Salzman v. Comm'r

(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 *204 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 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 *205 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 *206 wife did not specifically state 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 *207 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 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 *208 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.