                  T.C. Summary Opinion 2005-68



                     UNITED STATES TAX COURT



              MARGRET LOUISE KELLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6639-04S.               Filed June 2, 2005.



     Margret Louise Kelley, pro se.

     Beth A. Nunnink, for respondent.



     ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2001,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                  - 2 -

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.

     Respondent determined a deficiency in petitioner’s Federal

income tax for the taxable year 2001 in the amount of $633.

However, prior to trial, respondent filed a motion for leave to

file answer out of time in order to assert an increased

deficiency.   See sec. 6214(a).    Petitioner did not object to

respondent’s motion, and the Court granted it.     Accordingly, the

deficiency at issue in this case is $1,900.

     After a concession by petitioner,2 the only issue for

decision is whether a $16,909 distribution made to petitioner as

an alternate payee under a qualified domestic relations order is

taxable to her as the distributee of such distribution.     We hold

that it is.

                            Background

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

found.

     At the time that the petition was filed, petitioner resided

in Asheville, North Carolina.

     Petitioner and William A. Kelley (Mr. Kelley) were married

in August 1954.   The couple separated on June 11, 1986.

Thereafter, in December 1986, the Superior Court of Orange


     2
        Petitioner concedes that a capital gain distribution of
$138 that she received from Wachovia Securities Inc. is
includable in her income.
                               - 3 -

County, California (the Superior Court), entered a judgment of

dissolution of marriage.

     In June 1962, Mr. Kelley began employment with Aerospace

Corp. of El Segundo, California.   In July 1963, Mr. Kelley became

a participant in the Aerospace Employees’ Retirement Plan

(Retirement Plan).3   Mr. Kelley retired from Aerospace Corp. in

November 1985.

     Incident to the matrimonial action between petitioner and

Mr. Kelley, the Superior Court issued an Order On Division Of

Aerospace Employees’ Retirement Plan Benefits in July 1986.    In

its order, the Superior Court found that Mr. Kelley had earned

benefits under the Retirement Plan, which the court decided were

community property in their entirety.   The Superior Court also

decided that petitioner had a 50-percent interest in those

benefits, and it directed the Retirement Plan to pay petitioner

her community interest in those benefits.   The Superior Court

expressly retained jurisdiction “to make such further orders as

are deemed appropriate to enforce or clarify the provisions of

this order.”

     In December 1992, the Superior Court entered a Stipulated

Qualified Domestic Relations Order (QDRO), which was approved as

to form and content by petitioner and Mr. Kelley, as well as


     3
        Mr. Kelley’s interest in the Retirement Plan was funded
by Aerospace Corp.
                                - 4 -

their attorneys, and the plan administrator of the Retirement

Plan.    The QDRO stated, in relevant part, that petitioner, Mr.

Kelley, and the Superior Court intended that the QDRO be a

qualified domestic relations order within the meaning of the

Internal Revenue Code of 1986, as amended.4    The QDRO also

identified Mr. Kelley as the “plan participant” and petitioner as

the “alternate payee”.    As to petitioner, the QDRO included the

following provisions:

          4. This Order hereby creates and recognizes as to
     the [Aerospace Employees’ Retirement] Plan described
     above the existence of the Alternate Payee’s right as
     of June 11, 1986 to 50% in said Plan, plus any cost of
     living adjustments.

          5. The Alternate Payee elects the SINGLE LIFE
     ANNUITY under the Plan to receive her benefits in the
     Plan created and recognized in Paragraph 4 of this
     Order.

     After entry of the QDRO, petitioner began to receive,

directly from the administrator of the Retirement Plan, her 50-

percent interest in Mr. Kelley’s retirement benefits.     Petitioner

received these benefits through direct deposit to her bank

account on the first of each month.     Shortly after the end of

each calendar year, petitioner also received a Form 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., or similar

     4
        The order also stated that it was “intended to be a QDRO
pursuant to the [California Family Law] Act, and its provisions
shall be administered and interpreted in conformity with the
Act.”
                               - 5 -

statement, from the Retirement Plan reporting the amount of the

distribution.

     During 2001, petitioner received $16,909 pursuant to the

QDRO.   On her return for that year, petitioner disclosed this

amount in its entirety on line 16a, “Total pensions and

annuities”, but reported “0” on line 16b as the taxable amount.

In explanation, petitioner wrote “see addendum (commun. prop.)”

and attached to her return a copy of the Superior Court’s July

1986 order.   Petitioner had consistently followed this approach

for every year that she had received a distribution.

     Respondent contends that the amount actually paid to

petitioner in 2001, i.e., $16,909, is includable, in its

entirety, in petitioner’s income for that year.   Petitioner

contends that she received no property settlement per se in her

divorce from Mr. Kelley and that her community property interest

in his retirement benefits is essentially a “return of capital”

and therefore not taxable.   Petitioner also points out that on

three separate occasions over the years, respondent’s Service

Centers have issued “no change” letters after inquiring into the

status of her interest in Mr. Kelley’s retirement benefits.
                               - 6 -

                            Discussion5

     Generally, under section 402(a), a distribution from a

qualified retirement plan is taxable to the distributee.6

Neither the Code nor the regulations define the term

“distributee”.   The Court, however, has construed the term to

mean the participant or beneficiary who, under the plan, is

entitled to receive the distribution.     Darby v. Commissioner, 97

T.C. 51, 58 (1991); Estate of Machat v. Commissioner, T.C. Memo.

1998-154.   In the present case, Mr. Kelley would be the

distributee because, under the Retirement Plan, he is the

participant or beneficiary who is entitled to receive the

distribution.

     However, section 402(e)(1)(A) provides an exception to the

general rule of section 402(a).   Thus, section 402(e)(1)(A)

provides that for purposes of section 402(a);

     an alternate payee who is the spouse or former spouse
     of the participant shall be treated as the distributee
     of any distribution or payment made to the alternate
     payee under a qualified domestic relations order (as
     defined in section 414(p)).


     5
        We decide the issue in this case without regard to the
burden of proof. See generally sec. 7491(a); Rule 142(a);
INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
     6
        Neither party has raised any issue regarding   the
qualified status of the Retirement Plan. Suffice it    to say that
there is nothing in the record that would lead us to   think that
the employees’ trust is not described in sec. 401(a)   and not
exempt from tax under sec. 501(a).
                               - 7 -

In other words, a distribution made to an alternate payee under a

qualified domestic relations order will be taxable to the

alternate payee, and not to the plan participant or beneficiary,

because section 402(e)(1)(A) treats the alternate payee as the

distributee of the distribution.   Seidel v. Commissioner, T.C.

Memo. 2005-67.

     As relevant herein, section 414(p)(1)(A) defines a

“qualified domestic relations order” as a domestic relations

order “which creates or recognizes the existence of an alternate

payee’s right to, or assigns to an alternate payee the right to,

receive all or a portion of the benefits payable with respect to

a participant under a plan”.   The term “domestic relations order”

means any judgment, decree, or order that relates to the

provision of alimony payments or marital property rights to a

spouse or former spouse of a plan participant and that is made

pursuant to a State domestic relations law, specifically

including a community property law.    Sec. 414(p)(1)(B); see

Dunkin v. Commissioner, 124 T.C.       (2005) (slip op. at 6-7)

(discussing relevant principles of California community property

law).

     In the present case, neither party has raised any issue

regarding the status of the Superior Court’s December 1992 order

as a qualified domestic relations order, and there is nothing in

the record that would lead us to question its status as such.
                              - 8 -

Indeed, the Superior Court’s order expressly states that the

parties and the court intend that it constitute a qualified

domestic relations order within the meaning of the Internal

Revenue Code; moreover, all of the requirements of section

414(p)(1) through (3) appear to be satisfied.   See generally

Brotman v. Commissioner, 105 T.C. 141, 147, 149-150 (1995);

Burton v. Commissioner, T.C. Memo. 1997-20.

     In sum, the $16,909 distribution that was received by

petitioner in 2001 from the Retirement Plan was received by her

as an alternate payee under a qualified domestic relations order.

Accordingly, pursuant to section 402(e)(1)(A), petitioner is

treated as the distributee of the distribution and, pursuant to

section 402(a), the distribution is includable in her income.

     We recognize that from a property perspective, petitioner

might not have taken anything from her 32-year marriage other

than a 50-percent interest in Mr. Kelley’s retirement plan.

Unfortunately for petitioner, this fact does not serve to

overcome the clear mandate of section 402 defining the taxability

of distributions from an employees’ trust.

     Finally, we recognize that on several occasions in the past,

respondent’s Service Centers apparently issued “no change”

letters to petitioner after inquiring into the status of her
                               - 9 -

interest in Mr. Kelley’s retirement benefits.7   Suffice it to say

that the “mere acceptance or acquiescence in returns filed by a

taxpayer in previous years creates no estoppel against the

Commissioner nor does the overlooking of an error in a return

upon audit create any such estoppel.”   Mora v. Commissioner, T.C.

Memo. 1972-123; see Dixon v. United States, 381 U.S. 68, 72-73

(1965); Automobile Club of Mich. v. Commissioner, 353 U.S. 180,

183-184 (1957); McGuire v. Commissioner, 77 T.C. 765, 779-780

(1981).   In other words, even though the Commissioner may have

overlooked or accepted the tax treatment of a certain item on a

taxpayer’s returns for many previous years, the Commissioner is

not precluded from correcting that error on the taxpayer’s return

for a subsequent year.   Garrison v. Commissioner, T.C. Memo.

1994-200 (and cases cited therein), affd. without published

opinion 67 F.3d 299 (6th Cir. 1995).

     In conclusion, we hold for respondent on the disputed issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.




     7
        The record does not disclose what prompted respondent’s
Service Centers to issue the “no change” letters. Perhaps the
Service Centers acted solely on the basis of the Superior Court’s
July 1986 order and without knowledge of the December 1992 QDRO.
However, we need not speculate on this matter because, as
discussed infra in the text, respondent is not estopped from
correcting an error.
                             - 10 -

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

petitioner’s concession,8



                                        Decision will be entered

                                   for respondent in the amount

                                   of the increased deficiency of

                                   $1,900.




     8
         See supra note 2.
