PAYMENTS WERE DIVISION OF MARITAL PROPERTY, NOT ALIMONY.

                       UNITED STATES TAX COURT

                                                   Penalty

                                                   Penalty

[2] All section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

[3] Some of the facts have been stipulated, and the stipulation of facts is incorporated in our findings by this reference.

[4] Monte H. Goldman resided in Colorado on January 10, 1995, the date of his death. Carole Schutter (formerly Carole Goldman), the personal representative of the Estate of Monte H. Goldman (hereinafter referred to as petitioner), resided in Colorado at the time the petition was filed.

[5] On July 31, 1974, Mr. Goldman and Sally Goldman (presently known as Sally Parker and hereinafter referred to as Ms. Parker) married. They had two children, one born in 1978 and a second in 1979. On or about November 23, 1983, Mr. Goldman and Ms. Parker separated and did not live together during the years in issue. Subsequently, Ms. Parker (plaintiff) filed a Complaint for Divorce for the dissolution of her marriage to Mr. Goldman (defendant) in the Family Court of First Circuit, County of Honolulu, State of Hawaii. On August 12, 1985, a Final Decree of Divorce was entered.

[6] Both Mr. Goldman and Ms. Parker had their own tax, as well as divorce, counsel. On November 12, 1985, they executed a "Property Settlement Agreement" (the agreement) as part of the divorce proceedings. The divorce court approved this Agreement. The relevant portions of the agreement provide as follows:

               1.5 Plaintiff and Defendant desire and

[8] Pursuant to paragraph 2.2.9 of the agreement, Mr. Goldman paid Ms. Parker $20,000 per month during each of the years in issue (totaling $240,000 each year). On his 1992, 1993, and 1994 Federal income tax returns, he characterized these $240,000 payments as alimony and took corresponding deductions. Ms. Parker did not report these payments as alimony on her 1992-94 returns.

[9] Mr. Goldman received an opinion letter, dated December 28, 1990, from the law firm of Kornfeld & Franklin of Oklahoma City, Oklahoma, with regard to the deductibility of the $240,000 payments on his returns. This letter advised Mr. Goldman that, pursuant to the agreement, he was entitled to deduct these payments as alimony.

[10] In the notice of deficiency, respondent determined that the $240,000 payments Mr. Goldman made to Ms. Parker in 1992, 1993, and 1994 are not alimony and thus not deductible. Respondent further determined that petitioner is liable for the section 6662(a) accuracy-related penalty for each of the years in issue.

OPINION

ISSUE 1. DEDUCTIBILITY OF PAYMENTS MR. GOLDMAN CHARACTERIZED AS ALIMONY

[11] The fundamental issue involved herein concerns the characterization of the $20,000 monthly payments Mr. Goldman made to Ms. Parker during 1992, 1993, and 1994. Petitioner claims these payments constitute alimony; respondent claims these payments represent a division of marital property. The tax consequences to both the payor and recipient vary significantly depending upon the characterization of these payments.

[12] 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 received as alimony or 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 or separate maintenance payments" is defined in section 71(b)(1) as any cash payment meeting the following four criteria:

               (A) such payment is received by (or on

[14] The parties agree that Mr. Goldman's $20,000 monthly payments to Ms. Parker satisfy subparagraphs (A), (C), and (D) of section 71(b)(1). Therefore, the dispositive question is whether these monthly payments satisfy the requirement of subparagraph (B), which treats a payment as nonalimony if the governing divorce or separation instrument designates the payment as such.

[15] In ascertaining the applicability of subparagraph (B) of section 71(b)(1), we believe the divorce or separation instrument need not mimic the statutory language of the subparagraph (e.g., the instrument need not specifically refer to sections 71 and 215). Rather, in our opinion, the divorce or separation instrument contains a nonalimony designation if the substance of such a designation is reflected in the instrument.

[16] In the instant case, the language of the agreement is unambiguous; it clearly makes known that the $20,000 monthly payments Mr. Goldman made to Ms. Parker constitutes a division of marital assets and not spousal support. The payments at issue were made pursuant to paragraph 2.2.9 of the agreement, entitled "Further Payments for Property Division". That paragraph specifically states that the $20,000 monthly payments were "In furtherance of the equitable division of property." Moreover, paragraph 7 of the agreement provides that "as a result of the funds AS AND FOR PROPERTY DIVISION * * * Plaintiff [Ms. Parker] expressly waives her right to spousal support from Defendant [Mr. Goldman]." (Emphasis added.)

[17] The agreement contains a clear, explicit and express direction that the $20,000 monthly payments are not to be includable in Ms. Parker's income. See Richardson v. Commissioner, 125 F.3d 551, 556 (7th Cir. 1997), affg. T.C. Memo. 1995-554. The agreement mandates nonalimony treatment of the payments through paragraph 6.5 of the agreement which provides that the payments in question are to be subject to the provisions of section 1041 and reported on the parties' tax returns as a nontaxable event.

[18] Reading the agreement from a reasonable, commonsense perspective, we find that it contains a nonalimony designation within the purview of subparagraph (B) of section 71(b)(1). ¹ Consequently, we hold that the $20,000 monthly payments Mr. Goldman made to Ms. Parker in 1992, 1993, and 1994 constitute a division of marital property, rather than alimony, and hence are not deductible by Mr. Goldman for those years.

[19] We have considered the remaining arguments made by the parties, and to the extent not discussed above, find them to be without merit.

ISSUE 2. SECTION 6662(a) ACCURACY-RELATED PENALTIES

[20] The other issue for decision concerns the applicability of the section 6662(a) accuracy-related penalties. Respondent contends that Mr. Goldman substantially understated his tax for the years in issue and is accordingly liable for the penalties. Petitioner disagrees.

[21] Pursuant to section 6664(c)(1), a section 6662 penalty does not apply to any portion of an underpayment if reasonable cause existed and the taxpayers acted in good faith. Pursuant to section 1.6664-4(b)(1), Income Tax Regs., all facts and circumstances must be examined in order to determine whether a taxpayer acted with reasonable cause and in good faith.

[22] Petitioner contends that we should not sustain respondent's imposition of the section 6662(a) accuracy-related penalties because Mr. Goldman received and relied upon an opinion letter prepared by experienced tax counsel. In order to establish good faith reliance on the advice of an adviser, the taxpayer must prove that: (1) He gave the return preparer complete and accurate information, (2) an incorrect return was a result of the preparer's mistakes, and (3) the taxpayer believed in good faith that he was relying on a competent return preparer's advice. See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987). These requirements have been met in this case. Consequently, we do not sustain respondent's determination imposing the section 6662(a) accuracy-related penalties.

[23] To reflect the foregoing,

[24] Decision will be entered under Rule 155.