349 F.2d 666 (2nd Cir. 1965), 282, Estate of Borax v. C. I. R.
|Docket Nº:||282, 283, 29230, 29231.|
|Citation:||349 F.2d 666|
|Party Name:||ESTATE of Herman BORAX, Deceased, Hermine H. Borax, Louis Borax and Benjamin Borax, Executors, and Hermine Borax, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.|
|Case Date:||July 30, 1965|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Jan. 19, 1965.
[Copyrighted Material Omitted]
Julius G. Hirsch, New York City (Stuart M. Berkman, New York City, of counsel), for petitioners.
Norman H. Wolfe, Attorney, Department of Justice (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and Robert N. Anderson, Attorneys, Department of Justice, Washington, D.C., on the brief), for respondent.
Before MOORE, FRIENDLY and MARSHALL, Circuit Judges.
MARSHALL, Circuit Judges.
This case arises from the fact that Congress, as it often must, has relied on nonfederal bodies of law to give content to primary legal concepts, such as marriage and divorce, that are employed in the federal tax scheme.
Herman and Ruth Borax were married in New York City in 1935. They lived there and had one son. By 1946 the marriage floundered. On March 14, 1946 they separated by mutual consent, and executed a separation agreement, which, among other things, gave Ruth custody of their son and obliged Herman to pay $575 a month for the support of Ruth and the child. These payments, amounting to $6,900 per year, were increased to $8,550 per year by a consent decree, which reformed the separation agreement and was entered by the Supreme Court of New York on November 22, 1946. Herman faithfully discharged this obligation throughout his lifetime.
On August 7, 1952, some six years after the separation a divorce decree was entered by a civil court in the State of Chihuahua, Mexico. The decree recited that the proceedings were instituted by Herman Borax against Ruth Borax, giving as grounds for the divorce 'the incompatibility of characters'; that Herman had 'personally appeared in this Court on the 26th. of June last' and had 'submitted a certificate of residence of this City'; and that Ruth was served on July 10 'by the corresponding authority of New York, New York, as is of record,' but that 'she did not appear to answer the complaint.' The Court noted that it was 'competent to hear and pass on the present case according to Article 23 of the Law of Divorce (of the State of Chihuahua), in view of the fact that the plaintiff submitted to this jurisdiction'; and it concluded that 'plaintiff proved his action' because of the failure of the defendant, Ruth, to appear and to answer the complaint. The marriage was declared dissolved.
To no one's surprise, several weeks later Herman Borax remarried, this time to Hermine. There were two wedding ceremonies: the first occurred on August 21, 1952 in Juarez, Mexico, where the divorce proceedings were instituted, and the second took place in New Haven, Connecticut on August 29, 1952. Herman and Hermine Borax Thereafter lived together in New York City. Herman died in 1961.
Soon after the divorce and remarriage, the first wife, Ruth, commenced declaratory proceedings in the Supreme Court of New York, New York county. She attacked the validity of the divorce and the second marriage, and sought a judicial declaration that she was still Herman's lawful wife. The court had personal jurisdiction over Herman and Hermine; they were personally served and actively participated in the suit with the assistance of counsel. In accordance with its opinion, 119 N.Y.S.2d 819, which merely commented that Ruth 'was not served and did not appear in that action,' the Court entered an order on February 3, 1953 declaring that Ruth 'is the lawful wife of' Herman, that Herman and Hermine 'are not husband and wife,' and that 'the decree of divorce' obtained by Herman 'is invalid, and of no force or effect in law.'
As though this human situation was not complicated enough, with a Mexican court and New York court taking different views as to who was Herman's wife, the Commissioner of Internal Revenue stepped into the picture, asserting deficiencies for the years 1952 through 1955 and 1957. During each of these years Herman and Hermine filed joint returns and claimed a deduction for the payments Herman had made to Ruth under the 1946
separation agreement and claimed dependency exemption for Hermine's parents and her children by a prior marriage. The Commissioner took the position that Herman and Hermine were not and Herman were divorced under a decree entitled to file a joint return; that Herman was not entitled to claim Hermine's children or parents as his dependents; and that the payments to Ruth were not deductible to Herman. Herman 1 and Hermine petitioned the Tax Court for a redetermination of the deficiency, asserted by the Commissioner for those years, but the Tax Court sustained the Commissioner's position, 2 40 T.C. 1001 (1964). Pursuant to sections 7482, 7483 o the Pursuant to sections 7482, 7483 of the this decision, and we reverse.
I. The Support Payments
Under section 23(u) 3 of the 1939 Code, and its counterpart in the 1954 Code, section 215, 4 the payments made by Herman to Ruth under the 1946 separation agreement are deductible to Herman if they are includible in Ruth's gross income according to section 22(k) 5 of the 1939 Code or section 71 6 of the 1954 Code. In terms of the present case, where the separation agreement was executed prior to the enactment of the 1954 Code, and there is no decree of separate maintenance, 7 these payments are includible
in Ruth's gross income, and hence deductible by Herman if: (1) Ruth and Herman were divorced under a decree of divorce; (2) the payments were made in discharge of a legal obligation imposed upon or incurred by Herman under such decree or under a written instrument 'incident to such divorce'; and (3) the payments were periodic and received subsequent to the divorce decree.
(1) We hold, for purposes of these provisions of the federal tax statute, and within the meaning of these provisions, that for the years in dispute Ruth and Herman were divorced under a decree of divorce. The subsequent declaration of invalidity by a jurisdiction other than the one that decreed the divorce is of no consequence under these provisions of the tax law.
This rule of validation tends to promote some measure of certainty and uniformity-- important goals of the federal tax scheme; see Commissioner v. Lester, 366 U.S. 299, 301, 81 S.Ct. 1343, 1345, 6 L.Ed.2d 306 (1961), declaring 'that it was the intention of Congress, in enacting § 22(k) and § 23(u) of the (1939) Code, to eliminate the uncertain and inconsistent tax consequences resulting from the many variations in state law.' Where, as here, the divorcing jurisdiction is not one of the States of the Union, and the decree has only the benefit of comity rather than the Full Faith and Credit Clause of the Constitution, the States are free to take different views as to the validity of the divorce. The possibility of disparity even exists if the divorcing jurisdiction is within the Union. For under the existing pattern of law, a divorce decree is not entitled to full faith and credit unless the rendering state has jurisdiction, and the rendering state's finding of jurisdiction is not itself entitled to full faith and credit. Although federal standards will be applied to determine if there is jurisdiction for full-faith-and-credit purposes, Williams v. State of North Carolina (II), 325 U.S. 226, 231 n. 7, 65 S.Ct. 1092, 89 L.Ed. 1577 (1945) (domicile), the Supreme Court is not in a position to resolve all such sister-state conflicts, see, e.g., Colby v. Colby, 78 Nev. 150, 369 P.2d 1019, cert. denied, 371 U.S. 888, 83 S.Ct. 186, 9 L.Ed.2d 122 (1962), and it would not be advisable for this court (or the Tax Court) to attempt such a resolution in these most collateral tax-deficiency proceedings. The rule of validation leaves the mobile spouse with the power to obtain a divorce in a jurisdiction whose decrees might not be recognized in every other jurisdiction. Yet by depriving the determination of invalidity of any federal tax significance the rule of validation avoids a measure of unevenness and uncertainty: all those taxpayers who have obtained a divorce in a particular jurisdiction are treated the same, regardless of whether the spouse against whom the decree has been obtained is able to, and does, invoke the power of another jurisdiction to declare that divorce invalid.
This interest in uniformity might not by itself justify a rule of validation, but there is an additional factor. The rule tends to further the 'indicated congressional policy of placing the tax burden of all general marriage settlement payments on the party entitled to their enjoyment,' Lerner v. Commissioner, 195 F.2d 296, 298 (2 Cir. 1952), and it does so without interfering with any other congressional tax policy. The requirement that the marital relationship be dissolved by a judicial decree of divorce (or legal separation) as opposed to being dissolved by having the parties cease living together as husband and wife is not expressive of any significant policy. This was amply revealed in 1954 when Congress afforded the same tax treatment to support payments where the husband and wife are voluntarily separated and there is a written separation agreement. See generally Mavity v. Commissioner, 341 F.2d 865, 870 (2d Cir. 1965). If support payments are includible in the gross income of the wife and deductible by the...
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