Blumenthal v. Commissioner of Internal Revenue
| Decision Date | 27 June 1950 |
| Docket Number | No. 10080.,10080. |
| Citation | 183 F.2d 15 |
| Parties | BLUMENTHAL v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Herbert W. Reisner, Philadelphia, Pa. (Sanford D. Beecher, Duane, Morris & Heckscher, Philadelphia, Pa., on the brief), for petitioner.
MaryHelen Wigle, Washington, D. C. (Theron Lamar Caudle, Assistant Attorney General, Ellis N. Slack, A. F. Prescott, Special Assistants to the Attorney General, on the brief), for respondent.
Before GOODRICH, McLAUGHLIN and KALODNER, Circuit Judges.
The issue presented by this petition for review of the decision of the Tax Court is whether premiums paid by the taxpayer on insurance policies on his own life for the irrevocable benefit of his divorced wife are deductible from gross income under Section 23(u) of the Internal Revenue Code, 26 U.S.C.A. § 23(u). This section of the Code permits a husband to deduct from gross income amounts includible under Section 22(k), 26 U.S.C.A. § 22(k), in the gross income of his wife, payment of which is made in the husband's taxable year. Section 22(k) is set out in pertinent part in the margin.1
The facts as found by the Tax Court2 may be stated as follows:
The taxpayer and his wife, Sara, entered into a written agreement of separation on February 14, 1936, Sara having begun divorce proceedings in New York prior thereto. The agreement provided, inter alia, for the payment of $100 per week to Sara for her support and maintenance until her death or lawful remarriage. The ninth paragraph of the agreement provided that "For the purpose of securing to the wife during the lifetime of the husband of the weekly sums hereinabove provided * * *" the taxpayer would assign certain salaries, dividends and bonuses which might become due to him. The tenth paragraph of the agreement provided that "For the purpose of further securing and protecting the wife in the payments to be made to her for her sole support, as herein provided, in the event of the death of the husband, and in consideration of her waiving all right and interest under and pursuant to the decedent estate law of the State of New York, and/or the State of Pennsylvania, or otherwise, in the property, real and personal, of which the husband may die seized or possessed * * *", the taxpayer would, in effect, cause his wife to be made irrevocable beneficiary of certain of the taxpayer's life insurance policies for her life or until her remarriage, in order to provide payment by the insurance companies of income or principal not exceeding $5200 per annum until her death or remarriage, in which event the principal or income would be distributed in such manner as the taxpayer should direct. The taxpayer agreed to maintain the premiums on the policies and to execute and deliver in escrow necessary papers which would permit his wife to obtain loans on the policies solely for the purpose of paying overdue premiums. The policies were to be delivered to a trust company as custodian, to be held for the purposes set forth in the agreement.
On May 4, 1936, the taxpayer's wife was granted a divorce. The decree3 adopted substantially the provisions of the written agreement of February 14, 1936. It may also be noted that in paragraph 15 of the written agreement, the parties released and discharged each other "from all claims and causes of action which they have had or have other than payments and causes of action" provided for in the agreement, and that this provision was not affected by the judicial decree.
There is no dispute that the taxpayer incurred an obligation because of the marital or family relationship, that it was written and incident to the divorce, and that, insofar as we are here concerned, the obligation was further imposed upon him by the divorce decree. The Commissioner therefore allowed the taxpayer a deduction for the taxable year involved, 1945, in the amount of $5200, representing the weekly payments of $100 to his former wife required by the writing and the decree. But he disallowed a deduction in the amount of $2,244.63 which represented insurance premiums paid by the taxpayer under the conditions of the writing and the decree. The Tax Court agreed with the Commissioner, one judge dissenting.4
The taxpayer contends that the amount paid as premiums on the life insurance policies are includible in the gross income of his former wife under Section 22(k) of the Code, and hence are deductible from his gross income under Section 23(u). This conclusion is premised upon the argument that the premium payments were periodic payments made pursuant to the decree of divorce, and were constructively received by the taxpayer's divorced wife since they were made for her irrevocable benefit. Nevertheless, the Commissioner has taken the position that the extent of the taxpayer's obligation to his divorced spouse is $5200 per annum until her death or remarriage, and that the insurance premiums were not "received" by her because the insurance itself was merely security for the continued performance of the obligation after the taxpayer's death in the manner that the assignment of his salary, for example, is security for the performance of that same obligation during his lifetime. More briefly, the Commissioner's contention is that the payments on account of the insurance were not alimony or in the nature of alimony.
Reliance is placed by the taxpayer on Estate of Hart v. Commissioner, 1948, 11 T.C. 16, and Stewart v. Comm., 1947, 9 T.C. 195. Neither, however presents an analogous issue in the background of the case sub judice. We see no need of digressing to a discussion of "constructive receipt", nor do we find it necessary to delineate all the conditions under which payment of insurance premiums by a divorced spouse, pursuant to a decree of divorce or a written instrument incident to a divorce, may be deductible from his gross income.5
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...we concluded in Brodersen that the wife did not have a taxable economic benefit. See Harold Ostrov, supra. In Blumenthal v. Commissioner, 183 F.2d 15 (C.A. 3, 1950), affirming 13 T.C. 28 (1949), and Florence H. Griffith, 35 T.C. 882 (1961), the decisions, even though they deal with circumst......
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...Charles; then it must be held that the sums applied to pay premiums do not come within section 22(k). Meyer Blumenthal, 13 T. C. 28, affd. 183 F. 2d 15; Halsey W. Taylor, 16 T. C. 376; F. Ells worth Baker, 17 T. C. 1610, 1615, affirmed on this issue (C. A. 2) 205 F. 2d 369; William J. Gardn......
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...this very important contingency. We think this was enough to preclude deduction of payments no matter when made. See Blumenthal v. Commissioner, 3 Cir., 1950, 183 F.2d 15. B. By the terms of the agreement the husband was to furnish a new car to the wife each year. He claims $500 for a car i......
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Brodersen v. Comm'r of Internal Revenue , Docket No. 3471-70.
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