1997 Tax Ct. Memo LEXIS 31">*31 Decision will be entered for respondent.
P received a lump-sum distribution from two accounts under a qualified pension plan in 1991. Pursuant to a divorce decree entered shortly thereafter, part of the distribution was used to pay off the mortgage on P's former residence and to pay his ex-wife $ 30,000. P reported the distribution as income on his 1991 Federal income tax return, but included the amount used to satisfy his mortgage obligation and the amount paid to his ex-wife as part of an alimony deduction. R disallowed the alimony deduction and determined that P is taxable on the entire distribution. P contends that he is not liable for tax on the portion of the distribution paid to his former wife and the portion used to satisfy the mortgage because the payments were made pursuant to a qualified domestic relations order (QDRO), as defined by
MEMORANDUM OPINION
NIMS,
1997 Tax Ct. Memo LEXIS 31">*34 Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
The sole issue for decision is whether the portion of petitioner's retirement account distribution used to pay off the mortgage on petitioner's former residence and to pay his ex-wife $ 30,000 pursuant to their divorce decree constituted taxable income to petitioner in the amount of $ 156,099.46 for 1991. 1997 Tax Ct. Memo LEXIS 31">*35
This case was submitted to the Court on a full stipulation of facts, which are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time the petition was filed, petitioner resided in Jackson, Ohio.
Petitioner's employment with Fluor Daniel, Inc. (Fluor Daniel) was terminated on March 8, 1991. Petitioner subsequently divorced Linda Gayle Burton (Mrs. Burton) on June 11, 1991; an "Agreed Decree of Divorce" (Decree) was entered with the District Court of Denton County, Texas. The Decree divested petitioner of his entire interest in his former residence located at 2707 Daybreak Drive, Dallas, Texas (27071997 Tax Ct. Memo LEXIS 31">*36 Daybreak Drive), and transferred that interest to Mrs. Burton. The Decree also required petitioner to withdraw his entire retirement account balances at Fluor Daniel, use the proceeds to pay off the mortgage on 2707 Daybreak Drive (for which petitioner was personally liable), and pay Mrs. Burton the remaining balance in an amount not to exceed $ 30,000. The Decree states that petitioner "shall be responsible for all taxes due on the lump sum retirement withdrawal, and releases * * * [Linda] from any and all liability concerning the taxes on the retirement withdrawal."
The Fluor Daniel retirement plan is and was, at the time of petitioner's participation, subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 829, as amended. Petitioner had two separate retirement accounts at Fluor Daniel, the "Retirement Plan" and the "Savings Investment Plan." Sometime in March of 1991, petitioner asked the plan administrator at Fluor Daniel to distribute to him the entire balance of each retirement account. By letters dated May 7 and May 13, 1991, the plan administrator acknowledged petitioner's request and reported to him the amounts1997 Tax Ct. Memo LEXIS 31">*37 to be distributed based on a valuation date of March 31, 1991. As of that date, the combined value of the Retirement Plan and the Savings Investment Plan accounts (plan balance) was $ 176,754.88. Petitioner received this sum sometime at the end of May 1991 in the form of two checks dated May 24, 1991 and issued by The Northern Trust Company. At the time petitioner received the checks, he was under the age of 59-1/2 and did not attain that age at any time during 1991. The record does not disclose whether petitioner had attained age 55. See
Petitioner paid off his mortgage debt on 2707 Daybreak Drive by wire transfer of $ 126,099.46 from his account at BancOhio National Bank (BancOhio) to his mortgage account at Bank One Dallas on June 6, 1991. Furthermore, on or about July 31, 1991, petitioner sent Mrs. Burton a check drawn on petitioner's account at BancOhio in the amount of $ 30,000 to fulfill his obligation under the Decree.
On his 1991 Federal income tax return, petitioner reported the plan balance as dividend income of $ 138,418.91 and capital gain income of $ 38,335.97. Petitioner also claimed an alimony deduction with respect to both the $ 30,000 that 1997 Tax Ct. Memo LEXIS 31">*38 he paid directly to Mrs. Burton and the $ 126,099.46 he paid to satisfy the mortgage on 2707 Daybreak Drive. Petitioner included this amount as part of the total alimony deduction of $ 175,394.07 claimed on the return. The parties have stipulated that petitioner's allowable alimony deduction for the taxable year 1991 was $ 5,425.
In the Amendment to Answer referred to above, the asserted increased deficiency of $ 17,676 represents the imposition of additional tax under
We must decide whether the Decree is a qualified domestic relations order (QDRO) within the meaning of
Ordinarily, any funds distributed from an exempt employees' trust (under a tax qualified employees' plan) are taxable to the plan participant or beneficiary who is entitled to receive the distribution under the plan.
The Retirement Equity Act of 1984 (REA), Pub. L. 98-397, sec. 204(b), 98 Stat. 1445, added (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). (2) Order Must Clearly Specify Certain Facts.--A domestic relations order meets the requirements of this paragraph only if such order clearly1997 Tax Ct. Memo LEXIS 31">*41 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. (3) Order May Not Alter Amount, Form, Etc, Of Benefits.--A domestic relations order meets the requirements of this paragraph only if such order-- (A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan, (B) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and (C) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
Thus, to qualify as a QDRO, a domestic relations order must meet the following tests: First, it must be a domestic relations order1997 Tax Ct. Memo LEXIS 31">*42 that creates, recognizes, or assigns, to an alternate payee, rights under a qualified employee benefit trust otherwise payable to a plan participant. Second, the QDRO must clearly specify certain facts, namely, the names and last known mailing addresses of the participant and the alternate payee; the amount or percentage of the benefits to be paid or the manner in which such amount or percentage is to be determined; the number of payments; and each plan to which the order applies. Third, the QDRO may not alter the amount, form, etc., of the benefits.
Generally, benefits under qualified plans are subject to prohibitions against assignment or alienation (so-called "spendthrift provisions"). S. Rept. 98-575, at 19 (1984),
The facts in this case do not comport with the requirements of
Nowhere is there any indication that the Decree was presented to the plan administrator, even in draft form, prior to the distribution of the plan proceeds to petitioner. We have stated, in
For the foregoing reasons, we hold that the Decree did not effectively create or recognize Mrs. Burton's right as an alternate payee, within the meaning of
Having so held, we do not reach the question of whether the Decree clearly specifies facts as required by
In In "She shall receive that interest pursuant to a qualified Domestic Relations Order to be prepared by Robert Louis Karem. Until the Qualified Domestic Relations Order is completed, Robert Louis Karem shall pay Barbara Wiechman Karem her interest in the pension plan immediately when he receives it."
The Court of Appeals went on to observe that there was thus no written order in existence at the time of the distribution that would satisfy the requirements of
On brief petitioner argues that he received the plan benefits as agent for Mrs. Burton. However, since the Decree did not qualify as a QDRO, the possibility raised by1997 Tax Ct. Memo LEXIS 31">*48 this argument becomes moot.
As noted above, the parties stipulated that if the Court holds that the total amount of the retirement accounts distribution is taxable to petitioner, then petitioner is also liable for the additional tax under
*. This case was reassigned to Judge Arthur L. Nims, III↩, by Order of the Chief Judge.
