Daugharty v. Commissioner
| Decision Date | 29 July 1997 |
| Docket Number | Docket No. 6280-95.,Docket No. 6023-95. |
| Parties | John F. Daugharty and Sarah R. Daugharty v. Commissioner. Faye E. Daugharty v. Commissioner. |
| Court | U.S. Tax Court |
James D. O'Donnell, Jacksonville, Fla., and John W. West III, for the petitioners John F. and Sarah R. Daugharty. Kenneth G. Anderson, James P. Stevens, and John Callender (specially recognized), for the petitioner Faye E. Daugharty. Willie Fortenberry, Jr., for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined the following deficiencies and additions to tax in petitioners' Federal income taxes:
John F. and Sarah R. Daugharty docket No. 6023-95
Year Deficiency
1991 ...................... $4,583
1992 ...................... 8,680
1993 ...................... 8,406
Faye E. Daugherty docket No. 6280-95
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1988 ........ $4,701 $1,175 $302
1989 ........ 4,568 1,142 309
1990 ........ 4,395 1,099 288
1991 ........ 4,208 1,052 241
1992 ........ 3,967 992 171
1993 ........ 3,840 960 160
In order to protect the Government from a potential whipsaw, respondent has taken inconsistent positions in these dockets.
The issues for decision are: (1) Whether payments made by petitioner John F. Daugharty to his former spouse, petitioner Faye E. Daugharty, in the amount of $30,000 per year constitute alimony or, alternatively, a property settlement; and (2) if we find that these payments constitute alimony, whether petitioner Faye E. Daugharty is liable for additions to tax for failure to file a timely return pursuant to section 6651(a)(1) and failure to pay estimated tax pursuant to section 6654 for each of the years in issue in docket No. 6280-95.
Some of the facts have been stipulated and are so found. The stipulation of facts is incorporated herein by this reference. Petitioners John F. and Sarah R. Daugharty and petitioner Faye E. Daugharty all resided in Jacksonville Beach, Florida, when they filed their petitions in these cases.1
John and Faye were married on March 20, 1958, in Atlanta, Georgia. During their marriage, which lasted over 22 years, John and Faye had three children, one of whom was a minor when the marriage dissolved in 1981.
Following his graduation from the University of Georgia in 1958 with a degree in business administration, John was employed in credit and financial related capacities and eventually became manager of General Electric Credit Co.'s finance department, where he served until his retirement.
In or around 1965, John and Faye relocated to Jacksonville, Florida. On August 13, 1970, John entered into a contract to purchase the Landon Imperial Apartments for $155,000. Landon Imperial Apartments is an 80-unit apartment complex located in Duval County, Florida. The contract provided that the seller would convey the property subject to an existing mortgage in the original principal amount of $700,000. The $155,000 that John paid to the seller came from his individual funds. On September 1, 1970, the seller executed a Warranty Deed conveying the apartments to John and Faye. The deed stated that the purchasers were acquiring the property subject to a mortgage from Bisbee-Baldwin Corp.
On January 5, 1981, Faye filed a Petition for Dissolution of Marriage in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida2 (case number 81-112-CA). On February 3, 1981, Faye's and John's marriage was dissolved pursuant to a Stipulation and Final Judgment of Dissolution of Marriage (Stipulation and Final Judgment). The Stipulation provided, in relevant part, as follows:
in order to settle the issues relating to the financial affairs of the parties as to property rights, alimony, custody and support of the minor child of the parties, and in consideration of these promises and of the mutual promises hereinafter set forth, each party hereto accepts and will be bound by the following provisions * * *
The terms of the Stipulation and Final Judgment essentially provided for the following:
(1) Faye would receive custody of the parties' minor child, while John had visitation privileges and was responsible for all the child's expenses.
(2) Faye would receive exclusive possession of the parties' home in Jacksonville, Florida, which was to be placed on the market for sale. John was responsible for mortgage payments, ad valorem real estate taxes, and insurance for up to 1 year while the home was on the market. If the home were sold within this period, John and Faye would each receive one-half of the net equity therein. Following the sale, Faye was to receive all furnishings and furniture.
(3) John would receive from Faye a 2-carat diamond ring.
(4) John was required to make the payments on Faye's automobile for a 1-year period from the date of the agreement.
(5) The parties' Baymeadows Club membership was to be transferred to Faye's name.
(6) John would provide Faye with a gasoline credit card, and he was responsible for the payments thereon for a 6-month period beginning on the date of the agreement.
(7) Faye would convey her interest in the Landon Imperial Apartments, by quitclaim deed, to John.3
(8) Following the execution of the Final Judgment, John would pay Faye $1,000 per month for 12 months or until such time as the jointly owned home was sold, whichever was sooner. During this period, John would make all mortgage payments due on the home. After this period, John would pay Faye $2,200 per month for a period of 12 months. For each succeeding 12-month period, John's monthly obligation to Faye would increase by $100 until it reached $2,500 per month. John would then pay Faye $2,500 per month for the remainder of her life or until such time as she remarried. These payments would stop only upon Faye's remarriage or death. In consideration of the mutual promises made between the parties, John bound his estate to make all payments required to be made under the terms of the agreement.
Pursuant to the Stipulation and Final Judgment, Faye executed a Quit-Claim Deed, dated February 3, 1981, conveying her interest in the Landon Imperial Apartments to John. Beginning in 1981, John paid to Faye the amounts required under the Stipulation and Final Judgment.
Subsequent to entry of the Stipulation and Final Judgment, substantial litigation between John and Faye occurred in the Florida State courts, extending until June 1991.
On October 6, 1981, Faye filed a Motion to Set Aside Property Settlement Agreement and to Cancel Deed in the Fourth Judicial Circuit, in which she argued:
The Wife affirmed her agreement with the terms the Husband had laid down because she was afraid of two possible developments, to-wit: (a) That if she did not take what the Husband was offering she would get nothing or (b) that if the Husband told Mr. Greene [John's attorney] about the bedroom episode, Mr. Greene might tell her Husband about the law on adultery which Mr. Sulik had told her about and if the Husband found out about that, he would give her nothing. * * *
Faye requested the court to set aside the Stipulation and Final Judgment pursuant to rule 1.540(b) of the Florida Rules of Civil Procedure.
On or about October 22, 1981, John filed a Motion to Dismiss. On December 4, 1981, John filed a Supplemental Memorandum in Support of Motion to Dismiss, which stated:
The wife has assumed the mantel of "shotgunning", having no facts, no basis, and after having enjoyed the benefits of a property settlement agreement which leaves her as a very wealthy woman, after one year when she must part with that which she agreed to do, she now has the "sour grapes"
John's motion to dismiss raised several defenses, including a failure to allege sufficient grounds for relief pursuant to rule 1.540(b) of the Florida Rules of Civil Procedure and a failure to file within a reasonable period.
On December 8, 1981, the Fourth Judicial Circuit granted John's motion to dismiss. In its order, the court did not elaborate on the reasons for its decision. This order was affirmed by the District Court of Appeal, First District, State of Florida (District Court of Appeal), in an unpublished per curiam opinion filed August 12, 1982.
On or about January 11, 1982, Faye filed a Motion for Modification and Enforcement of Final Judgment, which contended, among other things, that:
2. The provisions for the Wife in the Final Judgment have proven to be grossly inadequate since the entry of said Final Judgment.
3. The Husband's verbal promises made to the Wife assuring her of adequate monies for her support at all times, as relied on by the Wife, have not been fulfilled.
4. The Husband's income, assets and net worth are now substantially more than the amount shown by his Financial Affidavit filed in evidence February 3, 1981.
Included in the relief requested by Faye was an increase in the monthly payments to her, which her motion referred to as alimony.
On or about January 12, 1982, John filed a Motion to Dismiss in which he argued:
1. That this Court does not have jurisdiction of this matter with reference to seeking of a Motion for Modification for the following reasons:
a. That the Court has lost its jurisdiction with regard to a Motion for Modification at the time of the filing of the Notice of Appeal by the Wife.
b. That the Wife is attempting to modify a property settlement agreement, which is a non-modifiable document under the laws of the State of Florida.
2. That this same matter was argued in a previously filed Motion for Modification with reference to undue influence, the fact the Wife was unable to make ends meet on the documents submitted by her at the...
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