Q
RECORDE D
T .C . Memo . 2008-17
UNITED STATES TAX COUR T
DWIGHT S . & ANTONINA K . PLATT, Peti Toners v .
COMMISSIONER OF INTERNAL REVENUE, Responden t
HERBERT & CHRISTINE BANGS, Petiti C ners M
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
JAI 1
S ERVIC E
I/
C i
1 FILE S Docket Nos . 4467-06, 72 21-06 . Filed January 31, 2008 . W . Randolph Shump , for petitioners in do ket No . 4467-06 . Stuart Henry Levine , for petitioners in docket No . 7221-06 . Bradley C . Plovan , for respondent .
MEMORANDUM FINDINGS OF FACT AND OPINIO N
CHIECHI, Judge : Respondent determined tie following deficiencies in, and accuracy-related penalties u der sectio n SERVED JAN 31 2008 6662 (a)' on, petitioners' respective Federal income tax for 2002 : Petitioners Deficiency Accuracy-Related Penalty Dwight S . Platt and $3,531 $70 6 Antonina K . Plat t Herbert Bangs and 2,175 435 Christine Bang s We must decide whether certain payments that petitione r Herbert Bangs (Mr . Bangs) made during 2002 to petitioner Antonina Platt (Ms . Platt) are deductible or excludable from Mr . Bangs' income for his taxable year 2002 and includible in Ms . Platt's income for her taxable year 2002 .2 We hold that they are not . FINDINGS, OF FAC T All of the facts in these cases, which the parties submitted under Rule 122, have been stipulated by the parties and are so found except as stated below .
Petitioners in the case at docket No . 4467-06, Ms . Platt and Dwight Platt (Mr . Platt), resided in Stevenson, Maryland, at the time they filed the petition in that case . Petitioners in the case at docket No . 7221-06, Mr . Bangs and Christine Bangs (Ms . 'Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the year at issue . All Rule references are to the Tax Court Rules of Practice and Procedure .
Bangs), resided in Ruxton, Maryland, at the t me they filed the petition in that case .
On a date not disclosed by the record, Mr . Bangs and Ms . Platt were married . At all relevant times, including while Mr . Bangs was married to Ms . Platt, Mr . Bangs participated in a pension plan (Baltimore County pension plan) maintained by his employer, Baltimore County, Maryland . At those times, that was the only pension plan in which Mr . Bangs participated . On March 2, 1983, Mr . Bangs and Ms . Plat divorced pursuant to a decree of divorce (divorce decree) issue by the Circuit Court for Baltimore County . The divorce decree provided in pertinent part :
IT IS FURTHER ORDERED, that the Def ndant shall pay to the Plaintiff, directly, as perma lent alimony, the sum of Three Hundred Dollars ($300) per month effective October 1, 1982, payable until the death of either party or the remarriage of the Plaintiff, whichever shall first occur, subject to the f rther order of the Court .
IT IS FURTHER ORDERED, that the Def ndant shall pay to the Plaintiff, as a monetary award, the sum of Thirty-Two Thousand Nine Hundred Dollars ($32,900), which sum shall be payable within 90 day of February 1, 1983 .11 1 IT IS FURTHER ORDERED, that the afo esaid monetary award shall be reduced to judgment on Ma 1, 1983 and shall draw interest at the legal rate fr m such date . * IT IS FURTHER ORDERED, that with respect to the Defendant's pension, the Defendant shall pay to the Plaintiff, 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) ." ' 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 * * * 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 te n (10) percent from July 1, 1983, to the date of payment . [Reproduced literally . ]
During 2002, Mr . Bangs received monthly payments from th e
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 .875 (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 :
Date of Payment Amount . of Paymen t
01/14/2002 728 .9 1 02/13/2002 728 .9 1 03/13/2002 728 .9 1 04/15/2002 728 .9 1 05/13/2002 728 .9 1 06/13/2002 728 .9 1 07/15/2002 728 .9 1 08/15/2002 740 .3 0 09/16/2002 740 .3 0 10/15/2002 740 .3 0 11/15/2002 740 .3 0 12/16/2002 740 .3 0 Mr . Bangs and Ms . Bangs timely filed For 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 $8,8837 for alimony . Mr . Bangs did n t issue to Ms . Platt and did not file with the Internal Revenue Service any Form 1099 for a nominee distribution with respect o those payments . On January 18, 2006, respondent issued t Mr . Bangs a notice of deficiency with respect to his taxable year 2002 (notice for Mr . Bangs' taxable year 2002) . In that notice, respondent disallowed the alimony deduction that Mr . Ban s claimed in Mr . Bangs' return . In the notice for Mr . Bangs' axable 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 .879 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 $8,88310 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 accuracyrelated penalty under section 6662(a) . OPINION The parties submitted these cases fully stipulated under Rule 122 . That the parties submitted these cases under that Rule does not affect who has the burden of proof or the effect of a 'For convenience, we shall generally refer hereinafter only to Ms . Platt, and not to Mr . Platt .
- 7 failure of proof .'1 Rule 122(b) ; Borchers v . Oommissioner , 9 5 T .C . 82, 91 (1990), affd . 943 F .2d 22 (8th C In support of his argument that the mon t issue are deductible or excludable from his i in Ms . Platt's income for the taxable year 20 advances several arguments . We first addres s that the monthly payments at issue constitute section 71 and are deductible under section 2 and respondent take the position that those p alimony under that section .12 In advancing their respective positions 1991) .
ly payments a t come and includible 2, Mr . Bang s Mr . Bangs' argument alimony unde r 5 (a) . Ms . Platt yments are no t whether the monthly payments at issue constitute alimony unde r section 71, Mr . Bangs and Ms . Platt rely on s by the Deficit Reduction Act of 1984 (DEFRA), sec . 422(a), 98 Stat . 795 (amended section 71 argues that amended section 71 does not apply We agree with respondent .l3 "The parties do not address sec . 7491(a)
need not decide whether the burden of proof s under that section . That is because resolut i presented here does not depend on who has th e 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 . 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 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 an d 13( . . .continued)
executed after Dec . 31, 1984, and (2) any such instruments executed before Jan . 1, 1985, but modified on or after that date if the modification expressly provides that amended sec . 215 applies to that modification . DEFRA sec . 422(e), 98 Stat . 798 . The parties do not address whether sec . 215 before its amendment by DEFRA or amended sec . 215 applies in these cases . On the record before us, we hold that sec . 215 before its amendment by DEFRA, and not amended sec . 215, applies .
"In his reply brief, Mr . Bangs also argues that amended section 71 applies because "the Commissioner made the assessments against both sets of taxpayers in order to avoid being 'whipsawed"' . We reject that argument . That respondent made the respective determinations at issue in order to avoid being whipsawed is irrelevant to resolving whether sec . 71 before its amendment by DEFRA or amended section 71 applies in these cases .
In her reply brief, Ms . Platt does not address respondent's argument that sec . 71 before its amendment by DEFRA, and not amended section 71, applies in these cases .
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 .l (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 determinin whether the monthly payments at issue constitute alimony .
In his reply brief, Mr . Bangs states : "We would agree tha t 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 he 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 Is . Platt was the owner of an interest in the Baltimore County pension plan since the divorce decree ordered him to pay her "if, as, and when h e "See supra note 13 .
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 Moreover, none of the parties disputes that the Balti16See supra note 12 .
more 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 at issue are excludable from Mr . Bangs' income and includible in Ms . Platt's income for the taxable year 2002 .19 That section governs th e ( . . . continued )
beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan ;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit o f his employees or their beneficiari e All references hereinafter to a qualified pen ion plan are to a qualified pension plan within the meaning of ec . 401(a) .
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 th e 11( . . . continued )
distributions from qualified pension plans . See Darby v . Commissioner , 97 T .C . 51, 58 (1991) . Unlike the instant cases, Pfister and Witcher did not involve qualified pension plans . Those cases involved Federal military retirement programs that are subject to Federal statutes that do not apply in the instant cases . Th e parties' reliance on sec . 61(a)(11) and on Pfister and Witcher is misplaced .
Court rejected the taxpayer's argument that the term
"distributee" in section 402(a) means the owner of an interest in a qualified pension plan . Id . at 66 .
21 ( . .
.continued )
nally enacted as sec . 402(a)(9)), which gover distributions or payments that are made pursu discussed below, when Congress enacted the QD 1984, those provisions did not apply to gover are not subject to the spendthrift provisions See secs . 414(p)(9), 401(a) ; sec . 1 .401(a)-13 Regs . ; see also H . Rept . 101-247, at 1443 (1 9 The legislative history of the QDRO prov 1984 states in pertinent part :
Generally, under present law, benef pension, profit-sharing, or stock bonus plan) are subject to prohibitions agains alienation (spendthrift provisions . [si c Several cases have arisen in which been required to determine whether the thrift provisions apply to family suppor ( e .g . , alimony, separate maintenance, an obligations) . * * * There is a divergenc among [those courts] * * * .
* Reasons for Change s the taxation of nt to a QDRO . As O provisions in mental plans that of sec . 401 (a) (13)
a), Income Tax 9) .
sions enacted i n is under a lan (pensio n assignment or * * * ourts have * * spendobligations child support of opinio n m The committee believes that the spendthrift rules should be clarified by creating a limited exception that permits benefits under a pension, etc ., plan to be divided under certain circumstances . In order to provide rational rules for plan administers [sic], the committee believes it is necessary to establish guidelines for determining whether the except on to the spendthrift rules applies . * * * S . Rept . 98-575, at 18-19 (1984), 1984-2 C .B .I447, 456 .
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 . 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 (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 .
15 -Platt was the owner of an interest in the Baltimore Count y pension plan .
In support of their respective positions
Platt was the owner of an interest in the Bal pension plan, the parties rely on the divorce question . That provision requires Mr . Bangs determined pursuant to a formula stated there when" he receives a payment from the Baltimor plan . Contrary to Mr . Bangs' argument, the d provision in question does not provide that M owner of an interest in that plan .23 Nor has construed to do so . In fact, the Court of Sp Maryland concluded that the divorce decree pr granted nothing more than a monetary award to Bangs v . Bangs , 475 A .2d 1214, 1223 (Md . Ct .
In Bangs v . Bangs , supra , Mr . Bangs appe divorce decree involved in these cases . In t Bangs did not argue, as he does here, that th as to whether Ms .
imore County decree provision i n pay an amoun t n "if, as, and County pensio n vorce decre e Platt is th e hat provision been cial Appeals o f vision in question Ms . Platt . See pec . App . 1984) .
led from th e provision in question provided that Ms . Plattlwas the owner of a n 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 provision24 and the payments ordered under the divorce decree provision in question25 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 .
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 unde r those two provisions, id . The Court of Speci 1 Appeals o f Maryland held that the Circuit Court for Balt more County granted Ms . Platt only one monetary award consisting f 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 122 . According to the Court of Special Appeals of Maryland, the Cir uit Court for Baltimore County had broad discretion and did not abuse that discretion by determining a fixed percentage or 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 . 8205 by Acts 1984, ch . 296, secs . 1 and 2),27 did not authoriz e Maryland courts to transfer ownership of an interest in a pension plan as part of a divorce settlement . See generally Klingenberg v . Klingenberg , 675 A .2d 551, 555-556 (Md . 1996) . It was no t 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 compensatio n 21 ( .
. .continued )
involved in Witcher authorized the court that issued the divorce decree involved in that case to award an ownership interest in a military pension as part of a divorce settlement . Id .
plan" as part of a divorce settlement . Md . Code Ann ., Fam . Law sec . 8-205(a)(2)(1)(West 2007) .28 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 . 2'Md . Code Ann ., Fam . Law, sec . 8-205(a)(I~lest 2007) provides in pertinent part :
(a)(1) * * * after the court determines which property is marital property, and the value of the marital property, the court may transfer ownership of an interest in property described in paragraph (2) of this subsection, grant a monetary award, or both, as an adjustment of the equities and rights of the parties concerning marital property, whether or of alimony is awarded .
(2) The court may transfer ownershi1 of an interest in : (i) a pension, retirement, pro it sharing, or deferred compensation plan, from on party to either or both parties ;
(ii) subject to the consent of any lienholders, family use personal property, from one or both parties to either or both parties ; an d (iii) subject to the terms of any lien, real property jointly owned by the parties and used as the principal residence of the parties when they lived together * * * 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 Count y pension plan, 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 payee29 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 .30 The QDRO provision s 21 -that Congress enacted in 1984 did not apply t governmental plans . See sec . 414(p)(9) ; see also supra no e 21 . In 1989, Congress added section 414(p)(11) to the Code .31 Omnibus Budget Reconciliation Act of 1989 (OBRA), Pub . L . 10 -239, sec . 7841(a)(2), 103 Stat . 2427-2428 . Section 414(p)(11) provides that "a distribution or payment from a govern ental plan * * * shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domes is relations order which meets the requirement of clause (i) of aragraph (1)(A)" of section 414(p)
. 32 Section 414(p)(11) applies my with respect to transfers of marital interests in governme tal 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) 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 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 .
A
To reflect the foregoing, Decision will be entered for p etitioners in l ocket No . 4467-06 .
Decision w 11 be entered for respondent as t the deficiency and for petitioners as to the accuracyrelated penalty under sectio n 6662(a) in docket No . 7221-06 .