DocketNumber： Docket No. 13059
Judges： Mtjrdocii
Filed Date： 6/21/1948
Status： Precedential
Modified Date： 10/19/2024
1948 U.S. Tax Ct. LEXIS 154">*154
Income -- Alimony Payments -- 10-Year Period --
10 T.C. 1131">*1132 The Commissioner determined deficiencies of $ 5,218.30 and $ 4,384.21 in income tax for the years 1943 and 1944. The only issue for decision is whether he erred in making annual additions to income under
FINDINGS OF FACT.
The petitioner filed individual income tax returns for the taxable years with the collector of internal revenue for the first district of Illinois.
The petitioner and Harry Blum were married in 1914. They resided at all times material hereto in Chicago, Illinois.
Harry Blum filed a bill for divorce in the Superior Court of Cook County, Illinois, in 1932. In January 1933 the petitioner filed an answer and a cross-bill praying for separate maintenance. She filed a further amendment1948 U.S. Tax Ct. LEXIS 154">*155 on March 1, 1935, in which she asked for a divorce instead of separate maintenance.
The petitioner and Harry Blum entered into a written agreement incident to the action for divorce. The agreement was dated February 27, 1935, and was in part as follows:
First: This agreement is expressly declared by both parties to be effective only in the event that said Superior Court of Cook County, upon due and proper consideration of the cross-bill as finally amended, and the evidence adduced by both parties, shall enter a decree of divorce severing the bonds of matrimony existing between them. In the event that the said court, upon due and proper consideration of the said cross-bill as finally amended, and the evidence adduced by the parties, shall not enter a decree of divorce so severing the bonds of matrimony between them, this agreement shall become and be null and void.
Second: The said husband undertakes, promises and agrees to pay to the said wife the sum of One Hundred Twenty Thousand Dollars ($ 120,000.00) in the manner following: the sum of Seventy-five Hundred Dollars ($ 7,500.00) on or before March first, A. D. 1936; a like sum of Seventy-five Hundred Dollars ($ 7,500.00) on or1948 U.S. Tax Ct. LEXIS 154">*156 before the first day of March of each and every year thereafter for the next succeeding eight (8) years; with a final payment of Fifty-two Thousand Five Hundred Dollars ($ 52,500.00) on or before March first, 1945.
The agreement also provided that the husband was to pay interest at the rate of 5 per cent on the $ 120,000 and any balance thereof remaining unpaid. The payments to the wife were to continue regardless of the death of either party, and regardless of the remarriage of the wife. The husband was to pledge security for the payment of the $ 120,000. The agreement was to be made a part of the decree of divorce. The agreement contained other provisions in regard to the property of the parties not material hereto.
A divorce was granted to the petitioner in that proceeding upon her amended cross-bill. The decree was entered of record on March 2, 1935. That decree has never been modified.
The decree ordered the parties to carry out their agreement of 10 T.C. 1131">*1133 February 27, 1935, and made that agreement a part of the decree with the same force and effect as if fully set forth therein.
Harry Blum paid the $ 120,000 to the petitioner, with interest, during the period from 19361948 U.S. Tax Ct. LEXIS 154">*157 up to March 1, 1945. His payments during the three years here involved were as follows:
| Year | Principal | Interest |
| 1942 | $ 13,000 | $ 3,092.80 |
| 1943 | 8,000 | 2,423.67 |
| 1944 | 12,000 | 1,760.64 |
The petitioner in her returns for the years here involved reported the following amounts as interest received from Harry Blum:
| 1942 | $ 3,097.42 |
| 1943 | 2,250.94 |
| 1944 | 1,759.98 |
The Commissioner in determining the deficiency held that the following amounts should be included in the petitioner's income under
| 1942 | $ 15,711.94 |
| 1943 | 10,423.67 |
| 1944 | 13,760.64 |
The following is the explanation given for 1942:
During the taxable year you received alimony income in the amount of $ 16,092.80. Under the provisions of
| Amount of contract | $ 120,000.00 |
| Interest paid to December 31, 1942 | 37,119.35 |
| Principal sum | $ 157,119.35 |
| 10% thereof | 15,711.94 |
| Amount included in return filed | 3,097.42 |
| Additional income | $ 12,614.52 |
The stipulation of the parties is incorporated herein by this reference.
OPINION.
The only question for decision is whether the 10-year period described in the exception quoted above begins to run from March 2, 1935, when the decree was entered, or from February 27, 1935, the date of the agreement. Both sides recognize that the terminal date was March 1, 1945. Thus, there was a period of more than 10 years if it began to run on the earlier date, but there was not a period of more than 10 years if it began to run on the later date. The question is new. The Commissioner stated that there is pending in this Court a companion case against the husband in which the Commissioner is contending that the same income is taxable to him. Obviously, the income is taxable to either the husband or to the wife, and the Commissioner is taking these precautions so that he may collect the tax from the one from whom it is lawfully due.
The Commissioner now concedes, contrary to the explanation which he gave in the notice of deficiency for the 1942 adjustment, that the principal sum of $ 120,000 was specified in the written instrument of February 27, 1935. The petitioner1948 U.S. Tax Ct. LEXIS 154">*160 contends that the period within which the principal sum of $ 120,000 was to be paid did not begin to run until the decree was entered on March 2, 1935. The Commissioner now contends that the period began with the date of the agreement, February 27, 1935, or else began on February 28, when, he says, the judge signed the decree. The court records do not show when the decree was signed. The Commissioner called as a witness the attorney for the husband at the time the divorce was granted. He testified to a recollection that he saw the judge sign the decree in his chambers on February 28, 1935, at a time when the clerk was not present.
1948 U.S. Tax Ct. LEXIS 154">*162 The words "date of such decree or instrument" refer to a decree or to an instrument under which the legal obligation to pay the principal sum was imposed upon the husband. Common sense requires the conclusion that the date which Congress intended was the effective date, the date when the legal obligation was actually imposed for the first time. Here the obligation was imposed by a combination of the instrument and the entered decree which made it effective for the first time. Thus the date of the beginning of the period was March 2, 1935. The period intended is that from the time when the obligation was imposed to the last day upon which it could be properly discharged. If the principal sum "may be or is to be paid" within that period and the period is more than 10 years then the payments are taxable to the wife, rather than to the husband. That is not the situation here and these payments are installment payments and they are not taxable to the wife.
The petitioner makes no argument against the inclusion in her income of the stipulated amount of the interest received in each year.
1. The records of the clerk of the court show that an order was entered on March 1, 1935, permitting Tillie Blum to amend her supplemental cross-bill and directing that the answer of Harry Blum theretofore filed should stand as an answer to the supplemental cross-bill as amended. That record also shows that the decree of divorce was entered on March 2, 1935.↩