Salzman v. Comm'r , 2007 Tax Ct. Summary LEXIS 201 ( 2007 )

T.C. Summary Opinion 2007-190
UNITED STATES TAX COURT
WILLIAM FRANKLIN SALZMAN II, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2409-07S. Filed November 7, 2007.
William Franklin Salzman II, pro se.
Bruce M. Wilpon, for respondent.
DAWSON, 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
this opinion shall not be treated as precedent for any other
case.
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
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Respondent determined a deficiency of $1,500 in petitioner’s
Federal income tax for 2004. At issue is whether support
payments petitioner made to his former wife in 2004 constitute
alimony as defined by section 71(b) and are thus deductible by
him under section 215(a).
Background
All of the facts have been stipulated and are so found. The
stipulation of facts and the attached exhibits are incorporated
herein by this reference. When the petition was filed,
petitioner resided in San Antonio, Texas.
Petitioner was previously married to Beverly Salzman (his
former wife). Their marriage was dissolved through proceedings
in the District Court of Bexar County, Texas. An Agreed Final
Decree of Divorce (divorce decree) was approved and entered by
that court on October 4, 2002. It included a contractual
agreement between petitioner and his former wife, both having
been represented by counsel, as to spousal support and property
division. Under the heading “Spousal Support”, the divorce
decree provides in pertinent part:
It is ordered that William Franklin Salzman, II, is
obligated to pay and shall pay to Beverly June Salzman
spousal maintenance of $500.00 per month for a period
of no longer than four (4) years, with the first
payment of $250.00 being due and payable on June 1,
2002, and a second payment of $250.00 being due and
payable on June 15, 2002, and thereafter a like payment
of $500.00 being due and payable on the first day of
each month for a period of no longer than four years.
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Neither the agreement nor the divorce decree specifies whether
petitioner’s obligation to make such payments would terminate
upon his former wife’s death.
In 2004 petitioner made “spousal support” payments totaling
$6,000 to his former wife for which he claimed an alimony
deduction on his Federal income tax return for that year.
Respondent disallowed the claimed alimony deduction in the notice
of deficiency.
Discussion2
Petitioner contends that because he always made timely
support payments to his former wife in compliance with his
agreement and the district court’s judgment, he is entitled to
his claimed alimony deduction. To the contrary, respondent
contends that petitioner’s payments do not qualify as alimony
under the Internal Revenue Code.
Section 71(a) provides the general rule that alimony
payments are included in the gross income of the payee spouse.
Section 215(a) provides the complementary general rule that
alimony payments are deductible by the payor spouse in “an amount
equal to the alimony or separate maintenance payments paid during
such individual’s taxable year.”
2
The issue for decision is essentially legal. Therefore, we
decide it without regard to the burden of proof.
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The term “alimony” means any alimony as defined in section
71. Section 71(b) provides in part:
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
includable in gross income * * * 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.
The parties agree that petitioner’s payments to his former
wife satisfied the requirements set out in section 71(b)(1)(A),
(B), and (C). Their disagreement is solely about whether
petitioner’s payments satisfied the provisions of section
71(b)(1)(D); i.e., whether his liability to make payments would
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have terminated in the event of his former wife’s death. If so,
the payments would have been “alimony”. Because we think
petitioner’s payments would not have terminated upon her death,
we agree with respondent that they are not alimony, for the
reasons stated below.
Under section 71(b)(1)(D), if the payor is liable for any
qualifying payment after the recipient’s death, none of the
related payments required will be deductible as alimony by the
payor. See Kean v. Commissioner, 407 F.3d 186, 191 (3d Cir.
2005), affg. T.C. Memo. 2003-163. Whether a postdeath obligation
exists may be determined by the terms of the divorce or
separation instrument or, if the instrument is silent on the
matter, by State law. Morgan v. Commissioner, 309 U.S. 78, 80-81
(1940); see also Kean v. Commissioner, supra at 191. The parties
dispute whether the payments at issue meet the requirements of
section 71(b)(1)(D). They agree that the agreement and divorce
decree do not provide any conditions for the termination of the
payments. Respondent maintains that the payments made by
petitioner to his former wife are not deductible from his income
as alimony under section 215(a) because the obligation to make
the payments does not terminate at the death of either party
under Texas law. Petitioner argues that the payments are
deductible because he intended them to be alimony and because the
agreement reached with his former wife did not specifically state
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that the payments do not terminate upon the death of either of
them.
Although section 71(b)(1)(D), as it was enacted in 1984,
originally required that a divorce or separation instrument
affirmatively state that liability for payments terminates upon
the death of the payee spouse in order to be considered alimony,
the statute was retroactively amended in 1986 so that such
payments now qualify as alimony as long as termination of the
liability would occur upon the death of the payee spouse by
operation of State law. Hoover v. Commissioner, 102 F.3d 842,
845-846 (6th Cir. 1996), affg. T.C. Memo. 1995-183. Petitioner’s
agreement and the divorce decree are silent on whether his
monthly payments of $500 to his former wife, totaling $24,000 for
the fixed 4-year period, would survive her death as a matter of
law. Consequently, our analysis is guided by Texas State law.
Section 7.006 of the Texas Family Code provides for written
agreements incident to divorce:
(a) To promote amicable settlement of disputes in a
suit for divorce or annulment, the spouses may enter into a
written agreement concerning the division of the property
and the liabilities of the spouses and maintenance of either
spouse. The agreement may be revised or repudiated before
rendition of the divorce or annulment unless the agreement
is binding under another rule of law.
Tex. Fam. Code Ann. sec. 7006(a) (Vernon 2006).
Under Texas State law contractual support payments do not
terminate on the death of the former payee spouse absent
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agreement to the contrary shown by the contract or surrounding
circumstances. In Cardwell v. Sicola-Cardwell, 978 S.W.2d 722,
726 (Tex. App. 1998), the State court of appeals, holding that
contractual alimony agreements in Texas are governed by the law
of contracts, and generally survive the death of one of the
parties, stated:
Neither the historical treatment of alimony in Texas, nor
Texas case law, indicates that the general rules of
alimony--i.e., court-ordered spousal support--should
apply to contracts for spousal support, particularly
the rule that alimony presumptively terminates on the
obligor’s death. Cf. Hutchings, 406 S.W.2d at 421
(holding that agreement for periodic child support
payments is governed by law of contracts, and under
contract principles payments survive obligor’s death
absent agreement to contrary shown by provisions of
contract or surrounding circumstances).
While petitioner’s assertions are forthright and appealing,
unfortunately for him the Internal Revenue Code is specific in
its requirements, and by virtue of Texas State law his support
payments to his former wife in 2004 did not meet the requirement
outlined in section 71(b)(1)(D). Accordingly, we hold that
petitioner’s payments made to his wife in 2004 did not satisfy
all the conditions set forth in section 71 and thus are not
properly deductible as alimony for the taxable year in issue.
To reflect the foregoing,
Decision will be entered
for respondent.