Opinion
Docket No. 20284.
1950-06-28
HAROLD M. FLEMING AND HELENA P. FLEMING, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Harrington Harlow, Esq., and Basil N. Bass, Esq., for the petitioners. Michael Waris, Jr., Esq., for the respondent.
Petitioner Harold M. Fleming paid to his divorced wife pursuant to a separation agreement and alimony decree $2,300 in 1942, $1,200 in 1943, and $1,200 in 1944.
(1) The separation agreement is determined to earmark $1,200 of the amounts so paid in each year as payments for support of petitioner's minor child. Held, $1,200 of the total paid in 1942 and the entire payments for 1943 and 1944 constituted sums paid for the childs maintenance and may therefore not be deducted under section 23(u), I.R.C.
(2) The balance of the 1942 payment determined to constitute an installment payment of alimony paid within a period of less than 10 years within the terms of section 22(k) and therefore held not deductible under section 23(u).
(3) For failure of proof, petitioner held not entitled to a dependency exemption for his minor child under section 25(b), I.R.C., in each of the taxable years. Harrington Harlow, Esq., and Basil N. Bass, Esq., for the petitioners. Michael Waris, Jr., Esq., for the respondent.
Respondent determined deficiencies in petitioners' liability for income and victory taxes in the amount of $616.25 for the calendar year 1943 and in the amount of $456.32 for the calendar year 1944. The year 1942 is also involved in this proceeding because of the forgiveness feature of section 6 of the Current Tax Payment Act of 1943.
Petitioners allege that the respondent erred in increasing the taxable income of petitioner, Harold M. Fleming, in the amount of $2,300 in 1942, $1,200 in 1943, and $1,200 in 1944 on account of alimony payments made by him in the respective years to his divorced wife, Inez Barnard Fleming. Petitioners claim alternatively that if respondent's determination is approved, then petitioner Harold M. Fleming is entitled in the above years to a dependency exemption for Linda Barnard Fleming, issue of his marriage with Inez B. Fleming.
FINDINGS OF FACT.
Harold M. Fleming and his present wife, Helena P. Fleming, petitioners herein, are individuals residing in New York, New York, and in Chestnut Hill, Pennsylvania, respectively. Their joint income and victory tax returns for the years here involved were filed with the collector of internal revenue for the second district of New York. For convenience, Harold M. Fleming will hereinafter be referred to as the petitioner.
Petitioner and Inez Barnard Fleming (hereinafter sometimes referred to as Inez) entered into a separation agreement on December 13, 1937, providing, inter alia, that Inez would have custody of their child, Linda Barnard Fleming (born March 21, 1937) and that she would maintain, educate, and support the child out of the allowance provided for in the agreement. It was further provided:
(5) The husband agrees to pay to the wife for the support and maintenance of the said wife and the support, maintenance and education of the child the following sums during the following periods and subject to the following provisions:
(a) For a period from December 1st, 1937, up to and including November 1st, 1942, the sum of Two Thousand Four Hundred ($2,400.00) Dollars annually, in equal monthly installments of Two Hundred ($200.00) Dollars a month, due and payable on the first of each and every month, unless terminated sooner by the provisions of paragraph (6) herein.
(b) For a period from December 1st, 1942, up to and including March 21st, 1958, unless terminated sooner by the provisions of paragraph (6) herein, the sum of One Thousand Two Hundred ($1,200.00) Dollars per annum in equal monthly installments of One Hundred $100.00) Dollars, due and payable on the first of each and every month.
(6) The payments to the wife and child mentioned in paragraph (5) subdivisions (a) and (b), shall cease or shall be reduced upon the happening of any one or more of the following contingencies:
(a) Upon the death of the wife, or, if the child has died, upon her divorce from her present husband and remarriage, all payments by the present husband for the support and maintenance of the wife and the child shall immediately cease.
(b) If the wife shall be divorced from her present husband and re-marry payments to the wife shall continue until March 21st, 1958, or until the child shall die, whichever first occurs, but, if the wife is divorced from her present husband and re-marries, the said payments shall be reduced to One Hundred ($100.00) Dollars per month and shall be used exclusively for the support, maintenance and education of the child.
(c) If the child shall die on or before November 1st, 1942the & payments to the wife for her own support and maintenance shall be reduced to One Thousand Two Hundred ($1,200.00) Dollars annually, payable in equal monthly installments of One Hundred ($100.00) Dollars each, from the date of the death of the child and up to November 1st, 1942, upon which date all further payments to the wife shall cease.
(d) If the child shall die after November 1st, 1942, all further payments to the wife shall immediately cease.
(e) In the event none of the contingencies mentioned in subdivisions (a), (b), (c) and (d) of this paragraph shall occur, all payments by the husband shall cease March 21st, 1958, upon which date the child will attain her twenty-first year, it being definitely understood that after that date the husband shall be under no obligations whatever to make any further payments for the support of the wife or the child
(13) The wife shall accept the provisions herein made, in lieu of any and all other claims, or provisions, for her maintenance and support, or for the support, maintenance and education of the said child, during the term of this agreement.
On June 16, 1938, Inez obtained a final decree of divorce from petitioner in the Circuit Court of the Sixth Judicial ;‘circuit of the State of Florida, the divorce decree incorporating the above separation agreement and requiring petitioner to pay as alimony to Inez and support for the child the amounts set out in the separation agreement.
Pursuant to the separation agreement and divorce decree, petitioner paid to Inez $2,300 in 1942, $1,200 in 1943, and $1,200 in 1944. Respondent disallowed petitioner's claim for deductions of the above sums as alimony.
OPINION.
ARUNDELL, Judge:
The narrow question for decision is whether the payments made by petitioner to his divorced wife, (Inez), for the years here involved include ascertainable amounts paid for the support of their minor daughter when the separation agreement imposing the payments is viewed in its entirety.
If ascertainable, such portions of the alimony payments are expressly excluded from the wife's taxable income and thus may not be deducted by the husband.
Deductions are permitted the husband under section 23(u), I.R.C., if by the correlative provisions of section 22(k) the payments are includible in the wife's gross income.Section 22(k) I.R.C., provides, in part, as follows:‘* * * 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 * * *.‘
* * * This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband. * * * (Sec. 22(k), I.R.C.
We have previously held that in the application of the above quoted language the agreement fixing the payments must be construed as a whole and all its pertinent provisions examined for their ultimate effect. Robert W. Budd, 7 T.C. 413; affd. per curiam, 177 Fed. (2d) 198; Warren Leslie, Jr., 10 T.C. 807; cf. Dora H. Moitoret, 7 T.C. 640.
Our consideration of the agreement set forth in relevant part in our findings of fact convinces us that the general purport of the agreement was the payment of $100 monthly for the support of the child until she attained her majority and payment of another $100 monthly to the wife over a five-year period from December 1, 1937, through November 1, 1942. We are irresistibly drawn to this conclusion by the contingencies provided for in paragraph (6) of the agreement, particularly paragraph (6)(d) providing for cessation of all further payments to the wife if the child should die after November 1, 1942.
Having found that the agreement sufficiently earmarked a portion of the alimony payment for the support of the child and that petitioner may thus not deduct the $1,200 so paid in each of the years 1942, 1943, and 1944, we must likewise sustain respondent's determination that the balance of the amount petitioner paid in 1942 represented installment payments paid within a period of less than 10 years and is therefore not deductible.
The total alimony— qua alimony as contrasted to payments designated for the maintenance of the child— payable to the wife under the agreement amounted to 60 monthly payments of $100 each, or a total due of $6,000. It is immaterial that this principal sum was set forth in specified monthly payments rather than as a total figure. Estate of Frank P. Orsatti, 12 T.C. 188; cf. J. B. Steinel, 10 T.C. 409. Nor do the contingencies, such as the wife's death or remarriage which would terminate the monthly $100 sums payable to her, prevent the total due from being an ‘obligation‘ (Steinel, supra) or from being ‘specified‘ (Orsatti, supra) within the intendment of section 22(k).
Section 22(k), I.R.C. provides in part as follows:‘* * * 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, but only to the extent that such installment payment for the taxable year of the wife (or if more than one such installment payment for such taxable year is received during such taxable year, the aggregate of such installment payments) does not exceed 10 per centum of such principal sum.‘
Petitioner contends that the payments were to be made over a period of 20 years and that they thus fall outside the 10-year limitation imposed by section 22(k). But the $6,000 maximum amount payable to the wife over and above the earmarked funds for the child's support was expressly made payable within a 5-year period ending on November 1, 1942. Thus, we must deny to petitioner deduction of any part of the $2,300 that he paid in 1942.
Petitioner's alternative claim that he is entitled to a dependency exemption for his minor child under section 25(b) of the code in each of the taxable years must be denied for failure of proof.
Decision will be entered under Rule 50.