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and Procedure.
After concessions by the parties, this Court must decide
whether amounts received from petitioner’s former spouse under a
separation agreement are taxable to petitioner.
Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Raleigh, North Carolina, at the
time she filed her petition.
Petitioner married Robert L. Capps (Dr. Capps), a licensed
dentist, in 1978. A son, Alexander, was born of the marriage.
Petitioner and Dr. Capps were divorced on May 22, 1995.
In 1986, Dr. Capps formed Robert L. Capps, D.D.S., P.C.
(Corporation). Dr. Capps owned 100 percent of the Corporation
until it was dissolved in 1997.
The Corporation entered into a dental practice partnership
(Partnership) with Mark Bowman, D.D.S. (Dr. Bowman). On May 1,
1992, Dr. Bowman executed a promissory note (Note) in favor of
the Corporation to acquire his Partnership interest. The Note
has an original principal amount of $366,677 and is payable in
monthly installments of $4,644.76, including an annual rate of
interest of 9 percent.
On or about March 31, 1994, petitioner and Dr. Capps entered
into a Separation Agreement and Property Settlement (Separation
Agreement), consisting of 62 pages and a schedule of 9 pages.
Section X.C of the Separation Agreement provides, in part:
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