Moore v. Commissioner

Albert V. Moore, Petitioner, v. Commissioner of Internal Revenue, Respondent. Margaret T. Oden Trust, Wells Fargo Bank & Union Trust Co., Trustee and Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent. Margaret T. Oden, Petitioner, v. Commissioner of Internal Revenue, Respondent

Moore v. Commissioner

Docket Nos. 7648, 7647, 7649

United States Tax Court

10 T.C. 393; 1948 U.S. Tax Ct. LEXIS 254;

February 26, 1948, Promulgated

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Decision will be entered under Rule 50.

Albert V. Moore made certain cash payments to his wife and created a life insurance trust for her benefit pursuant to a decree of divorce which ratified and confirmed a separation agreement. Held, the transfer of property and cash by Moore in compliance with the decree of the court was for an adequate and full consideration in money or money's worth, and did not constitute taxable gifts, following Commissioner v. Converse, 163 Fed. (2d) 131, affirming 5 T.C. 1014">5 T. C. 1014.

Truman H. Luhrman, Esq., for the petitioners.

Ellyne E. Strickland, Esq., for the respondent.

Arnold, Judge.

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ARNOLD

These consolidated proceedings involve gift tax deficiencies for 1938, 1939, 1940, and 1941. Deficiencies in the respective amounts of $ 2,295, $ 607.50, $ 8,699.19, and $ 67,937.30 have been determined against Albert V. Moore, as donor in Docket No. 7648. The statutory notice of deficiency to Moore states that only $ 123.76 of the 1940 deficiency is assessable against him, as donor, and that the balance of the deficiency determined against him has been made the subject of statutory notices of deficiency to each of the petitioners in dockets numbered 7647 and 7649, because of their transferee liabilities as donee and trustee. An increase of $ 1,059.71 in the deficiency determined against the donor for 1940 is claimed by respondent in amended answers filed in the transferee cases.

In determining the deficiencies the respondent made certain adjustments which petitioners alleged were erroneous. Respondent now concedes that Albert V. Moore's taxable gifts should not include $ 750 per month paid to his former wife during the taxable years, and that $ 15,000 of a payment of $ 27,500 made in 1938 to the former wife should not be included in his taxable gifts. The parties stipulated that shares of stock of Moore-McCormack Lines, Inc., which were transferred as gifts by Albert V. Moore in 1941 had a value of $ 12.25 per share, and not $ 13.50 per share, as determined by the respondent. Petitioners in Dockets 7647 and 7649 abandoned their allegation that they were not transferees within the meaning of the gift tax statute. Effect will be given to the above concessions and stipulations upon recomputation of the deficiencies under Rule 50.

The remaining issues for decision are: (1) Whether respondent erred in determining that $ 12,500 of a $ 27,500 payment made by Albert V. Moore in 1938 to his former wife, Margaret T. Moore, pursuant to the terms of a separation agreement, constituted a taxable gift; and (2) whether the transfer in 1940 of certain paid-up life insurance policies by Albert V. Moore to a trustee for the benefit of his former wife, pursuant to the terms of a separation agreement, constituted a taxable gift at the date of the transfer to the extent of the replacement cost of the policies at the time of the transfer.

FINDINGS OF FACT.

Albert V. Moore, the petitioner in Docket No. 7648, is an individual residing in Forest Hills, Borough of Queens, City and State of New York. His gift tax returns for the years 1938, 1939, 1940, and 1941 were filed with the collector of internal revenue for the first district of New York. His gift tax return for 1940 was filed under date of March 15, 1941, and an amended gift tax return for that year was filed on March 12, 1942.

Petitioner Albert V. Moore and his former wife, Margaret T. Moore, now Margaret T. Oden, were married on February 1, 1912, and lived together until the summer of 1938. Albert V. Moore was born September 21, 1880; Margaret T. Moore was born February 22, 1888.

In the fall of 1937 Margaret T. Moore consulted a New York attorney relative to instituting an action for divorce. Following an investigation, her attorney prepared a summons and complaint in an action for divorce in the Supreme Court of the State of New York and caused it to be served on Albert V. Moore on or about August 19, 1938. Albert V. Moore instructed his attorney to communicate with his wife's attorney, ascertain her demands, and see if a mutually satisfactory agreement could be reached in settlement of their marital problems.

Several conferences were held by the two attorneys, at which each negotiated for the best interests of his client. As a result of these conferences and under date of September 2, 1938, Albert V. Moore and Margaret T. Moore entered into a separation agreement "so as to adjust their mutual relations and questions of property and support." The agreement effected a compromise of the demands of each party thereto.

The separation agreement, after providing that the parties should continue to live separate and apart, free from the marital control and authority over each other, made the following provisions with respect to property settlement: Albert V. Moore agreed (1) to pay his wife $ 27,500 in cash at delivery of the separation agreement; (2) within 30 days of delivery of the separation agreement to deliver to his wife life insurance policies on his life, in her favor if she survived him, the proceeds of which would amount to $ 100,000. The policies were to be free of loans, all premiums thereon paid to date, and without power of revocation or borrowing thereon. Moore was to pay the premiums during his lifetime, and his wife was given the right to create a life insurance trust; (3) to pay his wife during her lifetime $ 750 per month during his lifetime.

Margaret T. Moore agreed that upon delivery of the separation agreement she would convey to her husband or his nominee the property which she owned in Forest Hills, Long Island, New York, subject to existing mortgages. Certain other provisions regarding proceeds from a subsequent sale of this property are omitted as immaterial.

Paragraph six of the separation agreement reads as follows:

6. The execution and delivery of this agreement and any acts performed hereunder shall not be deemed to be a waiver of the right of Mrs. Moore to elect to take against the Last Will and Testament of Mr. Moore, under the Statutes of Descent and Distribution of the State of New York, and Mr. Moore hereby confirms and vests in Mrs. Moore said right of election and all her rights, in the event of his decease, to share in his estate under the New York Statutes of Descent and Distribution, provided, however, that her share in his estate shall be reduced by the sum of Twelve thousand five hundred ($ 12,500) plus any insurance monies that she and/or her assigns may receive on the policies of insurance provided for in paragraph "4" hereof.

Albert V. Moore's attorney objected strenuously to the inclusion of the above quoted paragraph in the separation agreement. Margaret T. Moore declined to surrender the rights reserved to her thereby and reservation of her rights to share in his estate upon his death was incorporated in the agreement as hereinabove set forth.

Prior to November 18, 1938, Margaret T. Moore instituted divorce proceedings in the State of Nevada in which Albert V. Moore appeared by counsel. Under date of November 18, 1938, the Nevada court having jurisdiction of the proceeding entered a decree of absolute divorce dissolving the marriage existing between Albert V. and Margaret T. Moore. The decree of the court provided in part as follows:

It Is Further Ordered, Adjudged and Decreed that the written agreement made and entered into by and between the parties on the 2nd day of September, 1938 [the separation agreement aforementioned], settling the property rights of the plaintiff and of the defendant, and all matters concerning the care, custody and support of Barbara Ann Moore, the said minor child of the parties, a true, full and correct copy of which said written agreement has been admitted in evidence in this action, and marked and designated as Exhibit "A" therein, be and the same hereby is, by this Court, ratified and confirmed, and declared to be fair, just and equitable to the plaintiff, to the defendant, and to said minor child.

Following the rendition of the final decree of divorce in Nevada, the New York action was discontinued, Albert V. Moore paid Margaret T. Moore $ 27,500, and she deeded him the property in Forest Hills, New York. The payment of $ 27,500 to Margaret T. Moore was in consideration of her transfer of title to the property in Forest Hills, New York, plus $ 2,500 for counsel fees.

On August 2, 1940, Albert V. Moore, pursuant to the separation agreement, transferred in trust, for the benefit of his former wife, Margaret T. Oden, paid-up life insurance policies on his life having the face value of $ 104,901. Wells Fargo Bank & Union Trust Co. was named trustee, and, as transferee, is the petitioner in Docket No. 7647. Margaret T. Oden acknowledged that the trust created for her benefit on August 2, 1940, was in compliance with the provisions of the separation agreement.

The replacement costs of all policies transferred in trust by Albert V. Moore, based upon single premium ordinary life policies issued in 1940 for a person aged 60, would have amounted to $ 79,545.37. In determining the deficiencies herein respondent used a commuted value for said policies aggregating $ 60,577.70.

In 1938 Albert V. Moore had assets of approximately $ 1,273,000. For the years 1934 to 1938, inclusive, his income tax returns showed net taxable income as follows:

1934	$ 58,555.45
1935	58,939.61
1936	67,633.87
1937	30,092.60
1938	22,284.23

The payment of $ 27,500 by Albert V. Moore to Margaret T. Moore and the creation of a life insurance trust for her benefit, pursuant to the separation agreement and the decree of the Nevada court, did not constitute transfers of property by gift.

OPINION.

Respondent contends that, since property was transferred for less than an adequate and full consideration in money or money's worth, a gift resulted under section 1002 of the Internal Revenue Code. We see no point in laboring the question presented. A number of cases with similar facts have been decided by this and other courts against respondent's contentions, and distinguishing Merrill v. Fahs, 324 U.S. 308">324 U.S. 308; Commissioner v. Wemyss, 324 U.S. 303">324 U.S. 303; and Commissioner v. Bristol, 121 Fed. (2d) 129. See Herbert Jones, 1 T.C. 1207">1 T. C. 1207; Matthew Lahti, 6 T. C. 7; Commissioner v. Converse, 163 Fed. (2d) 131, affirming 5 T.C. 1014">5 T. C. 1014.

Here, the separation agreement was ratified and confirmed by the Nevada court which dissolved the marriage, and the agreement was declared by that court to be fair, just, and equitable to the parties and to their minor child. The payments required of Albert V. Moore and the setting up of the insurance trust were made, therefore, pursuant to court decree and in discharge thereof. Had petitioner failed or refused to make the transfers, he could have been required to do so by court proceedings to enforce the terms of the decree. The discharge of the judgment was, under Commissioner v. Converse, supra, an adequate and full consideration in money or money's worth for the transfers. Upon the authority of the Jones, Lahti, and Converse cases, supra, we hold for the petitioners on the contested issues.

This case is distinguishable from the Roland M. Hooker case, this day decided, in that here the divorce court's decree fixed the amount of petitioner's marital obligation, whereas there the court's order of specific performance did not involve any question of the amount of a parent's obligation to support his minor child.

In view of the stipulations of the parties, particularly with respect to the value of the stock of Moore-McCormack Lines, Inc., the deficiencies, if any, will be recomputed under Rule 50.

Decision will be entered under Rule 50.