                  T.C. Summary Opinion 2006-82



                     UNITED STATES TAX COURT



                  MARK E. PICOU, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 10879-05S, 24363-05S.    Filed May 22, 2006.


     Mark E. Picou, pro se.

     Michael W. Bitner, for respondent.



     ARMEN, Special Trial Judge:   These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petitions were filed.1   The

decisions to be entered are not reviewable by any other court,

and this opinion should not be cited as authority.


     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2002
and 2003, the taxable years in issue. All monetary amounts are
rounded.
                                - 2 -

     Respondent determined deficiencies in petitioner’s Federal

income taxes for the taxable years 2002 and 2003 of $2,441 and

$2,740, respectively.

     After petitioner’s concession,2 the issue for decision is

whether mortgage payments made by petitioner in 2002 and 2003 in

respect of the former marital residence in which petitioner’s

former wife retained no possessory or equitable interest are

deductible as alimony.   We hold that they are not.

                             Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.

     At the time that the petitions were filed, petitioner

resided in Ste. Genevieve, Missouri.

     Petitioner and his former wife, Terri Picou (Ms. Picou),

married in May 1989.    During their marriage, petitioner built the

marital home at 13221 Lakewood Drive (Lakewood home).   Petitioner


     2
        Petitioner concedes that the amounts deducted as alimony
were overstated. For 2002, the amount deducted as alimony
included home mortgage interest of $6,061, which he also deducted
on Schedule A, Itemized Deductions, of his 2002 return.
Similarly for 2003, the amount deducted as alimony included home
mortgage interest of $3,896, which he also deducted on Schedule A
of his 2003 return. The parties did not address whether the
amounts that petitioner claimed as alimony also included real
estate taxes that he deducted on Schedule A in the amount of $911
and $846 for 2002 and 2003, respectively. See Zampini v.
Commissioner, T.C. Memo. 1991-395. In any event, respondent did
not disallow any deductions claimed by petitioner on either
Schedule A.
                               - 3 -

and Ms. Picou financed the construction of the Lakewood home with

funds from petitioner’s separate personal property and a first

and second mortgage from Union Planters Bank.    Petitioner and Ms.

Picou were both liable as coborrowers for the mortgages, and both

parties were named as joint owners on the title deed.

     On May 1, 1997, petitioner and Ms. Picou separated, at which

time Ms. Picou permanently moved out of the Lakewood home.   At

all relevant times, petitioner has continued to reside in the

Lakewood home.

     On May 21, 1998, petitioner and Ms. Picou were divorced

pursuant to a Judgment And Decree of Dissolution of Marriage

(divorce decree) entered by the Circuit Court of Sainte Genevieve

County of Missouri.   The divorce decree directed, in pertinent

part, as follows:

     8.   Maintenance is denied to each party

     9.   Petitioner [Mark E. Picou] is awarded the
     following marital property:
          A. House at 13221 Lakewood Drive, Ste. Genevieve, MO;

                 *    *    *     *     *     *      *

     11. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
     Petitioner shall pay the following debts and
     obligations of the marriage and that the sums to be
     paid by Petitioner are in the nature of support to
     Respondent [Ms. Picou] and that same shall be non-
     dischargeable in any action for bankruptcy which
     Petitioner may file:
          A.   First mortgage on house at 13221 Lakewood
     Drive, Ste. Genevieve, MO, in the amount of $83,000.00;
          B.   Second mortgage on house at 13221 Lakewood
     Drive, Ste. Genevieve, MO, in the amount of $14,500.00
     * * * [Emphasis added.]
                               - 4 -

The purpose of paragraph 11 was to protect Ms. Picou “from any

bad debt”; in particular, to protect Ms. Picou from sole personal

liability in the event that petitioner filed for bankruptcy and

Union Planters Bank sought recourse against her for the Lakewood

home mortgages.   There was no subsequent modification to the

divorce decree.

     As part of the divorce action, Ms. Picou delivered to

petitioner a quitclaim deed conveying all of her right, title, or

interest in and to the Lakewood home.

     In July 1999, petitioner filed for bankruptcy under chapter

13 of the Bankruptcy Code and received a discharge in July 2004.

As part of the bankruptcy plan, the bankruptcy trustee garnished

petitioner’s wages and used the funds to pay petitioner’s debts,

including the mortgage payments to Union Planters Bank.   The

bankruptcy trustee made mortgage payments of $13,176 and $11,780

in 2002 and 2003, respectively, to Union Planters Bank on behalf

of petitioner.3

     In October 2005, petitioner refinanced the first and second

mortgages held by Union Planters Bank with another financial

institution, and he became the only borrower listed on the new

mortgage for the Lakewood home.   The refinance extinguished any



     3
        Respondent does not dispute that the payments made by the
bankruptcy trustee constituted payments made by petitioner.
                                - 5 -

continuing personal liability that Ms. Picou might have had in

respect to the Lakewood home.

     Petitioner timely filed Federal income tax returns for 2002

and 2003.    On each return, petitioner claimed a deduction for

alimony payments to Ms. Picou in the amount of $14,448.4   On the

Schedules A, Itemized Deductions, attached to his 2002 and 2003

returns, petitioner deducted home mortgage interest in the

amounts of $6,061 and $3,896, respectively.    For both years, the

amounts claimed as a deduction for alimony payments included the

amounts claimed as home mortgage interest.    See supra note 2.

     In the notices of deficiency, respondent disallowed

petitioner’s claimed alimony deductions.    In the notice of

deficiency for the taxable year 2002, respondent determined that

petitioner

     cannot take a [alimony] deduction if you are the
     occupant of the home in which you state you are paying
     the mortgage payments. Records show you also took the
     mortgage interest on your Schedule A for the same home.
     You cannot take the deduction twice. Your decree on
     page 6 paragraph 8 states maintenance is denied by each
     party. Page 7 paragraph 11 states that you are to pay
     the following debts & obligations that [are] in the
     nature of support, not Alimony.




     4
        There is no explanation in the record for the discrepancy
between the amounts petitioner deducted as alimony on his returns
and the total mortgage payments made by Union Planters Bank of
$13,176 and $11,780 for 2002 and 2003, respectively.
                                - 6 -

In the notice of deficiency for the taxable year 2003, respondent

determined that petitioner “did not establish that the amount

shown was (a) alimony and (b) paid”.

                              Discussion5

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

during the payor’s taxable year.     Section 215(b) defines alimony

as payment which is includable in the gross income of the

recipient under section 71.    Section 71(b) provides a four-step

inquiry for determining whether a cash payment is alimony.

Section 71(b) provides:

          SEC. 71(b). Alimony or Separate Maintenance
     Payments Defined.–-For purposes of this section--

               (1) In general.--The term “alimony or
          separate maintenance payment” 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,


     5
        We need not decide whether sec. 7491, concerning burden
of proof, applies in this case because petitioner did not allege
that sec. 7491 was applicable, and the issue is essentially legal
in nature. See Higbee v. Commissioner, 116 T.C. 438 (2001).
                               - 7 -

                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 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.

     Petitioner contends that the mortgage payments were alimony

because the divorce decree specifically called the payments

“support”.   Respondent, on the other hand, contends that the

payments were for personal living expenses; that is, mortgage

payments on petitioner’s personal residence, which was awarded to

him pursuant to the divorce decree.    The resolution of this issue

therefore turns on whether the mortgage payments constituted

alimony or a property settlement.

     We observe that in deciding the character of an award in a

divorce or separation decree, we give great weight 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.

Whether payments represent support or a property settlement,

however, is not controlled by the labels assigned to the payments

by the court in the divorce decree.     Beard v. Commissioner, 77

T.C. 1275, 1283-1284 (1981), and cases cited therein.    The

determination depends upon all of the surrounding facts and
                                 - 8 -

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

Beard v. Commissioner, supra at 1284.     Finally, it is well

settled that State courts by their decisions cannot determine

issues of Federal tax law.   See Commissioner v. Tower, 327 U.S.

280 (1946); Neal v. Commissioner, T.C. Memo. 1999-97; Nieto v.

Commissioner, T.C. Memo. 1992-296.

     Although paragraph 11 of the divorce decree labeled the

mortgage payments “in the nature of support”, paragraph 8

specifically stated that “Maintenance is denied to each party”.

It thus appears that the mortgage payments are not alimony or

separate maintenance payments.    Petitioner admitted that the

intent and purpose of paragraph 11 was to protect Ms. Picou from

becoming personally liable for the mortgages in the event that he

filed for bankruptcy.   Clearly, Ms. Picou had no interest in the

Lakewood home after the divorce:    she relinquished her interest

in the Lakewood home by quitclaim deed as part of the divorce

action in exchange for the guarantee that petitioner would pay

the mortgages and expeditiously refinance the mortgages in his

name alone to extinguish any continuing personal liability that

she might have on the mortgages.    Under these circumstances, the

provision in respect to the mortgage payments appears to be more

in the nature of a property settlement.

     In any event, we are not persuaded that the mortgage

payments conferred a benefit on Ms. Picou by virtue of relieving
                                 - 9 -

her of her obligation to pay her one-half of the mortgage because

of the fact that petitioner was the sole owner and the sole

occupant of the Lakewood home.    In Taylor v. Commissioner, 45

T.C. 120, 123 (1965), former husband and wife jointly owned the

marital property, and both were personally liable on the mortgage

loan.   Pursuant to their divorce decree, the wife was entitled to

reside in the marital home, and the husband was directed to make

the mortgage payments.   The husband then deducted the mortgage

payments as alimony.   The Court held that he was entitled to

claim one-half of the mortgage payment as an alimony deduction

because each payment pro tanto discharged the wife’s legal

obligation to the lender and relieved her of her obligation to

contribute.   Unlike the taxpayer in Taylor, however, petitioner

in the instant cases was the sole owner and the sole occupant of

the Lakewood home pursuant to the divorce action.   Although

petitioner’s payment of the mortgage may have relieved Ms. Picou

from her one-half legal obligation to the lender, it did not

confer any direct economic benefit to Ms. Picou because she was

no longer an owner or resident of the Lakewood home by virtue of

the divorce decree.    See Leventhal v. Commissioner, T.C. Memo.

2000-92 (holding that the taxpayer was entitled to an alimony

deduction for one-half of the mortgage payments on the marital

home that was solely owned by the former wife in which the

parties equally split residency of the marital home until it was
                               - 10 -

sold).    Indeed, the payments served only to increase the value of

the Lakewood home, which benefit inured exclusively to petitioner

as the sole owner.    See Stiles v. Commissioner, T.C. Memo. 1981-

711.

       Under the facts and circumstances of this case, we conclude

that the mortgage payments do not constitute alimony.

Accordingly, we sustain respondent’s determination.

                             Conclusion

       Reviewed and adopted as the report of the Small Tax Case

Division.

       To reflect our disposition of the disputed issue, as well as

petitioner’s concession, see supra note 2,



                                     Decisions will be entered

                                for respondent.
