Richard W. Fields, Petitioner

T .C . Memo . 2008-20 7 UNITED STATES TAX COUR T RICHARD W . FIELDS, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Respondent .

RICHARD W . FIELDS AND EKATERINA FIELDS, Petitioners' COMMISSIONER OF INTERNAL REVENUE, Responden t Docket Nos . 22132-06, 4256-07 . Filed August 28, 2008 .

Michael D . Jones , for petitioners ..

Edwina L . Jones , for respondent ..

MEMORANDUM OPINION

JACOBS, Judge :

These . consolidated~cases .were submitted, fully . stipulated pursuant :

. toRule 122 .

All section references are to the Internal ` Revenue Code as amended, and all Rule references are- to the Tax Court Rules of Practice ° and Procedure .

SERVED AUG 2 .8 2008

.The issues for decision are : (1) Whether certain "Deferre d Payments " Richard Fields made in 2000 , 2001, and 2003 to Kare n Fields, his former spouse, are deductible as alimony ; and (2) i f not,-whether Richard Fields and Ekaterina Fields (petitioners) x ; e -are liable for the accuracy-related penalty under section 6662(a ) as a-result1of their claiming an alimony deduction for tha t payment in 2003 .

Backgroun d The facts have been fully stipulated and are so found . The stipulation of facts and the attached exhibits are incorporated herein by this reference . Petitioners resided in New York whe n they filed the petitions herein .

Richard Fields filed his tax returns for 2000 and 2001 as a married taxpayer filing separately .

He and Ekaterina Field s filed a joint tax return for 2003 .

The-deferred payments at issue herein arose as a consequence of Richard Fields's obligations to KarenFields'pursuant to a Separation, Support and Property Settlement Agreement (agreement ) executed on October 7, 1999 . Mr . Fields is an attorney ; however, both he and Karen Fields had the advice of independent counsel i n the negotiation and-preparation of the agreement .

The agreement contains 19 headings and 42 numbered paragraphs . Paragraphs 3 and=4-of ,the agreement-appear under . the heading "Alimony" . Paragraph 3 . contains mutual waivers of .claims each party might have against the other for alimony or spousal support except as specifically provided in paragraph 4 .

3 - Paragraph 4(a) provides :

So long as any portion of the Deferred Payments referred to in Paragraph 15(b) remains unpaid, the Husband shall pay'to the Wife alimony at the rate of Seventy Five Thousan d Dollars ($75,000) per year, in equal monthly installments of Six Thousand Two Hundred Fifty Dollars ($6,250), unti l December 31, 2001 . * * * Commencing January 1, 2002, and o n the first day of each month thereafter until, December 31 , 2002, so long as any portion of the Deferred Payment s referred to in Paragraph 15(b) remains unpaid, the Husband shall pay the Wife alimony at . the rate of Fifty Thousand Dollars ($50,000) per year, in twelve equal monthly installments of Four Thousand---One Hundred Sixty-Seven Dollars ($4,167) .

Paragraph 4(b)provides :

Alimony payments pursuant to this Paragraph 4 shall be taxable to the Wife and deductible by the Husband, and shall terminate forever on the first to occur of the . death of either Party or full satisfaction of the Note (as defined in Paragraph 15(b) below) ;'provided however, in the event the Husband fails to pay timely,any of the Deferred Payments (as defined in Paragraph 15(b) below) ; the alimony payments to the Wife shall increase by twenty percent (20%) if, after expiration of the ten (10) day cure period, the Husband has not become current on the Note . Alimony shall remain at the increased level until the Husband becomes current on the note .

Paragraph 4(c') of the agreement provides : "Payments made pursuant to this paragraph shall not terminate in the event o f the Wife's remarriage", an:da.paragraph 4(d) of the agreemen t provides : "Except as provided in paragraph 4(a) and (b), alimony is non-modifiable ."

Paragraph 15 of the agreement appears under the headin g "Personalty" and provides, in pertinent part :

15 .

Lump Sum :

At Closing,, the Husband will pay . : the Wife Two Million Dollars ($2,000,000) in immediatel y available funds .

(b) Thereafter, the Husband shall pay to the Wife the following amounts in immediately available fund s ("Deferred Payments") :

Two Hundred Seventy Five Thousand Dollars ($275,000) on or before. December 31, 1999 ; an d ($500,000) on o r Five .Hundred Th6usand-Dollar s before December 3172000 ; and Five Hundred Thousand Dollars ($500,000) on or . before December 31, 2001 ; and Five Hundred Twenty Five Thousand Dollars ($525,000) on or before December 31, 2002 .

The(cid:127)Deferred Payments shall be-evidenced by a Promissory. Note (the'"Note"), and delivered to the Wife at'Closing . . The Deferred'Payments shall be secured by an Irrevocable'Letter of Instruction (the ."Instruction Letter".) fromIthe Husband to the Firm [the law firm-of which Mr . Fields was a partner at that time], requiring the,Firm in the event?of .the Husband's default in payment under the Note, to pay directly to the Wife any funds o r 'The heading that precedes the heading "Personalty" in the agreement is "Real Property" . Two paragraphs are set forth thereunder (par . 7 and par . 8) . Par . 7 provides for the release by Karen Fields of any interest in Mr . Fields's leasehold of a residence in,,-London . Par . 8 provides for the release by Karen Fields of any interest in Mr .`Fields's.residence in Washington, D .C .

In addition to par .

15, various other paragraphs appear under the "Personalty" heading, most of which have subheadings : i "Furniture,, Home Furnishings, Fine Art and Other Tangible , "Personal Property" (par . 9), "Automobiles" (par . 10), "Pets" (par . 11), "Boat and Jet Skis" (par . 12), "Swidler,Berlin Shereff Friedman ., LLP" (par . .13), "Retirement Assets" (par . 14), and par . 16 relating to mutual indemnifications from third-party claims .

assets due the Husband including"without limitation salary, draws, . bonuses, return-of, capital or other forms of compensation othewise owed to the Husband by the [F]irm (d) The Promissory Note shall not bear interest and the Husband shall have the right to'prepay it without penalty .

All payments to the Wife under this paragraph are tax free to her and are not modifiable . The Husband expressly agrees that`-for the purpose of incorporation into a court order, the obligations set forth in Paragraph 15(b) above'arise out of and are in the nature of support obligations and_ thus shall not be dischargeable in bankruptcy . The Husband expressly agrees that he shall not seek to discharge or release'any of these obligations in .bankruptcy or any other similar proceeding . Th.e'`Husband further agrees that in the event he files for bankruptcy and is relieved of any of his obligations under Paragraph 15(b), then the Wife shall have the right to petition a court of competent jurisdiction to receive an award of spousal support in an amount not to exceed the amount of the discharged Deferred Payments referred to in Paragraph 15(b) .

(f) Except as provided in this agreement, upon delivery of`'the'Two Million Dollar ($2,000,000) lump sum payment to the Wife at Closing, all assets, accounts, and interests of the parties in joint names or in the Husband's Separate name or in the Husband's possession shall become the Husband's sole and separate property . In addition to the assets and funds 'identified above as the Wife's sole and separate property, all assets, accounts and interests in the Wife's sole name shall become her sole and separate property .

Paragraph 25 provides :

, 25 . The Parties intend, understand and agree that all transfers of property and Deferred Payments pursuant to Paragraph 15 above (excluding alimony payments) made to the Wife pursuant to this Agreement are intended to be tax-free to the Wife, pursuant to Section 1041 of the . Internal Revenue Code, or under any other sections of the Internal Revenue Code which may pertain to said transfers or payments ; provided, however, that the Wif e ,. ;shall be .solely responsible for any taxes,she may incur if she subsequently sells, transfers,'or otherwise , .disposes of the property and payments she receives pursuant to this Agreement .

Paragraph .19 of the agreement requires Mr . Fields t o maintain a decreasing term life insurance'policy on his lif e designating Karen Fields as the beneficiary and owner, with th e initial, face ;amount,of the policy being equal to the unpai d balance>ofthe deferred payments . That policy is required t o remain ineffect until Mr .-Fields, satisfies the promissory note that evidences his obligation pursuant to paragraph'15 of the agreement, and the death benefits . payable thereunder to be "commensurate with the unpaid balance of the Deferred Payments . " Some of the terms of the agreement were incorporated into the Circuit Court of Fairfax County, Virginia's divorce decree dated November 5, 1999 (divorce . decree) .,, The exact language of paragraph 3 of the agreement .(relating to waivers of support other than as provided in paragraph 4 of the agreement), paragraph 4(a) of the agreement (relating to monthly installments of alimony during 2001 and 2002), paragraph 4(b) of the agreement (relating to the characterization of the payments from Richard 7 - Fields to Karen Fields - as alimony for tax - purposes ), paragraph 4(c) of the agreement ( relating to .nontermination (cid:127) of the . a:limony payments upon Karen Fields ,' s remarriage)', and paragraph .4(d) of the agreement ( relating to nonmodification . of the alimon y payments ) was incorporated and reproduced in the divorce . decree as paragraph 17 thereof . 'P aragraph 17 of the divorce decree i s captioned "'Support' and is the only provision .in(cid:127)the divorce decree pertaining to spousal' support . The divorce decree contains no reference-to. paragraph 15 of the agreement (other than the reference to paragraph 15 found in paragraph 4 of the agreement, which was incorporated and reproduced in the divorce decree ) Mr . Fields timely filed`hi,s tax return for the year 200 0 with . theassistance of American Express Tax& :Business Services (American Express)-of. Rockville, Maryland, on_ October 15, 2001, .

The return reported total income of $1,848,795 and reflected , among other .items,a $76,250' claimed deduction-for alimony . . The tax shown on the return was $693, 313 . On ..December 31, .2002, . Mr .

Fields, with the assistance of American=Express,l prepared and filed an amended return for ..2000,-in' .which-he-reduced by $500,000 the amount of adjusted gross income he had previously reported .

.2Mr . Fields's tax years 1999'and 2002 are not at issue, and the record does not reveal how he reported, for tax purposes, any payments he made to Karen Fields during those years .

The explanation for :-the change was :, "The total alimony paid * : * was understated by $500,000 on the . . original tax return ." The revised tax, according to the amended return, was $489,373 .

Mr . Fields timely filed his tax return for the year .2001 with the assistance of Coppergate Associates . International of London, England, on January°27, 2003, (pursuant to an extension . of time in which to file until January 30,-2003, inasmuch as petitioner .was .living.abroad) . The,return~reported total income- of $2,133,971 and reflected, among, other items, a $568,750 claimed-deduction for alimony . The tax shown on ..the .return wa s $423, 994 . .

Mr . Fields failed to make the final deferred paymen t $525,000 to Karen Fields by December=31, 2002, as contemplated in the ;.agreement . Instead, that payment was<made in March 2003 .

Contemporaneously with .the March 2003 payment, ., Richard and Karen Fields executed an "Agreement and Limited Mutual, Release" i n -which, among-other things,. Karen Fields released Richardrt .Fields , .

from his obligations pursuant to ."Paragraphs 15a-d .,(entitled Lump Sum) ,,,and Paragraphs 3- .4 (entitled Alimony)" .of .,the agreement.,.

,Fields and Ekaterina Fields timely-filed their ta x return for the year 2003 with the assistance . of . Meridian , .

Services, Ltd ., of Charleston, South Carolina, on October 15, 2004 . The return reported total income of $924,867 and reflected, among other items, a $525,000, claimed deduction for alimony . The tax shown"on the return was $89,507 ._ .

After examining the 2000, 2001, and 2003 tax returns, respondent determined deficiencies in tax of .$203,940,,$195,500, and $170,797 respectively for those years . Respondent issued a notice of deficiency to Mr . ..Fields for years, .2000 and 2001 on July 31, 2006, and a notice of deficiency to petitioner s for the year 2003 on January 4, :2007 . The-deficiencies respondent determined were-attributable entirely to disallowance of .$500,000 of the claimed deductions for alimony in 2000 and 2001 and the $525,000 claimed deduction for alimony in 2003 (i .e ., deductions attributable to payments made pursuant to paragraph 15(b) of the agreement) . In addition, in his notice of deficiency, respondent determined that for 2003 petitioners were liable for a $34,159 .40 penalty under section 6662(a) .3 Respondent did not challenge the $76,250 alimony deduction claimed in 2000 or the $68,750 alimony deduction claimed in 2001 (i .e ., deductions attributable to payments made . pursuant to paragraph 4(a) of the agreement) .

Petitioners timely petitioned this Court .for'a redetermination of the deficiencies . Petitioners claim that all amounts Mr . Fields paid to Karen Fields (and not just the amount s 30n Jan . 16, 2007, respondent transmitted .to petitioners an examination report'for 2003 which reduced the alternative minimum tax and corresponding deficiency-in tax for 2003 to $169,969 and reduced the penalty for 2003 to-$33,993 .80 .

paid pursuant to paragraph 4(a),of the agreement) were deductible as alimony under section 215, noting :

(1) Paragraph 1S,ofthe agreement does not specifically state that those payments are not allowable as ded`uctions under-section 215 ; and (2) Mr . Fields wa s ,not obligated to make payments .-pursuant to, 'paragraph 15(b) in th e event of Karen'Fields''s death . Moreover,- petitioners posit tha t even though the first sentence of paragraph 15(e) states tha t "All payments to the Wife under this .paragraph are ; tax free to her", the deferred payments under . paragraph 15,(b) are in the nature of spousal support and would be tax free only, in the even t Mr . Fields filed for bankruptcy .

Petitioners did .not 'addres s the issue , of their liability for the section 6662(a) penalty for 200 3 in their petition, but bot h they and respondent addressed that issue on brief . 4 Discussion As stated `in Estate of Goldman v . Commissioner , .. 112 T .C .

317, 322 (1999), affd .--without published .opiinion sub nom .

Schutter v . Commissioner , 242 F .3d 390 .(10th Cir . 20.00) :

Generally, property settlements (or transfers of property between spouses') incident,to a divorce neither are taxable events nor .give rise . to deductions or recognizable income . See sec . 1041 . On the other hand, amounts receive d 4Petitioners claimed, for the first time on brief ., that interest on any underpayment should be suspended pursuant to sec . 6404(g) . ., Petitioners do not assert, and the record does not indicate, that the . Secretary madea .determination not to abate such interest, which would be reviewable by this Court`pursuan t to sec . 6404(h) . Hence, we deem petitioners' claim ,for the suspension of interest to be premature .

- 1 1 as alimony or(cid:127)separate maintenance payments are taxable to the recipient (pursuant to sections 61(a)(8) and 71(a)) and deductible by the payor (pursuant to section 215(a)) in the year paid . For tax purposes, the phrase "alimony o r separate maintenance payments" is defined in section 71(b)(1) as any cash payments meeting the following four criteria :

I " (A) such payment is received ;by , (or on, behalf of ), a spouse undera 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(cid:127) an individual legally separated from his spouse under a decree of divorce or of separat e --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 patties agree that Mr . Fields ' s payments to Karen Fields of $76 , 250 in 2000 and $68 , 750 in 2001 made pursuant to paragraph 4(a) of the agreement, constitute deductible - alimony ., The parties further agree that Mr . Fields ' s payments to Karen Fields-mad e pursuant to'paragraph 15 of the agreement satisfy the first and third criteria of .section 7,1(b)(1 ) . They disagree as to whether Mr . Fields ' spayments. to Karen Fields pursuant to paragraph 15 of the agreement satisfy the second and fourth criteria of section 71(b)(1) For the reasons set forth below, we hold thos .e payments do not and thus sustain respondent ' s determination . that - 1 2 the payments'Mr .`:Fieldsmade to Karen Fields of $500,000 in 2000, $500,000 in 2001, and $525,000T(cid:127)in 2003 are not alimony . .

.

With respect to the second criterion of, section 71(b) (1), - petitioners posit that in order for payments from one .,spouse to the other-to be disqualified as alimony payments made,pursuant t o a separation agreement or divorce decree, the separation agreement or divorce decree must specifically provide that'the payments are not includable in the recipient's income-and are not deductible by the payor . Because the agreement does not,contain such a- .specific provision, petitioners maintain that,, :Mr .- Fields's payments to Karen Fields are not disqualified as deductible alimony under' section 71 (b) (1) (B ) We have already stated, in' Estate of Goldman v .

.- .

Commissioner , supra at 323, that the divorce .or separation .,,; instrument need not mimic the 'language of section 71(b)(1)(B) .

Rather, we have stated that a nonalimony designation will b found "if the substance of such a- designation .'is reflected in the instrument ."

Id .

° In our view, the payments to-be made pursuant to paragraph, 15 (b) of the agreement were designed to accomplish a„purpose different from that of the payments made pursuant to-paragraph 4 . .

We believe the"payments made pursuant toparagraph 4 were -, intended to be for the support of 'Karen ;Fields, whereas the, - 1 3 payments-made pursuant to paragraph-15 wer-e intended to be a, property settlement .- The basis of .thi-s belief, is'as follows .

Paragraph 15 of-the agreement is concerned with the divisio n of property between'Mr . Fields and Karen Fields . Tellingly, 'paragraph 15 appears under the heading "Personalty", whereas paragraph 4 appears `under the .heading "Alimony" . And ;. paragraph 4 is the'only paragraph of .the,agreement'referredrt-o in the divorce decree as requiring Mr . Fields to pay Karen Fields alimony .

Paragraph 15(e) of the agreement . provides that'payments under paragraph 15 are to be tax free to` the Wife . (i .e ., Karen, Fields), whereas paragraph 4(b) designates . the, payments-,under paragraph .4 from the .-Husband (i .e ., Mr . Fields) to the Wife .as alimony "taxable to-the Wife and deductible by the .Husband" . If ., all the=payments to'be,made under both paragraphs 4 and 15 were intended to be 'alimony, we believe .the agreement : (1) Would not have denominated the payments differently-by means>of placement in separate paragraphs and under different headings, and (2 .), would not have . contained contradictory instructions-as to the inclusion (or, not) of. the . payments- in Karen Fields's-income .

Moreover, the amounts . payable pursuant to paragraph 15(-b) of the agreement are-substantially larger than those required by paragraph 4 of the agreement . The payments made pursuant to paragraph 15(b) of-the agreement, re .ferred ..to as "Deferred,.

Payments", are, in our opinion,- a series of_discrete amounts in 1 4 the nature of instal-lment(cid:127) payments, evidenced-by a promissory note and secured by an rirrevocable letter of'instr .uction .to Mr .

Fields's'1aw firm . Tellingly, as further. security Mr . Fields was required"to maintain a .decreasing term life insurance-policy on his life of-which KarenFields was to be the beneficiary and owner-until-the promissory note` evidencing Mr . Fields's obligations under paragraph 15=was satisfied . Providing such :,, security,is inconsistent with the provision in . paragraph .4(b ) that such an obligation was to be extinguished upon Mr . Fields's death :

Petitioners point to some provisions of the agreement which give rise to a-colorable claim that the payments made pursuant to paragraph 15 were deductible alimony . For example, paragraph 25, in describing the agreed tax treatment . of the .payments under. ., paragraph 15 as tax free . to Karen--"Fields, contains a parenthetical reference to alimony-payments . Paragraph ..15(e) ;, first specifies that payments made under that paragraph are tax, free to Karen-Fields but then characterizes the,payments to .be- made pursuantzto paragraph 15(b) as support obligations "and thus not dischargeablein bankruptcy" .,-It-further provides that, . Karen Fields"shall have the right to .petition .a court of competent jurisdiction to receive an award of spousal support in . an amount not to exceed ; the amount of the dis .charged-deferred payments referred to~ in Paragraph .15 .(b) . ." Moreover ., we.~-are mindful that 15 _ the agreement provides for an increase in the amount and duration of alimony payments under paragraph 4(a)€and 4(b) in .the-even t Mr . Fields does not timely make the payments required, by .

paragraph 15, suggesting a linkage or interchangeability .betwee n the two types of payments .

Notwithstanding the aforesaid , we are persuaded that the agreement , - when - read ' in .its entirety . from a " reasonable, commonsense perspective ," reflects a clear and express intent of the parties that the amounts which Mr . F-ields was required to, pE y pursuant to paragraph 15 of the , agreement constitute a division of marital assets`, as opposed to . spousal .support, and are not,to be included in the gross income .of"Karen Fields . nor allowed as, deductions to Mr . Fields . See Estate of Goldman v . Commissioner , 112 .T .C . at 323 . Consequently, the second criterion of .,section 71(b)(1), which the payments must satisfy . if they areµto qualify as alimony, has not been met .- With respect to the fourth criterion of section 71(b)(1), petitioners contend that the,payments Mr, . Fields was required to make pursuant to paragraph 15 , would- not . continue ; upon Karen Fields' .s death, and consequently the requirement of subparagraph .

(D) of section 71(b)(1) -is met . We disagree with petitioners ' contention .

. .Whether a postdeath obligationexist .s'may be determined by the terms of the divorce or separation instrument, or, if-the instrument is'silent on that matter .., by State law .

Moraan .(cid:127) .v .

. Commissioner ,' 309` U . S . 78, 80-81 (1940) ; see also , Kean .v .

Commissioner s' 407 F .3d 186, 191 (3 .d Cir .-- :2005) ., affg . T .C . Memo .

2003-163 . But there is no need to,-resbrt to State law to determine the character of the payments at . .ri,ssue . .s Paragrap h 4 (b) of the `agreement provides that the payments to ,be made- thereunder shall terminate on the death of either party or :upon the payment of all amounts'due pursuant to paragraph 1.5, whichever occurs'first . Such language is conspicuously lacking in paragraph 15 . The agreement requires Mr . Fields to make, payments pursuant to paragraph .l<sup>5</sup> until fixed amounts ($500,00Q in 2000, $500,000 in 2001,, and $525,000 in 2002) are paid . It does not state that . . the obligation to make those payments terminates upon the death of Karen' Fields . Therefore, the amounts Mr .' Fields paid pursuant-to paragraph 15 of the agreement do not satisfy the requirement of subparagraph (D) of sectio n 71 (b) (1) . ` .

Having sustained respondent' determination that the payments Mr . Fields `made to Karen Fields of $500,000 in 2000, $500,'000 in 2001 , . and $525,000 in 2003 are not alimony, we no w 'Petitioners rely on Va . Code Ann . sec . 20-109 .1 (2004), which provides that upon the death or remarriage of the spouse receiving support, spousal support shall terminate unless otherwise provided by stipulation or contract . We already found that payments Mr . Fields, made pursuant to par . 15 were not spousal support payments but instead were part of a division of marital assets .

:-attention to respondent ' s determination with respect-t o 7 turn our the accuracy-related . penalty under'section 6662(a ) Respondent determined that petitioners' 2003 underpayment was attributable-to negligence or disregard of rules or regulations under section 6662 ( b .)(1) and / or to a substantial ., understatement . of income . tax under section 6662 (b)' (2) .

. .,We address only respondent's claim that petitioners' underpayment for 2001 was attributable to a substantial understatement o f income tax 'under sect-ion-66,62(b-)(2) .- We do-so because . .a finding that there - was a . substantial understatement of income tax .-alone would be determinative that petitioners are liable for th e section 6662 .(a) penalty .

Under section 7491'(c), the Commissioner has the burden o f production with respect to any penalty . Once the Commissione r meets the .burden of production, the taxpayer continues to have the burden of proof with respect to whether the Commissioner's determination of the penalty is correct . Rule 142(a) ; Higbee v .

Commissioner , 116 T .C . 43.8 (2001) . `The submission .of a case without trial under Rule 122(a) does not alter the'require`ment s otherwise applicable to adducing proof . Rule 122(b) . .

For purposes of section 6662(b)(2), ", an understatement i s .equal to the excess of the amount of tax required°to be shown in the tax return over the amount of tax shown . Sec . 6662(d)(2)(A) .

The difference is considered "substantial" in the case of an individual if the amount of the understatement for the taxable year exceeds the greater of'10 percent 'Of the tax required .to be shown in the return for that,.taxable year or $5,000 .- Sec .

. ; .

6662(d)(1)(A) . The amount of .the understatement must be reduced by that-portion'of the understatement which is attributable to (1) "the tax treatment of any item . by the taxpayer if,there is or was substantial authority for . such treatment", :sec .

6662 (d) 1(2) (B) (i) or (2) _ any item . if (a) "the relevant facts affecting the-item's tax treatment are adequately disclosed in the return or :in .:a statement attached-to the return",-sec .

6Following submission of this case, by means of a n attachment to their brief petitioners attempted to introduce into evidence a written opinion by a law professor in support of a claim that there was substantial authority .as provided in sec . 6662(d)(2)'(B)(i) for their treatment of Mr . Fields's payments to Karen Fields ., The written opinion, which does not cite an y legal authorities, was not included in the stipulation of facts and exhibits submitted, pursuant to Rule 122 . Consequently, the Court returned the attachment . See Rules 143(b), 151 .

Petitioners later sought, by means of a motion, to amend the- stipulation of facts to include the written opinion . Respondent objected to petitioners`' motion, ' and we denied petitioners' . motion to,amend .

.

We are mindful that the material petitioners wish the Court to consider is dated Apr . 28, 2006, whereas petitioners' 2003 return was filed on Oct . 14, 2004 . Substantial authority for purposes of sec . 6662(d)(2)(B)(i) must exist at the"time the return containing the item is filed or on the last day of the taxable year to which the return relates . Seesec .-1 .6662- 4(d)(3)(iv)(C), Income TaxRegs . Accordingly, even if the material constituted "authority" as contemplated by sec . 6662(d) (2),(B) (i) , which is doubtful, see sec . . 1 .6662- 4(d)(3)(iii), Income Tax Regs .,'the material would not constitute substantial authority for purposes of sec . 6662(d)(2)(B)(i) .

6662 (d) (2) (B) (ii) (I .) , 'and (b) "there is 'a reasonable basis for the .tax treatment of such item by the taxpayer","sec .

6662 (d) (2) (B) (ii) (II) . Disclosure of an 'item is . not effective . to remove . the item from the , understatement-to which the tax i s attributable where the treatment°of the item for tax purposes does not have a reasonable basis as defined in section 1 .6662- 3(b .)(3), `Income Tax Regs . ' Sec-. 1 .6662-4"(e) (2) (i) ,' Income . Tax Regs .

Section 1 . 6662-3 (b) .(3) , ' Income Tax Begs . , provides that the reasonable basis standard "is not'satisfied(cid:127)by .a. return position that'is merely arguable or that is merelya colorable claim ."_ If a return position is reasonably based on'one'or more of the , authorities set forth in section 1 . 6662-4 (d) (3) (iii) , Income Tax Regs . (taking into .account-the relevance and persuasiveness of the authorities, and subsequent .developments), the return position will generally satisfy--the reasonable basis standard even though it may not satisfy the substantial authority standard as .defined in section 1 .6662-4(d)(2), Income-Tax Regs . See .

section 1 .6662-4(-d)(3)(ii),, Income Tax Regs .,' .for rules with respect to relevance, persuasiveness, subsequent developments, .

and use of'a'well-reasoned construction of an applicable statutory`provision for purposes of the'substantial understatement penalty .

Petitioners' 2003 return reported tax of $89,507 .

, Respondent determined, and, we agree, that the tax required to be shown on the return was $259,476 . . Thus, the understatement was $169,969 . This amount- exceeds 10 percent of the taxt.-required to be shown in the return and obviously is,-greater .than $5,000 .

The . record does. not disclose on-what basis petitioner s claimed that .Mr . Fields's payments under paragraph 15(b) to Karen Fields were alimony . Because Mr . Fields did not originally claim the 2000-payment of(cid:127)$500,000 as alimony, it is'apparent that a t one time Mr- Fields did not consider that payment to .b deductible .,, Other than petitioners' uncorroborated claim (first ;, set forth in .,their posttrial brief) that Mr . Fields changed the tax . treatment of the-payments made under paragraph 15(b) of the agreement,on the advice of .his tax return preparers,, a claim discussed-infra , nothing in the .record,indicates_that petitioners relied on one or more of the-authorities set forth in'section 1 .6662-4(d)(3)(iii), . . .Income Tax Regs ., or otherwise had a reasonable basis for deducting the payments made under paragraph, 15(b) of-the agreement on=the .ir 20.03 return . Thus, petitioner s have failedato carry their burden of=_showing .that .-they ha d reasonable basis for their tax treatment-of the 200 .3 payment to Karen Fields, andaccordingly the exception to the section 6662(a) penalty found in section 6662(d) (2) (B) (ii) is not applicable .

Pursuant to section 6664(c)(1), no penalty under sectio n 6662 shall be imposed "with respect to any portion of an underpayment if it is shown that ._,there was . a,. reasonable cause for such portion and that the taxpayer acted-in good faith with respect to such portion ." The determination of whether the taxpayer acted with reasonable cause and in good faith depends.,on the pertinent facts and circumstances, including the taxpayer's efforts to assess the taxpayer's proper .tax liability, the knowledge and experience of the taxpayer, and the reliance on the advice of a professional, such as an accountant . Sec .

1 .6664- 4(b)(1), Income Tax Regs .

Reliance on the advice of a professional, such as an accountant, does not necessarily demonstrate reasonable cause and good faith unless, under all the circumstances, such reliance was reasonable and, the taxpayer acted in good faith .

Id .

In this connection, a taxpayer must demonstrate that his/her reliance on the advice of a professional concerning substantive tax law was objectively reasonable .

Goldman v . Commissioner , .39 F .3d,402, 408 (2d Cir . 1994), affg .

T .C . Memo . 1993-480 . In,the case of claimed reliance on an accountant who prepared the taxpayer's tax return, the taxpayer must establish that correct information was provided to the accountant and that the item incorrectly omitted, claimed, .or reported in the return was .the result of the accountant's .error . .

Westbrook v . Commissioner , 68 F .3d 868,: 881 (5th Cir . 1995), 22 - affg . T .C .Memo : 1993-634 Weis v . Commissioner , 94 T .C . 473, 487 (1990) ; Ma-Tian Corp . v . Commissioner , 70 .; T .°C . 158,,1173 ,'(1-978) _ their posttrial brief, petitioners claim that .Mr .

Fields's tax(cid:127)preparer, American Express, :: realized' that it had erred in not deducting as alimony the $500,000 . deferred payment Mr .'Fie-lds made in 2000 and therefore advised Mr . Fields to file an amended-return`to correct its error,'which Mr .-Fields did on December 31, 20'.02 . Petitioners also assert on brief that their claiming deductions for the deferred payments made in 2001 and 2003 was'approved by their return preparers for,those .years . .

Further, petitioners-assert ; because the Internal Revenue Servic e did not challenge-the tax treatment of the deferred payments . for 2000 and 2001°, they had no'reason forbelieve that respondent might disallow the claimed alimony deduction .for 2003 .

Althou"gh at` appears that Mr . Fields had assistance fro m accountants in preparing-his'returns for each of the years i n issue, no-evidence was submitted as to 'what Mr . Fields told the preparers and what the preparers told 'him . See Garfield v .

Commissioner , Fed . Appx . (2d Cir . .., Aug . 18, 2008),, affg .

T .C .'`Memo . 2006-67 . -There is nothing in the record to, substantiate' petitioners' . uncorroborated and first-time assertions made in their posttrial'brief that=American Express admitted error in preparing Mr . Fields's''tax return fo r 2000 filed on October 15, .-2001 . We have no way of knowing 23 - whether the filing of the amended . 2000 tax .ret .urnon August 31, 2002, was to correct an " error" made by American Express, as asserted by petitioners , or resulted from Mr . Fields ' s desire to claim and/or insistence on claiming the benefit of a greater alimony deduction .

Nor do we have any way of knowing what information the other tax preparers . .( Coppergate Associates International and Meridian Services, Ltd .) had i n preparing petitioners ' 2001 and 20 . 03 tax returns ., Moreover , the lack of a previous challenge by respondent of Mr . Fields ' s claimed alimony deductions for the deferred . payments. made in 2000 and 2001 pursuant to paragraph 15 . of the agreement does not show that petitioners: had reasonable cause for the erroneous position taken .for 2003 .

On the limited stipulated facts before us, we cannot find that Mr . Fields , apparently a knowledgeable attorney, had, reasonable cause for , or acted in good faith with respect to, changing his original position with respect to the characterization of the $500,000 payment to Karen Fields in 2000 and, adhering to. an erroneous position , with respect to the $525,000 payment in 2003 .

Because petitioners have failed to prove . that they are entitled to relief under section 6664 ( c),(1), we reject their arguments that they should . be relieved of the section 6662 penalty .

To reflect the foregoing, 2 4 Decisions will be entere d for respondent .