Brown v. Comm'r of Internal Revenue
| Citation | 16 T.C. 623 |
| Decision Date | 26 March 1951 |
| Docket Number | 23881.,Docket Nos. 23880 |
| Parties | FLOYD H. BROWN AND KATIE LOU D. BROWN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.FLOYD H. BROWN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
J. C. Smith, Esq. and C. L. Brooke, C.P.A., for the petitioners.
Jackson L. Bailey, Esq., for the respondent.
Petitioner Floyd H. Brown, a resident of Louisiana, filed a petition for divorce from Daisy E. Brown in June 1938. He obtained a decree of separation on July 2, 1938, and a decree of divorce on September 30, 1939. On July 8, 1938, the parties executed a settlement agreement.
1. Held, under the facts, payments of $500 monthly made by petitioner to Daisy E. Brown in 1943, 1945 and 1946, pursuant to the agreement, were consideration for the waiver of support rights by Daisy E. Brown and were deductible by petitioners under section 23(u), Internal Revenue Code. Thomas E. Hogg, 13 T.C. 361, followed.
2. Held, further, petitioner Floyd H. Brown was entitled to depletion in 1945 and 1946 on the $500 monthly assigned to Daisy E. Brown as security for the above payments from income of a certain oil lease interest owned by him. Regulations 111, section 29.23(m)-1.
In these consolidated proceedings respondent determined deficiencies in income tax in the following amounts:
The questions presented are:
(1) Are payments of $500 monthly made by petitioner Floyd H. Brown to Daisy E. Brown, his divorced wife, deductible in the taxable years by petitioners under section 23(u), Internal Revenue Code?
(2) Do respondent's assertion of deficiencies for the years 1943 through 1948 against Daisy E. Brown for failure to report the $500 monthly payments as income under section 22(k) of the Code, and respondent's collection of said deficiencies estop respondent from now contending that such payments are not deductible by petitioners under section 23(u) of the Code?
(3) If such payments are deductible by petitioner Floyd H. Brown in 1945 and 1946, is he entitled to depletion on the oil lease income securing the payments?
FINDINGS OF FACT.
Floyd H. Brown (hereinafter referred to as petitioner), and his wife, Katie Lou D. Brown, are residents of Carmi, Illinois. The income tax returns for the taxable years involved were filed with the collector of internal revenue for the eighth district of Illinois.
Petitioner is engaged in the business of drilling oil wells and has been so engaged for some 39 years.
Prior to July 6, 1938, petitioner and his former wife, Daisy E. Brown, were residents of the State of Louisiana, a community property state, and resided in Shreveport, Caddo Parish, Louisiana.
Sometime in June 1938, petitioner filed a petition for divorce from Daisy E. Brown in Caddo Parish, Louisiana. On July 2, 1938, judgment decreeing separation a mensa et thoro in favor of petitioner and against Daisy E. Brown was rendered in the First Judicial District Court, Caddo Parish, Louisiana, and on July 6, 1938, the judgment was signed and filed. On September 30, 1939, judgment decreeing divorce a vinculo matrimonii in favor of petitioner and against Daisy E. Brown was rendered, signed and filed in the above court.
On July 8, 1938, petitioner and Daisy E. Brown executed the following agreement:
WHEREAS, said parties desire to adjust their differences by mutual consent and partition and settle the community estate heretofore existing between them;
NOW, THEREFORE, in consideration of the premises, the said FLOYD H. BROWN and the said DAISY EARP BROWN do hereby stipulate and agree that said community estate shall be partitioned and settled upon the following terms, conditions and covenants, to-wit:
The said Floyd H. Brown does hereby agree and obligate himself:
(a) To pay to the said Daisy Earp Brown the sum of FIVE HUNDRED ($500.00) DOLLARS per month during the natural life of the said Daisy Earp Brown, and as security for the payment of said sum the said Floyd H. Brown does hereby GRANT, BARGAIN, SELL, ASSIGN, TRANSFER, CONVEY AND DELIVER unto the said Daisy Earp Brown, Five Hundred ($500.00) Dollars per month from proceeds accruing to the credit of the lease interest owned by him in the B. F. Hindman Lease, Rusk County, Texas, particularly described as follows, to-wit:
The effective date of this assignment shall be July 1, 1938, and shall continue thereafter from month to month during the natural life of said Daisy Earp Brown, provided that said assignment shall terminate and revest in said Floyd H. Brown five (5) years from July 1, 1938, or on June 30, 1943, in the event the said Floyd H. Brown has, on or before said date, delivered to said Daisy Earp Brown a term annuity policy of New York Life Insurance Company providing for the payment to said Daisy Earp Brown of the sum of Five Hundred ($500.00) Dollars per month beginning July 1, 1943, and continuing during her natural life.
Any pipe line company purchasing the oil, gas or other minerals produced from the hereinabove-described tract of land is hereby authorized and directed to pay to said Daisy Earp Brown said full sum of Five Hundred ($500.00) Dollars per month until it shall have been served with written notice that said assignment has been terminated, as herein provided:
(b) The said Floyd H. Brown does hereby GRANT, BARGAIN, SELL, TRANSFER, CONVEY AND DELIVER unto the said Daisy Earp Brown all of his right, title and interest in and to Municipal No. 961 Thoro Boulevard in the City of Shreveport, Caddo Parish, Louisiana, together with all contents therein, particularly described as follows, to-wit:
Lot Twenty-Four (24) and Lot Twenty-One (21) less the West 20 feet thereof, in Audubon Place Subdivision, City of Shreveport, Caddo Parish, Louisiana, together with all improvements thereon.
(c) The said Floyd H. Brown does hereby GRANT, BARGAIN, SELL, TRANSFER, CONVEY AND DELIVER unto the said Daisy Earp Brown all of his right, title and interest in and to the oil, gas and other minerals, subject to mineral lease, hereafter produced, saved and marketed from:
Southeast Quarter of Southeast Quarter (SE 1/4 of SE 1/4), Northwest Quarter of Southeast Quarter (NW 1/4 of SE 1/4), Southeast Quarter of Northeast Quarter (SE 1/4 of NE 1/4), and Northwest Quarter of Northeast Quarter (NW 1/4 or NE 1/4), Section Fifteen (15), Township Twenty-one (21), Range Ten (10), Webster Parish, Louisiana.
(d) The said Floyd H. Brown does hereby convey and deliver unto the said Daisy Earp Brown all of his right, title and interest in and to that certain Packard Sedan now in possession of the said Daisy Earp Brown.
(e) The said Floyd H. Brown furthermore assumes, obligates himself and agrees to promptly pay all community debts and does hereby agree to indemnify and save harmless the said Daisy Earp Brown from and against said debts.
In consideration of the above and foregoing provisions, Daisy Earp Brown does hereby:
(a) Waive and renounce any and all rights which she may now or hereafter have in and to all other community property, real, personal or mixed, acquired by either party hereto during the existence of their marriage, and does hereby GRANT, BARGAIN, SELL, TRANSFER, CONVEY AND DELIVER unto the said Floyd H. Brown all of her right, title and interest in and to said property. * * *
(b) The said Daisy Earp Brown furthermore waives and renounces any and all claims, demands or choses in action which she may now or hereafter have against the said Floyd H. Brown for maintenance, alimony or support, and all other choses in action which she may now or hereafter have against the said Floyd H. Brown.
WITNESS THE EXECUTION HEREOF On this 8th day of July A.D. 1938.
FLOYD H. BROWN. DAISY EARP BROWN.
Petitioner and Daisy E. Brown were represented by separate attorneys during the divorce proceedings. Their community property consisted in large part of drilling equipment with was not susceptible of division without considerable decrease in value. The following balance sheet, prepared in contemplation of the separation and showing the book net worth of the community property as of March 31, 1938, was furnished the attorneys:
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