Blakey v. Comm'r of Internal Revenue
| Decision Date | 10 June 1982 |
| Docket Number | 4590-80.,Docket Nos. 3085-80 |
| Citation | 78 T.C. 963 |
| Parties | CHARLES R. BLAKEY and FAY L. BLAKEY, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTSANDRA A. BETTINO, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Ps entered into a written agreement incident to divorce requiring the husband to make monthly payments for the “care, support and maintenance of the minor children of the parties and the support, care and maintenance of the Wife.” The agreement reduced the monthly payments by one-sixth on the earliest of the majority, death, or emancipation of each of the five children and eliminated all payments on the earliest of the majority, death, or emancipation of the last child. The agreement also provided that the wife was entitled to claim dependency exemptions for all five children so long as the husband was entitled to deduct all of his payments to the wife and children. The divorce decree ratified, confirmed, and approved the written agreement but did not incorporate it or order the husband to perform its obligations. Held:
1. All of the payments received by the wife under the agreement are includable in her income under sec. 71(a)(1), I.R.C. 1954, and deductible by the husband under sec. 215, I.R.C. 1954.
2. Under Virginia law, the remarriage of the wife did not terminate the husband's obligation under the written agreement to make the payments and did not change the characterization of the unitary payments to her under Commissioner v. Lester, 366 U.S. 299 (1961). Hoffman v. Commissioner, 54 T.C. 1607 (1970), affd. per curiam455 F.2d 161 (7th Cir. 1972); Brown v. Commissioner, 50 T.C. 865 (1968), affd. per curiam415 F.2d 310 (4th Cir. 1969), distinguished.
3. The wife is entitled to dependency exemption deductions for all five children pursuant to the terms of the agreement. James G. Arthur, for the petitioners in docket No. 3085-80.
Sandra A. Bettino Major, pro se in docket No. 4590-80.
Clement Shugerman, for the respondent.
Respondent determined deficiencies in petitioners' 1976 Federal income taxes in the amount of $1,136 in docket No. 3085-80 and $1,454 in docket No. 4590-80. The issues for decision are:
(1) Whether payments made to the wife during 1976 pursuant to a written agreement incident to divorce constitute periodic payments deductible by the husband under section 2151 and includable in income by the wife under section 71(a). Our resolution of this question depends first on whether the agreement fixes any amount or part of the payments as child support under section 71(b) and secondly on the effect, if any, of the wife's remarriage during that year.
(2) Which parent is entitled to the dependency exemptions for their five children under the terms of their written agreement and section 152(e). Decision of this question is closely related to our resolution of the first issue.
Most of the facts have been stipulated and are so found. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Petitioners Charles R. Blakey and Fay L. Blakey, husband and wife, resided in Alexandria, Va., at the time they filed their petition in docket No. 3085-80. They timely filed their joint Federal income tax return for the year 1976 with the Internal Revenue Service Center in Memphis, Tenn. Petitioner Fay L. Blakey is a party to this proceeding solely because she filed a joint return with her husband, and all further references will be to petitioner Charles R. Blakey (hereinafter Blakey).
Petitioner Sandra A. Bettino (now Sandra A. Bettino Major) resided in Alexandria, Va., at the time she filed her petition in docket No. 4590-80. She and her former husband, Donald L. Bettino, timely filed a joint Federal income tax return for the year 1976 with the Internal Revenue Service Center in Memphis, Tenn. Petitioner Sandra A. Bettino (hereinafter Bettino) was an unmarried individual at the time she filed her petition herein, and her former husband, Donald L. Bettino, is not a party to this proceeding.
Blakey and Bettino were formerly husband and wife. They were married on August 20, 1960, in Halifax County, N.C. Five children were born of their marriage: Charles R. Blakey, Jr., on July 12, 1961; Robert Edward Blakey on August 3, 1962; Russell Sean Blakey on September 25, 1964; Randolph Darin Blakey on January 19, 1967; and Lee Colleen Blakey on May 3, 1968.
On May 5, 1972, Blakey and Bettino (then Sandra A. Blakey) entered into a written marital agreement denominated “Property Settlement Agreement” (1972 agreement) in contemplation of divorce. Paragraph 5 of the 1972 agreement provided that:
It is understood and agreed that * * * any action for divorce between the parties hereto shall be subject to and governed by the terms of this Agreement, and the terms and conditions set forth in this Agreement shall be ratified and affirmed and incorporated in any decree of divorce which may be entered in any action between the parties hereto.
The 1972 agreement disposed of various items of property, gave custody of the parties' five minor children to the wife, and included the following provision for support:
13. The Husband shall pay to the Wife, commencing on the 1st day of June, 1972, for the care, support and maintenance of the minor children of the parties and the support, maintenance and alimony of the Wife, the total monthly sum of $300.00. Said sum shall be payable in the amount of $150.00 on the 1st and 15th day of each month. At such time as the Husband's present loan at the Post Office is paid, this support, maintenance and alimony for the Wife and the minor children of the parties shall be raised to $325.00 per month, payable $150.00 on the 1st day of each month and $175.00 on the 15th day of each month.
The aforesaid monthly sum shall be reduced by one-sixth (16th) as each child shall attain the age of eighteen years, dies, or becomes otherwise emancipated (whichever shall first occur), and at such time as the last or youngest child shall attain the age of eighteen years, dies or becomes otherwise emancipated (whichever shall first occur), all support, maintenance and alimony for the Wife and the minor children shall cease completely and no further monies shall be due and owing from the Husband.
The Husband and Wife agree that so long as the Husband, under Internal Revenue Service Regulations and Laws, is able to deduct the entire monthly payments aforementioned on his Federal and State income tax returns, that the Wife shall be able to claim the five children as exemptions on her Federal and State income tax returns. Should the situation change so that the Husband is not able to, under the rules and regulations, deduct the entire monthly amount from taxable income on his Federal and State income tax returns, then it is agreed hereby that the Wife shall take three (3) of the children as exemptions and the Husband shall take two (2) of the children as exemptions, so long as the support outlined in paragraph 13 remains at the aforementioned level.
In paragraph 3 of the 1972 agreement, the parties agreed to carry out fully the terms and conditions of the agreement. The parties also provided in paragraph 6 that “All covenants, promises, stipulations, agreements and provisions herein contained shall apply to, bind, and be obligatory upon the heirs, executors, administrators, personal representatives and assigns of the parties hereto.” The parties further provided in paragraph 20 that the agreement was to be construed in accordance with Virginia law.
On May 10, 1973, Blakey and Bettino (then Sandra A. Blakey) executed an amendment to the 1972 agreement (1973 amendment). The 1973 amendment substituted a new paragraph 13 regarding support of the wife and children but otherwise confirmed, ratified, and incorporated all of the remaining terms, conditions, and provisions of the 1972 agreement. The 1973 amendment made the following changes in paragraph 13: (1) It referred in the first section to the monthly payments as in part for the “support, care and maintenance” of the wife rather than for the “support, maintenance, and alimony” of the wife;2 (2) it increased the monthly amount of support payable to $350 before repayment of the husband's post office loan and to $375 thereafter; (3) it provided that the husband would be entitled to take dependency exemptions for three of the children rather than two in the event that he was unable to deduct all of his monthly payments; and (4) it added that the husband would be entitled to take dependency exemptions for all of the children if the wife was not employed on a full-time basis.
On June 28, 1973, the Circuit Court of Fairfax County, Va., entered a Decree A Vinculo Matrimonii (divorce decree) divorcing Blakey and Bettino (then Sandra A. Blakey). The Circuit Court “Adjudged, Ordered and Decreed” among other things, that “the Property Settlement Agreement dated May 5, 1972 and the Amendment to Property Settlement Agreement dated May 10, 1973 be and are hereby ratified, confirmed and approved by this Court.”
On July 31, 1975, Blakey and Bettino (then Sandra A. Blakey) executed a second amendment to the 1972 agreement (1975 amendment). Like the 1973 amendment, the 1975 amendment substituted a new paragraph 13 regarding support of the wife and children and confirmed, ratified, and incorporated all of the remaining provisions of the 1972 agreement. The 1975 amendment read as follows:
The Husband shall pay to the Wife commencing on the first day of September 1975, for the care, support and maintenance of the minor children of the parties and the support, care and maintenance of the Wife, the total monthly sum of $440.00. Said sum shall be payable in the amount of $220.00 on the first and fifteenth day of each month.
The aforesaid monthly sum shall be reduced by one-sixth ( 1/6) as each child shall attain the age of eighteen (18) years, dies or...
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