December 31, 1984.    Consequently, the appropriate

inquiry is not whether the payments made pursuant to the

settlement agreement were alimony or property settlement based on
                                 - 11 -


all the facts and circumstances.     Rather, if the payments fulfill

the requirements of section 71, they are to be considered alimony

and must be included by the payee spouse in gross income.     As we

concluded above, both the tuition payments and the attorney's

fees payments fulfill the requirements of section 71 for

inclusion of such payments in gross income.     Consequently, we

hold that petitioner must include those payments in gross income

for the years in issue.

     Petitioner further argues that the requirements of section

71(b)(1)(D) are not met, because, pursuant to Georgia law, the

payments she received from her former husband are "lump-sum"

alimony and therefore the obligation to continue making payments

does not cease upon petitioner's death.     The Georgia Supreme

Court has held that "If the words of the documents creating the

obligation state the exact amount of each payment and the exact

number of payments to be made without other limitations,

conditions or statements of intent, the obligation is one for

lump-sum alimony payable in installments."     Winokur v. Winokur,

365 S.E.2d 94, 96 (Ga. 1988).     The obligation to pay lump-sum

alimony in installments does not terminate with the death of

either party.   See id. at 94.

     The settlement agreement in the instant case does not state

the amount or the exact number of tuition payments that

petitioner's former husband is required to make.     The settlement
                              - 12 -


agreement merely provides that the tuition payments cannot exceed

$44,800.   Moreover, petitioner's former husband's obligation to

pay petitioner's tuition is subject to the condition that

petitioner remain in school and maintain a "C" average.

Accordingly, the tuition payments are not lump-sum alimony and

Georgia law would not impose an obligation on petitioner's former

husband to continue making such payments after petitioner's

death.   The tuition payments, therefore, satisfy all of the

requirements of section 71 for inclusion of such payments in

gross income.

     Similarly, the payment of attorney's fees pursuant to

paragraph 11.01 of the settlement agreement is not payment of

lump-sum alimony.   Although the settlement agreement specifies

the amounts of the payments and their duration, paragraph 4.01(c)

of the settlement agreement, when read in conjunction with

paragraph 11.01, provides that the attorney's fees payments,

because they are subsumed within the alimony payments, are

subject to the condition that they terminate upon petitioner's

death, petitioner's former husband's death, or on petitioner's

remarriage.   Accordingly, the attorney's fees payments are not

lump-sum alimony, and Georgia law would not impose an obligation

on petitioner's former husband to continue making such payments

after petitioner's death.   The attorney's fees payments,
                             - 13 -


therefore, satisfy all of the requirements of section 71 for

inclusion of such payments in gross income.

     Finally, petitioner argues that this Court should reform the

settlement agreement so that the payments in issue would not be

includable in petitioner's gross income.   The Court of Appeals

for the Eleventh Circuit, which is the court to which an appeal

in the instant case would lie, has adopted the following rule

(articulated by the Court of Appeals for the Third Circuit in

Commissioner v. Danielson, 378 F.2d 771, 775 (3d Cir. 1967),

vacating and remanding 44 T.C. 549 (1965)):

     a party can challenge the tax consequences of his
     agreement as construed by the Commissioner only by
     adducing proof which in an action between the parties
     to the agreement would be admissible to alter that
     construction or to show its unenforceability because of
     mistake, undue influence, fraud, duress, etc. * * *

See Bradley v. United States, 730 F.2d 718, 720 (11th Cir. 1984).

The Court of Appeals for the Sixth Circuit, in Schatten v. United

States, 746 F.2d 319, 321-322 (6th Cir. 1984), applied the

Danielson rule to prevent a taxpayer from collaterally attacking

the terms of a divorce settlement agreement absent a showing of

mistake, undue influence, fraud, or duress.

     This Court does not follow the Danielson rule, but instead

allows a party to collaterally attack the terms of an agreement

upon the showing of "strong proof."   See Rothstein v.

Commissioner, 90 T.C. 488, 495 (1988), and cases cited therein.
                               - 14 -


In Gerlach v. Commissioner, 55 T.C. 156, 169 (1970), however, we

did not apply either the Danielson rule or the strong proof rule

to a case involving a settlement incorporated into a divorce

decree.    Because Gerlach v. Commissioner, supra, arose under

section 71 as in effect before the effective date of DEFRA, we

looked to all of the facts and circumstances to determine whether

the payments were intended by the parties to the settlement

agreement to be alimony or a property settlement.    See id.

However, as we discussed above, after 1984, the inquiry under

section 71 is whether the objective factors of section 71 are

met.

       Petitioner is essentially asking this Court to rewrite the

settlement agreement in order to meet the requirements of section

71.    Petitioner contends that reformation of the settlement

agreement is appropriate because petitioner's attorney and former

husband fraudulently obtained her assent to the terms of the

settlement agreement.    She bases her contention on the assertion

that her attorney and her former husband concealed information

concerning her former husband's true worth.    At trial, however,

petitioner did not produce any admissible evidence in the instant

case to corroborate such fraud.    Moreover, petitioner has not

asked the Georgia courts to reform or void the settlement

agreement.    Rather, petitioner has pursued remedies available to

her under the terms of the settlement agreement to obtain further
                              - 15 -


support and property from her former husband.   Petitioner also

submitted, as attachments to her briefs, various documents

relating to action she has taken against her former husband

pursuant to the divorce.   Although such documents are not a part

of the record, they tend to show that petitioner is pursuing

relief against her former husband in the State courts, which is

the proper forum for such disputes.    Under the circumstances of

the instant case, petitioner has not shown that she should not be

held to the clear and unambiguous provisions of the settlement

agreement and their resulting income tax consequences.   As we

stated above, petitioner must include the tuition and attorney's

fees payments in her gross income.

Accuracy-Related Penalty

     In the notice of deficiency, respondent determined that

petitioner was liable for an accuracy-related penalty in the

amounts of $1,533 for 1993 and $2,241 for 1994.   On brief,

respondent concedes that petitioner is not liable for the portion

of the accuracy-related penalty that relates to the tuition

payments, made by her former husband, during the years in issue.

Respondent, however, contends that petitioner is liable for an

accuracy-related penalty, with respect to the deficiency from the

attorney's fees payments which she excluded from income during

the years in issue.
                              - 16 -


     Section 6662(a) imposes a 20-percent penalty on the portion

of an underpayment of tax that is attributable to, inter alia,

negligence or disregard of rules or regulations.     The term

"negligence" includes any failure to make a reasonable attempt to

comply with the provisions of the Code, including failure to

exercise due care, failure to do what a reasonable person would

do under the circumstances, or failure to keep adequate books and

records to substantiate items properly.     See sec. 1.6662-3(b)(1),

Income Tax Regs.   The term "disregard" includes any careless,

reckless, or intentional disregard of the Code or of the

temporary and final regulations issued pursuant to the Code.

Sec. 6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.

     The accuracy-related penalty does not apply to any portion

of an underpayment with respect to which it is shown that there

was a reasonable cause and that the taxpayer acted in good faith.

See sec. 6664(c)(1).   The decision as to whether the taxpayer

acted with reasonable cause and in good faith depends on all

pertinent facts and circumstances.     See sec. 1.6664-4(b)(1),

Income Tax Regs.   The most important factor is the extent of the

taxpayer's efforts to assess the proper tax liability.     See id.

Circumstances that may indicate reasonable cause and good faith

include an honest misunderstanding of fact or law that is

reasonable in light of the experience, knowledge, and education

of the taxpayer.   See id.
                             - 17 -


     Based on the facts and circumstances of the instant case, we

conclude that petitioner had an honest misunderstanding of the

law and acted in good faith when she excluded the attorney's fees

payments from her gross income.   We have considered the parties'

remaining arguments and find them without merit, irrelevant, or

unnecessary to reach.

     To reflect the foregoing, and respondent's concessions,

                                    Decision will be entered

                              under Rule 155.
