1993 U.S. Tax Ct. LEXIS 34">*34 Decision will be entered under Rule 155.
P-H received a lump-sum distribution from a qualified pension plan in 1987. Pursuant to a Louisiana judgment partitioning community property of P-H and his former wife rendered the following year, one-half of the lump sum was paid to the former wife. Ps, electing 10-year averaging treatment with respect to the lump-sum distribution, reported one-half of the taxable portion of the distribution on Form 4972, Tax on Lump-Sum Distributions. R determined that Ps are taxable on 100 percent of the taxable portion of the distribution. Ps contend that they are not liable for tax on the portion of the distribution paid to the former wife because (1) she is an alternate payee under a qualified domestic relations order under
1. The State court judgment rendered more than 1 year after the lump-sum distribution does not meet the requirements of
2. Ps are liable for 100 percent of the tax imposed on lump-sum distributions under
3. Ps are not liable for the additions to tax for negligence under
100 T.C. 521">*521 DAWSON,
1993 U.S. Tax Ct. LEXIS 34">*36 OPINION OF THE SPECIAL TRIAL JUDGE
CANTREL,
The issues for decision are (1) whether petitioner Robert L. Karem (petitioner) properly excluded from the tax imposed by
FINDINGS OF FACT
Some of the facts were stipulated and they are found accordingly. Petitioners resided in Pearl River, Louisiana, at the time their petition was filed. They timely filed a 1987 joint Federal income tax return.
Prior to the taxable year at issue, petitioner was married to Barbara Wiechman Karem (Barbara). During his marriage to Barbara, petitioner was a participant in the D.H. 1993 U.S. Tax Ct. LEXIS 34">*37 Holmes, Inc. Pension Plan (the plan), which was a tax qualified plan. Petitioner and Barbara were divorced on November 5, 1985, in Louisiana, but the community property acquired during their marriage was not partitioned until 1988. On March 13, 1987, Barbara consented to petitioner's election of a lump-sum distribution from the plan, and on July 9, 1987, petitioner received a lump-sum distribution for that year in the amount of $ 98,253.52 (the distribution). The Form 1099-R, Total Distributions From * * * Retirement Plans, sent to petitioner by the plan reflects that the taxable amount of the distribution was $ 47,264.44. The distribution check was deposited into a trust account maintained by petitioner's100 T.C. 521">*523 divorce attorney, Sydney Parlongue, pending partition of petitioner's and Barbara's community property.
A Consent Judgment of Partition of Community Property (the consent judgment) was rendered by the Civil District Court for the Parish of Orleans, State of Louisiana, on July 15, 1988. The consent judgment provides the following with respect to partition of the parties' interests in pension plans: 2
5) BARBARA WIECHMAN KAREM shall receive, and does hereby receive, her 1993 U.S. Tax Ct. LEXIS 34">*38 interest in the D.H. Holmes Pension Plan pursuant to the
* * *
7) BARBARA WIECHMAN KAREM shall receive, and does hereby receive, one-half of the funds held by Sydney Parlongue said one-half in the amount of $ 49,126.76.
* * *
3) ROBERT LOUIS KAREM shall receive, and does hereby receive, his interest in the D. H. Holmes Pension Plan pursuant to the
* * *
7) ROBERT LOUIS KAREM shall receive, and does hereby receive, one-half of the funds held by Sydney Parlongue, his one-half, in the amount of $ 49,126.76.
1993 U.S. Tax Ct. LEXIS 34">*39 Petitioner elected the 10-year averaging method on part IV of Form 4972, Tax on Lump-Sum Distributions, attached to petitioners' joint Federal income tax return for 1987. On Form 4972, petitioner reported $ 25,644 3 as ordinary income and tax due on lump-sum distributions in the amount of $ 1,890. Respondent determined that the tax due on lump-sum distributions, calculated on Form 4972 on the basis of a total taxable amount of $ 49,275, is $ 5,745. Respondent100 T.C. 521">*524 included 100 percent rather than one-half of the taxable amount of the plan distribution in determining the lump-sum distribution tax. For convenience, references to "all of the distribution" are to 100 percent of the taxable portion of the plan distribution, $ 47,264.44; references to "one-half of the distribution" are to 50 percent of that amount.
OPINION
Respondent1993 U.S. Tax Ct. LEXIS 34">*40 contends that petitioner must include all of the distribution in petitioners' 1987 gross income. Petitioner argues that he is entitled to exclude one-half of the distribution from taxation. He offers two alternative arguments in support of this position: (1) That the consent judgment entered by the Louisiana court is a qualified domestic relations order (QDRO) within the meaning of
We first consider petitioner's argument that the consent judgment rendered in 1988 by the Louisiana court is a QDRO and that Barbara must be treated as the distributee of one-half of the distribution under
(1) In general. --
(A) Qualified domestic relations order. -- The term "qualified domestic relations order" means a domestic relations order --
(i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
(B) Domestic relations order. -- The term "domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement) which --
(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State domestic relations law (including a community property law).
1993 U.S. Tax Ct. LEXIS 34">*43 (2) Order must clearly specify certain facts. -- A domestic relations order meets the requirements of this paragraph only if such order clearly specifies --
(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(B) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order applies, and
(D) each plan to which such order applies.
The consent judgment upon which petitioner relies clearly does not meet the requirements set forth in
In the alternative, petitioner contends that one-half of the lump-sum distribution is taxable to Barbara by operation of Louisiana community property laws. The parties have not cited, nor have we found, any reported case addressing the effect of community property laws on Federal income taxation of a lump-sum distribution from a qualified pension plan. 4
1993 U.S. Tax Ct. LEXIS 34">*45 Under
1993 U.S. Tax Ct. LEXIS 34">*46 No change was made in petitioners' gross income for the taxable year 1987 in the notice of deficiency, but petitioners' tax liability was increased because respondent determined that a greater portion of the distribution is subject to the tax on lump-sum distributions under the 10-year averaging method elected by petitioners. This result is consistent with the provisions of
100 T.C. 521">*528 Generally, a married taxpayer in a community property State is taxable on only one-half of his or her income, while the taxpayer's spouse is taxable on the other half. Ordinarily then, absent contrary statutory provision, a taxpayer in a community property State might be taxable on only one-half of a lump-sum distribution1993 U.S. Tax Ct. LEXIS 34">*47 received during the taxable year. However,
In order to treat all distributees equally, all computations of the tax on the 15-year averaging ordinary income portion are to be made on the basis of the tax schedule for unmarried individuals. In addition, community property laws are to be ignored for these purposes. Thus, a distributee in a community property State is to compute his tax on the basis that the entire amount of the distribution is his income. [S. Rept. 93-383 (1973), 1974-3 C.B. (Supp.) 80, 220-221; fn. ref. omitted.]
The legislative history further states:
In order to treat all distributees equally, all computations of the tax on the ten-year averaging ordinary income portion are to be made1993 U.S. Tax Ct. LEXIS 34">*48 on the basis of the tax schedule for unmarried individuals. 4 In addition, community property laws are generally to be ignored for these purposes. 51993 U.S. Tax Ct. LEXIS 34">*49
100 T.C. 521">*529 We conclude from the plain language of the statute and this legislative history that petitioner, as the participant in the plan and recipient of the lump-sum distribution, is taxable under
We note that we would reach the same result on these facts under
In
Here we have held that there was no QDRO directing payment from the plan to Barbara. We conclude that, in accordance with
1993 U.S. Tax Ct. LEXIS 34">*54 For the foregoing reasons, respondent's determination with respect to the deficiency is sustained. On this record, however, we hold that imposition of the additions to tax for negligence under
1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. It appears that petitioner participated in more than one D.H. Holmes pension plan. In a letter to his attorney, Sidney Parlongue, from D.H. Holmes Co., Ltd. transmitting the lump-sum distribution check to petitioner, the payment is described as petitioner's distribution from "D. H. Holmes' old pension plan."↩
3. The taxable amount shown on petitioner's Form 4972 consisted of one-half of the taxable amount received from the D.H. Holmes, Inc. Pension Plan and $ 2,011.86 he received from D.H. Holmes, Ltd.↩
4. The tax consequences of a taxpayer's payment of a portion of his lump-sum distribution from a qualified pension plan to his former spouse pursuant to a State court order were considered in
5. Ten-year averaging was replaced by 5-year averaging in 1986, subject to a transition rule allowing certain taxpayers to elect 10-year averaging for lump-sum distributions received after the effective date of the change.
(e) Tax on Lump Sum Distributions. --
(1) Imposition of separate tax on lump sum distributions. --
(A) Separate tax. -- There is hereby imposed a tax (in the amount determined under subparagraph (B)) on the ordinary income portion of a lump sum distribution.
(B) Amount of tax. -- The amount of tax imposed by subparagraph (A) for any taxable year is an amount equal to 5 times the tax which would be imposed by subsection (c) of
(i) the total taxable amount of the lump sum distribution for the taxable year, over
(ii) the minimum distribution allowance.
(C) Minimum distribution allowance. -- For purposes of this paragraph, the minimum distribution allowance for the taxable year is an amount equal to --
(i) the lesser of $ 10,000 or one-half of the total taxable amount of the lump sum distribution for the taxable year, reduced (but not below zero) by
(ii) 20 percent of the amount (if any) by which such total taxable amount exceeds $ 20,000.
(D) Liability for tax. -- The recipient shall be liable for the tax imposed by this paragraph.
Sec. 1122(h)(5) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2471-2472, provides:
(5) Election of 10-Year Averaging. -- An individual who has attained age 50 before January 1, 1986, and elects the application of paragraph (3) or
6. We note that we relied on
4. Distributees, in computing the tax on their other income (including the capital gain element of the distribution), may use any appropriate tax schedule. They are not restricted to the schedule for unmarried individuals.↩
5. Prior to the computation of the separate tax on the ordinary income portion of the distribution, under the committee bill an amount of the distribution, under the committee bill an amount must be subtracted from the income of the retiree. In community property states, the amount subtracted will, of course, generally be only one-half of the ordinary income portion of the lump-sum distribution. The other half of this lump-sum distribution must be subtracted from the income of the spouse which may be reported on a separate tax return.
7. The Court of Appeals for the Ninth Circuit did not decide whether California community property law would permit such a transfer.↩
8. While the distribution is fully includable in gross income, it is subject to the offsetting deduction from gross income allowed by