Opinion
Docket No. 57867.
1957-06-28
FLORENCE E. CARR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Alfred J. L'Heureux, Esq. for the petitioner. Clarence P. Brazill, Jr., Esq., for the respondent.
Alfred J. L'Heureux, Esq. for the petitioner. Clarence P. Brazill, Jr., Esq., for the respondent.
INCOME— UNPAID SALARY OF DECEASED HUSBAND PAID TO WIDOW.— A corporation which employed the husband of the petitioner owed him in excess of $100,000 of earned but unpaid commissions on May 23, 1927. He entered into a contract with the corporation on that day whereby the corporation agreed to pay $100,000 at the rate of $10,000 a year to the employee's wife after his death. The amounts paid to the widow during the taxable years pursuant to that agreement were not taxable income to her.
The Commissioner determined deficiencies in income tax against the petitioner of $943.45 for 1951 and $2,803.56 for 1952.
The sole question is whether amounts received by the petitioner during 1951 and 1952, from her husband's employer after her husband's death, pursuant to 1922 and 1927 contracts between the petitioner's husband and his company, are properly includible in her gross income.
FINDINGS OF FACT.
The petitioner's income tax returns for the years in question were filed with the collector of internal revenue for the second district of New York.
The petitioner and Francis C. Carr were married on February 25, 1899. Marital difficulties arose between them and they entered into a separation agreement on April 4, 1929, under which Francis undertook to pay the petitioner and their daughters amounts not involved herein.
Francis, until his death on June 21, 1951, was president and majority stockholder of Francis C. Carr & Co., Inc., hereafter called the corporation, which was engaged in an insurance brokerage business.
Francis and the corporation entered into written agreements dated October 13, 1922, and May 23, 1927, to which the petitioner and their two daughters were parties. Those agreements recited that Francis for a number of years had turned over to the corporation all business produced by him without payment to him of any customary commissions; by the time of the later agreement those unpaid commissions exceeded $100,000; in order to compensate Francis the corporation agreed to pay, after the death of Francis, $100,00 at the rate of $10,000 a year for a period of 10 years to the petitioner, or upon her decease, to their daughters and their issue; and the petitioner and the daughters waived any other claims they might had had against the corporation by reason of Francis's claims for services or commissions.
The corporation was not in very good financial condition and might not have been able to pay the commissions which Francis had earned at the time of the agreements.
The corporation paid the petitioner, after the death of Francis, $5,000 in 1951 and $10,000 in 1952.
The Commissioner's ‘Statement’ accompanying the notice of deficiency refers to the adjustments to net income for the items in question as ‘Annuity,‘ and in the ‘Explanation of Adjustments' states with reference to them that they ‘are held to constitute taxable income.’
All stipulated facts are incorporated herein by this reference.
OPINION.
MURDOCK, Judge:
Cases holding amounts taxable as income to a widow under section 126 of the Internal Revenue Code are not in point since the Commissioner does not mention and is not relying upon section 126. Perhaps his view is that the amounts here in question were includible in the income of the decedent for some period during his lifetime. Cf. J. Ungar, Inc. v. Commissioner, 244 F.2d 90 affirming 26 T.C. 331, where it was held that anticipatory assignments were income to the assignor when the amount involved was ‘earned.’ The amounts here involved were earned by the husband prior to May 23, 1927, and his right to them was assignable at that time. See also Helvering v. Eubank, 311 U.S. 122.
The Commissioner no longer claims that these payments were annuities (cf. Sheldon Tauber, 24 T.C. 179), but relies primarily upon Flarsheim v. United States, 156 F.2d 105, and his I.T. 4027, 1950-2 C.B. 9. This Court refused to apply I.T. 4027 in Estate of Arthur W. Hellstrom, 24 T.C. 916. A corporate employer in that case paid to the widow of the deceased employee the equivalent of the salary which he would have drawn had he lived for the remainder of the year. This Court held that the payment was a gift. Cases such as that, involving voluntary payments to a widow after the death of her employee-husband, are not in point here since both parties recognize that the payments here in question were made pursuant to a contract. The Flarsheim case is also distinguishable on its facts. The decedent there agreed to work for the corporation after the execution of the contract in consideration of its agreement to pay an amount annually to his wife for life after his death. Here the amounts in controversy had been earned by the decedent prior to the time he entered into the contracts with the corporation, the amounts were due him at that time, no further services were to be performed in consideration of the payment of those amounts to his wife after his death, and he had assignable rights in the amount due him.
The present petitioner never rendered any services to the payor company. She received the right to the money in question from her husband as a gift or as a property settlement, and in either case it is not proper, under the circumstances of this case, to tax the receipt of that money as income to her.
Decision will be entered under Rule 50.