Benson v. Commissioner

• Citation: 1983 TC Memo 679,47 TCM (CCH) 294
• Decision Date: 14 November 1983
• Docket Number: Docket No. 25077-81.
• Parties: John I. Benson and Eleanor M. Benson v. Commissioner.
• Court: United States Tax Court

47 TCM (CCH) 294

1983 TC Memo 679

T.C. Memo. 1983-679.

John I. Benson and Eleanor M. Benson v. Commissioner.

Docket No. 25077-81.

United States Tax Court.

Filed November 14, 1983.

Louis Ginberg, 1500 Massachusetts Ave. N.W., Washington, D.C., for the petitioners. Warren P. Simonsen, for the respondent.

Memorandum Findings of Fact and Opinion

DAWSON, Chief Judge:^*

Respondent determined a deficiency of $25,328.47 in petitioners' Federal income tax for 1975. At issue is whether the value of an interest in property transferred to petitioner Eleanor M. Benson to satisfy unpaid obligations owed to her under a property settlement agreement and a divorce decree is taxable income in 1975 under sections 71¹ or 61.²

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulations of facts are incorporated herein by this reference. Insofar as objections were not made or were overruled regarding certain exhibits, the exhibits are incorporated herein by reference.³

At the time they filed their petition, petitioners resided at Burtonsville, Maryland.⁴ They timely filed their joint Federal income tax return for 1975 with the Philadelphia Service Center, Internal Revenue Service.

Petitioner Eleanor M. Benson (hereinafter sometimes referred to as Eleanor or petitioner) married James A. Travis (hereinafter referred to as James) on January 16, 1944. Eleanor and James had seven children during their marriage. During the course of their marriage, petitioner and James acquired commercial property at 2123 Twining Court, N.W., Washington, D.C. (hereinafter referred to as the Twining Court property). The Twining Court property was held by them as tenants by the entirety.

On September 1, 1960, Eleanor and James separated and on May 17, 1961, they entered into a "Property Settlement Agreement" (hereinafter agreement) in the District of Columbia. Although entitled "Property Settlement Agreement," the agreement also provided for Eleanor's custody of the seven minor children. Additionally, the agreement provided in pertinent part:

FOURTH: All * * * real, personal or mixed property * * * held by the Husband or the Wife, shall be the separate property of either of them in whose name such property now stands. * * *

FIFTH: All property * * * in which the parties have a joint interest shall be divided between them as follows:

(1) The Husband shall transfer and convey his interest in * * * Lots #5 and 6 in said subdivision; including the premises and structures thereon, and located at 15212 Burmingham Drive, Laurel, Maryland, which is now owned by the parties hereto as tenants by the entireties, to the Wife * * * it being understood and agreed that the Wife shall take said title to the premises subject to a first deed of trust, securing the balance of a purchase money note thereon in the approximate sum of $12,330.36, and shall assume and pay the same. * * *

(2) The Wife shall also have and be the owner of all the furniture and household furnishings now located at 15212 Burmingham Drive, Laureal sic, Maryland. * * *

(3) The Husband shall assign and transfer to the Wife all of his right title and interest in and to that certain Pontiac Convertible which is now in the possession of the Wife and the Wife agrees to assume and pay all liens and encumberances sic against the same.

(4) The Husband shall assign and transfer to the Wife all of his right title and interest in and to Policy #XXX-XX-XX on the Life of the Husband in the principal sum of $50,000 * * * it being understood and agreed however that the Wife shall be responsible for the continuance of said policy in force and effect and for payment of all premiums.

(5) The Wife shall transfer and assign to the Husband all of her right title and interest in and to 5 shares of the $1.00 par value common stock of Electrical Equipment Company.

(6) The parties agree that the shares of the $1.00 par value common stock of the Twining Court Corporation issued to them jointly shall be owned and retained by them as tenants by the entirety. They further agree that the real estate * * * located at 2123 Twining Court, Northwest, Washington, D.C., shall likewise be owned and retained by the parties as tenants by the entireties.

(7) The Husband and Wife agree that in the event the marriage between them is hereafter dissolved by divorce, that they shall continue to own and retain the said * * * stock and said real estate * * * as tenants by the entireties. * * *

SIXTH: The Wife hereby waives, releases and bars herself of all right of dower in and to any and all real property or interest therein, now owned or that may be hereafter acquired by the said Husband. * * *

SEVENTH: The Husband hereby releases * * * all right that he may have to curtesy * * *.

TENTH: The provisions for division of property between Husband and Wife hereinbefore set forth, are designed to provide the Wife with an independent income so long as she may live, regardless of divorce or remarriage, and to permit her to meet the obligation, assumed by her under the provisions of this agreement, to support, maintain and educate the minor children of the parties. For the purposes of guaranteeing to the Wife an income of at least $215.00 per week during the minority of the children of the parties hereto, it is further agreed as follows:

(1) The Husband shall manage the real estate and securities held in tenancy by the entireties by Husband and Wife, and shall collect the net income, retaining for his own use all of the income from the securities, and distributing one-half (½) of the net income from the real estate held by the entireties to the Husband and one-half (½) thereof to the Wife. * * *

(2) Commencing as of Saturday, May 6, 1961, and continuing for twenty-three (23) years from that date, the Husband shall pay to the Wife the sum of Two Hundred Fifteen ($215.00) Dollars per week. Such weekly payments shall be credited to the Wife's share of the net income received or receivable from the real property, and regardless of the amount of net income received or receivable. * * *

(3) After twenty-three years from May 6, 1961, the Husband shall no longer have any obligation to pay to the Wife more than one-half of the net income from the real property * * * However, the Husband shall continue to manage the real estate and securities * * * and distribute one-half of the net income from the real property to the Wife * * * The Husband shall, however, continue to retain all of the net income from the securities. * * *

(4) The power of the Husband to manage the real estate and securities * * * shall extend to the power to vote any securities so held * * * In the event of an agreed upon sale of the real property * * * the net proceeds thereof shall be divided equally * * * and the Husband shall no longer have any obligation to support and maintain the Wife, and the Wife shall accept one-half of the net proceeds of the sale of said real estate in full discharge of all obligations of the Husband for support and maintenance; her obligation to support and maintain and educate the minor children of the parties to continue. * * *

The agreement provided that no alimony or maintenance fees would be sought other than stated above, that the agreement was to remain "in full force and effect" on the divorce of the parties, and that its provisions were not to be merged into any court judgment or decree. The agreement was not incorporated in the final divorce decree.

On August 14, 1962, petitioner and James were divorced by a Decree of Divorce issued by the Circuit Court for Montgomery County, Maryland. The Decree did not mention the property settlement agreement, but ordered James to pay Eleanor "the sum of $215.00 per week as alimony * * * and as maintenance and support for the children." These $215.00 weekly payments were not intended to be either a gift or a loan from James to Eleanor. Eleanor married John I. Benson in 1967.

James did not fulfill the "support" obligations imposed by the property settlement agreement.⁵ In December 1974 he was $73,456 in arrears on the "support" payments. From 1964 to 1971, petitioner filed four actions and obtained four money judgments against James in the Family Division of the Superior Court of the District of Columbia. These judgments were not satisfied. A fifth action was filed in 1973, whereby petitioner sought another money judgment for arrearages and an award of property and relief.

On February 13, 1975, the Superior Court, in its Findings and Judgment, awarded Eleanor a money judgment and ordered James to transfer to Eleanor his rights and interests in the Twining Court property on or before March 15, 1975. The order also stated that:

As of the date that all of Defendant's rights and interests in the aforesaid property are transferred to Plaintiff, Defendant's outstanding obligations to Plaintiff in the amount of $73,456.31, and any further sums which may have accrued under the property settlement agreement from December 6, 1974 to the date of transfer, are fully satisfied and Defendant's obligation under the settlement agreement to pay $215 per week or one-half of the rental income from the property is terminated.

The Superior Court found the value of the Twining Court property to be between $110,000 and $150,000 and that the property was subject to an outstanding deed of trust with a balance of $9,434.75 as of December 26, 1974. The Superior Court found that the value of the property was $123,000.

On June 9, 1975, James executed and delivered to the trial judge a quit-claim deed to the Twining Court property in Eleanor's favor. The deed contained a "savings clause," providing that the property was released to Eleanor unless the decision of the Superior Court was reversed or modified.

Both petitioner and James appealed the decision of the Superior Court. That decision, however, was upheld by the District of Columbia Court of Appeals in a decision dated July 14, 1976.⁶ In its...