Opinion
Docket No. 13853.
1948-05-12
WARREN LESLIE, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Louis D. Blum, C.P.A., for the petitioner. J. Richard Riggles, Jr., Esq., for the respondent.
Respondent's action in allowing a deduction of only $1,200 under the provisions of section 23(u), I.R.C., out of $3,600 paid by petitioner to his former wife because only $1,200 is includible in the gross income of the wife under the provisions of section 22(k), I.R.C., is approved. Louis D. Blum, C.P.A., for the petitioner. J. Richard Riggles, Jr., Esq., for the respondent.
The respondent determined a deficiency in income tax for the year 1943 in the amount of $832.47. The Commissioner ruled that, of the total amount of $3,600 paid to petitioner's former wife during the year 1942, only $1,200 thereof constituted an allowable deduction under the provisions of section 23(u) of the Internal Revenue Code, ‘inasmuch as only $1,200.00 is includible in the gross income of your former wife under the provisions of Section 22(k) of the Internal Revenue Code.‘
FINDINGS OF FACT.
The facts were stipulated, as follows:
The petitioner is a resident of the City and State of New York. He filed his income tax return for the year 1943 with the collector of internal revenue for the third collection district of New York.
The petitioner was married at Richmond, Virginia, on June 21, 1926, to Jane Scales.
Two children were born of this marriage, to wit: Warren Leslie, III, born on May 3, 1927, and Jane Bethel Leslie, born August 3, 1929.
Pursuant to decree of divorce granted on December 19, 1938, by the Second Judicial District Court of the State of Nevada, County of Washoe, the marriage of the persons named above was dissolved.
A separation agreement was entered into by the aforesaid parties under date of December 13, 1938, which agreement was ratified and approved by the Second Judicial District Court of the State of Nevada, and the provisions thereof were adopted by the court in its decree of divorce.
The separation agreement contained, among others, the following provision: ‘SIXTH: Except as hereinafter provided, the Wife shall have the care and custody of each of the children until each in turn reaches majority.‘
The agreement provided for the right of visitation by the parents under varying conditions of custody; for the selection of a nurse, governess, tutor, or instructor; for the selection by the husband of schools or colleges for Warren Leslie, III; and that the parties should consult as to the choosing of schools and colleges for Jane Bethel Leslie.
Paragraph seventh read, in part, as follows:
SEVENTH: The Wife hereby releases the Husband from all obligations to support and maintain her, except that the Husband shall pay to the Wife as long as she lives, and provided that she is not remarried, for her personal support and maintenance and for the support and maintenance of the said children, Warren Leslie III and Jane Bethel Leslie, thirty-three and one-third percent (33 1/3%) of the Husband's annual income, such thirty-three and one-third percent (33 1/3%) in no event to exceed the sum of Six Thousand Dollars ($6000) per year, payable in equal monthly installments on the first day of each and every succeeding calendar month commencing with the month of January 1939. In addition to the foregoing, the Husband and his estate shall pay when due all school and college tuition and other expenses incident to the education of the aforesaid children of whatever nature and description during their respective minorities. In the event, however, that in any given year the Husband pays to the Wife the sum of Six Thousand Dollars ($6000), the Wife agrees to pay for the education of their daughter, Jane Bethel Leslie.
All of the said payments hereinabove provided for shall be an obligation of the Husband's estate in the event of his death.
The Wife agrees that she will faithfully and prudently expend for the support and maintenance of said children such sum as hereinabove paid her by the Husband for the support and maintenance of said children.
In the event of the death or remarriage of the Wife all payments herein provided for as to the Wife, the son, Warren Leslie III, and the daughter, Jane Bethel Leslie, shall cease forthwith, except that in that event the Husband agrees to pay ten per cent (10%) of his annual income, such payment not to exceed Two Thousand Dollars per annum, for the support and maintenance of his son, Warren Leslie III, and ten per cent (10%) of his annual income, such payment not to exceed Two Thousand Dollars per annum, for the support and maintenance of his daughter, Jane Bethel Leslie, such payments to be made in equal monthly installments on the first day of each succeeding calendar month commencing with the month following the death or remarriage of the Wife and continuing until each of said children shall have attained the age of twenty-one years. It is further provided, however, that the aforementioned payments to the Wife for her personal support and maintenance and for support and maintenance of the aforesaid children shall in no event be less that the sum of Thirty-six Hundred Dollars ($3600) per annum, but in the event of the remarriage of the Wife the sum for the maintenance of the children shall not be less than Twenty-four Hundred Dollars ($2400) per annum.
The agreement contained other provisions as to the maintenance of life insurance on the life of the husband and the use and occupancy of certain properties.
During each of the years 1942 and 1943, petitioner paid to his divorced wife the sum of $3,600, which payments were deducted by him in the determination of his net income for such years.
In the notice of deficiency the Commissioner disallowed $2,400 of the aforesaid payments made in each of the years 1942 and 1943.
We conclude as an ultimate finding of fact that of the payment of $3,600 made by petitioner to his wife in the taxable year, $2,400 of such sum represented an amount fixed by the terms of the separation agreement approved and confirmed by the divorce decree as the sum payable for the support of the minor children.
OPINION.
VAN FOSSAN, Judge:
The question here presented is whether the sum of $3,600 paid by petitioner to his former wife, pursuant to a separation agreement entered into in contemplation of divorce, which agreement was ratified, approved, and adopted by the state court as part of its decree in the subsequent divorce action, and which agreement provides for the ‘personal support and maintenance (of the wife) and for the support and maintenance of the said children,‘ is deductible in full, as contended by petitioner, or only in part, as contended by respondent, under the provisions of section 22(k) of the Internal Revenue Code.
It has been held in previously decided cases that an ‘adequate consideration of the problem here presented requires a construction of the agreement as a whole, and the reading of each paragraph in the light of all the other paragraphs thereof.‘ Robert W. Budd, 7 T.C. 413. On the facts of that case, we held that the amount for the support of the children was identifiable and the entire payment was taxable to the husband. In Dora H. Moitoret, 7 T.C. 640, we held that the amount or portion for the support of the children was not identifiable or separable, and that, since the decree or written instrument did not fix the amount payable by the husband for the support and care of the minor children, the entire payment was includible in the taxable income of the wife. Thus it is that each case depends upon its own facts and specifically on the terms and provisions of the decree or written instrument.
On careful study of the statute and the entire agreement, placing the several provisions of the agreement in appropriate juxtaposition, and considering the fact that the payment here involved was the minimum provided, thereby invoking in part the last quoted sentence of article seventh, we conclude, as did the Court of Appeals in Budd v. Commissioner,— Fed.(2d)— , in affirming our decision on very similar facts, that $2,400 out of the payment to the wife was ‘earmarked‘ for the support of the children. It follows that the Commissioner must be sustained. Secs. 22(k) and 23(u), I.R.C.
Decision will be entered for the respondent.