                       112 T.C. No. 21



                  UNITED STATES TAX COURT



ESTATE OF MONTE H. GOLDMAN, DECEASED, CAROLE SCHUTTER, f.k.a
   CAROLE GOLDMAN, PERSONAL REPRESENTATIVE, Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



  Docket No. 183-97.                 Filed June 1, 1999.



       On Nov. 12, 1985, H and W executed a Property
  Settlement Agreement (the agreement) in connection with
  their divorce; the agreement was approved by the divorce
  court. Par. 2 of the agreement provides for a division
  of marital property.      Par. 2.2.9 of the agreement
  provides that "In furtherance of the equitable division
  of property" H shall pay W $20,000 a month for 240
  months.   The monthly payments terminate at W's death.
  Par. 6.5 of the agreement provides that all transfers of
  property are to be subject to the provisions of sec.
  1041, I.R.C., and shall be reported on H and W's income
  tax returns "as a non-taxable event".      The agreement
  further provides that both W and H waive spousal support.

       H received an opinion letter from a law firm that
  the $20,000 monthly payments were deductible as alimony.
  On H's 1992, 1993, and 1994 Federal income tax returns,
  the   payments  (totaling   $240,000   per  year)   were
                                     - 2 -


     characterized and deducted as alimony. R determined the
     $240,000 payments H made to W in 1992, 1993, and 1994
     were not alimony and therefore not deductible. R further
     determined that H's estate (H died in January 1995) is
     liable for an accuracy-related penalty under sec.
     6662(a), I.R.C., for 1992, 1993, and 1994.

          Held: In ascertaining the applicability of subpar.
     (B) of sec. 71(b)(1), I.R.C., the divorce or separation
     instrument need not mimic the statutory language of the
     subparagraph. The agreement reflects the substance of
     a nonalimony designation. Consequently, the $20,000
     monthly payments H made to W in 1992, 1993, and 1994 are
     not deductible as alimony.

          Held further: Because H reasonably and in good
     faith relied on the advice of an experienced, competent
     tax counsel, R's determination imposing the sec. 6662(a),
     I.R.C., accuracy-related penalties is not sustained.



     Dan A. Sciullo and Daniel S. Duggan, for petitioner.

     Michael W. Lloyd, for respondent.



     JACOBS,   Judge:     In   the    notice   of   deficiency    respondent

determined the following income tax deficiencies and accuracy-

related penalties:

                                                             Penalty
   Year                    Deficiency                      Sec. 6662(a)
   1992                     $141,645                         $27,779
   1993                       97,891                          19,578
   1994                       57,226                          11,445

After   resolving   a   protective     adjustment    for    the   year    1992

(involving the deduction of expenses of an S corporation which

passed through to Monte H. Goldman), the parties agree that the
                                   - 3 -


amounts of deficiencies and accuracy-related penalties now at issue

are:

                                                             Penalty
   Year                      Deficiency                    Sec. 6662(a)
   1992                        $75,707                       $15,141
   1993                         97,891                        19,578
   1994                         54,793                        10,959

The issues remaining for decision are:             (1) Whether payments of

$240,000 Monte H. Goldman made to Sally Parker during each year in

issue were properly deductible as alimony, and (2) whether a

section 6662(a) accuracy-related penalty is applicable to each year

in issue.

       All section references are to the Internal Revenue Code, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                             FINDINGS OF FACT

       Some of the facts have been stipulated, and the stipulation of

facts is incorporated in our findings by this reference.

       Monte H. Goldman resided in Colorado on January 10, 1995, the

date of his death.   Carole Schutter (formerly Carole Goldman), the

personal    representative    of   the    Estate    of   Monte   H.   Goldman

(hereinafter referred to as petitioner), resided in Colorado at the

time the petition was filed.

       On July 31, 1974, Mr. Goldman and Sally Goldman (presently

known as Sally Parker and hereinafter referred to as Ms. Parker)

married.    They had two children, one born in 1978 and a second in
                                   - 4 -


1979.     On or about November 23, 1983, Mr. Goldman and Ms. Parker

separated and did not live together during the years in issue.

Subsequently, Ms. Parker (plaintiff) filed a Complaint for Divorce

for the dissolution of her marriage to Mr. Goldman (defendant) in

the Family Court of First Circuit, County of Honolulu, State of

Hawaii.    On August 12, 1985, a Final Decree of Divorce was entered.

        Both   Mr. Goldman and Ms. Parker had their own tax, as well as

divorce, counsel.      On November 12, 1985, they executed a "Property

Settlement Agreement" (the agreement) as part of the divorce

proceedings.       The divorce court approved this Agreement.           The

relevant portions of the agreement provide as follows:

                    1.5 Plaintiff and Defendant desire and
               intend by this Agreement to execute a
               complete, final and permanent settlement and
               adjustment of all property, support and other
               financial rights, obligations, interests,
               claims and disputes of every kind and nature,
               arising from, connected with or related to,
               their marital relationship, including, but not
               limited to, the Defendant's contention that
               there is no marital property and Plaintiff's
               claims that there is substantial marital
               property.

     2.    Disposition       of   Marital   Property   and   Separate
     Property:

                    2.1 Plaintiff and Defendant declare that
               they desire to divide the marital assets and
               liabilities so that the division of the
               marital property is equitable. * * *

                    2.2 Subject     to     the     conditions
               hereinafter   set  forth,   Defendant   hereby
               conveys, transfers, and assigns to Plaintiff,
               as her sole and separate property, all of his
                             - 5 -


    right, title       and   interest   in   and       to   the
    following:

        2.2.1     The condominium located at
        0155 Lone Pine Road, Aspen, Colorado
        * * *

           2.2.2     The sum of TWO HUNDRED
           FIFTY THOUSAND DOLLARS ($250,000)
           paid on August 21, 1985, receipt of
           which    the    Plaintiff    hereby
           acknowledges.

           The following sums to be paid on or
           before five o'clock p.m. on August
           28, 1985:

                a.   Three    Million          Seven
           Hundred   Fifty  Thousand         Dollars
           ($3,750,000.00).

                b.   Five     Hundred    Forty
           Thousand Dollars ($540,000.00).

                c.   The sum of Five Hundred
           Fifteen      Thousand       Dollars
           ($515,000.00) payable to John S.
           Edmunds, Plaintiff's attorney, as
           and for attorneys' fees for legal
           services performed by Mr. Edmunds
           and others on behalf of Plaintiff in
           this action.

*      *           *          *         *          *              *

        2.2.9 Further Payments for Property
        Division:

             In furtherance of the equitable
        division of property, Defendant
        shall pay to Plaintiff the sum of
        Twenty Thousand Dollars ($20,000.00)
        per month for a period of 240 months
        commencing August 21, 1985. Receipt
        of the payment of August 21, 1985 is
        hereby acknowledged. These monthly
        payments shall terminate and be
                             - 6 -


              discharged upon death of Plaintiff.
              The obligation contained herein
              shall survive Defendant's death and
              be a lien against his estate.
              Defendant shall have no right to
              prepay these monthly payments.


     *         *       *       *        *        *        *

              6.5 The parties intend and agree that
         all transfers of property as provided for
         herein are subject to the provisions of
         Section 1041, Internal Revenue Code of 1954,
         as amended, entitled, "Treatment of Transfers
         of Property Between Spouses or Incident to
         Divorce", and that they shall be accounted for
         and reported on his or her respective
         individual income tax returns in such a manner
         so that no gain or loss shall be recognized as
         a result of the division and transfer of
         property as provided for herein. Each party
         shall file his or her Federal and State tax
         returns, and report his or her income and
         losses thereon, consistent with the foregoing
         intent of reporting the division and transfers
         of property as a non-taxable event. * * *

              6.6 Plaintiff    shall   pay,  and   hold
         Defendant harmless from, all Federal and State
         income taxes due as a result of the receipt by
         her in 1984 and 1985 of temporary spousal
         support, and on account of the receipt by her
         of unreported income from her separate
         property earned during marriage, in excess of
         losses, deductions and credits attributable
         thereto.

7.       Spousal Support Waiver:

              The parties acknowledge that as a result
         of the funds as and for property division and
         the release of marital rights and claims which
         Plaintiff is to receive as provided for herein
         she   has  no   need   for  spousal   support.
         Plaintiff expressly waives her right to
         spousal support from Defendant.      Defendant
                                 - 7 -


           expressly waives his right to spousal support
           from Plaintiff.

     In 1985, Mr. Goldman made the required payments (totaling

$5,055,000) pursuant to paragraph 2.2.2.

     Pursuant to paragraph 2.2.9 of the agreement, Mr. Goldman paid

Ms. Parker $20,000 per month during each of the years in issue

(totaling $240,000 each year). On his 1992, 1993, and 1994 Federal

income tax returns, he characterized these $240,000 payments as

alimony and took corresponding deductions.      Ms. Parker did not

report these payments as alimony on her 1992-94 returns.

      Mr. Goldman received an opinion letter, dated December 28,

1990, from the law firm of Kornfeld & Franklin of Oklahoma City,

Oklahoma, with regard to the deductibility of the $240,000 payments

on his returns.   This letter advised Mr. Goldman that, pursuant to

the agreement, he was entitled to deduct these payments as alimony.

     In the notice of deficiency, respondent determined that the

$240,000 payments Mr. Goldman made to Ms. Parker in 1992, 1993, and

1994 are not alimony and thus not deductible.    Respondent further

determined that petitioner is liable for the section 6662(a)

accuracy-related penalty for each of the years in issue.

                              OPINION

Issue 1.   Deductibility of Payments Mr. Goldman Characterized as
Alimony

     The   fundamental   issue    involved   herein   concerns   the

characterization of the $20,000 monthly payments Mr. Goldman made
                                      - 8 -


to Ms. Parker during 1992, 1993, and 1994. Petitioner claims these

payments constitute        alimony;   respondent      claims   these   payments

represent a division of marital property. The tax consequences to

both the payor and recipient vary significantly depending upon the

characterization of these payments.

      Generally, property settlements (or transfers of property

between spouses) incident to a divorce neither are taxable events

nor give rise to deductions or recognizable income. See sec. 1041.

On   the   other   hand,   amounts    received   as    alimony   or    separate

maintenance payments are taxable to the recipient (pursuant to

sections 61(a)(8) and 71(a)) and deductible by the payor (pursuant

to section 215(a)) in the year paid.          For tax purposes, the phrase

"alimony or separate maintenance payments" is defined in section

71(b)(1) as any cash payment meeting the following four criteria:

                 (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
                                      - 9 -


             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.

     Section 71 was amended by the Deficit Reduction Act of 1984,

Pub. L. 98-369, sec. 422(a), 98 Stat. 494, 795, to establish an

objective standard to distinguish between a payment received in the

division of property (which is not includable in gross income) and

a payment received as spousal support (which is includable in gross

income). See Hoover v. Commissioner, 102 F.3d 842, 845 (6th Cir.

1996), affg. T.C. Memo. 1995-183; see also H. Rept. 98-432 (Part

2), at 1495 (1984) ("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 and to prevent the deduction of large, one-time lump-

sum property settlements.").

     The parties agree that Mr. Goldman's $20,000 monthly payments

to Ms. Parker satisfy subparagraphs (A), (C), and (D) of section

71(b)(1). Therefore, the dispositive question is whether these

monthly payments satisfy the requirement of subparagraph (B), which

treats   a   payment   as   nonalimony      if   the   governing   divorce   or

separation instrument designates the payment as such.

     In ascertaining the applicability of subparagraph (B) of

section 71(b)(1), we believe the divorce or separation instrument

need not mimic the statutory language of the subparagraph (e.g.,
                                    - 10 -


the instrument need not specifically refer to sections 71 and 215).

Rather, in our opinion, the divorce or separation instrument

contains a nonalimony designation if the substance of such a

designation is reflected in the instrument.

       In   the   instant   case,   the   language       of   the   agreement   is

unambiguous; it clearly makes known that the $20,000 monthly

payments Mr. Goldman made to Ms. Parker constitutes a division of

marital assets and not spousal support. The payments at issue were

made   pursuant    to   paragraph   2.2.9     of   the    agreement,    entitled

"Further     Payments    for   Property      Division".         That   paragraph

specifically states that the $20,000 monthly payments were "In

furtherance of the equitable division of property."                    Moreover,

paragraph 7 of the agreement provides that "as a result of the

funds as and for property division * * * Plaintiff [Ms. Parker]

expressly waives her right to spousal support from Defendant [Mr.

Goldman]." (Emphasis added.)

       The agreement contains a clear, explicit and express direction

that the $20,000 monthly payments are not to be includable in Ms.

Parker's income. See Richardson v. Commissioner, 125 F.3d 551, 556

(7th Cir. 1997), affg. T.C. Memo. 1995-554. The agreement mandates

nonalimony treatment of the payments through paragraph 6.5 of the

agreement which provides that the payments in question are to be

subject to the provisions of section 1041 and reported on the

parties' tax returns as a nontaxable event.
                                      - 11 -


     Reading      the    agreement     from    a     reasonable,         commonsense

perspective, we find that it contains a nonalimony designation

within the     purview    of   subparagraph        (B)    of   section    71(b)(1).1

Consequently, we hold that the $20,000 monthly payments Mr. Goldman

made to Ms. Parker in 1992, 1993, and 1994 constitute a division of

marital property, rather than alimony, and hence are not deductible

by Mr. Goldman for those years.

     We    have   considered    the    remaining         arguments   made    by   the

parties, and to the extent not discussed above, find them to be

without merit.

Issue 2.    Section 6662(a) Accuracy-Related Penalties

     The other issue for decision concerns the applicability of the

section 6662(a) accuracy-related penalties.                    Respondent contends

that Mr. Goldman substantially understated his tax for the years in

issue and is accordingly liable for the penalties.                       Petitioner

disagrees.



     1
           In Hawkins v. Commissioner, 86 F.3d 982 (10th Cir.
1996), the Court of Appeals for the Tenth Circuit, where an
appeal of this case would lie, reversed our decision in 102 T.C.
61 (1994), regarding the specificity requirements of sec.
414(p)(2). The Court of Appeals held that an agreement awarding
petitioner wife $1 million from her husband's pension plan was a
qualified domestic relations order which shifted the income tax
liability to the wife. Although the facts and operative Code
section involved in this case differ from those involved in
Hawkins, our reading of the specificity requirements of sec.
71(b)(1)(B) is analogous insofar as we find that the agreement
made an effective designation without referring expressly to sec.
71 or 215.
                                   - 12 -


     Pursuant to section 6664(c)(1), a section 6662 penalty does

not apply to any portion of an underpayment if reasonable cause

existed and the taxpayers acted in good faith. Pursuant to section

1.6664-4(b)(1), Income Tax Regs., all facts and circumstances must

be examined in order to determine whether a taxpayer acted with

reasonable cause and in good faith.

     Petitioner contends that we should not sustain respondent's

imposition   of   the    section   6662(a)   accuracy-related        penalties

because Mr. Goldman received and relied upon an opinion letter

prepared by experienced tax counsel.          In order to establish good

faith reliance on the advice of an adviser, the taxpayer must prove

that: (1)    He   gave   the   return   preparer   complete    and    accurate

information, (2) an incorrect return was a result of the preparer's

mistakes, and (3) the taxpayer believed in good faith that he was

relying on a competent return preparer's advice.              See Metra Chem

Corp. v. Commissioner, 88 T.C. 654, 662 (1987). These requirements

have been met in this case.             Consequently, we do not sustain

respondent's determination imposing the section 6662(a) accuracy-

related penalties.

     To reflect the foregoing,



                                                     Decision        will   be

                                               entered under Rule 155.
