Rood v. Comm'r of Internal Revenue, T.C. Memo. 2012-122

• Decision Date: 25 April 2012
• Docket Number: Docket No. 20817-09.,T.C. Memo. 2012-122
• Parties: DANIEL W. ROOD AND REBECCA ROOD, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

DANIEL W. ROOD AND REBECCA ROOD, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2012-122

Docket No. 20817-09.

UNITED STATES TAX COURT

Filed April 25, 2012.

A. Brian Phillips, for petitioners.

Randall B. Childs, for respondent.

MEMORANDUM OPINION

GOEKE, Judge: This matter is before the Court on respondent's motion for summary judgment pursuant to Rule 121.¹ Respondent contends that no genuineissue exists as to any material fact and that the determination to deny petitioners' deduction for alimony payments should be upheld. The issue for decision is whether certain payments by petitioners qualified as deductible alimony in accordance with section 71(b)(1).

For the reasons stated below, we shall grant respondent's motion for summary judgment.

Background

At the time the petition was filed, petitioners resided in Orlando, Florida. On June 3, 1995, Daniel Rood married Ida Wozniak in Orlando, Florida. No children were born of the marriage. In 2002 Mr. Rood and Ms. Wozniak filed a dissolution of marriage action in Orange County, Florida. During the course of their divorce proceedings Mr. Rood and Ms. Wozniak entered into negotiations regarding settlement. As part of these negotiations, Ms. Wozniak's attorney sent a letter dated December 17, 2002, to Mr. Rood's attorney proposing a settlement offer, including a provision whereby--

The Husband shall pay to the Wife the sum of $5,000.00 a month for as long as she continues to be enrolled at Rollins College to complete her degree as planned, but no longer than a period of five (5) years.

Thereafter, Mr. Rood's attorney sent a letter to Ms. Wozniak's attorney stating--

The following items have been proposed by my client [Mr. Rood] as also being agreeable to your client [Ms. Wozniak], revised as follows: * * * This amount of $5,000.00 per month for as long as the Wife continues to be enrolled at Rollins College to complete her degree as planned, but no longer than a period of sixty (60) months beginning thirty days after the entry of the Final Judgment, by way of income deduction order, is non-modifiable.

On February 4, 2003, Mr. Rood and Ms. Wozniak entered into a marital property settlement agreement (MSA). Pursuant to the MSA Mr. Rood received the marital residence in exchange for a $100,000 payment to Ms. Wozniak. Furthermore, Mr. Rood had to pay Ms. Wozniak $100,000 "toward equitable distribution of the marital assets." Moreover, paragraph 21 of the MSA states--

The Respondent/Husband shall pay non-modifiable lump sum alimony in the amount of $300,000.00 to the Petitioner/Wife at the rate of $5,000.00 per month for a period of 60 months, by Income Deduction Order, beginning thirty days after the entry of the Final Judgment.

The divorce between Mr. Rood and Ms. Wozniak became final on February 18, 2003, upon a final judgment of dissolution of marriage (final judgment) issued by the Ninth Judicial Circuit Court for Orange County, Florida (county court). Paragraph 3 of the final judgment incorporates the MSA, and paragraph 7 of the final judgment states--

The Husband shall pay to the Wife as non-modifiable lump sum alimony the sum of THREE HUNDRED THOUSAND ($300,000.00) AND NO/100 DOLLARS payable monthly in the amount of FIVE THOUSAND DOLLARS ($5,000) AND NO/100 DOLLARS beginning March 15, 2003, and continuing each month thereafter for sixty (60) months until paid in full. The said alimony shall be paid by Income Deduction Order to the Wife.

Also included in the final judgment was a provision stating that the county court "retains jurisdiction of the parties hereto and the subject matter hereof for the purpose of enforcement of obligations as between the parties." The county court also issued an income deduction order to Mr. Rood's employer. The income deduction order instructed Mr. Rood's employer to withhold amounts from Mr. Rood's paycheck and pay to the Florida Department of Revenue "[n]on-modifiable lump sum alimony in the amount of $300,000.00 payable at the rate of $5,000.00 per month for sixty (60) months beginning March 15, 2003 until February 15, 2008 or until notified that said amount has been paid in full".

Mr. Rood subsequently married Rebecca Rood. Petitioners filed a joint income tax return for the 2006 tax year claiming an alimony deduction of $60,063 for payments made to Ms. Wozniak during 2006. Respondent examined petitioners' 2006 income tax return and determined that the payments were not deductible. Therefore, respondent determined a $21,442 deficiency in petitioners'income tax. Petitioners timely filed a petition with this Court, and respondent filed a motion for summary judgment.

Discussion

I. Summary Judgment

Summary judgment is designed to expedite litigation and to avoid unnecessary and expensive trials. Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). A motion for summary judgment may be granted where the pleadings and other materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The burden is on the moving party to demonstrate that no genuine issue as to any material fact remains and that he is entitled to judgment as a matter of law. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74-75 (2001). In all cases, the evidence is viewed in the light most favorable to the nonmoving party. Bond v. Commissioner, 100 T.C. 32, 36 (1993).

However, the nonmoving party is required "to go beyond the pleadings and by * * * [his] own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); see also Rauenhorstv. Commissioner, 119 T.C. 157, 175 (2002); FPL Grp., Inc. & Subs. v. Commissioner, 115 T.C. 554, 560 (2000).

Petitioners filed an affidavit and a response to respondent's motion for summary judgment. In petitioners' response, they contend that the provisions in the divorce decree, MSA, and income deduction order providing for "non-modifiable lump sum alimony" should be interpreted as providing for "rehabilitative alimony" that would terminate upon Ms. Wozniak's death. Petitioners argue that a critical factor in determining whether a payment is deductible alimony is whether the payment is modifiable. Even though the divorce decree explicitly states that the payments are nonmodifiable, petitioners argue that the payments were in fact modifiable because the county court retained jurisdiction to enforce the MSA, and the MSA could be modified by an agreement by both the parties.

Moreover, petitioners assert that Florida law considers the intent of the parties in determining the character of payments labeled as alimony, and the settlement negotiation letters between Mr. Rood and Ms. Wozniak leading up to the final judgment demonstrate that the payments should be classified as deductible rehabilitative alimony that would terminate upon Ms. Wozniak's death. Petitioners urge us to consider the settlement negotiation letters in determiningthe intent of the parties because they argue the Florida parol evidence rule requires examination of extrinsic evidence.

II. History of Alimony Payment Deductions Under Section 71

Before 1984 section 71 required courts to consider a number of factors to determine whether certain transfers of money would be treated as alimony for Federal income tax purposes. Hoover v. Commissioner, 102 F.3d 842, 844 (6th Cir. 1996), aff'g T.C. Memo. 1995-183. Whether payments represented alimony or a property settlement was a question of intent. Id. at 845. Intent was to be ascertained from the agreement itself and from the surrounding facts and circumstances. Id.

Congress amended section 71 in the Deficit Reduction Act of 1984, Pub. L. No. 98-369, sec. 422, 98 Stat. at 795, to eliminate the subjective inquiries into the intent and the nature of payments that had plagued the courts in favor of a simpler, more objective test. See Baker v. Commissioner, T.C. Memo. 2000-164 (citing Hoover v. Commissioner, 102 F.3d. at 845); H.R. Rept. No. 98-432, Part II, at 1495 (1984), 1984 U.S.C.C.A.N. 697, 1137. The objective test was necessary because State courts sometimes used the term "alimony" indiscriminately. Kean v. Commissioner, 407 F.3d 186, 190 (3d Cir. 2005), aff'g T.C. Memo. 2005-575. Congress eliminated any consideration of intent in determining the deductibility of apayment as alimony in favor of a more straightforward, objective test that rests entirely on the fulfillment of the explicit requirements set forth in section 71. Okerson v. Commissioner, 123 T.C. 258, 264-265 (2004) (citing Hoover v. Commissioner, 102 F.3d. at 845); Baker v. Commissioner, T.C. Memo. 2000-164; Nelson v. Commissioner, T.C. Memo. 1998-268; see also Rosenthal v. Commissioner, T.C. Memo. 1995-603 ("Whether or not the parties intended for the payments to be deductible to petitioner, we must focus on the legal effect of the agreement in determining whether the payments meet the criteria under section 71.").

III. Deductible Alimony Payments for Federal Income Tax Purposes

Pursuant to section 215(a), there shall be allowed as a deduction an amount equal to the alimony payments paid during an individual's taxable year. For purposes of section 215, the term "alimony" means any alimony (as defined in section 71(b)) which is includible in the gross income of the recipient under section 71. Sec. 215(b).

Section 71(b)(1) defines alimony as 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 includible in gross income under this section and not allowable as a deduction under section 215,

(C) in the case of an individual legally separated from his spouse under a

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