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A. Deduction for the Value of the Contract for Deed
Next, we address whether petitioners are entitled to deduct
as alimony $29,000 for the value of a contract for deed that
Mr. Lofstrom transferred to Dorothy in 1997. Alimony (or
separate maintenance) payments are deductible from income by the
payor and includable in the income of the payee. Secs. 61(a)(8),
71(a), 215(a) and (b). The payments must meet certain
requirements to be deductible, however. See secs. 71, 215.
Among those requirements,6 payments must be made in cash or
a cash equivalent. See sec. 71(b)(1). A check or money order
that is payable on demand is a cash equivalent. A debt
instrument that is transferred is not. Sec. 1.71-1T(b), Q&A-5,
Temporary Income Tax Regs., 49 Fed. Reg. 34455 (Aug. 31, 1984).
This is the first time that this Court is asked to address
whether the transfer of a third-party debt instrument satisfies
the requirements to qualify as alimony. Specifically, we address
whether the “contract for deed” that Mr. Lofstrom transferred to
6Other requirements are that the alimony must be received by
a spouse under a divorce or separation instrument, the payments
cannot be designated in the divorce or separation instrument as a
payment for something other than alimony, the payee spouse and
the payor spouse must not be members of the same household at the
time of payment, and the payments must terminate at the death of
the payee spouse. Sec. 71(b)(1)(A)-(D).
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