                           T.C. Memo. 2000-164



                         UNITED STATES TAX COURT



                   MARILYN J. BAKER, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 3820-99.                         Filed May 22, 2000.



       G. David Johnston, for petitioner.

       Robert W. West, for respondent.



                           MEMORANDUM OPINION

       PAJAK, Special Trial Judge:    Respondent determined

deficiencies in petitioner's Federal income tax and additions to

tax in the following amounts:

            Deficiency       Sec. 6651(a)(1)       Sec. 6654
1994          $1,189              $297                $61
1995           2,749               663                 143
1996           4,785               -                   201
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       Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

       After concessions by petitioner this Court must decide:

(1) Whether the military retirement payments petitioner received

in 1994, 1995, and 1996 pursuant to a divorce agreement

constitute alimony payments includable in gross income; (2) if

the payments are not includable as alimony, whether the payments

constitute annuity or retirement income includable in gross

income; (3) whether petitioner is liable for the section

6651(a)(1) addition to tax for failing to file timely her 1994

and 1995 Federal income tax returns; and (4) whether petitioner

is liable for the section 6654 addition to tax for underpaying

estimated income tax in 1994, 1995, and 1996.

       This case was submitted fully stipulated pursuant to Rule

122.    All of the facts stipulated are so found.   Petitioner

resided in Ozark, Alabama, at the time she filed her petition.

       Marilyn J. Baker (petitioner) was formerly married to Robert

Vernon Baker, Jr. (Mr. Baker).    Mr. Baker was a career military

officer who retired from the U.S. Air Force with the rank of

colonel prior to June 1994.    During 1994, 1995, and 1996, Mr.
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Baker received $41,020, $41,735, and $42,846, respectively, in

military retirement pay.

     Mr. Baker filed a complaint for divorce from petitioner in

the Circuit Court of Calhoun County, Alabama in 1994.     The

parties entered into settlement negotiations.

     On July 21, 1994, petitioner and Mr. Baker were granted a

divorce.   Under the Judgment of Divorce, paragraph 6 titled

PROPERTY SETTLEMENT, reads as follows:

          Beginning June 1, 1994, the Plaintiff shall pay the
     Defendant Fifty (50%) Percent of his monthly gross Military
     Retirement pay from the U.S. Army each month as a property
     settlement until such time as she remarries or co-habitates
     with another person or until her death. In the event the
     Defendant remarries, then she shall receive Twenty-Five
     (25%) Percent of the Plaintiff's monthly gross military
     retirement pay. The said monthly gross retirement pay will
     be the top line of the Plaintiff's LES statement. Said
     payments shall be paid directly to the Defendant's checking
     account by the U.S. Government through the Plaintiff's
     allotment.

Incorporated into the Judgment of Divorce is the Agreement.

Included in paragraph 9 of the Agreement, under the heading of

PROPERTY SETTLEMENT, is a provision substantially similar to

paragraph 6 of the Judgment of Divorce.

     Mr. Baker made payments to petitioner of one-half of his

monthly military retirement income.      After approximately 3

months, the payments were automatically made to petitioner by the

Department of Defense.     Petitioner received payments of $13,560

in 1994, $22,944 in 1995, and $22,944 in 1996.      Mr. Baker
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deducted these amounts as alimony payments on his Federal income

tax returns.   Petitioner did not file Federal income tax returns

for 1994 and 1995.   She timely filed her 1996 return but did not

report the $22,944 payment as income.    Petitioner made no Federal

income tax payments in 1994 or 1996, but $94 was withheld from

her 1995 wages.   Petitioner and Mr. Baker did not live together

in the same household at any time from June 1, 1994, to December

31, 1996.

      Respondent has determined that the military retirement

payments constitute alimony income to petitioner under section

71.   Petitioner contends that the payments she received from the

military retirement plan were in furtherance of a division of

property and should be excluded from her income under section

1041.

      Section 61 defines gross income to mean all income from

whatever source derived, including alimony payments.   Sec.

61(a)(8).   Whether a payment constitutes alimony within the

meaning of section 61(a)(8) is determined by reference to section

71.   Section 71(a) provides that there shall be included in gross

income any amount received as alimony.   Section 71(b)(1) defines

the term "alimony" as any cash payment that meets the following

four criteria:

           (A) such payment is received by (or on behalf of) a
      spouse under a divorce or separation instrument,
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            (B) the divorce or separation instrument does not
       designate such payment as a payment which is not includable
       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 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.

If a payment satisfies all of these factors then the payment is

alimony; if it fails to satisfy any one of these factors then the

payment is not alimony.    Jaffe v. Commissioner, T.C. Memo. 1999-

196.

       In this case, subparagraphs (A), (C), and (D) of section

71(b)(1) are satisfied and are not in dispute.    The issue before

us is whether the payments satisfy the requirement of

subparagraph (B) of section 71(b)(1).    Petitioner contends that

because the military retirement payments are specifically labeled

as a "property settlement", such designation should allow the

payments to be treated as nonalimony under section 71(b)(1)(B).

Respondent contends that the classification of the payments as a

"property settlement" is not a designation that the payments

should be excludable from petitioner's income and non-deductible

by Mr. Baker, and that absent such a designation, section

71(b)(1)(B) is satisfied and the payments are alimony.
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     Prior to 1984, under section 71, only payments that were in

the nature of alimony or support, as opposed to a property

settlement, would be treated as alimony for Federal income tax

purposes.   Hoover v. Commissioner, 102 F.3d. 842, 844-845 (6th

Cir. 1996), affg. T.C. Memo. 1995-183.   The labels assigned to

payments were not determinative in deciding whether a payment

constituted alimony or a division of property.     Hesse v.

Commissioner, 60 T.C. 685, 691 (1973), affd. without published

opinion 511 F.2d 1393 (3d Cir. 1975); Poole v. Commissioner, T.C.

Memo. 1998-147.   Instead, "Whether payments represented support

or property settlement was a question of intent."      Hoover v.

Commissioner, supra at 845.   To determine the parties' intent,

the courts examined various factors, which made the

alimony/nonalimony determination subjective.     Id.

     In the Deficit Reduction Act of 1984, Pub. L. 98-369, sec.

422(a), 98 Stat. 494, 795, Congress amended section 71.       The

purpose behind the amendment was to "eliminate the subjective

inquiries into intent and the nature of payments that had plagued

the courts in favor of a simpler, more objective test".       Hoover

v. Commissioner, supra at 845.    In Nelson v. Commissioner, T.C.

Memo. 1998-268, under section 71 as amended, the Court agreed

with the statement that if "the payments fit within the

definition of alimony for Federal income tax purposes, the
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intended purpose for the payments is of no consequence."     Thus,

we find that the parties' intent in this case, except as

reflected in the divorce or separation instrument itself, is

moot.   We look to the agreements executed by the parties and

reject any arguments based on the settlement negotiations

mentioned above.   The only relevant question is whether the

classification of payments as "property settlement" in the

Agreement or Judgment of Divorce is sufficient to satisfy section

71(b)(1)(B).

     A cash payment satisfies section 71(b)(1)(B) if the divorce

agreement or other instrument does not designate such payment as

a payment which is not includable in gross income under section

71 and not allowable as a deduction under section 215.     This

Court has previously held that the designation in the instrument

"need not specifically refer to sections 71 and 215".     Estate of

Goldman v. Commissioner, 112 T.C. 317, 323 (1999).    However, the

statutory language of section 71(b)(1)(B) does not allow

designations by attenuated implication.    Medlin v. Commissioner,

T.C. Memo. 1998-378.    The "instrument must contain a clear,

explicit and express direction" that the payments are not to be

treated as income.     Richardson v. Commissioner, 125 F.3d 551, 556

(7th Cir. 1997), affg. T.C. Memo. 1995-554.    If there is no

express designation that the payments are not to be treated as
                               - 8 -


income, the payments are considered alimony for Federal income

tax purposes.   Richardson v. Commissioner, supra at 557; Jaffe v.

Commissioner, supra.

      In Estate of Goldman, the divorce instrument classified the

payments in question as a division of property, but unlike the

instruments in the instant case, the divorce instrument in Estate

of Goldman also stated:

       6.5 The parties intend and agree that all transfers of
      property as provided for herein are subject to the
      provisions of Section 1041, * * *, 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.

Estate of Goldman v. Commissioner, supra at 320-321.    We found

that 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."   Id. at 323.   This Court stated that this was

"a clear, explicit and express direction" that the monthly

payments were not to be includable in the recipient's income.

Id.   We held that based on a reading of the agreement from a

reasonable, commonsense perspective, the agreement contained a
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nonalimony designation within the purview of subparagraph (B) of

section 71(b)(1).   Id. at 323-324.

     In this case, the provisions in the Judgment of Divorce and

the Agreement do not specifically address the Federal income tax

consequences of the payments on the parties.      Cf.   Estate of

Goldman v. Commissioner, supra.     Yet petitioner asks that we find

that the classification of a payment as a "property settlement"

is a clear, explicit, and express designation that the payments

are to be nontaxable to petitioner and nondeductible to Mr. Baker

under Federal income tax laws.

     In making our determination, we note that in divorce

instruments parties may characterize payments in different ways,

such as alimony, periodic alimony, alimony in gross, property

settlement, division of property, etc.      The meaning of these

terms may vary from State to State.      Moreover, the effect that

such classifications may have in each State may be dependent upon

the intent of the parties or other factual circumstances.      As we

noted above, Congress specifically revised section 71 in order to

eliminate the subjective inquiries into the nature of payments.

     The label of "property settlement", with no further

clarification, does not clearly inform us that the parties

considered the Federal income tax consequences of the payments

under sections 71, 215, and/or 1041.      To find for petitioner, we
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would have to conclude that the use of the term "property

settlement" designated that the payments would not be taxable

under section 71, nor deductible under section 215.    This would

be a designation by uncertain implication rather than by clear,

explicit, and express direction.

     We find that the labeling of the payments as a “property

settlement”, with nothing more, is not a clear, explicit, and

express direction that the payments are not includable in

petitioner's gross income and are not deductible by Mr. Baker.      A

reasonable, commonsense reading of the instruments does not

establish that there is a nonalimony designation regarding the

Federal income tax implications of the payments.    Therefore,

section 71(b)(1)(B) is satisfied, and the payments are alimony

includable in petitioner's gross income.

     Because the payments are includable in petitioner's gross

income as alimony, we need not address the issue of whether the

payments constitute annuity or retirement income.

     Respondent contends that petitioner is liable for additions

to tax pursuant to section 6651(a)(1) for 1994 and 1995.    Section

6651(a)(1) imposes an addition to tax for the failure to file a

Federal income tax return by its due date, determined with regard

to any extension of time for filing previously granted.

Additions to tax under sections 6651(a)(1) are imposed unless the
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taxpayer establishes that the failure was due to reasonable cause

and not willful neglect.   Sec. 6651(a)(1).    "Reasonable cause"

requires the taxpayer to demonstrate that he exercised ordinary

business care and prudence.   United States v. Boyle, 469 U.S.

241, 246 (1985).   Willful neglect is defined as a "conscious,

intentional failure or reckless indifference."     United States v.

Boyle, supra at 245.   Petitioner provided no evidence regarding

her failure to file her returns for 1994 and 1995.     Accordingly,

we sustain respondent’s determination on this issue.

     We now consider whether petitioner is liable for the

additions to tax under section 6654(a) for underpayments of

estimated taxes for 1994, 1995, and 1996.     Section 6654(c)

imposes a requirement that estimated taxes be paid in

installments.   If a taxpayer fails to pay a sufficient amount of

estimated taxes, section 6654(a) provides for a mandatory

addition to tax in the absence of exceptions not applicable here.

Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980).

Petitioner is liable for the additions to tax under section 6654.



                                    Decision will be entered

                               for respondent.
