UNITED STATES TAX COURT
MARSHA K. HUGGINS, Petitioner v
.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4878-00S. Filed May 14, 2001.
Marsha K. Huggins, pro se.
Ralph W. Jones
, for respondent.
DEAN, Special Trial Judge
: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year at issue. The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.
Respondent determined a deficiency of $1,363 in petitioner’s Federal income tax for taxable year 1997. The sole issue for decision is whether petitioner is entitled to exclude from income, the payments she received from a former spouse incident to a divorce proceeding.
This case was submitted fully stipulated without trial under
Rule 122. The accompanying exhibits are incorporated herein by reference.
Background
Petitioner resided in Astoria, Oregon, at the time her petition was filed in this case.
Petitioner's marital relationship with her former husband was dissolved by a decree of dissolution of marriage (decree) by the Circuit Court of the State of Oregon, the final and effective date of which was January 18, 1986. The decree includes a provision providing that her former husband will pay to her "a sum of money equaling one-half of monthly net amount, after deductions for federal and state taxes, of the U.S. Coast Guard retirement pension received by [petitioner's former husband]. Payment to [petitioner] shall not be included as taxable income to [petitioner], nor shall such payments be deductible by [petitioner's husband]." The decree directs that the payments be made directly to petitioner and continue until the mortgage on ordinarily is the participant or beneficiary who, under the plan, is entitled to receive the distribution. See Darby v. Commissioner , 97 T.C. 51, 58 (1991); Estate of Machat v.
Commissioner
, T.C. Memo. 1998-154; Smith v. Commissioner , T.C.
Memo. 1996-292.
Section 402(e)(1)(A), however, provides an exception to this general rule. Section 402(e)(1)(A) provides that an "alternate payee", who is the spouse or former spouse of the plan participant, shall be treated as the distributee of any distribution or payment made to the "alternate payee" under a "qualified domestic relations order" (QDRO) as defined in section 414(p). Therefore, a distribution made to such an alternate payee under a QDRO will be taxable to that alternate payee, and not to the plan participant, because section 402(e)(1)(A) treats the alternate payee as the distributee.
As originally enacted, the QDRO rules did not affect governmental plans. See H. Rept. 101-247, 1443 (1989). In 1989, however, Congress amended the tax rules relating to governmental plans to conform them to the qualified plans discussed above, applying the QDRO rules to distributions from governmental plans. Omnibus Budget Reconciliation Act of 1989 (OBRA), Pub. L. 101239, sec. 7841(a)(2), 103 Stat. 2427-2428. Section 414(p)(11) is applicable to transfers of marital interests after the date of enactment of OBRA, December 19, 1989, for tax years ending after the date of enactment. See OBRA sec. 7841(a)(3), 103 Stat. 2428. The court order in this case was issued in 1985; it precedes the effective date of section 414(p)(11) and cannot qualify as a QDRO.
The decree provided that petitioner is to receive a "sum of money equaling one-half" of her former spouse's Coast Guard retirement pension, after deduction of Federal and State taxes, and that such amount is not to be taxable income to her or deductible by her former spouse. The language of the court's direction that the amount not be taxable to petitioner or deductible by her former spouse disqualifies the payments from being considered as alimony. See sec. 71(b)(1)(B). The payments are to continue until the mortgage is paid or the house is sold. The payments constitute a division of marital property. Estate of Goldman v. Commissioner , 112 T.C. 317, 323-324 (1999), affd.
without published opinion sub nom. Schutter v. Commissioner , 242 F.3d 390 (10th Cir. 2000).
The language of the decree also meets the requirement of 10
U.S.C. sec. 1408(a)(2)(C) (1994) for direct payment to petitioner out of the retired pay of petitioner's former spouse: in the case of a division of property, [the court order] specifically [provides] for the payment of an amount, expressed in dollars or as a percentage of disposable retired pay, from the disposable retired pay of a member to the spouse or former spouse of that member. [Emphasis supplied].
pay. See sec. 61(a)(11); Jones v. Commissioner , 82 T.C. 586 (1984).
Respondent's position is not sustained, and petitioner may exclude from income amounts received in 1997 as a division of property incident to divorce.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered for petitioner .