Platt v. Comm'r

50 percent X (12 years and seven months of

  marriage / by total years of employment). ⁴

IT IS FURTHER ORDERED, that if the Defendant voluntarily takes his pension as a lump sum, either before or after retirement, then Defendant shall, upon receipt of *21 * * * said lump sum, pay to the Plaintiff the sum of Twenty-two Thousand Five Hundred Dollars ($ 22,500), with simple interest at the rate of ten (10) percent from July 1, 1983, to the date of payment. [Reproduced literally.]

During 2002, Mr. Bangs received monthly payments from the Baltimore County pension plan. Pursuant to the divorce decree provision in question, shortly after receiving each such monthly payment, Mr. Bangs made the following monthly payments totaling $ 8,803.87 ^5*22 (monthly payments at issue) on the dates indicated by electronic transfers from a joint checking account that he and Ms. Bangs maintained to a checking account of Ms. Platt:

Mr. Bangs and Ms. Bangs timely filed Form 1040, U.S. Individual Income Tax Return (Form 1040), for their taxable year 2002 (Mr. Bangs' return). ⁶ In that return, Mr. Bangs claimed a deduction of $ 8,883 ⁷ for alimony. Mr. Bangs did not issue to Ms. Platt and did not file with the Internal Revenue Service any Form 1099 for a nominee distribution with respect to those payments.

On January 18, 2006, respondent issued to Mr. Bangs a notice of deficiency with respect to his taxable year 2002 (notice for Mr. Bangs' *23 taxable year 2002). In that notice, respondent disallowed the alimony deduction that Mr. Bangs claimed in Mr. Bangs' return. In the notice for Mr. Bangs' taxable year 2002, respondent also determined that Mr. Bangs is liable for his taxable year 2002 for the accuracy-related penalty under section 6662(a).

Mr. Platt and Ms. Platt timely filed Form 1040 for their taxable year 2002. ⁸ In that return, Ms. Platt did not include in income the $ 8,803.87 ⁹ that she received from Mr. Bangs during 2002.

On January 18, 2006, respondent issued to Ms. Platt a notice of deficiency with respect to her taxable year 2002 (notice for Ms. Platt's taxable year 2002). In that notice, respondent determined that Ms. Platt received $ 8,883 ¹⁰ of alimony that is includible in her income for that year. In the notice for Ms. Platt's taxable year 2002, respondent also determined that Ms. Platt is liable for her taxable year 2002 for the accuracy-related penalty under section 6662(a).

OPINION

The parties submitted these cases fully stipulated under Rule 122. That the parties submitted *24 these cases under that Rule does not affect who has the burden of proof or the effect of a failure of proof. ¹¹Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91 (1990), affd. 943 F.2d 22 (8th Cir. 1991).

In support of his argument that the monthly payments at issue are deductible or excludable from his income and includible in Ms. Platt's income for the taxable year 2002, Mr. Bangs advances several arguments. We first address Mr. Bangs' argument that the monthly payments at issue constitute alimony under section 71 and are deductible under section 215(a). Ms. Platt and respondent take the position that those payments are not alimony under that section. ¹²

In advancing their respective positions on brief as to whether the monthly payments at issue constitute alimony under section 71, Mr. Bangs and Ms. Platt rely *25 on section 71 as amended by the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 422(a), 98 Stat. 795(amended section 71). Respondent argues that amended section 71 does not apply to those payments. We agree with respondent. ¹³

Amended section 71 applies with respect to (1) divorce and separation instruments executed after December 31, 1984, and (2) any such instruments executed before January 1, 1985, but modified on or after that date if the modification expressly provides that amended section 71 applies to such modification. *26 DEFRA sec. 422(e), 98 Stat. 798.

In his reply brief, Mr. Bangs argues that section 71 before its amendment by DEFRA does not apply in the instant cases because he and Ms. Platt "effectively stipulated" that amended section 71 applies.^14*27 We reject that argument. We note initially that although Mr. Bangs and Ms. Platt take the position on brief that amended section 71 applies in these cases, they did not stipulate that that section applies. Even if Mr. Bangs and Ms. Platt had stipulated that amended section 71 applies in these cases, the Court is not bound by stipulations of law. See, e.g., Thoburn v. Commissioner, 95 T.C. 132, 144 n.12 (1990).

The Circuit Court for Baltimore County issued the divorce decree on March 2, 1983. The record does not establish that that court modified that decree after that date. On the record before us, we hold that section 71 before its amendment by DEFRA, and not amended section 71, applies in determining whether the monthly payments at issue constitute alimony.

In his reply brief, Mr. Bangs states: "We would agree that if the pre-Tax Reform Act of 1984 version of I.R.C. 71[section 71 before its amendment by DEFRA] is applicable, the Disputed Payments [monthly payments at issue] do not constitute alimony." Mr. Bangs thus concedes that if we were to hold that section 71 before its amendment by DEFRA applies, which we have, the monthly payments at issue do not constitute alimony under that section. Based on Mr. Bangs' concession, we hold that the monthly payments at issue do not constitute alimony under section 71 before its amendment by DEFRA and are not deductible under section 215(a) before its amendment by DEFRA. ¹⁵

We turn now to Mr. Bangs' argument that Ms. Platt was the owner of an interest in the Baltimore County pension plan *28 since the divorce decree ordered him to pay her "if, as, and when he receives each pension payment, that sum which is determined in accordance with the following formula: 50 percent X (12 years and seven months of marriage / by total years of employment)." As a result, according to Mr. Bangs, the monthly payments at issue are excludable from his income and includible in Ms. Platt's income for the taxable year 2002. Ms. Platt and respondent argue that Ms. Platt did not own an interest in the Baltimore County pension plan. ¹⁶ As a result, according to Ms. Platt and respondent, the monthly payments at issue are includible in Mr. Bangs' income and excludable from her income for the taxable year 2002.

Petitioners in each of these cases agree, and respondent does not dispute, that the Baltimore County pension plan constitutes a qualified pension plan within the meaning of section 401(a). ^17*30 Moreover, none of the parties disputes that the Baltimore County pension plan constitutes a governmental plan as defined in section 414(d). ¹⁸ Inexplicably, however, none of the parties addresses section 402(a) in advancing their respective positions as to whether the monthly payments *29 at issue are excludable from Mr. Bangs' income and includible in Ms. Platt's income for the taxable year 2002. ^19*31 That section governs the taxation of distributions from a qualified pension plan. Section 402(a) provides that any amount distributed from a qualified pension plan, including a governmental plan, is generally taxable to the distributee under such a plan.

In Darby v. Commissioner, 97 T.C. 51 (1991), the Court addressed the meaning of the term "distributee" in section 402(a) in the context of a qualified pension plan, which was not a governmental plan (or any other qualified plan) that was not subject to the so-called spendthrift provisions of section 401(a)(13).²⁰ The Court held there that the term "distributee" in section 402(a) ordinarily means the participant or the beneficiary who is entitled under such a plan to receive a distribution. Darby v. Commissioner, supra at 58. In so holding, ^21*33 the Court rejected the taxpayer's argument that the term "distributee" in section 402(a) means the owner of an interest in a qualified *32 pension plan. Id. at 66.

A question arises as to whether the definition of the term "distributee" in Darby v. Commissioner, supra, applies in the instant cases, where the qualified pension plan in question is a governmental plan that is not subject to the spendthrift provisions of section 401(a)(13). ²² We need not resolve that question. *34 That is because, regardless of whether in the context of a governmental plan, such as the qualified pension plan involved in the instant cases, the term "distributee" in section 402(a) means the participant or the beneficiary under such a plan, as the Court held in Darby, or the owner of such a plan, as the parties apparently argue here, on the record before us, we find that for purposes of section 402(a) Mr. Bangs, and not Ms. Platt, was the distributee under the Baltimore County pension plan.

The parties do not dispute *35 (1) that during the year at issue Mr. Bangs, and not Ms. Platt, was a participant under the Baltimore County pension plan and (2) that during that year Ms. Platt was not a beneficiary of an interest in that pension plan. We thus consider only the parties' disagreement over whether Ms. Platt was the owner of an interest in the Baltimore County pension plan.

In support of their respective positions as to whether Ms. Platt was the owner of an interest in the Baltimore County pension plan, the parties rely on the divorce decree provision in question. That provision requires Mr. Bangs to pay an amount determined pursuant to a formula stated therein "if, as, and when" he receives a payment from the Baltimore County pension plan. Contrary to Mr. Bangs' argument, the divorce decree provision in question does not provide that Ms. Platt is the owner of an interest in that plan. ^23*36 Nor has that provision been construed to do so. In fact, the Court of Special Appeals of Maryland concluded that the divorce decree provision in question granted nothing more than a monetary award to Ms. Platt. See Bangs v. Bangs, 59 Md. App. 350, 475 A.2d 1214, 1223 (Md. Ct. Spec. App. 1984).

In Bangs v. Bangs, supra, Mr. Bangs appealed from the divorce decree involved in these cases. In that appeal, Mr. Bangs did not argue, as he does here, that the divorce decree provision in question provided that Ms. Platt was the owner of an interest in the Baltimore County pension plan. Instead, he argued (1) that the Circuit Court for Baltimore County granted Ms. Platt two monetary awards consisting of the payment ordered under the divorce decree $ 32,900 lump-sum payment provision ²⁴ and the payments ordered under the divorce decree provision in question ²⁵ and (2) that the Circuit Court for Baltimore County erred by refusing to place a "cap" or "ceiling" on the latter payments. Id. at 1222-1223.*37

The Court of Special Appeals of Maryland agreed with Mr. Bangs that the payments ordered under the divorce decree $ 32,900 lump-sum payment provision and under the divorce decree provision in question were in the nature of a monetary award, id. at 1223, but disagreed with Mr. Bangs that the Circuit Court for Baltimore County had granted Ms. Platt two separate monetary awards under those two provisions, id. The Court of Special Appeals of Maryland held that the Circuit Court for Baltimore County granted Ms. Platt only one monetary award consisting *38 of the payment ordered under the divorce decree $ 32,900 lump-sum payment provision and the payments ordered under the divorce decree provision in question. Id. at 1222-1223. The Court of Special Appeals of Maryland also disagreed with Mr. Bangs' argument that the Circuit Court for Baltimore County erred by refusing to place a "cap" or "ceiling" on the latter payments. Id. at 1223. According to the Court of Special Appeals of Maryland, the Circuit Court for Baltimore County had broad discretion and did not abuse that discretion by determining a fixed percentage for Ms. Platt of the future payments that Mr. Bangs was to receive from the Baltimore County pension plan. Id. at 1222-1223.

The law of Maryland in effect at the time that the Circuit Court for Baltimore County issued the divorce decree involved in the instant cases provides further support for our finding that the divorce decree provision in question does not provide that Ms. Platt is the owner of an interest in the Baltimore County pension plan. ²⁶ The law of Maryland in effect at that time, Md. Code Ann., Cts. & Jud. Proc. sec. 3-6A-05 (1980 & Supp. 1983)(repealed and recodified as Md. Code Ann., Fam. Law sec. 8 205 by Acts *39 1984, ch. 296, secs. 1 and 2), ^27*40 did not authorize Maryland courts to transfer ownership of an interest in a pension plan as part of a divorce settlement. See generally Klingenberg v. Klingenberg, 342 Md. 315, 675 A.2d 551, 555-556 (Md. 1996). It was not until 1986 that the legislature of the State of Maryland authorized Maryland courts to transfer ownership of an interest in a "pension, retirement, profit sharing, or deferred compensation plan" as part of a divorce settlement. Md. Code Ann., Fam. Law sec. 8-205(a)(2)(i)(West 2007). ^28*41 See generally Klingenberg v. Klingenberg, supra at 555-556.

On the record before us, we find that Ms. Platt was not the owner of an interest in the Baltimore County pension plan. On that record, we further find that, regardless of whether in the context of a governmental plan, such as the qualified pension plan involved in the instant cases, the term "distributee" in section 402(a) means the participant or the beneficiary under such a plan, as the Court held in Darby v. Commissioner, 97 T.C. at 58, or the owner of an interest in such a plan, as the parties apparently argue here, for purposes of that section, Mr. Bangs, and not Ms. Platt, was the distributee under the Baltimore County pension plan, *42 unless the divorce decree qualifies under section 414(p) as a QDRO.

The final argument that Mr. Bangs advances in support of his position in these cases and that we consider now is that the divorce decree involved in these cases qualifies under section 414(p) as a QDRO. If the divorce decree were to qualify as such, Ms. Platt would be an alternate payee ²⁹ under the Baltimore County pension plan. In that event, she would be treated for purposes of section 402(a) as the distributee under that plan of the payments to which she was entitled pursuant to the divorce decree provision in question. See sec. 402(e)(1)(A).

We reject Mr. Bangs' argument that the divorce decree qualifies under section 414(p) as a QDRO. ³⁰The QDRO provisions that Congress enacted in 1984 did not apply to governmental plans. See sec. 414(p)(9); see also supra note 21. In 1989, Congress added section 414(p)(11) to the Code. ^31*44 *43 Omnibus Budget Reconciliation Act of 1989 (OBRA), Pub. L. 101-239, sec. 7841(a)(2), 103 Stat. 2427-2428. Section 414(p)(11) provides that "a distribution or payment from a governmental plan * * * shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirement of clause (i) of paragraph (1)(A)" of section 414(p). ³²Section 414(p)(11) applies only with respect to transfers of marital interests in governmental plans that occur after December 19, 1989. OBRA sec. 7841(a)(3), 103 Stat. 2428.

The Circuit Court for Baltimore County issued the divorce decree involved in the instant cases on March 2, 1983. On the record before us, we hold that section 414(p)(11)*45 does not apply to that divorce decree. On that record, we further hold that the divorce decree involved in the instant cases does not qualify under section 414(p) as a QDRO and that Ms. Platt is not an alternate payee for purposes of section 402(a). Accordingly, we further hold that Ms. Platt is not to be treated as a distributee under the Baltimore County pension plan of the payments to which she was entitled pursuant to the divorce decree provision in question. See sec. 402(e)(1)(A).

Based upon our examination of the entire record before us, we find that the monthly payments at issue are not deductible or excludable from Mr. Bangs' income and are not includible in Ms. Platt's income for the taxable year 2002. ^33*46

We have considered all of the parties' respective contentions and arguments that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.

Decision will be entered for respondent as to the deficiency and for petitioners as to the accuracy-related penalty under section 6662(a) in docket No. 7221-06.