Smith v. Commissioner , 21 T.C. 353 ( 1953 )

Lilian Bond Smith, Petitioner, v. Commissioner of Internal Revenue, Respondent

Smith v. Commissioner

Docket No. 42454

United States Tax Court

21 T.C. 353; 1953 U.S. Tax Ct. LEXIS 15;

December 8, 1953, Promulgated

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Decision will be entered under Rule 50.

Petitioner and her husband executed a separation agreement in 1937, providing, inter alia, for monthly support payments to petitioner, and requiring her husband to pay the premiums on a policy of insurance on his life of which petitioner is the primary beneficiary. In 1940, the husband failed to pay the insurance premiums and petitioner instituted an action against him for specific performance of the separation agreement. The litigation was settled by a stipulation of the parties and the entry of a consent judgment by the court in accordance therewith in 1940. The stipulation of the parties and the consent judgment of the court also embraced the support payments. Thereafter, in 1944, petitioner's husband obtained a decree of divorce in which the separation agreement was incorporated. Held, the obligation to make support payments was imposed upon or incurred by the husband by a decree of divorce and the support payments are includible in the petitioner's gross income, as alimony, under section 22 (k), Internal Revenue Code. Held, further, the premiums paid on the policy of insurance are not includible in petitioner's gross income, as alimony, under section 22 (k), Internal Revenue Code, since petitioner had only a contingent interest in the policy, and it was not for her sole benefit.

Walter E. Bennett, Esq., for the petitioner.

John J. Burke, Esq., for the respondent.

Harron, Judge.

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HARRON

The Commissioner has determined deficiencies in income tax for the years 1945 and 1946 in the amounts of $ 439.85 and $ 285.73, respectively. Petitioner does not contest part of the deficiency for 1945. Two questions are presented: (1) Whether support payments of $ 4,800 received by the petitioner in each of the taxable years from her former husband are includible in her gross income under section 22 (k), Internal Revenue Code. (2) Whether insurance premiums of $ 1,200, paid in each of the taxable years on a policy insuring the life of the petitioner's former husband, and under which she is the primary beneficiary, are includible in the petitioner's gross income, as alimony, under section 22 (k).

Petitioner filed her income tax returns for the years 1945 and 1946 with the collector for the sixth district of California at Los Angeles.

FINDINGS OF FACT.

The facts which have been stipulated are found as facts; the stipulation and all of the exhibits are incorporated herein by this reference.

Petitioner is a resident of Los Angeles, California. In 1936, the petitioner married Sydney A. Smith. She was employed in the moving picture industry as an actress at the time of the marriage. Sydney Smith, at the time of the marriage, was a life beneficiary, to the extent of one-half of the income, of a trust created by the will of Andrew W. Smith, deceased. The Bank of New York in New York City is the trustee.

Following the marriage, Sydney Smith took out a policy of insurance on his life with the Aetna Life Insurance Company. The policy, number

The net sum payable by the Company under this policy by reason of the death of the insured shall be payable as follows:

If Lillian [sic] B. Smith, wife of the insured, survives the insured, said net sum shall be payable in accordance with Mode 4 in monthly installments for a fixed period of Ten (10) years and for as long thereafter as said wife lives. Each installment shall be payable when due to said wife if then living, otherwise to Harriet Bond, mother-in-law of the insured, if then living, otherwise the commuted value of any unpaid installments for the period of Ten (10) years certain under Mode 4 shall be payable in one sum to the executors or administrators of the survivor of said wife and said mother-in-law.

If said wife does not survive the insured, but said mother-in-law survives the insured, said net sum shall be payable in accordance with Mode 4 in monthly installments for a fixed period of Ten (10) years and for as long thereafter as said mother-in-law lives. Each installment shall be payable when due to said mother-in-law if then living, otherwise the commuted value of any unpaid installments for the period of Ten (10) years certain under Mode 4 shall be payable in one sum to the executors or administrators of said mother-in-law.

If neither said wife nor said mother-in-law survives the insured, said net sum shall be payable in one sum to the executors or administrators of the insured.

The insured, Sydney Smith, reserved certain rights in the insurance policy, as follows:

During the life of the insured, the right to receive all cash values, loans and other benefits accruing hereunder, to exercise all options and privileges described herein and to agree with the company to any change in, amendment to, or cancellation of this policy shall vest alone in the life owner (hereinafter so called) designated as follows: the insured. Provided that said life owner shall not have the right to make any change in the beneficiary during the life time of his wife, Lillian [sic] Bond Smith, without her written consent.

The insurance policy was not assigned to petitioner at any time.

On or about March 27, 1937, petitioner and Sydney Smith became separated, and thereafter they lived separate and apart from each other. On March 27, 1937, petitioner and Sydney executed a separation agreement, and in July 1937, they executed a supplemental agreement which modified part of the original agreement. The separation agreement, as amended, in so far as material here, contained the following provisions: The parties agreed to an immediate separation, and to live apart. For the purpose of settling their property rights and to make provision for the support of Lilian Smith, it was agreed that: (a) All property owned by the parties on March 27, 1937, would be the separate property of the party owning and possessing the same, and that all property acquired by the parties in the future would be the separate property of the person acquiring the same. (b) Each party renounced and released his and her interest in the estate of the other, including the right to inherit from each other as the husband or wife. (c) Sydney agreed to pay Lilian $ 400 per month for her support and maintenance beginning on April 1, 1937, and continuing for her life, or until her lawful remarriage. (d) Sydney agreed to keep the life insurance policy numbered 1-146660 in effect and to pay the premiums due thereon, for as long as Lilian lived, or until her remarriage in the event Sydney and Lilian should become divorced.

The provisions of paragraph three of the agreement, as amended, dealing with the obligations of Sydney, the party of the first part, to make support payments to Lilian, the party of the second part, and to keep the life insurance policy in effect are as follows:

Said party of the first part promises and agrees to pay to the said party of the second part for her support and maintenance during such separation the sum of Four Hundred Dollars ($ 400.00) per month. Such payments shall be made on the first day of each calendar month, commencing April 1, 1937, and shall continue until the death of the party of the second part, or until her remarriage, if the parties hereto are at any time divorced and the said party of the second part does remarry subsequent to any such divorce.

The party of the first part agrees to keep in effect that certain life insurance policy numbered 1-146660 and pay and discharge the premiums due thereon. In said life insurance policy the party of the second part is named as beneficiary. However, there shall be no obligation or liability on the part of the party of the first part to so keep said policy in effect or so pay and discharge said premiums in the event of the death of the party of the second part or in the event of her remarriage if the parties hereto are at any time hereafter divorced.

In the event that the parties hereto are at any time hereafter divorced and in the event that subsequent to said divorce the party of the second part remarries, she hereby waives and relinquishes any and all rights that she now has or may at any time have had as beneficiary under the terms of said policy.

The agreement provides further, in paragraph seven,

That neither this agreement nor anything herein contained shall prejudice the right of either party to institute an action for divorce and any decree that may be entered in any such action shall not vary or change the terms of this agreement to any extent whatsoever.

Under paragraph three of the original separation agreement, executed on March 27, 1937, Sydney agreed to pay the petitioner $ 400 a month for her support, commencing on April 1, 1937, and continuing thereafter for her life or until her lawful remarriage, provided, however, that if Sydney's gross income for any month should fall below $ 1,700, he was to pay the petitioner 25 per cent of his gross income for that month in lieu of the $ 400. Below the signatures of the parties on the original agreement, Sydney wrote an addenda in longhand whereby he stated that he agreed to keep in force the Aetna policy of insurance on his life, of which petitioner is the primary beneficiary, "during such a time as [she] lives and until such a time that she shall remarry after which time I am at liberty to cancel same."

Paragraph three of the original separation agreement was amended in July 1937 in two respects. The provision for reducing the support payments of $ 400 a month, in the event Sydney's gross income should fall below $ 1,700 a month, was deleted; and there was added a provision requiring Sydney to pay the premiums on the Aetna life insurance policy during the petitioner's life or until her lawful remarriage.

Sydney failed to pay the insurance premiums due on the Aetna policy on October 17, 1939, January 17, 1940, and April 15, 1940. Thereafter, on May 6, 1940, petitioner commenced an action in equity in the Supreme Court of New York for New York County against Sydney Smith and the Bank of New York, trustee under the will of Andrew W. Smith, deceased, defendants, to compel Sydney to perform his agreement to keep the life insurance policy in effect, to furnish assurance that he would keep the insurance in effect, and to recover from Sydney reimbursement for the insurance premiums, plus interest, which petitioner had paid. The Bank of New York, as trustee of the Andrew W. Smith trust, was joined as a defendant so that the court might direct it to pay out of trust income accruing to Sydney such amounts as would be sufficient to pay the insurance premiums in the future, and so that the court might direct it to pay any money judgment which might be awarded to the complainant. Petitioner attached to her complaint, filed in the New York Supreme Court, copies of the separation agreement of March 27, 1937, and the amendment thereto executed in July 1937, as exhibits A and B, respectively. Sydney and the bank filed separate answers to the complaint. In his answer, Sydney alleged, inter alia, that the supplemental agreement of July 1937, was illegal, void, and without consideration. The support payments provided for in the separation agreement were not in issue in the action instituted by the petitioner in New York. Sydney, at all times material hereto, has recognized and fulfilled his obligation to make the support payments of $ 400 a month.

The litigation in New York was settled by a stipulation of the parties, and the entry of a consent judgment by the court in accordance therewith.

The stipulation was executed by the parties and filed with the court on July 26, 1940. In the stipulation, Sydney ratified and reaffirmed the separation agreement of March 27, 1937, and the amendment thereto of July 1937, and expressly conceded that they were valid and enforceable agreements, under which he was obligated to pay Lilian $ 400 a month "as alimony," and to pay the premiums on the Aetna policy of insurance on his life. In addition, he agreed, inter alia, not to avail himself of the loan or cash surrender provisions of the policy, nor to borrow upon the security of the policy, nor to do any act which would diminish Lilian's interest in the policy without her consent in writing, during Lilian's life or until her lawful remarriage. Also, in order to insure the performance of his obligations under the separation agreement, as amended, he authorized and directed the aforementioned trustee to make the premium and support payments out of the income in its possession accruing to him under the terms of the trust. The pertinent provisions of the stipulation are as follows:

3. For the purpose of insurance [sic] performance of the terms of said agreements and of this agreement, and in order to further secure unto said Lillian [sic] Bond Smith, the rights and benefits therein and herein provided for, the said Sydney A. Smith:

(A) Covenants and warrants that he has no right, without the express consent in writing of the said Lillian [sic] Bond Smith, to avail himself of the loan or cash surrender provisions of said policy, or to borrow upon the security of said policy, or to reduce the equity therein, or to perform any act or thing which would in any way affect the present cash value of said policy or diminish any of the plaintiff's interest therein;

(B) Hereby requests, authorizes and empowers Bank of New York, as trustee under the last will and testament of Andrew W. Smith, deceased, to execute this stipulation and consent to the entry of the judgment hereinafter referred to, and authorizes and empowers it, and/or its successors or assigns, to make the following payments out of any sums in its possession accruing unto him under and by virtue of any trust created by and under the last will and testament of Andrew W. Smith, deceased, late of Saratoga County:

(1) To Lillian [sic] Bond Smith the sum of $ 400 monthly, payable on the first day of each month commencing with August 1, 1940, in accordance with the aforesaid agreements;

(2) To said Aetna Life Insurance Company of Hartford, Connecticut, of any and all premiums or instalments thereof which are now or hereafter may become due under the aforesaid policy #N1-146660, issued by said company on the life of said Sydney A. Smith, and to deliver to said Lillian [sic] Bond Smith, or her representatives, within ten days after receipt thereof, the original or a duplicate original of the receipt for such premium payments;

(3) To Lillian [sic] Bond Smith, of the amount of any judgment which may be entered herein;

and the said Sydney A. Smith further consents, covenants and agrees that the plaintiff's right to said payments of alimony and for life insurance premiums shall be a first lien upon the income of the said trust, prior to the right of the defendant Sydney A. Smith to receive any of said income now accrued or hereafter accruing so long as plaintiff shall be alive, but in the event plaintiff and said Sydney A. Smith shall be divorced and the plaintiff shall remarry, then and in that event, the plaintiff's right to receive such alimony and to have such payments of insurance premiums made, and her rights in the said policy of life insurance shall continue up to and shall terminate simultaneously with such remarriage after such divorce.

And the said Sydney A. Smith for the purpose of further assuring the due and prompt payment of said alimony and the aforesaid premiums and judgment, hereby assigns, transfers and sets over unto Bank of New York, so much of such income, as may come into its possession, as shall be necessarily required for the prompt and due payment of the aforesaid alimony and premium charges and judgment hereby designating said Bank of New York, its successors and assigns, his true, lawful and irrevocable attorney in its own name or in his name, to acknowledge for his account receipt from Bank of New York, as trustee under the last will and testament of Andrew W. Smith, deceased, or any successor trustee, of any and all moneys so received by it and applied for the purposes aforementioned, and to make payment of such sums for the purpose aforesaid to Aetna Life Insurance Company of Hartford, Connecticut.

4. The answer and amended answer of the defendant Sydney A. Smith, heretofore interposed in this action, are hereby withdrawn.

5. Defendant Sydney A. Smith hereby consents that a judgment may be entered herein ex-parte or otherwise on this stipulation providing for the enforcement of the provisions hereof and embracing the terms of this stipulation.

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7. It is expressly understood and agreed that the foregoing covenants and the entry of judgment as heretofore provided, shall not, nor shall they be deemed to, limit or restrict the plaintiff's rights under said agreements of March 27, 1937 and July 1937, nor shall they be deemed a waiver of any of plaintiff's rights under said agreements which are not expressly included herein and expressly adjudicated and enforced by said judgment to be entered herein.

On September 27, 1940, an order and decree of the New York Supreme Court was entered (which is incorporated herein by this reference in its entirety), by which the court ordered, adjudged, and decreed, inter alia, that the agreement of March 27, 1937, and the modification agreement executed in July 1937, as supplemented by the stipulation dated July 26, 1940, were valid contracts; directed Sydney Smith to specifically perform the agreements and the stipulation of July 26, 1940, and in particular, directed Sydney to make payment of "alimony" and of all premiums due or accruing on the Aetna life insurance policy; authorized and directed the Bank of New York, trustee, to make payment, out of any sums credited to Sydney under the Andrew W. Smith trust, of $ 400 per month to Lilian commencing with October 1, 1940, and of the premiums on policy 1-146660 to Aetna on or before the due date without resort to any grace period, and to deliver receipts for premium payments to Lilian; and directed the bank to make payment of $ 703.21 to Lilian. The court also adjudged and declared all payments of "alimony" and insurance premiums to be a first lien on the income of the Andrew W. Smith trust to which Sydney might have any right for "so long as plaintiff [Lilian] shall live, or in the event plaintiff and said defendant Sydney A. Smith are divorced and the plaintiff remarries, then and in such event the plaintiff's right to receive and to have such payments made, and her rights in the aforesaid policy of insurance shall continue up to and shall terminate simultaneously with such remarriage after such divorce";

The court's decree contained, also, the following:

ORDERED, ADJUDGED AND DECREED, that the making and entry of this judgment shall not prejudice or be deemed a waiver of any of plaintiff's rights under said agreement dated March 27, 1937, as modified by said agreement dated July 1937, and said stipulation dated July 26, 1940, in so far as the provisions of said agreements and stipulation are not expressly included in, adjudicated or enforced by this judgment; * * *

On October 22, 1943, Sydney filed a bill of complaint for divorce from Lilian in the Florida Circuit Court in Dade County. Lilian did not appear in this divorce action, and service of summons upon her was by publication only.

On January 31, 1944, a final decree of divorce was entered in the Florida suit. The separation agreement of March 27, 1937, and the modification agreement of July 1937, were attached to and made part of the final decree of divorce as "Plaintiff's Exhibits Nos. 7 and 8." The final decree of divorce contained the following:

ORDERED, ADJUDGED AND DECREED that the bonds of matrimony existing between the Plaintiff and Defendant be, and they are hereby forever dissolved, and that the said SYDNEY A. SMITH and LILIAN B. SMITH be, and they are hereby divorced each from the other, a Vinculo Matrimonii, and that all the rights of an unmarried person are hereby restored to said parties, and it is further

ORDERED, ADJUDGED AND DECREED that all the matters which are contained in an Agreement and an Amendment thereto, which Agreement and Amendment thereto are part of this record as Plaintiff's Exhibits Nos. 7 and 8, are hereby approved and confirmed in all respects thereto, and are hereby made part and parcel of this Final Decree as if set out in Haec Verba and that the original of said Agreement and Amendment thereto, known as Plaintiff's Exhibits Nos. 7 and 8, be recorded upon the Public Records along with this Final Decree.

On November 9, 1943, petitioner, Lilian B. Smith, filed suit for divorce against Sydney in the Superior Court of California in Los Angeles County. Summons filed by petitioner in the Superior Court was served on Sydney by publication only, and he made no appearance.

On March 29, 1944, an interlocutory judgment of divorce in favor of Lilian was entered, and on April 2, 1945, a final decree of divorce was entered granting Lilian a final divorce from Sydney. Neither the interlocutory decree nor the final decree made any reference to the separation agreement of March 27, 1937, or to the modification agreement of July 1937, and these agreements were not approved by or made a part of the decrees of the Los Angeles County Superior Court. The court did not award any alimony or support payments to Lilian, but simply adjudged that plaintiff was entitled to a final divorce.

Since the judgment and decree of the New York Supreme Court on September 27, 1940, the monthly payments of $ 400 have been paid to Lilian by the Bank of New York, trustee, and it has paid all the premiums on the Aetna policy of life insurance.

Lilian B. Smith has not remarried since the decrees of divorce were entered by the Florida and California courts in 1944 and 1945.

In her income tax return for each of the years 1945 and 1946, the petitioner reported, as gross income, the support payments of $ 4,800 received by her from her former husband. She did not report, as income, the premiums of $ 1,200 paid in each of those years on the Aetna policy of insurance on his life.

On September 9, 1948, the petitioner filed claim for a refund of income taxes for each of the years 1945 and 1946, with the collector for the sixth district of California. In her claim for refund for each of the years, the petitioner alleged that the support payments of $ 4,800 were erroneously included by her in gross income.

By notice dated June 12, 1952, the Commissioner rejected the petitioner's claim for refund for each of the years 1945 and 1946, and determined a deficiency for each of the years. The deficiency is due, principally, to the determination by the Commissioner that the premiums of $ 1,200, paid in each of the taxable years on the Aetna policy insuring the life of the petitioner's former husband, and under which she is the primary beneficiary, are includible in her gross income, as alimony, under section 22 (k) of the Code.

OPINION.

The first question presented is whether the payments of $ 4,800 received by the petitioner in each of the taxable years from her former husband are includible in her gross income, as alimony, under section 22 (k) of the Internal Revenue Code. 1 There is no issue relating to the fact that the payments were made by the trustee of a trust under which the petitioner's former husband is a life income beneficiary.

Section 22 (k) of the Code provides that periodic payments of alimony or support, received by a wife subsequent to a decree of divorce or of separate maintenance, in discharge of a legal obligation arising out of the marital or family relationship, and imposed upon or incurred by the husband under such decree or under a written instrument incident to such divorce or separation, shall be includible in the gross income of the wife.

The respondent contends that the payments in question meet all of the requirements of the statute. The petitioner claims that the obligation of her former husband to make the payments was not imposed upon or incurred by him under a decree of divorce, or under a written instrument incident to such divorce. She concedes that the other requirements of section 22 (k) have been satisfied.

The petitioner argues that the obligation to make the payments was imposed on Sydney by the judgment of the New York court entered in 1940, pursuant to a stipulation of the parties, in the proceedings instituted by petitioner against Sydney A. Smith, for specific performance of the provision of the separation agreement of 1937, as amended, requiring Sydney to pay the premiums on a policy of insurance on his life of which she is the primary beneficiary. The argument is based on the fact that the provision of the separation agreement relating to the support payments, although not in issue in the New York proceedings, was included in the stipulation of the parties and the consent judgment of the court, and the further fact that the Florida decree of divorce, in which the separation agreement was incorporated, was not obtained until January 1944. Petitioner seeks to avoid the impact of section 22 (k) by reliance on the doctrine of merger. The petitioner also argues that the separation agreement was not incident to the Florida divorce, alleging that divorce was not considered or contemplated by the parties when the separation agreement of 1937 was entered into. In support of this argument, petitioner relies on Joseph Lerner, 15 T. C. 379, revd. 195 F.2d 296">195 F. 2d 296. We have carefully considered the petitioner's arguments and find that they are without merit.

We need not concern ourselves with the legal niceties of the doctrine of merger. The present issue arises under a Federal statute, the intent and purpose of which is clear. Section 22 (k) of the Code was enacted

in order to provide in certain cases a new income tax treatment for payments in the nature of or in lieu of alimony or an allowance for support as between divorced or legally separated spouses. These amendments are intended to treat such payments as income to the spouse actually receiving or actually entitled to receive them and to relieve the other spouse from the tax burden upon whatever part of the amount of such payments is under the present law includible in his gross income. * * *

See H. Rept. No. 2333, 77th Cong., 2d Sess. (1942), pp. 71, 72. Congress did not intend that its application should depend on the "variance in the laws of the different states concerning the existence and continuance of an obligation to pay alimony." See H. Rept. No. 2333, supra. Nor, in our opinion, did Congress intend that its application should depend on the effect of a judgment in an action for specific performance of a separation agreement or one of the provisions of a separation agreement, where that judgment is entered prior to the date the parties obtain a decree of divorce. Such an application of the statute would tend to circumscribe its purpose.

Furthermore, we note, in the instant case, that the provision of the separation agreement requiring Sydney to make support payments of $ 400 a month to the petitioner was not in issue in the court proceedings in New York. Sydney, at all times, has recognized his obligation to make the support payments. The litigation in New York arose solely because of Sydney's failure to honor the obligation he had assumed in the amended agreement to pay the premiums on the policy of insurance on his life of which petitioner is the primary beneficiary. The litigation was settled by a stipulation of the parties and the entry of a consent judgment by the court in accordance therewith. The stipulation filed by Sydney and the petitioner in the New York litigation, insofar as it embraced the payments for support, was nothing more than a reaffirmation by Sydney of his existing and continuing obligation to make those payments in accordance with the provisions of the separation agreement as amended.

There is no dispute that the obligation of Sydney to make support payments arose out of his marital relationship with the petitioner. The obligation was incurred by him, initially, under a separation agreement. The terms and provisions of the agreement were later incorporated in and made a part of a decree of divorce. Sydney was personally before the Florida court which awarded him the decree of divorce incorporating the separation agreement, and the petitioner does not attack the jurisdiction of that court to impose upon him the obligation to pay her alimony, albeit in accordance with the terms of the existing separation agreement. We conclude that, insofar as the application of section 22 (k) is concerned, the obligation to make the support payments was imposed upon or incurred by Sydney by a decree of divorce. Furthermore, it is difficult to comprehend the petitioner's argument that the separation agreement was not incident to a divorce where, as here, the agreement was incorporated in a decree of divorce. This fact sharply distinguishes the instant case from Joseph Lerner, supra, relied on by the petitioner.

It is held that the support payments in question are includible in the petitioner's gross income, as alimony, under section 22 (k) of the Code.

The second question is whether insurance premiums of $ 1,200 paid in each of the taxable years on a policy, insuring the life of petitioner's former husband in the amount of $ 50,000 and under which the petitioner is primary beneficiary, are includible in the petitioner's gross income, as alimony, under section 22 (k) of the Code. The insurance premiums were also paid by the aforementioned trustee.

The respondent contends that the premium payments were in the nature of additional alimony, and that they were constructively received by, and are taxable to, the petitioner under section 22 (k), Internal Revenue Code. He argues that the policy of insurance was for the benefit of the petitioner since she was the irrevocable primary beneficiary for her life, and that the premium payments are periodic payments and otherwise qualify as alimony under the statute, since they were paid in accordance with a separation agreement which was incorporated in a decree of divorce. The respondent relies on Anita Quinby Stewart, 9 T.C. 195">9 T. C. 195; Estate of Boise C. Hart, 11 T.C. 16">11 T. C. 16; and Lemuel Alexander Carmichael, 14 T.C. 1356">14 T. C. 1356.

The petitioner argues that she is not the owner of the policy; that it is not for her sole benefit; that her rights and interest in the policy are contingent upon her death or remarriage; and that although the separation agreement does not specifically so provide, the obvious intent and purpose of the provision of the agreement requiring Sydney to keep the insurance in force, is to secure to the petitioner support payments in the event she remains unmarried and survives Sydney. The petitioner relies, principally, on Meyer Blumenthal, 13 T. C. 28, affd. 183 F. 2d 15, and a Memorandum Opinion of this Court. We agree with the petitioner.

The petitioner is not the owner of the insurance policy. It was never assigned to her and she never acquired the right to exercise any of the incidents of ownership therein. The policy provides that all the rights and incidents of ownership are vested in the insured, i. e., Sydney A. Smith, subject only to the limitation that he "shall not have the right to make any change in the beneficiary during the life time of his wife [petitioner], without her written consent." The petitioner did not make the premium payments in question and she did not actually or constructively receive the sums paid as premiums. Furthermore, she did not realize any economic gain during the taxable years from the premium payments. For example, any increase in the cash surrender or the loan value of the policy resulting from the premium payments inured to the benefit of the owner of the policy and not to the petitioner.

It is clear from the terms of the policy, and from the provisions of the separation agreement that the petitioner's rights under the policy are contingent on her death or remarriage. Under the terms of the policy, the petitioner or her estate is entitled to receive the proceeds only in the event the petitioner survives the insured. The policy provides that, if neither the petitioner nor her mother survives the insured, the proceeds "shall be payable in one sum to the executors or administrators of the insured." The fact that a secondary beneficiary of the petitioner's choice is designated in the policy is not here important.

Under the provisions of the separation agreement, the petitioner's interest in the policy is more remote since it may be terminated either by her death or lawful remarriage. The separation agreement, as amended by the stipulation of the parties filed in the proceedings in the Supreme Court of the State of New York, required Sydney to keep the policy of insurance in force, and to refrain from exercising the incidents of ownership therein only until the death or lawful remarriage of the petitioner. In the event of the petitioner's lawful remarriage, Sydney regains full dominion and control over the policy. It is therefore apparent that the petitioner's only interest in the policy is contingent, and that the premiums on the policy were not paid for her sole benefit. See Estate of Frank Charles Smith, et al. v. Commissioner, (C. A. 3, 1953) 208 F. 2d 349; Seligmann v. Commissioner, (C. A. 7, 1953) 207 F.2d 489">207 F. 2d 489.

Furthermore, we agree with the petitioner that the obvious intent and purpose of the provision of the separation agreement relating to the policy of insurance, is to secure to the petitioner payments for her support in the event she survives Sydney without remarrying. Although the agreement does not specifically so provide, the inference is warranted from the evidence and record before us. It is well established that premiums paid by a former husband on a policy of insurance which merely provides security for continued alimony or support payments to his divorced wife in the event of his death are not includible in the gross income of the wife as additional alimony. See F. Ellsworth Baker, 17 T. C. 1610, 1615, affirmed this issue (C. A. 2) 205 F. 2d 369; Halsey W. Taylor, 16 T. C. 376, 384; William J. Gardner, 14 T. C. 1445, 1447, affd. 191 F.2d 857">191 F. 2d 857; Meyer Blumenthal, supra.

The authorities relied on by the respondent are distinguishable on their respective facts from this proceeding. In both Anita Quinby Stewart, supra, and Lemuel Alexander Carmichael, supra, the wife was the owner of the policies of insurance. In Estate of Boise C. Hart, supra, the wife agreed to take as alimony a fixed percentage of her husband's annual income and agreed that the premiums on insurance for her benefit, and which she could cause to be reduced were to be paid out of, and subtracted from the agreed percentage of his income which she was to receive.

It is held that the insurance premiums in question are not includible in the petitioner's gross income as alimony under section 22 (k) of the Code.

Decision will be entered under Rule 50.

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Footnotes

• 1. 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 (whether or not made at regular intervals) received subsequent to such decree in discharge of, or attributable to property transferred (in trust or otherwise) 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, * * *↩