                          T.C. Memo. 1998-147



                        UNITED STATES TAX COURT



  CATHERINE H. POOLE, f.k.a. CATHERINE H. DAMES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4492-97.                           Filed April 22, 1998.



     Marilyn K. Summitt,       Jeffrey B. Kahn, and Joseph M.

Goldstein, for petitioner.

     Alison W. Lehr, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS,   Judge:     By    two   separate   notices   of   deficiency,

respondent determined the following deficiencies in petitioner's

Federal income taxes:
                                             -2-

                        Year                     Deficiency

                        1989                     $16,263
                        1990                      15,814
                        1991                      15,994
                        1992                      13,469
                        1993                       7,455

       Following a concession by petitioner, the issue for decision

is whether payments received by petitioner during the years in

issue from her former husband pursuant to a divorce decree were

alimony or a property settlement distribution. If the payments are

determined to be alimony, then they are taxable to petitioner; if

they are determined to be in the nature of a property settlement,

then they are nontaxable.              For the reasons set forth herein, we

find that the payments are in the nature of alimony.

       All section references are to the Internal Revenue Code.1                   All

Rule       references   are    to    the   Tax     Court   Rules   of   Practice   and

Procedure.

                                    FINDINGS OF FACT

       Some     of   the   facts      have    been    stipulated    and   are   found

accordingly.         The stipulation of facts and the attached exhibits

are incorporated herein by this reference.

       At the time she filed her petition, petitioner resided in

Ponte Vedra, Florida.



       1
          The        Deficit Reduction Act of 1984, Pub. L. 98-369, sec.
422, 98 Stat.        494, 795, extensively changed the alimony rules
effective for        divorce decrees executed after Dec. 31, 1984. This
case involves        sec. 71(a)(1) prior to its revision.
                                     -3-

Background

     Petitioner, known as Catherine H. Poole at the time of trial,

was married to Dr. John R. Ibach, Jr. from March 24, 1959, until

May 27, 1983.     At the start of their marriage, petitioner worked as

a registered nurse, supporting her husband, who was completing his

residency     following    medical     school.   Dr.      Ibach   became    a

cardiovascular surgeon.

     After petitioner gave birth to her first child in 1961, she no

longer   worked    outside   the     home.   Petitioner    and    Dr.   Ibach

subsequently had four more children. Although petitioner primarily

stayed home to raise the children, she also assisted her husband in

his office.

Petitioner's Divorce From Dr. Ibach

     On May 27, 1983, petitioner and Dr. Ibach were divorced by the

Circuit Court in and for Duval County, Florida, in a Final Judgment

of Dissolution of Marriage (the divorce decree).2           Petitioner and

Dr. Ibach submitted separate financial affidavits to the Court,

each dated May 27, 1983: Dr. Ibach reported the current value of

his and petitioner's assets to be $943,750; petitioner reported the




     2
          Attached to the Final Judgment of Dissolution of
Marriage (the divorce decree) was a Stipulation (dissolution
stipulation) between petitioner and Dr. Ibach (entered into on
May 25, 1983), which was adopted and incorporated by reference
into the divorce decree. A substantial portion of the divorce
decree mirrors provisions of the dissolution stipulation.
                               -4-

value of her and Dr. Ibach's net assets to be $1,114,300.3   Thus,

the value of petitioner's and Dr. Ibach's net assets at the date of

their divorce was approximately $1 million.

     The divorce decree states in pertinent part:

               7. As settlement of all claims the Wife
          may have for temporary and permanent alimony,
          Husband shall pay to Wife the lump sum of
          $500,000.00, with interest at 8% per annum on
          the unpaid balance, payable as follows:

               One    hundred   twenty   (120)    monthly
          installments of $6,050.00, and one (1) monthly
          installment of $3,016.53.        Said monthly
          installments shall commence on the 1st day of
          June, 1983, and continue on the first day of
          each month thereafter for the payment period of
          ten (10) years and one (1) month until paid in
          full. The parties' intent is that this is lump
          sum alimony, payable over a period of more than
          ten (10) years as provided in section 71(c),
          Internal Revenue Code. Said sum is not subject
          to modification, is payable regardless of
          Wife's death or remarriage, and shall be
          deductible by Husband and taxable to Wife.
          Provided, however, any of said lump sum
          remaining unpaid at Wife's death shall be paid
          into a trust created by Wife for the benefit of
          the parties' children, with Husband and a
          commercial bank of Wife's choice as co-
          trustees.    It shall not be a claim against
          Husband's estate in the event of his untimely
          death, so long as he maintains the life
          insurance provided for in paragraph 8 hereof,
          and, if not, shall be a claim against his
          estate for the unpaid balance.

               8. Husband shall, within sixty (60) days
          from May 25, 1983, make Wife the sole
          beneficiary of $500,000.00 in life insurance in


     3
          The discrepancy in amounts arises primarily from Dr.
Ibach's reporting total liabilities of $406,000 and petitioner's
reporting total liabilities of $281,000.
                     -5-

order to insure his obligation for lump sum
alimony as set out herein. * * *

     9. During their marriage, the parties
regarded themselves as a joint economic unit
or   partnership   sharing   equally  in   the
ownership of appreciable portions of their
income   and   assets.     Each   participated
diligently in the enhancement of such income
and assets, contributing services, funds,
counsel, ideas and other assistance as
appropriate.    They commingled their incomes
and   applied   themselves   jointly  to   the
accomplishment of joint financial endeavors,
intending that the accumulated fruits of their
joint endeavors would be jointly owned
property (whether held in joint or individual
names). As and [sic] for an equal property
exchange, the parties shall make the following
transfers and payments in an effort to
equitably distribute their estate:

          a) Husband shall pay direct to Wife
the sum of $50,000.00 cash on this date.
Thereafter, Husband shall pay to Wife the sum
of $50,000.00 one year from the date hereof,
and $50,000.00 two years from date hereof, all
without interest.

          b) Husband shall convey to Wife, by
appropriate instrument, all of his right,
title and interest in the property located at
2636 Forest Point Court, Jacksonville, Florida
32217 * * *

          c) Wife shall convey to Husband, by
appropriate instrument, all of her right,
title and interest in the marital home located
at 1362 Mandarin Road, Jacksonville, Florida
32223 * * *

          d) Wife shall convey to Husband by
appropriate instrument, all of her right,
title and interest in and to the following
real property located at 2428 South Ponte
Vedra Boulevard, South Ponte Vedra, Florida *
* *

*     *      *      *       *        *       *
                                           -6-


                  10.   Wife shall forthwith release and
             transfer to the Husband any and all interest
             she has or asserts to the Husband's Profit
             Sharing and Pension Plan and further releases
             any claim to the John R. Ibach, Jr., M.D.,
             P.A. and all of its assets.

                  11.   Wife shall forthwith release and
             transfer to the Husband any and all interest
             she has or asserts to the Husband's Bache
             account and Husband's savings account.

                  12.   Wife shall forthwith release and
             transfer to the Husband any and all interest
             she has or asserts to the Husband's Tax
             Shelter Investments.

             *          *          *             *           *          *         *

                 17. Each party has agreed upon the
            custody, support and visitation of the minor
            children of the parties, and have also agreed
            upon alimony and property settlement * * *

Petitioner also received an automobile valued at $5,000, and Dr.

Ibach agreed to pay for the             minor children's college and graduate

school    education.        Moreover,      petitioner            was    relieved      of   any

liability she had for outstanding loans and joint debts, including

mortgage payments (with the exception of the mortgage on the Forest

Point    Court   property)        and     responsibility            for     the   children's

education.

     Both petitioner and Dr. Ibach were represented by counsel

during the course of their divorce proceedings.

     Between     1989       and   1993,    Dr.       Ibach       made   all   the     payments

required under the terms of the divorce decree, including the
                                 -7-

following principal and interest payments pursuant to Paragraph 7

of the divorce decree:

Year            Total Paid               Principal         Interest

Pre-1989       $405,350.00             $228,517.01       $176,832.99
1989             72,600.00               52,789.10         19,810.90
1990             72,600.00               57,170.57         15,429.43
1991             72,600.00               61,915.70         10,684.30
1992             72,600.00               67,054.67          5,545.33
1993             33,266.53               32,552.95            713.58

       Dr. Ibach also paid petitioner $150,000 pursuant to Paragraph

9a of the divorce decree.

Petitioner's Subsequent Marriages

       On June 14, 1986, petitioner married Thomas Dames and became

known as Catherine H. Dames; this marriage subsequently ended in

divorce.    In 1994, petitioner married Mr. Poole.4

Petitioner's Federal Income Tax Returns

       Petitioner filed joint Federal income tax returns with Mr.

Dames for 1989, 1990, and 1991. She filed Federal income tax

returns for 1992 and 1993 as a single taxpayer.      Petitioner did not

include in income any of the principal Dr. Ibach paid her pursuant

to Paragraph 7 of the divorce decree on any of these returns; she

did, however, report on these returns the interest Dr. Ibach paid

her (with the exception of $713.58 in interest she received from

Dr. Ibach during 1993).




       4
            The record is void as to Mr. Poole's first name.
                                  -8-

     On his 1989-93 income tax returns, Dr. Ibach deducted as

alimony the payments he made to petitioner pursuant to Paragraph 7

of the divorce decree.

Notices of Deficiency

     Respondent sent a notice of deficiency to petitioner and her

former husband Mr. Dames for their 1989-91 tax years, determining

that petitioner improperly excluded from income $72,600 of alimony

payments for each taxable year.    Accordingly, respondent increased

petitioner's taxable income for each year by $50,000.        In the

second notice of deficiency sent to petitioner for her 1992 and

1993 tax years, respondent determined that she improperly excluded

from income $72,600 and $32,553 of alimony income for 1992 and

1993, respectively. Accordingly, respondent increased petitioner's

taxable income by $50,000 and $32,553, respectively, for 1992 and

1993. (These determinations were based upon respondent's view that

Dr. Ibach's payments to petitioner were taxable to her as alimony

up to 10 percent of the principal sum in each year.)

                             OPINION

     The issue for decision is whether payments Dr. Ibach made to

petitioner pursuant to Paragraph 7 of the divorce decree during the

years in issue were alimony or a property settlement.    Petitioner

contends that the payments were nontaxable, lump-sum installment

payments of a property settlement, not in the nature of support.

Respondent disagrees.
                                      -9-

      Section 71(a)(1) sets forth the requirements for inclusion in

gross income of payments received pursuant to a decree of divorce

or separate maintenance.         In sum, the payments are includable in

income if: (1) The payments are periodic; (2) the payments arise

because of a marital or family relationship; (3) the payments are

made pursuant to a decree of divorce or separate maintenance or

pursuant to a written instrument incident thereto; and (4) the

payor is under a legal obligation to make the payments.

      With respect to the instant case, the requirements that

payments be made pursuant to a decree of divorce and that the payor

be under a legal obligation to make the payments are not in issue.

The divorce     decree    of   the   Duval   County   Circuit   Court,   which

incorporated the dissolution stipulation of petitioner and Dr.

Ibach, satisfies these requirements.          Nor is any problem presented

regarding the classification of the payments as periodic.                Under

the   general   rules    of    section   71(c)(1),    installment   payments

discharging a principal sum obligation, as opposed to continuing

payments of an indefinite duration, are not treated as periodic

payments.   See also sec. 1.71-1(d)(1), Income Tax Regs.             Section

71(c)(2) provides a statutory exception to the general rule of

section 71(c)(1).        Subject to a percentage limitation,5 section


      5
          The limitation of sec. 71(c)(2) is that "the
installment payments shall be treated as periodic payments for
purposes of subsection (a), but (in the case of any one taxable
year of the wife) only to the extent of 10 percent of the
principal sum."
                               -10-

71(c)(2) permits installment payments of a principal sum obligation

to be treated as periodic payments if the period for payments

extends more than 10 years beyond the date of the decree or

agreement.   See Warnack v. Commissioner, 71 T.C. 541 (1979).   That

is the case herein.6   All other requirements of section 71(a)(1)

having been met, the decisive question is whether the payments were

made "because of the marital or family relationship".      For the

reasons set forth below, we believe they were.

     The statutory phrase "payments * * * [imposed] because of the

marital or family relationship" requires that the payments be in

the nature of support rather than property settlement.    Beard v.

Commissioner, 77 T.C. 1275, 1283 (1981); Martin v. Commissioner, 73

T.C. 255, 265 n.2 (1979); sec. 1.71-1(b)(4), Income Tax Regs.

Payments that are part of a property settlement are capital in

nature and, therefore, are not deemed alimony subject to the

provisions of section 71.    Gammill v. Commissioner, 73 T.C. 921

(1980), affd. 710 F.2d 607 (10th Cir. 1982).

     In evaluating whether a particular payment constitutes support

or property settlement, the labels assigned to the payments are not

determinative. Id.; Hesse v. Commissioner, 60 T.C. 685, 691 (1974),

affd. without published opinion 511 F.2d 1393 (3d Cir. 1975).    In

deciding the character of an award in a divorce or separation

     6
          The principal sum of the payments petitioner received
was $500,000. Petitioner was therefore treated by respondent as
if she had received alimony of no more than $50,000, or 10
percent of the principal sum, during each of the years at issue.
                                       -11-

decree,   great    weight   is   given,      however,      to   the   language    and

structure of the decree. Griffith v. Commissioner, 749 F.2d 11, 13

(6th Cir. 1984), affg. T.C. Memo. 1983-278.                      In addition, an

examination of surrounding facts and circumstances may be required.

Yoakum v.     Commissioner,      82   T.C.    128,   140    (1984);     Gammill    v.

Commissioner, supra.

      This Court has frequently looked to State law in considering

whether payments between spouses constitute alimony or a property

settlement.       See Yoakum v. Commissioner, supra at 136. Under

Florida law, following the termination of a marital relationship,

the   financially    advantaged        spouse   must    provide       support     and

maintenance for the financially disadvantaged spouse.                   Fla. Stat.

Ann. sec. 61.08 (West 1985). Clearly, in this case, petitioner was

the financially disadvantaged spouse. Under Florida law, Dr. Ibach

was obligated to make payments to petitioner for her support.                     We

believe he did so pursuant to Paragraph 7.

      Moreover, there was an equitable property division between

petitioner and Dr. Ibach.             Excluding the Paragraph 7 payments,

there was almost an equal division of their property.                 See Eckroade

v. Eckroade, 570 So. 2d 1347, 1349 (Fla. Dist. Ct. App. 1990).

However, although "State law defines property rights, Federal law

determines the tax consequences which attend these defined rights."

Williams v. Commissioner, T.C. Memo. 1993-163 (citing Sampson v.

Commissioner, 81 T.C. 614, 618 (1983), affd. without published

opinion 829 F.2d 39 (6th Cir. 1987)).
                                  -12-

     This Court looks to the following factors which indicate that

payments are in the nature of a property settlement rather than a

support allowance: (1) The parties in their agreement (or the court

in its decree) intended the payments to effect a division of their

assets; (2) the recipient surrendered valuable property rights in

exchange for the payments; (3) the payments are fixed in amount and

not subject to contingencies, such as the remarriage or death of

the recipient; (4) the payments are secured; (5) the amount of the

payments plus the other property awarded to the recipient equals

approximately one-half of the property accumulated by the parties

during marriage; (6) the needs of the recipient were not taken into

consideration in determining the amount of the payments; and (7) a

separate provision for support was provided elsewhere in the decree

or agreement.    Benedict    v. Commissioner, 82 T.C. 573, 577-578

(1984); Beard v. Commissioner, supra at 1284-1285.           Failure to

satisfy one or more of the factors articulated herein may tend to

indicate that the payments in question are more in the nature of a

support allowance.     See Beard v. Commissioner, supra at 1285.

     Applying the above factors, we conclude that Dr. Ibach's

payments to petitioner were in the nature of alimony. Our analysis

of the factors in reaching our conclusion is as follows.

     With regard to the first factor, we believe the agreement was

intended to be a comprehensive and final settlement of all issues

regarding   custody,   support,   visitation,   alimony,   and   property

settlement between petitioner and Dr. Ibach.      Paragraph 9 provides
                                    -13-

for a division of the assets of petitioner and Dr. Ibach ("the

parties shall make the following transfers and payments in an

effort to equitably distribute their estate").             The only payments

at issue, however, are those pursuant to Paragraph 7.

        As indicated, great weight is given to the language and

structure of the decree.     See Griffith v. Commissioner, supra. The

language of Paragraph 7 is explicit:

            As settlement of all claims the Wife may have
            for temporary and permanent alimony, Husband
            shall pay to Wife the lump sum of $500,000 * *
            * The parties' intent is that this is lump sum
            alimony, payable over a period of more than
            ten (10) years as provided in section 71(c),
            Internal Revenue Code. Said sum * * * shall be
            deductible by Husband and taxable to Wife.

This factor favors treating the payments as alimony.

        With regard to the second factor, petitioner surrendered

valuable property rights valued at or greater than $500,000,

including: The Mandarin Road marital home; the South Ponte Vedra

beach    house;   Dr.   Ibach's    profit    sharing   and    pension   plan;

investments; and tax shelters.       However, once she relinquished her

rights to these properties under Paragraphs 9c, 9d, 10, 11, and 12,

it does not appear that she had any further rights in tangible

property    to    exchange   for   the     Paragraph   7   payments.     See

Schottenstein v. Commissioner, 75 T.C. 451, 461 (1980). Thus, this

factor favors treating the payments as alimony.
                                   -14-

     With regard to the third factor, the payments were fixed in

amount and were not subject to contingencies.        This factor favors

treating the payments as part of a property settlement.

     With regard to the fourth factor, although the total amount of

the installment payments was not secured, in the event of Dr.

Ibach's early death, petitioner was entitled either to have a claim

against his estate or receive proceeds of his life insurance.          This

factor   favors   treating   the   payments   as   part   of   a   property

settlement.

     With regard to the fifth factor, at the time petitioner and

Dr. Ibach divorced, their net assets were valued at approximately

$1 million. Petitioner received $150,000 pursuant to Paragraph 9a,

the Forest Point Court house valued at $173,000, and a car valued

at $5,000.    Moreover, petitioner was relieved of loan obligations

totaling at least $120,000 as well as her obligations to educate

her children.     The $448,000 total petitioner received is exclusive

of the Paragraph 7 payments.       Thus, the amount of the Paragraph 7

payments plus the other property awarded to petitioner exceeded

one-half of the property accumulated by petitioner and Dr. Ibach

during their marriage. This factor favors treating the payments as

alimony.

     With regard to the sixth factor, petitioner was financially

dependent upon Dr. Ibach for 24 years.        Petitioner and Dr. Ibach

submitted separate financial affidavits to the divorce court.

There appears to be a correlation between the amount of monthly
                                      -15-

expenses petitioner incurred ($4,931.09) and the amount of monthly

payments Dr. Ibach made ($6,050).               We believe that petitioner's

needs were considered when the amount of the Paragraph 7 payments

was determined.      Thus, this factor favors treating the payments as

alimony.

        Finally,    with   regard   to    the   seventh    factor,      petitioner

concedes that no separate provision for support was provided

elsewhere in the divorce decree or dissolution stipulation. This

factor favors treating the payments as alimony.

        Considering all the facts and circumstances and the above

Beard    factors,    we    give   great   weight    to    the   clear    language,

structure,    and    intent   of    the   divorce    decree     and   accordingly

conclude that petitioner and Dr. Ibach intended to provide support

and alimony for petitioner in Paragraph 7 of the divorce decree.

Thus, we hold that the payments pursuant to Paragraph 7 are in the

nature of alimony and therefore taxable to petitioner to the extent

of 10 percent of the principal amount for each of the years in

issue.

        To reflect the foregoing, and the concessions by petitioner,



                                                    Decision will be entered

                                             for respondent.
