Siewert v. Comm'r of Internal Revenue
| Decision Date | 14 May 1979 |
| Docket Number | Docket No. 169-77. |
| Citation | 72 T.C. 326 |
| Parties | COURTNEY L. SIEWERT, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held: A property settlement agreement entered on May 2, 1972, between petitioner and his former wife, incorporated in their divorce decree of the same date, did not call for an approximately equal division of their community property but for a sale or exchange. Petitioner's basis in the community assets allocated to him under the agreement must be adjusted to reflect such unequal division as well as the payments he obligated himself to make from noncommunity property sources. Held, further, that the sale or exchange between petitioner and his former wife with respect to their community property was not made after their marriage was dissolved but was made contemporaneously with their divorce, with the result that the nonrecognition of gain provisions of sec. 267(d), I.R.C. 1954, apply with respect to certain property petitioner sold in 1972. Clarence P. Brazill, Jr., and John A. Freels, for the petitioner.
Deborah A. Butler, for the respondent.
Respondent determined a deficiency in the amount of $2,976.28 in petitioner's Federal income tax for 1972. Petitioner concedes the adjustments determined by respondent in the notice of deficiency. He claims, however, a refund in the amount of $21,288.07 for 1972, raising for decision the following issues:
(1) Whether the division of property between petitioner Courtney L. Siewert and Helen Siewert, husband and wife, under a property settlement agreement approved in a divorce decree entered May 2, 1972, was a nontaxable partition of community property or a taxable purchase and sale transaction.
(2) If the division was a taxable purchase and sale transaction, whether gain realized by petitioner Courtney L. Siewert on subsequent sales in 1972 of certain property received pursuant to the divorce decree is nonrecognizable under the provisions of section 267(d).1
Petitioner Courtney L. Siewert (hereinafter petitioner) was a legal resident of Lubbock, Tex., when he filed his petition. For 1972, petitioner filed a Federal income tax return and an amended income tax return with the Internal Revenue Service, Southwest Regional Service Center, Austin, Tex.
On May 2, 1972, after extensive negotiations, petitioner and Helen Siewert, his wife (hereinafter Helen), entered into a property settlement agreement (the agreement) in which they divided their community estate and provided for certain payments to be made by petitioner to Helen. The agreement was contingent on obtaining a divorce and receiving court approval thereof. The 137th District Court of Lubbock County, Tex. (the divorce court), in granting petitioner and Helen a divorce on that same day, approved the agreement as “a fair, equitable and just property settlement and division.” In pertinent part, the agreement reads as follows:
1. These parties own certain art works and they have entered into an agreement concerning a division in kind of these items. * * *
2. HELEN SIEWERT shall receive as her separate property and estate, free and clear of any claims by C. L. SIEWERT, the following, to-wit:
(a) The residence * * *
(b) A Cadillac automobile * * *
(c) $200,000.00, of which $100,000.00 shall be paid in cash at the date of consummating this agreement and the balance which shall be paid in three (3) equal annual installments on the principal each in the sum of $33,333.33, * * * (beginning) on or before one year from the date of the entry of the judgment herein contemplated, * * * and upon each installment paying date, all accrued interest at the rate of 4% per annum, upon all unpaid principal, shall be paid.
(d) A life annuity policy * * *
(e) 1/2 of the refund by reason of any over payment of income tax for 1971 for C. L. SIEWERT and HELEN SIEWERT. * * *
3. C. L. SIEWERT agrees to pay the first $10,600.00 of attorneys fees charged by CRENSHAW-DUPREE and MILAM for their services in this divorce matter and in rendering tax counsel and advice.
4. C. L. SIEWERT shall receive, and there shall be set apart to him as his separate property and estate, free and clear of any claims by HELEN SIEWERT, all of the other community property in which either of these parties own an interest, * * *
5. C. L. SIEWERT agrees to pay and hold HELEN SIEWERT harmless from all community indebtedness as of May 1, 1972 (other than federal income tax liability) * * *
6. It is acknowledged that as a part of the consideration for C. L. SIEWERT acquiring the approximate 21,911 acres of ranch land and permanent improvements known generally as the S Lazy S in Motley and Dickens Counties, Texas the said C. L. SIEWERT agrees that in the event of a sale of this ranch to any purchaser other than C. L. SIEWERT & SONS, INC., and/or the three children or any combination of the three children of the parties to this agreement, then in such event there shall be paid to C. L. SIEWERT & SONS, INC. for its interest in such ranch the sum of $527,346.39 of the sale price less so much of the present debts (not exceeding $28,888.11) as have thereto been paid out of the income from the operations of said ranch or from payments made by C. L. SIEWERT. This means that a minimum of $498,458.28 and a maximum of $527,346.39 paid out of such purchase price, or C. L. SIEWERT & SONS, INC. may take its pro-rata share of such purchase price if it is a greater sum.
8. C. L. SIEWERT agrees to pay for a four (4) year college education for Clark Courtney Siewert, Charles Peter Siewert and Allan Edward Siewert (petitioner's and Helen's sons) after each graduates from high school and in the event and to the extent that each such child desires to take such college education.
Following is a schedule (the property schedule) which details the community property and liabilities as of May 2, 1972, shows the values thereof used for negotiation purposes, and reflects the party who received the property and assumed the liabilities:
The S Lazy S Ranch (the ranch) listed on the property schedule at a value of $900,460 consisted of 21,911 acres of which 16,372 acres were owned by petitioner and Helen. The remaining 5,539 acres were owned by C. L. Siewert & Sons, a corporation in which petitioner and Helen in community and their three sons, respectively, held one-fourth interests. The value of the ranch was computed by multiplying petitioner's and Helen's acreage times $55. This $55-per-acre figure had been used by the owners of comparable land adjacent to the ranch as the offering price or actual sale price of their land.
Because of losses in 1970 and 1971 in the amounts of $172,564.51 and $159,477.10, respectively, and expected future losses, valuation of the ranch was difficult. Other ranches in the vicinity of the ranch were also experiencing operating difficulties. In order to compensate for and to help offset expected losses, the parties explored assigning a...
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