Michael P. Tulay - Page 3

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               Respondent determined a deficiency of $11,026 in                       
          petitioner’s Federal income tax for 2002.  Respondent also                  
          determined an accuracy-related penalty under section 6662(a) and            
          (b)(1) and (2) of $2,205.20.  The issues for decision are whether           
          petitioner’s $35,000 payment to his former wife was alimony,                
          deductible under section 71(b), and whether petitioner is liable            
          for the penalty for negligence or substantial understatement of             
          tax.                                                                        
                                     Background                                       
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
          Petitioner resided in Knoxville, Tennessee, at the time that he             
          filed his petition.                                                         
               On August 19, 2002, petitioner and his then wife, Pamela               
          Moritz Tulay (Tulay), met with their respective attorneys to                
          negotiate the terms of their divorce after failed attempts at               
          mediation.  At the time of the August 19 meeting, petitioner was            
          represented by William A. Mynatt (Mynatt), and Tulay was                    
          represented by Wanda G. Sobieski (Sobieski).  Tulay had                     
          previously been represented by different counsel in the divorce             
          proceedings.  A court reporter was present at the August 19                 
          meeting and prepared a transcript.  At the end of the meeting,              
          Sobieski read into the record the understanding that the parties            
          had reached as follows:  Petitioner would pay $3,900 a month in             






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