Opinion
Docket No. 16631.
1949-02-21
FRANK R. CASEY, PETITIONER, v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT.
George Kerr, Esq., for the petitioner. Clarence E. Price, Esq., for the respondent.
Petitioner was divorced from his wife on July 12, 1944. Under the decree of that date he was obligated to pay alimony in the amount of $5,000 at the rate of $100 per month until the full amount was paid or until the wife's remarriage. Petitioner's claim, under section 23(u), for a deduction of the alimony paid in 1944 was disallowed by respondent. Thereafter, counsel for petitioner prepared an amended order which was entered under date of September 10, 1947, which provided that petitioner was to pay alimony in the sum of $100 per month for a period of 50 months from the date of the original decree, that the payments were to be regarded as ‘periodic,‘ and that the wife was to pay the Federal income tax on all such payments. Held, the alimony payments provided for under both court orders constituted ‘installment‘ payments within the meaning of section 22(k) and are therefore not deductible by the petitioner under section 23(u) of the Internal Revenue Code. George Kerr, Esq., for the petitioner. Clarence E. Price, Esq., for the respondent.
This proceeding involves a deficiency in income tax for the calendar year 1944 in the amount of $296.45.
The single issue presented is whether respondent was correct in disallowing, under the provisions of sections 23(u) and 22(k) of the Internal Revenue Code, a deduction of $1,150 claimed by petitioner in 1944 for alimony paid to his former wife.
FINDINGS OF FACT.
The petitioner, Frank R. Casey, is an individual whose last known residence was at 1274 Hall Avenue, Lakewood, Ohio. His income tax return for the calendar year 1944 was filed with the collector of internal revenue for the eighteenth district of Ohio.
Frank R. Casey was divorced from his wife, Emma Casey, by an order of the Court of Common Pleas for the County of Cuyahoga, State of Ohio, dated July 12, 1944. The journal entry therein provided in part as follows:
It is further ordered, adjudge(d) and decreed that the defendant pay to the plaintiff as alimony the sum of Five Thousand Dollars ($5,000.00) at the rate of One Hundred Dollars ($100.00) per month, said payments to start upon the signing of this decree and to continue until the full amount is paid out, or until the plaintiff remarries.
In his individual income tax return for 1944 petitioner claimed a deduction of $1,150 for alimony payments made in that year pursuant to the court order of July 12, 1944. After being advised of the Commissioner's determination that such amounts were not deductible from his gross income under the provisions of section 23(u) of the Internal Revenue Code, counsel for petitioner drew a journal entry which was signed by the Court of Common Pleas of the County of Cuyahoga, State of Ohio, and entered in its records on September 10, 1947. This journal entry reads as follows:
* * * the court being fully advised that the Income Tax Division of the Internal Revenue Department has placed an interpretation upon the former Journal Entry in this case, dated July 125h 1944, which is inconsistent with and does not comply with or express the intention of the Court and counsel originally intended.
Now, THEREFORE, THE COURT HEREBY ORDERS, ADJUDGED (sic) AND DECREES that the original order in this case be amended nuno pro tuno (sic) to read as follows:
It is further ordered, adjudged and decreed that the defendant pay to the plaintiff as alimony the sum of One Hundred Dollars ($100.00) per month for the period of fifty (50) months from the date of the original decree, that the above order is not a lump sum judgment or settlement, but merely periodic payments of alimony, and said payments are to cease and terminate when and if the plaintiff remarries.
It is further ordered, adjudged and decreed that the plaintiff shall pay the income tax to the Federal Government on said payments.
OPINION.
ARUNDELL, Judge:
If we are to follow our decision in J. B. Steinel, 10 T.C. 409, there can be no doubt that the alimony provision embodied in the court order dated July 12, 1944, resulted in ‘installment‘ rather than ‘periodic‘ payments under section 22(k) of the Internal Revenue Code.
Such payments are not deductible by the husband under section 23(u) of the code.
SEC. 22. GROSS INCOME.(k) ALIMONY, etc., INCOME.— In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments * * * received subsequent to such decree in discharge of * * * a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife * * * . Installment payments discharging a part of an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument shall not be considered periodic payments for the purposes of this subsection; except that an installment payment shall be considered a periodic payment for the purposes of this subsection if such principal sum, by 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 * * * .
Thus, unless the court order dated September 10, 1947, entitles the petitioner to deduct the alimony payments made by him in 1944, it is clear that the respondent's determination must be sustained.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(u) ALIMONY, ETC., PAYMENTS.— In the case of a husband described in section 22(k), amounts includible under section 22(k) in the gross income of his wife, payment of which is made within the husband's taxable year.
In order to eliminate from the order of July 12, 1944, the statement of the principal sum of $5,000, in figures, the journal entry in the order of September 10, 1947, provided simply for the payment of ‘One Hundred Dollars ($100.00) per month for the period of fifty (50) months.‘ It further stated that the payments were ‘periodic‘ and that the wife was obliged to pay the Federal income tax on such installments.
We have recently held that there is no material difference between a decree where the total amount is expressly set out and one where it is necessary to multiply the weekly payments by the number of weeks over which they were to be paid in order to determine the principal sum specified. Estate of Frank P. Orsatti, 12 T.C. 188.
It would therefore appear that under the alimony provisions of either the original or the amended decree the principal sum of the obligation is specified in the decree and is made payable within a period ending less than 10 years from the date of the order. This results in the classification of the payments made under either decree as ‘installment‘ payments within the meaning of section 22(k). As such, they are not deductible by the husband under section 23(u).
We attach no weight to the fact that the amended decree, as prepared by petitioner's counsel and adopted by the court, attempted to characterize the alimony payments as ‘periodic‘ and not ‘installment.‘ That is a determination to be made by this Court upon consideration of all the facts. Nor does the provision in the amended decree to the effect that the wife should pay a tax on her alimony have any significance in the instant proceeding. It is Congress that imposes the tax, and this may not be changed by prior agreements. Moreover, what petitioner seeks is a deduction, and deductions are a matter of legislative grace. New Colonial Ice Co. v. Helvering, 292 U.S. 435.
In view of our disposition of the principal issue herein, we find it unnecessary to consider the possible effect of a nunc pro tunc decree in so far as it attempts retroactively to alter the terms of the original decree and thereby the tax liability of the parties. On the authority of J. B. Steinel, supra, and Estate of Frank P. Orsatti, supra, the respondent's determination must be sustained.
Decision will be entered for the respondent.