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Bayard’s Steven R. Director & Sara E. Bussiere Win In The United States Tax Court In Crabtree v. Commissioner of Internal Revenue

Recently, Bayard, P.A. attorneys Steven R. Director and Sara E. Bussiere successfully petitioned the United States Tax Court (the “Tax Court”) for a decision confirming that payments received by Esther B. Crabtree from her ex-husband pursuant to a property settlement agreement in connection with her divorce did not constitute alimony for federal income tax purposes.

By way of background, Ester B. Crabtree, formerly known as Mrs. Girard (“Mrs. Girard”), and Donald Anthony Girard, M.D. (“Dr. Girard”) divorced in 2005.  In connection with their divorce, they entered into a property settlement agreement (“Property Settlement Agreement”), dated December 5, 2006, which was approved by an Order of the Family Court of the State of Delaware on December 7, 2006.  The Property Settlement Agreement provided: “Dr. Girard will continue to tender unallocated alimony/child support in the monthly sum of $5,232.00 for a continued 8 year period with the provision as long as Mrs. Girard should not remarry or cohabitate.”  In 2010, Dr. Girard made monthly payments of $5,232 pursuant to the Property Settlement Agreement (the “Support Payments”).  Mrs. Girard did not report these payments as alimony income on her 2010 U.S. Individual Income Tax Return. This prompted the Commissioner of Internal Revenue to issue a notice of deficiency, stating that Mrs. Girard had taxable alimony income for 2010 in the amount of $62,784.

To constitute taxable alimony under Section 71(b) of the Internal Revenue Code, the payment(s) must terminate “after the death of the payee spouse.”  Thus, the issue before the Tax Court was whether the Support Payments made by Dr. Girard to Mrs. Girard were “alimony” when the Property Settlement Agreement obligated Dr. Girard to make the payments for a “continued eight year period.” In  its decision issued on August 17, 2015, the Tax Court concluded that the Support Payments did not constitute “alimony” pursuant to Section 71(b)(1)(D) of the Internal Revenue Code, and thus not taxable to Mrs. Girard.  The Tax Court applied Delaware law to interpret the Property Settlement Agreement and “based on reasonable inferences drawn from it” found that the parties had agreed that Support Payments would not terminate if Mrs. Girard died during the eight year payment period.  The Tax Court also determined that Mrs. Girard was not liable for any penalties.

A full copy of the opinion in Crabtree v. Commissioner of Internal Revenue can be found here.

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