Opinion
Docket No. 57283.
1956-06-27
MARIE M. NEWMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Harry A. Morris, Esq., for the petitioner. Richard G. Worden, Esq., for the respondent.
Harry A. Morris, Esq., for the petitioner. Richard G. Worden, Esq., for the respondent.
Held: The legal obligation imposed upon petitioner's husband to make alimony payments of a principal sum annually for 10 years arose from the date of the divorce decree and not from a written separation agreement effective 3 days prior thereto. Such payments are not includible in petitioner's gross income for the taxable years involved. Sec. 22(k), I.R.C. 1939.
Respondent determined deficiencies in petitioner's income tax and additions to the tax for the years and in the amounts as follows:
+-----------------------------------------------------------------------------+ ¦Additions to the ¦ ¦ ¦ ¦ ¦ ¦tax ¦ ¦ ¦ ¦ ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦Year ¦Deficiency¦Sec. 291 (a)¦Sec. 294 (d)(1) ¦Sec. 294 (d)(2)¦ ¦ ¦ ¦ ¦(A) ¦ ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1946 ¦$2,613.32 ¦ ¦ ¦ ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1947 ¦1,862.00 ¦$465.50 ¦$186.20 ¦$111.72 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1948 ¦1,493.60 ¦373.40 ¦149.36 ¦89.62 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1949 ¦1,493.60 ¦373.40 ¦149.36 ¦89.62 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1950 ¦1,549.20 ¦387.30 ¦154.92 ¦92.95 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1951 ¦1,953.48 ¦ ¦195.36 ¦117.21 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1952 ¦2,232.11 ¦ ¦223.20 ¦133.93 ¦ +-------------------+----------+------------+-----------------+---------------¦ ¦1953 ¦2,016.19 ¦ ¦201.63 ¦120.97 ¦ +-----------------------------------------------------------------------------+
The contested issue is whether for each of the taxable years involved annual payments of alimony received by petitioner from her former husband subsequent to a decree of divorce are taxable as income to petitioner under the provisions of section 22(k) of the Internal Revenue Code of 1939.
The respondent concedes that petitioner is not liable for any additions to the tax under sections 291(a), 294(d)(1)(A), and 294(d)(2) for any of the years involved.
FINDINGS OF FACT.
Petitioner is a resident of Kansas City, Missouri, and filed individual income tax returns for 1946, 1951, 1952, and 1953 with the collector of internal revenue for the sixth district of Missouri, at Kansas City. She filed no income tax returns for 1947, 1948, 1949, and 1950.
Petitioner and Floyd R. Newman (sometimes hereinafter referred to as the husband) were married in Cleveland, Ohio, on February 28, 1934, and lived together as husband and wife until the first week of January 1945, at which time Floyd R. Newman left their home. After learning that her husband had gone to Reno, Nevada, to establish a residence for divorce, petitioner filed a divorce petition in the Court of Common Pleas, Cuyahoga County, Ohio.
The petitioner and husband entered into a written separation agreement effective February 13, 1945, duplicate originals of which were signed by the parties in separate cities, but which were to constitute one complete and indivisible contract. The agreement, which is incorporated herein by reference, provided in part as follows:
2. In the event the marriage of Floyd R. Newman and Marie M. Newman is dissolved by divorce, as a result of the said action instituted by Marie M. Newman as hereinabove set forth, Floyd R. Newman agrees that he will pay to Marie M. Newman the total sum of One Hundred Fifty Thousand Dollars ($150,000.00), the same to be hers absolutely, which said sum is to be paid in eleven (11) different installments, the first of which said installments shall be Fifty Thousand Dollars ($50,000.00) and shall be due and payable immediately upon the entry of a final decree of divorce in said action; and the balance of said sum, to wit: One Hundred Thousand Dollars ($100,000.00), shall be payable in ten (10) equal annual installments of Ten Thousand Dollars ($10,000.00) each, the first of which said installments shall become due and payable one year from the date of the entry of a final decree of divorce and the remainder of said installments shall become due and payable at yearly intervals until the total sum of One Hundred Fifty Thousand Dollars ($150,000.00) has been paid in full. It is understood and agreed that the said total sum of One Hundred Fifty Thousand Dollars ($150,000.00) shall be in full and complete settlement and shall be in lieu of all claims for alimony and all rights and claims whatsoever in or to the estate or property, of whatever nature, legal or equitable, whether now owned or hereafter acquired, of said Floyd R. Newman, and the payment of said sum by Floyd R. Newman, his heirs, executors, or administrators, to the said Marie M. Newman, her heirs (sic), executors or administrators, shall be in full and complete discharge of all duties and obligations of whatever nature owing to the said Marie M. Newman by the said Floyd R. Newman. Said deferred installments shall bear no interest.
The agreement also provided that in order to secure payment of the deferred installments of alimony the husband was to pledge certain promissory notes issued to him and certain policies of life insurance on his life which were then subject to a prior lien in the approximate amount of $333,000. The agreement contained other provisions in regard to the property of the parties not material hereto.
On February 13, 1945, concurrently with the execution of the separation agreement, Floyd R. Newman, executed a pledge agreement, which is incorporated herein by reference, with a bank named as trustee in which he agreed to transfer, as security for the payment of the deferred alimony installments, certain promissory notes and a policy of life insurance on his life which, on May 27, 1945, was to have a cash surrender value of $50,013.44. Said policy was stated to be free and clear of all loans, liens, or encumbrances.
By a journal entry (decree of divorce) of the Court of Common Pleas, Cuyahoga County, Ohio, dated February 16, 1945, the marriage contract existing between petitioner and Floyd R. Newman was dissolved and both parties released therefrom. The decree, which is incorporated herein by reference, provided in pertinent part as follows:
The Court further finds upon the evidence that the plaintiff and defendant have heretofore entered into a written contract dated February 13, 1945, for the benefit of themselves, which said contract provides for the division of their property, the settlement of all marital property rights, and for the payment of alimony by defendant to plaintiff, and the Court also finds that the defendant has appeared by counsel in this action and by his answer filed herein for the purpose of admitting the jurisdiction of this Court and submitting himself to the entry of the following decree and judgment with reference to the division of said property and the payment of said alimony pursuant to the terms of said contract, and the Court having examined said contract finds that its terms are just and equitable in all respects and a copy of said contract is hereto attached and marked ‘Exhibit A’ and made a part hereof;
9. The installments of alimony herein provided for shall be paid to the plaintiff regardless of whether she marry again, and in the event that the plaintiff should die before all of said installments of alimony have been paid in full, the remainder of said installments of alimony shall be paid to the personal representative of the plaintiff as they become due and payable.
The divorce herein granted, and the provisions of this decree and the exhibits hereto, shall be final and absolute and the Court retains no further or continuing jurisdiction except to enforce the orders herein made.
The decree of divorce contained a provision for the payment of alimony by petitioner's former husband which, except for minor variations in phrasing, restated the alimony provisions of the separation agreement of February 13, 1945. The decree provided that the first annual installment ‘shall become due and payable one year from the date of the entry of this decree, and the remainder of said installments shall become due and payable at yearly intervals on the anniversary of this decree * * *.’
The decree recited that the pledge agreement of February 13, 1945, executed by Floyd R. Newman, had been approved in writing by petitioner and was made a part of the divorce decree. It was further provided that the single premium policy of life insurance on the life of Floyd R. Newman with a then present cash surrender value of approximately $50,000, was to be transferred to the trustee free and clear of all loans, liens, and encumbrances.
The decree also provided for the payment by the husband of various household bills incurred up to the date of the decree.
During each of the taxable years 1946 to 1953, inclusive, the annual payment of alimony received by petitioner from her former husband subsequent to a decree of divorce was not taxable as income to petitioner.
OPINION.
LEMIRE, Judge:
The question presented is whether for each of the taxable years involved annual payments of alimony received by petitioner from her former husband subsequent to a decree of divorce are taxable as income to petitioner under the provisions of section 22(k) of the Internal Revenue Code of 1939. That section provides in substance that periodic payments received by a wife from her husband subsequent to a decree of divorce, in discharge of a legal obligation which, because of the marital relationship, is imposed upon or incurred by the husband under such decree or under a written instrument incident to such divorce, shall be included in the gross income of the wife for tax purposes. It is further provided that an installment payment shall be considered a periodic payment if the principal sum, by the terms of the decree or instrument, may be or is to be paid within a period ending more than 10 years from the date of such decree or instrument.
Both the separation agreement of February 13, 1945, and the divorce decree of February 16, 1945, fix the date for the annual payment of alimony as the anniversary date of the entry of the divorce decree. Hence the terminal date of the last alimony payment was February 16, 1955. If the legal obligation to pay the principal sum in question annually for a period of 10 years arose from the separation agreement, there was a period of more than 10 years and such payments would be includible in petitioner's gross income for each of the taxable years involved. On the other hand, if the legal obligation arose from the decree of divorce, there was not a period of more than 10 years and such payments would not be taxable to petitioner.
Respondent contends that the legal obligation to make the alimony payments in question arose under the separation agreement February 13, 1945, because that agreement and the companion pledge agreement of the same date were presently effective and valid contracts. The divorce decree, respondent argues, was a mere condition precedent to the alimony payments and not an event required to happen before the agreement became a binding agreement. We disagree.
Clearly, the separation agreement contemplated and was incident to the petitioner's action for divorce. Equally clear is the fact that the payments in question were to be made only in the event of a divorce. Hence the effective date when the legal obligation was imposed was the date of the divorce decree. That decree specifically set forth the obligations of Floyd R. Newman regarding alimony payments and further provided that the payments were to be paid to petitioner regardless of her remarriage, and in the event of her death prior to the payment of all installments the remainder of such installments were to be paid to her personal representative. The decree likewise set forth the obligations of the husband with respect to the promissory notes and the single premium life insurance policy which had been the subject of a prior pledge agreement. Finally, the divorce court reserved jurisdiction to enforce the orders contained in the decree. Accordingly, we think the case of Commissioner v. Blum, 187 F.2d 177, reversing 10 T.C. 1131, certiorari denied 342 U.S. 819, relied upon by respondent, is distinguishable from the instant proceeding and is not controlling.
We hold that for each of the taxable years 1946 to 1953, inclusive, the payments in question were installment payments payable within a period of not more than 10 years and hence not taxable to petitioner. It was error for respondent to include such payments in petitioner's gross income for such years.
Decision will be entered for the petitioner.