Michael Wayne & Joan Elizabeth Bedwell, Petitioner

T . .C . Summa r y Opi n Ion 2008-13 9

UNITED S

TATE S

AX COUR T

MICHAEL WAYNE AND JOAN ElIZABET COMMISSIONER OF IN ERNA L H BEDWELL, Petitioners v . REVENUE, Responden t Docket No . 18801-06S .

Filed November 3, 2008 .

Michael Wayne Bedwell a n Joa n Elizabeth Bedwell, pro sese .

David O . Cao , for respo n ent .

GERBER, Judge : This case was heard pursuant to th e provisions of section 7463 of the Internal Revenue Code in effect when the petition was-filed .'

Pursuant to section 7463(b), the decision to be entered is not revie able by any other court, an d

SERVED NOV -3 2008

this opinion shall not be treated as precedent for any other ,case .

I -Respondent determined a $938 deficiency in petitioners' 2004 Federal income tax . The deficiency determination was based on the disallowance of a $6,500 deduction petitioner husband claime d as alimony on petitioners' 2004 Federal income tax return . The- question we=consider is whether petitioners are entitled to the $6,500 alimony deduction .

Background 2 Petitioners resided in Texas at the time their petition was filed . Petitioner Michael Bedwell (Mr . Bedwell) was married to petitioner Joan Elizabeth Bedwell (Mrs . Bedwell) during 2004 .

Mr . Bedwell was married to Karen Melissa Edwards (Ms . Edwards) until June 14, 2003, when they were divorced .

The final divorce decree contained a detailed division of property between Mr . Bedwell and Ms . Edwards . Each party was allowed to retain his or her personal property, and to be responsible for any debt connected with the delineated personal property . Each party was also allowed to'keep his or her individual retirement accounts (IRAs) . Mr . Bedwell was allowed to keep his real property in Texas and jointly owned real property in Tennessee .

On the basis of testimcbny an record of the divorce proceeding, . Mr . Bedwell was order d to pay Ms . Edwards $13,000, of which $6,500 was payable duri n 2003 and $6,500 was payable o n either the sale of the join ly owned real property in Tennessee , or March 1, 2004, whichever was earlier . The divorce decree doe s not specifically denominate the purpose of the $13,000 payment ; i .e . ; whether it was alimony or. a property settlement, or whether the requirement to make th e two a n nual payments would terminat e upon the death of either pa ty .

e value of the Tennessee real property was not set forth i n th e ecree, and it was no t designated as the source of the $1 3,000 in payments to Ms .

Edwards . In accordance with the d ivorce decree, Mr . Bedwell made equal $6,500 payments to Ms .

Edwa r Is during 2003 and 2004 .

In connection with the divorc proceeding, the deposition o f Ms . Edwards was taken on Dec ember 1, 2002. Ms . Edwards received only limited amounts of mont hly, in ome . She was able to liv e with friends and incurred on ly no m nal living expenses .

She di d some work at a horse farm in excha age for board and food for her horses and was rarely paid a ythin g in exchange for her work .

Ms . Edwards was also a subst itut e aerobics instructor an d occasionally received $15 fo teac ing a class . Ms . Edwards had outstanding debt obligations tha t elatives and others were helping to pay .

Petitioners, on March 6, 2005, timely filed their 2004 Federal income tax return on which they claimed as an alimony 4 - deduction the $6,500 payment to Ms . Edwards .

Discussion The sole question we consider is whether the $6,500 payment made to Ms . Edwards was alimony or part of a property settlement .

On brief, respondent argues that he bears no burden in this case .

Petitioners have not questioned respondent's argument and , instead, argue that the evidence in_the record would support our holding that the $6,500 payment is deductible alimony .

Accordingly, to the extent relevant, petitioners bear the burden of proof in this proceeding . See sec . 7491 ; Rule 142(a) .

Section 215(a) allows a deduction for alimony paid during a taxable year . Section 215(b) broadly defines "alimony" as a payment includable in the gross income of the recipient . -Section 71(b)(1) provides that a payment is "alimony or separate maintenance" if :

(A) such payment is received by (or on behal f 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 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, an d I (D) there is n o lability to make any suc h payment for any perio spouse and there is n cash or property) as the death of the paye after the death of the payee liability to make any payment (in substitute for such payments after spouse .

The parties are in agreement t at the first three requirements of section 71(b)(1) are met . Their disagreement focuses upon whether :the fourth req,irement is met . The questio n to make the $6,500 payment s after Ms . Edwards's death is matter to be decided under the law of the State of Tennessee . I an unreported case the Tennessee court of appeals explained as follows the preference under Tennessee law for rehabilitative anti transitional spousa l support :

There are four separate clash es of spousal support tive spousal support and ort . T .C .A . § 36-5- alimony),2 alimony in land transitiona l zes a statutor y in Tennessee , including ehabi4litative alimony, ' alimony in futuro (or pe solido '(or lump-sum ali m alimony .' Tennessee law preference for rehabilit transitional spousal sup 101(C)(Supp . 2004) (now Bratton , 136 S .W .3d 595, Perry , 114 S .W .3d 465, 4 Crabtree , 16 S .W .3d 356, statutory preference doe other forms of spousal s case warrant long-term o Aaron v . Aaron , 909 S .W . Isbell v . Isbell ; 816 S .

enn . 2000) . This ntirely displace the when the facts of the open-ended support . 410 (Tenn . 1995) ; 5, 739 :(Tenn . 1991) .

605 (enn . 2004) ; Perry v . 7 (Tern . 2003) ; Crabtree v .

36-5-121(d)(2)) ; Bratton v .

' T .C .A . § 36-5-101(d) at T .C .A . § 36-5-121) .

Petitioners argue that the $6,500 payments constituted rehabilitative or transitional alimony . Rehabilitative or transitional alimony terminates upon the death of~the recipient .

Tenn . Code Ann . sec . 36-5-101(d) .(1) and (2) (Sapp . 2004) .

Accordingly, if the $6,500 payment is in futuro, transitional, or rehabilitative alimony under Tennessee law, Mr . Bedwell would be entitled to a,$6,500 deduction, ;and if it is in solido he would not be so entitled .

The Tennessee rehabilitative support and maintenance statute, in relevant part, provides as follows :

(d)(1) It is the intent of the general assembly that a spouse, who is economically disadvantaged, relative to the other spouse, be rehabilitated whenever possible by the granting of an order for payment of rehabilitative, temporary support and maintenance . Where there is such relative economic disadvantage and rehabilitation is not feasible in consideration of all relevant factors,, including those set out in this subsection, then the court may grant an order for payment of support and maintenance on a long-term basis or until the death or remarriage of the recipient except as otherwise provided in subdivision (a)(3) . Rehabilitative support and maintenance is a separate class of spousal support as distinguished from alimony in solido and periodic alimony . In determining whether the granting of an order for payment of support and maintenance to a party is appropriate, and in determining the nature, amount, length of term, and manner'of payment, the court shall consider all relevant factors, including :

(A) The relative earning capacity, obligations, needs, and financial, resources of each party, including income from pension, profit sharing or retirement plans and all other sources ; (B) The relative ed cation and training of each party, the ability an o.ppo tunity of each party to secure such educat on anq training, and the necessity of a party to sec re further education and training to impro e suc party's earning capacity to a reasonable le4el ; (C) The duration of1the m a rriage ; (D) The age and mental co n dition of each party ; (E) The physical co ditior of each party, including, but not limited to, physical disability or incapacity due to chroryic debilitating disease ; (F) The extent to w ich it would be undesirable for a party to seek e ployment outside the home because such party will be custodian of a minor child of the marriage ; (G) The separate assets of and personal, tangibl and i each party, both real ntangible ; (H) The provisions made wi marital property as define d th regard to the in § 36-4-121 ; (I) The standard of living established during the marr i of the parties age ; (J) The extent to which ea tangible and intangible cont marriage as monetary and hom and tangible and intangible party to the education, trai earning power of the o her p h party has made such ibutions to the maker contributions , contributions by a ing or increased rty ; (K) The relative fau t of where the court, in it disc appropriate to do so ; 3nd .

he parties in cases etion, deems i t (L) Such other fac t rs, including the tax consequence s to each party, as are necessary to consider the equitie s between the parties .

Tenn . Code Ann . sec . 36-5-101 ( d)(1) (West 2002) .

Transitional alimony was enacted in a 2003 Tennesse e statute, which in pertinent part provides as follows :

Transitional alimony means a sum of money payable by (1) one party to, or on behalf of, the other party for a determinate ; period of time . Transitional alimony shall terminate upon the death of the recipient and as provided in subdivision (a)(3) which provision shall apply to transitional alimony * * * . Transitional alimony is awarded when the court-finds that rehabilitation is not necessary, but the economically disadvantaged spouse needs assistance to adjust to the economic consequences of a divorce, legal separation or other proceeding where spousal support may be awarded, such as a petition for an order of protection .

Tenn . Code Ann . sec . 36-5-101(d)(1)(D) (West 2003) .

Respondent contends the transitional alimony statutor y provision may not have been enacted at the time of the issuance of the divorce decree . The provision was to have taken effect '\upon becoming law" . 2003 Tenn . Pub . Acts ch . 305 . Although the provision contains the statement that it was "signed into law on August 8, 2003", .there .is a legislative amendment to the provision indicating that chapter 305 was approved by the Governor on June 11, 2003 . This is significant, because the divorce decree is dated June 14, 2003 .

Id . n .1 .

We have considered the record and conclude and hold that the $6,500 payment was deductible alimony . The record presents a factual pattern that fits within the Tennessee statutory and caselaw definitions for rehabilitative or transitional support or .maintenance .3 We note that T nnessee law contains a statutor y preference for rehabilitative spous 1 support and transitiona l spousal support . Tenn . Code .

Ann .

I ec . 36-5-101(d) (1) (C) (Supp :

2004) The divorce decree-co a detailed division of th e property of the parties . -Aft r the division of property, th e decree provides for payments o Ms .

!Edwards over and above the property division . The evide ce in the record-shows that Ms .

Edwards was not in .a position provided for her in the decre ubject to debt and she was also accruing monthly expendi such as expenses for her horses which were being board thers) . In addition, .Ms .

Edwards had . no means of supp o she was earning, which fell f incurred expenses . The $6,5 0 payments were obviously designe d to temporarily rehabilitate M Edwards's financial situation an d to give her time to become fi ancial ly self-sufficient . To that effect, the decree .of the pay ents f its exactly within the inten t and definition of,rehabilitat ve, aui ony, which terminates upo n the death of either party .

To reflect the foregoing, Decision will-be entere d for petitioners .

1. Unless otherwise indicated, a 1 section references are to the Internal Revenue Code in ffect for 2004, the taxable year in issue, and all Rule reference are to the Tax Court Rules of Practice and Procedure .
2. The parties' stipulation of facts and attached exhibits is incorporated by this reference .
3. Because we have decide applies, it is unnecessary to transitional alimony provision reliance on the transitional a resulted in a holding for peti ioner that the rehabilitative provision ecide the effective date of th e ,It 's noted, however, that imony provision would also hav e Finally, we note that it i~s highly unlikely that the'$6,500 payments were part of the property division . Each party was given a substantial amount of property . The property was their separate property with the exception of a jointly owned parcel of realty in Tennessee . The payments, however, were not conditioned on the sale of the Tennessee real property, and there is no indication in the record that the Tennessee property was burdened by debt, purchased with assets of Ms . Edwards, and/or had any equity or value . Accordingly and although the divorce decre e was not specific, the award oftithe temporary alimony is, unde r the facts of this case, not a property settlement .