                                  T.C. Memo. 2016-47

                            UNITED STATES TAX COURT



                BARRY MAURICE ANDERSON, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11464-14.                             Filed March 14, 2016.



      Barry Maurice Anderson, pro se.

      Clint J. Locke, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      PARIS, Judge: Respondent determined a deficiency of $2,732 in, and a

section 6662(a) accuracy-related penalty of $546.40 in relation to, petitioner’s

2010 Federal income tax.1 After concessions,2 the issue for decision is whether

      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986 (Code), as amended and in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and Procedure.
      2
          At trial respondent conceded that petitioner was not liable for the sec.
                                                                           (continued...)
                                        -2-

[*2] petitioner is entitled to a deduction for alimony payments he claimed on his

2010 Federal income tax return.3

                              FINDINGS OF FACT

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

facts and the facts drawn from stipulated exhibits are incorporated herein by this

reference. Petitioner resided in Alabama when he filed his petition.

      Petitioner and his ex-wife separated and began divorce proceedings in the

Circuit Court, Mobile County, Alabama, Domestic Relations Division (circuit

court) in 2009. At the time of the separation and divorce, petitioner owned at least

two parcels of real property--the marital home and a home in Dauphin Island.4

Petitioner moved to the Dauphin Island home when he left the marital residence in

2009. Petitioner’s ex-wife was not working at the time of the separation and

divorce.




      2
      (...continued)
6662(a) accuracy-related penalty.
      3
       Respondent also adjusted petitioner’s itemized deductions on the basis of
his determination to disallow a portion of petitioner’s alimony deduction. That
adjustment is computational and will not be discussed further.
      4
       Dauphin Island is a town on a barrier island of the same name off the coast
of Alabama.
                                          -3-

[*3] On November 12, 2009, the circuit court entered a pretrial order of court,

ordering both parties, inter alia, to “[m]aintain status quo as to payment of house

note or rent, utilities, food, necessities, fixed credit obligations, etc.” Petitioner

continued to make the mortgage payments for the marital home and the Dauphin

Island residence. Petitioner also electronically transferred $1,000 to his ex-wife

every month from January to September 2010.5 In April, June, and July 2010

petitioner transferred more than $1,000 to his ex-wife to cover additional expenses

she incurred to cover necessities such as vehicle repairs. Petitioner testified that

these payments were “for her spending money and other things that I had

previously paid for”. In addition, petitioner wrote his ex-wife checks for $1,000

each for October through December 2010. The memo lines on the October,

November, and December checks state “Alimony payment # 1”, “Alimony # 2”,

and “alimony # 3”, respectively.

      On November 4, 2010, the circuit court entered a judgment of divorce

(judgment) dissolving petitioner’s marriage. Paragraph 5 of the judgment states:

“Defendant Husband will pay as rehabilitative alimony the sum of $1,000.00 per

month, for twenty-four (24) months. This rehabilitative alimony amount will not

be modifiable.” Paragraph 9 of the judgment states: “Defendant Husband will pay

      5
          Petitioner transferred only $960 for January.
                                        -4-

[*4] as a property settlement the sum of $15,000.00, at the rate of $1,000.00 per

month.” Paragraph 17 of the judgment states: “Defendant Husband will

commence payment of the alimony and property settlement beginning October 1,

2010.” Paragraph 20 of the judgment states: “Defendant Husband will continue

to pay the $1,000.00 to the Plaintiff Wife for September, and the Plaintiff will pay

and be responsible for September utilities at the homeplace.”

      Petitioner timely filed his 2010 Federal income tax return, claiming an

alimony deduction of $12,565.

      Respondent mailed petitioner a notice of deficiency dated February 18,

2014, in which he determined that petitioner was entitled to an alimony deduction

of only $3,000.

                                     OPINION

      Generally, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayer bears the burden of showing the

determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Deductions and credits are a matter of legislative grace, and the taxpayer

bears the burden of proving entitlement to any deduction or credit claimed on a

return. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
                                        -5-

[*5] Under certain circumstances the burden of proof as to factual matters may

shift to the Commissioner pursuant to section 7491(a). Petitioner did not argue for

a burden shift under section 7491(a), and the record does not establish that the

prerequisites for a burden shift have been met; therefore, the burden of proof

remains his.

I.    Alimony Generally

      Section 215(a) allows a deduction for alimony payments made during the

payor’s taxable year. Alimony means any “payment (as defined in section 71(b))

which is includible in the gross income of the recipient under section 71.” Sec.

215(b). An alimony payment is defined as any payment in cash that satisfies the

following four requirements: (1) the 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 the payment as a payment which is not includible in

gross income under this section and not allowable as a deduction under section

215; (3) the payor and payee spouses are not members of the same household at

the time the payments are made; and (4) there is no requirement to make payments

or substitutes therefor after the payee spouse’s death. Sec. 71(b)(1). All four

requirements must be met for payments to qualify as alimony or separate

maintenance. Jaffe v. Commissioner, T.C. Memo. 1999-196.
                                        -6-

[*6] II.     Petitioner’s 2010 Payments

       Respondent disallowed petitioner’s deduction for alimony payments except

for the payments evidenced by the checks for $1,000 negotiated in October,

November, and December 2010. The judgment states that petitioner’s alimony

payments would begin in October 2010. In issue are the electronic transfers

petitioner made to his ex-wife’s bank account in January through September 2010.

       A.    Petitioner’s January Through August 2010 Payments

       Petitioner argues that the $1,000 monthly payments he made in January

through August 2010 were not voluntary payments but were “for * * * [his ex-

wife’s] spending money and other things that I had previously paid for.”

Petitioner argues he made the payments pursuant to the circuit court’s pretrial

order and that this order is a divorce or separation instrument and meets the other

requirements of section 71.6




       6
       Respondent’s line of questioning about the circuit court’s pretrial order
focused on the fact that the word “alimony” was not used in the pretrial order but
the word “maintenance” was, making the payments maintenance payments instead
of alimony. Respondent’s attempt to differentiate the two is unnecessary as sec.
71 allows a deduction for amounts received as “alimony or separate maintenance
payments.”
                                        -7-

[*7] The circuit court’s pretrial order is a preprinted form with blanks for the

parties’ names, a case number, the date of trial, the date of the order, and two

circuit court judges’ signatures.

      The term “divorce or separation instrument” as defined in the Code includes

a written instrument incident to a decree of divorce or separate maintenance.7 Sec.

71(b)(2)(A). “Section 71 speaks only in terms of a ‘written instrument’; it does

not dictate the medium which may be used nor the form of writing which the

instrument must take.” Prince v. Commissioner, 66 T.C. 1058, 1067 (1976). The

written instrument is not required to state a definite amount of support to be paid.

Jacklin v. Commissioner, 79 T.C. 340, 348 (1982).

      “Incident” as an adjective is defined as “[d]ependent upon, subordinate to,

arising out of, or otherwise connected with (something else, usu. of greater

importance)”. Black’s Law Dictionary 777 (8th ed. 2004). A “decree” is a court’s

final judgment or any court order, especially one in a matrimonial case. Id. at 440.

The circuit court’s pretrial order is not dependent upon, subordinate to, or arising

out of a decree of divorce or separate maintenance. It is, however, “otherwise”

      7
       Sec. 71 was amended by the Deficit Reduction Act of 1984, Pub. L. No.
98-369, sec. 422(a), 98 Stat. at 795, effective for divorce or separation instruments
executed after December 31, 1984. Before the amendment a “written instrument”
was incident to “such divorce or separation” and not specifically related to the
decree itself.
                                         -8-

[*8] connected with a decree of divorce as the circuit court sent the order to both

parties before the April 15, 2010, trial that produced the judgment. Therefore, the

circuit court’s pretrial order is a written instrument incident to a decree of divorce

or separate maintenance.

      The pretrial order requires the parties to “[m]aintain status quo as to

payment of house note or rent, utilities, food, necessities, fixed credit obligations,

etc.” Petitioner testified that the $1,000 payments he made to his ex-wife were for

“spending money” and “other things” for which he had previously paid. He also

testified that his ex-wife was not working at that time. Additionally, petitioner

testified that the payments to his ex-wife were not voluntary and that he would not

have made them but for being required to under the circuit court’s pretrial order to

maintain the status quo. The Court finds petitioner’s testimony credible. The

mortgage payments for the two real properties--the marital residence where his ex-

wife lived and a home in Dauphin Island where he lived during the pendency of

the divorce--were separately debited from his checking account.

      The pretrial order requires the parties to maintain the status quo for a wide

range of payments with the inclusion of “etc.” at the end of the first sentence

describing the duties and responsibilities of the parties. Petitioner’s ex-wife was

not working at the time of the divorce and would not have had the means to pay
                                          -9-

[*9] for “utilities, food, necessities, fixed credit obligations, etc.” without

petitioner’s monthly payments to her.

      Petitioner’s January through August 2010 payments were cash payment

transfers from his bank account and were received by his ex-wife under a divorce

or separation instrument.

      Petitioner’s payments also meet the second and third requirements, that the

payments were not designated as not being deductible by the payor and not

included in income by the payee in the written instrument and were not received

while the payor and payee spouses were members of the same household. The

circuit court’s pretrial order makes no mention of the tax ramifications of the

payments, and petitioner testified that he had moved out of the marital home in

September 2009.

      That leaves the final requirement, that the payments cease upon the death of

the payee spouse. Because the pretrial order is silent as to whether these payments

meet that requirement, the Court must look to State law for the answer. See

Morgan v. Commissioner, 309 U.S. 78, 80 (1940); Hoover v. Commissioner, 102

F.3d 842, 845-846 (6th Cir. 1996), aff’g T.C. Memo. 1995-183; see also Kean v.

Commissioner, T.C. Memo. 2003-163, aff’d, 407 F.3d 186 (3d Cir. 2005); Gilbert
                                       - 10 -

[*10] v. Commissioner, T.C. Memo. 2003-92, aff’d sub nom. Hawley v.

Commissioner, 94 F. App’x 126 (3d Cir. 2004).

      Petitioner argues that alimony payments cease after the death of the payee

spouse under Alabama law. Respondent argues that Alabama law is silent on the

issue. While there is no rule in the Alabama statutes about the termination of

alimony payments upon the death of the recipient spouse, the question has been

resolved through Alabama caselaw.

      Alabama has two categories of alimony--alimony in gross and periodic

alimony. Lacey v. Lacey, 126 So. 3d 1029 (Ala. Civ. App. 2013). Alimony in

gross is considered compensation for the recipient spouse’s inchoate marital rights

and may represent a division of marital assets where liquidation of those assets is

not practicable. Id. at 1031 (citing Hagar v. Hagar, 299 So. 2d 743, 749 (Ala.

1974)). The payment must be made from the payor’s present estate at the time of

the divorce. Id. (citing Hagar, 299 So. 2d at 750). For a payment to be alimony in

gross, the following requirements must be met: (1) the time of and amount of the

payment must be certain and (2) the right to alimony must be vested. Id. (quoting

Cheek v. Cheek, 500 So. 2d 17, 18 (Ala. Civ. App. 1986)). The Alabama Supreme

Court has held that “the term ‘vested’ simply signifies that an award of ‘alimony in

gross’ is not subject to modification.” Id. at 1034 (quoting Hagar, 299 So. 2d at
                                        - 11 -

[*11] 750). “In other words, alimony in gross is a form of property settlement.”

Id. at 1031 (citing Hagar, 299 So. 2d at 749). Alimony in gross must be

unequivocally stated or necessarily inferred from the language of the instrument.

Kilgore v. Kilgore, 572 So. 2d 480, 482 (Ala. Civ. App. 1990) (citing Trammell v.

Trammell, 523 So. 2d 437 (Ala. Civ. App. 1988)).

      Periodic alimony is a payment for the future support of the payee spouse

payable from the current earnings of the payor spouse. Lacey, 126 So. 3d at 1031

(citing Hagar, 299 So. 2d at 750). The purpose of periodic alimony “is to support

the former dependent spouse and enable that spouse, to the extent possible, to

maintain the status that the parties had enjoyed during the marriage, until that

spouse is self-supporting or maintaining a lifestyle or status similar to the one

enjoyed during the marriage.” Id. (quoting O’Neal v. O’Neal, 678 So. 2d 161, 164

(Ala. Civ. App. 1996)). “In Alabama, periodic alimony payments cease at the

death of either spouse.” Kelley v. State Dep’t of Revenue, 796 So. 2d 1114, 1118

(Ala. Civ. App. 2000) (citing Borton v. Borton, 162 So. 529 (Ala. 1935)).

      Petitioner’s payments in January through August 2010 were to maintain the

financial status quo of the parties until a judgment of divorce was entered. In

other words, the purpose of the payments was to maintain the status the parties had

enjoyed during the marriage. See Lacey, 126 So. 3d at 1031. Petitioner’s
                                       - 12 -

[*12] payments in January through August 2010 were periodic alimony payments

under Alabama law and, therefore, would have ended upon the death of either

spouse. See Kelley, 796 So. 2d at 1118. Thus, the January through August 2010

payments meet the requirement of section 71(b)(1)(D).

      Petitioner’s January through August 2010 payments meet the definition of

alimony under section 71. Therefore, petitioner is allowed a deduction for the

payments as alimony under section 215 for 2010.

      B.       Petitioner’s September 2010 Payment

      Paragraph 20 of the judgment required petitioner to “continue to pay the

$1,000 to the Plaintiff Wife for September”. Petitioner’s September 2010 payment

was an extension of the periodic payments he was making under the circuit court’s

pretrial order, and the judgment required him to continue making these payments

until his payments began under the judgment. Therefore, the September payment

also meets the requirements of section 71 and is deductible as alimony under

section 215.

      The Court has considered all of the arguments made by the parties, and, to

the extent they are not addressed herein, they are considered unnecessary, moot,

irrelevant, or without merit.
                                  - 13 -

[*13] To reflect the foregoing,

                                                 Decision will be entered

                                           for petitioner.
