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divorce decree. Mr. Lofstrom stopped making payments sometime in
1995 and a year later asked a Minnesota county court to terminate
his alimony obligations because his salary had been substantially
diminished after retirement. The State court instead found
Mr. Lofstrom in arrears to Dorothy for the time that he failed to
pay alimony and reduced his arrearage to a judgment for $18,000.
The State court did grant Mr. Lofstrom a reduction, however, in
his monthly alimony payments from $1,500 to $1,000.
Shortly thereafter, Dorothy agreed to relinquish her past
and future claims for alimony against Mr. Lofstrom in exchange
for $4,000 cash and Mr. Lofstrom’s interest in a contract for
deed valued at $29,000. The contract for deed entitled Dorothy
to principal and interest payments until the principal was fully
paid.3 Payments under the contract for deed were to be made
irrespective of when Dorothy died.
Petitioners initially deducted as alimony only the $4,000
cash payment on their joint return for 1997. They later amended
their return for 1997 and deducted the $29,000 value of the
contract for deed. Respondent granted petitioners the $4,000
deduction but denied the $29,000 deduction.
3The contract for deed was entered into between
Mr. Lofstrom, as trustee of the Dennis Lofstrom Trust, and Mark
Lofstrom, the son of Mr. Lofstrom and Dorothy. The contract for
deed required a $1,408.34 payment upon execution, $4,200 or more
annually at a rate of $350 monthly, and interest at a rate of 7.5
percent per year.
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