Murray v. Comm'r
2013 Tax Ct. Summary LEXIS 104
Tax Ct.2013Background
- Petitioner FRED D. MURRAY and Lisa Lynn Murray executed a Property Settlement Agreement on March 5, 2009, and divorced by Decree of Divorce filed April 1, 2009; the chancery court ratified and incorporated the settlement into the decree.
- Paragraph 5 of the agreement recited a mutual release of alimony except as set out, then stated the Husband would pay Wife $55,000 “as lump sum alimony”: $25,000 on execution and $30,000 within 30 days, to be paid through the wife’s attorney.
- The agreement was silent on whether the obligation would terminate upon death of either party; the agreement barred modification except by written amendment approved by the chancery court.
- Petitioner deducted the two payments (total $55,000) as alimony on his 2009 Form 1040 without seeking tax advice or supplying the settlement/decree to H&R Block when asking for a review.
- IRS disallowed the alimony deduction, assessed a $14,430 deficiency and a $2,886 accuracy-related penalty under I.R.C. §6662(a); Tax Court held trial under section 7463 summary procedures.
Issues
| Issue | Petitioner's Argument | Respondent's Argument | Held |
|---|---|---|---|
| Whether the two payments totaling $55,000 qualify as deductible alimony under I.R.C. §215 (i.e., satisfy §71(b)(1)(A)–(D)) | Murray contends he intended and believed the payments were periodic alimony and thus deductible | Payments are not deductible alimony because they do not meet §71(b)(1)(D): the obligation survives death (instrument silent; state law controls) | Held: Payments are lump‑sum alimony under Mississippi law and do not meet §71(b)(1)(D); deduction disallowed |
| Whether petitioner is liable for the accuracy‑related penalty under I.R.C. §6662(a) | Murray argues he acted in good faith and had reasonable cause because he believed the agreement provided periodic alimony | Respondent asserts a substantial understatement of tax (and alternatively negligence) so the §6662 penalty applies; petitioner did not reasonably rely on professional advice or supply necessary documents | Held: Penalty imposed. Petitioner failed to show reasonable cause or good faith; substantial understatement exists |
Key Cases Cited
- Barrett v. United States, 74 F.3d 661 (5th Cir. 1996) (distinguishing lump‑sum and periodic alimony under Mississippi law; lump‑sum is final and not modifiable)
- Creekmore v. Creekmore, 651 So. 2d 513 (Miss. 1995) (lump‑sum alimony requires clear and express language; substance controls over label)
- Armstrong v. Armstrong, 618 So. 2d 1278 (Miss. 1993) (periodic alimony is modifiable; court cannot divest itself of power to modify periodic alimony)
- Kean v. Commissioner, 407 F.3d 186 (3d Cir. 2005) (instrument controls whether obligation terminates at payee’s death; if silent, state law governs)