                    T.C. Summary Opinion 2008-139



                       UNITED STATES TAX COURT



    MICHAEL WAYNE AND JOAN ELIZABETH BEDWELL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18801-06S.              Filed November 3, 2008.



     Michael Wayne Bedwell and Joan Elizabeth Bedwell, pro sese.

     David Q. Cao, for respondent.



   GERBER, Judge:    This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2004, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                 - 2 -

this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $938 deficiency in petitioners’ 2004

Federal income tax.   The deficiency determination was based on

the disallowance of a $6,500 deduction petitioner husband claimed

as alimony on petitioners’ 2004 Federal income tax return.   The

question we consider is whether petitioners are entitled to the

$6,500 alimony deduction.

                            Background2

     Petitioners resided in Texas at the time their petition was

filed.   Petitioner Michael Bedwell (Mr. Bedwell) was married to

petitioner Joan Elizabeth Bedwell (Mrs. Bedwell) during 2004.

Mr. Bedwell was married to Karen Melissa Edwards (Ms. Edwards)

until June 14, 2003, when they were divorced.

     The final divorce decree contained a detailed division of

property between Mr. Bedwell and Ms. Edwards.   Each party was

allowed to retain his or her personal property, and to be

responsible for any debt connected with the delineated personal

property.   Each party was also allowed to keep his or her

individual retirement accounts (IRAs).    Mr. Bedwell was allowed

to keep his real property in Texas and jointly owned real

property in Tennessee.



     2
       The parties’ stipulation of facts and attached exhibits is
incorporated by this reference.
                               - 3 -

     On the basis of testimony and record of the divorce

proceeding, Mr. Bedwell was ordered to pay Ms. Edwards $13,000,

of which $6,500 was payable during 2003 and $6,500 was payable on

either the sale of the jointly owned real property in Tennessee,

or March 1, 2004, whichever was earlier.    The divorce decree does

not specifically denominate the purpose of the $13,000 payment;

i.e., whether it was alimony or a property settlement, or whether

the requirement to make the two annual payments would terminate

upon the death of either party.   The value of the Tennessee real

property was not set forth in the decree, and it was not

designated as the source of the $13,000 in payments to Ms.

Edwards.   In accordance with the divorce decree, Mr. Bedwell made

equal $6,500 payments to Ms. Edwards during 2003 and 2004.

     In connection with the divorce proceeding, the deposition of

Ms. Edwards was taken on December 11, 2002.    Ms. Edwards received

only limited amounts of monthly income.    She was able to live

with friends and incurred only nominal living expenses.    She did

some work at a horse farm in exchange for board and food for her

horses and was rarely paid anything in exchange for her work.

Ms. Edwards was also a substitute aerobics instructor and

occasionally received $15 for teaching a class.    Ms. Edwards had

outstanding debt obligations that relatives and others were

helping to pay.
                               - 4 -

     Petitioners, on March 6, 2005, timely filed their 2004

Federal income tax return on which they claimed as an alimony

deduction the $6,500 payment to Ms. Edwards.

                          Discussion

     The sole question we consider is whether the $6,500 payment

made to Ms. Edwards was alimony or part of a property settlement.

On brief, respondent argues that he bears no burden in this case.

Petitioners have not questioned respondent’s argument and,

instead, argue that the evidence in the record would support our

holding that the $6,500 payment is deductible alimony.

Accordingly, to the extent relevant, petitioners bear the burden

of proof in this proceeding.   See sec. 7491; Rule 142(a).

     Section 215(a) allows a deduction for alimony paid during a

taxable year.   Section 215(b) broadly defines “alimony” as a

payment includable in the gross income of the recipient.     Section

71(b)(1) provides that a payment is “alimony or separate

maintenance” 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
                                  - 5 -

            (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.

     The parties are in agreement that the first three

requirements of section 71(b)(1) are met.      Their disagreement

focuses upon whether the fourth requirement is met.      The question

of whether Mr. Bedwell was required to make the $6,500 payments

after Ms. Edwards’s death is a matter to be decided under the law

of the State of Tennessee.      In an unreported case the Tennessee

court of appeals explained as follows the preference under

Tennessee law for rehabilitative and transitional spousal

support:

       There are four separate classes of spousal support
    in Tennessee, including rehabilitative alimony,1
    alimony in futuro (or periodic alimony),2 alimony in
    solido (or lump-sum alimony),3 and transitional
    alimony.4 Tennessee law recognizes a statutory
    preference for rehabilitative spousal support and
    transitional spousal support. T.C.A. § 36-5-
    101(C)(Supp. 2004) (now § 36-5-121(d)(2)); Bratton v.
    Bratton, 136 S.W.3d 595, 605 (Tenn. 2004); Perry v.
    Perry, 114 S.W.3d 465, 467 (Tenn. 2003); Crabtree v.
    Crabtree, 16 S.W.3d 356, 358 (Tenn. 2000). This
    statutory preference does not entirely displace the
    other forms of spousal support when the facts of the
    case warrant long-term or more open-ended support.
    Aaron v. Aaron, 909 S.W.2d 408, 410 (Tenn. 1995);
    Isbell v. Isbell, 816 S.W.2d 735, 739 (Tenn. 1991).
       1
          T.C.A.   §   36-5-101(d)(1)(C) (Supp. 2004) (now recodified
      at T.C.A.    §   36-5-121).
        2
          T.C.A.   §   36-5-121(f).
        3
          T.C.A.   §   36-5-121(h).
        4
          T.C.A.   §   36-5-101(d)(1)(D) (Supp. 2004) (now recodified
      at T.C.A.    §   36-5-121(g)).
                              - 6 -

Gillespie v. Gillespie, No. E2006-00734-R3-CV, slip op. at 4

(Tenn. Ct. App. Dec. 19, 2006).

    Petitioners argue that the $6,500 payments constituted

rehabilitative or transitional alimony.   Rehabilitative or

transitional alimony terminates upon the death of the recipient.

Tenn. Code Ann. sec. 36-5-101(d)(1) and (2) (Supp. 2004).

Accordingly, if the $6,500 payment is in futuro, transitional, or

rehabilitative alimony under Tennessee law, Mr. Bedwell would be

entitled to a $6,500 deduction, and if it is in solido he would

not be so entitled.

     The Tennessee rehabilitative support and maintenance

statute, in relevant part, provides as follows:

     (d)(1) It is the intent of the general assembly that a
     spouse, who is economically disadvantaged, relative to
     the other spouse, be rehabilitated whenever possible by
     the granting of an order for payment of rehabilitative,
     temporary support and maintenance. Where there is such
     relative economic disadvantage and rehabilitation is
     not feasible in consideration of all relevant factors,
     including those set out in this subsection, then the
     court may grant an order for payment of support and
     maintenance on a long-term basis or until the death or
     remarriage of the recipient except as otherwise
     provided in subdivision (a)(3). Rehabilitative support
     and maintenance is a separate class of spousal support
     as distinguished from alimony in solido and periodic
     alimony. In determining whether the granting of an
     order for payment of support and maintenance to a party
     is appropriate, and in determining the nature, amount,
     length of term, and manner of payment, the court shall
     consider all relevant factors, including:

        (A) The relative earning capacity, obligations,
       needs, and financial resources of each party,
       including income from pension, profit sharing or
       retirement plans and all other sources;
                              - 7 -

        (B) The relative education and training of each
       party, the ability and opportunity of each party
       to secure such education and training, and the
       necessity of a party to secure further education
       and training to improve such party's earning
       capacity to a reasonable level;

        (C)   The duration of the marriage;

        (D)   The age and mental condition of each party;

        (E) The physical condition of each party,
       including, but not limited to, physical disability
       or incapacity due to a chronic debilitating
       disease;

        (F) The extent to which it would be undesirable
       for a party to seek employment outside the home
       because such party will be custodian of a minor
       child of the marriage;

        (G) The separate assets of each party, both real
       and personal, tangible and intangible;

        (H) The provisions made with regard to the
       marital property as defined in § 36-4-121;

        (I) The standard of living of the parties
       established during the marriage;

        (J) The extent to which each party has made such
       tangible and intangible contributions to the
       marriage as monetary and homemaker contributions,
       and tangible and intangible contributions by a
       party to the education, training or increased
       earning power of the other party;

        (K) The relative fault of the parties in cases
       where the court, in its discretion, deems it
       appropriate to do so; and

         (L) Such other factors, including the tax consequences
        to each party, as are necessary to consider the equities
        between the parties.

Tenn. Code Ann. sec. 36-5-101(d)(1) (West 2002).
                               - 8 -

       Transitional alimony was enacted in a 2003 Tennessee

statute, which in pertinent part provides as follows:

       Transitional alimony means a sum of money payable
       by (1) one party to, or on behalf of, the other
       party for a determinate period of time.
       Transitional alimony shall terminate upon the
       death of the recipient and as provided in
       subdivision (a)(3) which provision shall apply to
       transitional alimony * * * . Transitional alimony
       is awarded when the court finds that
       rehabilitation is not necessary, but the
       economically disadvantaged spouse needs assistance
       to adjust to the economic consequences of a
       divorce, legal separation or other proceeding
       where spousal support may be awarded, such as a
       petition for an order of protection.

Tenn. Code Ann. sec. 36-5-101(d)(1)(D) (West 2003).

     Respondent contends the transitional alimony statutory

provision may not have been enacted at the time of the issuance

of the divorce decree.   The provision was to have taken effect

“upon becoming law”.   2003 Tenn. Pub. Acts ch. 305.   Although the

provision contains the statement that it was “signed into law on

August 8, 2003”, there is a legislative amendment to the

provision indicating that chapter 305 was approved by the

Governor on June 11, 2003.   This is significant, because the

divorce decree is dated June 14, 2003.   Id. n.1.

       We have considered the record and conclude and hold that

the $6,500 payment was deductible alimony.   The record presents a

factual pattern that fits within the Tennessee statutory and

caselaw definitions for rehabilitative or transitional support or
                               - 9 -

maintenance.3   We note that Tennessee law contains a statutory

preference for rehabilitative spousal support and transitional

spousal support.   Tenn. Code. Ann. sec. 36-5-101(d)(1)(C) (Supp.

2004).

         The divorce decree contains a detailed division of the

property of the parties.   After the division of property, the

decree provides for payments to Ms. Edwards over and above the

property division.   The evidence in the record shows that Ms.

Edwards was not in a position to support herself and the property

provided for her in the decree was subject to debt and she was

also accruing monthly expenditures (such as expenses for her

horses which were being boarded by others).   In addition, Ms.

Edwards had no means of support other than the nominal amounts

she was earning, which fell far short of her obligations and

incurred expenses.   The $6,500 payments were obviously designed

to temporarily rehabilitate Ms. Edwards’s financial situation and

to give her time to become financially self-sufficient.   To that

effect, the decree of the payments fits exactly within the intent

and definition of rehabilitative alimony, which terminates upon

the death of either party.




     3
        Because we have decided that the rehabilitative provision
applies, it is unnecessary to decide the effective date of the
transitional alimony provision. It is noted, however, that
reliance on the transitional alimony provision would also have
resulted in a holding for petitioners.
                              - 10 -

     Finally, we note that it is highly unlikely that the $6,500

payments were part of the property division.   Each party was

given a substantial amount of property.   The property was their

separate property with the exception of a jointly owned parcel of

realty in Tennessee.   The payments, however, were not conditioned

on the sale of the Tennessee real property, and there is no

indication in the record that the Tennessee property was burdened

by debt, purchased with assets of Ms. Edwards, and/or had any

equity or value.   Accordingly and although the divorce decree

was not specific, the award of the temporary alimony is, under

the facts of this case, not a property settlement.

      To reflect the foregoing,

                                          Decision will be entered

                                    for petitioners.
