Delehanty v. Commissioner

• Decision Date: 04 August 1977
• Docket Number: Docket No. 2769-75.
• Parties: Edward J. Delehanty and Margaret Delehanty v. Commissioner.
• Court: U.S. Tax Court

36 TCM (CCH) 1034

1977 TC Memo 255

T.C. Memo. 1977-255.

Edward J. Delehanty and Margaret Delehanty v. Commissioner.

Docket No. 2769-75.

United States Tax Court.

Filed August 4, 1977.

Godfrey L. Munter, Jr., Alcoa Bldg., One Maritime Plaza, San Francisco, Calif., for the petitioners. Edward B. Simpson, Jr., and Rebecca T. Hill, for the respondent.

Memorandum Findings of Fact and Opinion

SIMPSON, Judge:

The Commissioner determined a deficiency of $5,164.00 in the petitioners' Federal income tax for 1972. The sole issue for decision is whether periodic payments made by the petitioner Edward J. Delehanty to his former wife were deductible alimony payments pursuant to the provisions of sections 215 and 71 of the Internal Revenue Code of 1954.¹

Findings of Fact

Some of the facts have been stipulated, and those facts are so found.

The petitioners, Edward J. Delehanty and Margaret Delehanty, husband and wife, resided in or about Boston, Mass., at the time of filing their petition in this case. They filed a joint Federal income tax return for 1972. Edward J. Delehanty will sometimes be referred to as the petitioner.

In 1967 and prior thereto, the petitioner was married to Dorothea Barbara Delehanty (Dorothea). Incident to marital difficulties, on August 30, 1967, the petitioner and Dorothea entered into a separation agreement. Their purpose in executing such agreement was to effect a final and complete settlement of all their rights, including property rights, and to provide for Dorothea's future support and for the custody and support of the couple's four children. Paragraph 9 of such agreement provided in relevant part:

9. PERIODIC PAYMENTS:

Husband agrees to make periodic payments to Wife for her support and maintenance, and from which she agrees to support and educate our minor children. These payments shall be in the amount of $1,150.00 per month and shall be payable on the 15th day of each month starting September 15, 1967. Husband and Wife agree that these sums payable shall be reduced by the amount of twenty-five percent (25%) of the original amount upon the reaching of the 21st birthday, marriage, emancipation or death of each or any of the four children of our marriage. Each of us agrees that the periodic payments to be made by Husband to Wife shall not be subject to modification except as expressly hereinabove stated; this provision shall not be subject to modification or revocation by death or remarriage of Husband, or remarriage of Wife. The payments herein-above specified shall be reduced in the amount of eighty percent (80%) of the original amount should Wife die prior to September 15, 1977 * * * Neither of us shall apply for an order of modification or revocation under the provisions of Section 139 of the Civil Code of California of any order for support based on this paragraph. Husband specifically undertakes the obligation to assist and otherwise contribute to the expense of college education of each of the children of the parties.

The agreement further provided that it should survive an interlocutory judgment of divorce, or a judgment of separate maintenance, and that its effectiveness should not depend upon approval of a court.

Subsequent to the execution of such separation agreement, the petitioner commenced divorce proceedings against Dorothea in the Superior Court for the County of Los Angeles, Calif.; Dorothea filed a cross-complaint, and the petitioner defaulted. On July 3, 1969, an interlocutory judgment of divorce was granted to Dorothea upon her cross-complaint. The interlocutory decree provided in relevant part:

GEORGE M. STEPHENSON 215 United California Bank Building 413 West Seventh Street San Pedro, Calif. 90731 Tel. TErminal 2-6461 Attorney for Defendant and Cross-Complainant SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES EDWARD JOHN DELEHANTY, Plaintiff and Cross-Defendant v. DOROTHEA BARBARA DELEHANTY Defendant and Cross-Complainant No. SO D 29312 INTERLOCUTORY JUDGMENT OF DIVORCE (Default on Cross-Complaint) * * *

2. The Separation Agreement dated August 30, 1967 * * * having a has been been sic examined by the Court, are hereby approved and the executory provisions thereof ordered performed.

3. In accordance with the provisions of paragraph 9 of the Separation Agreement, Cross-defendant is ordered to pay to cross-complainant for the support and maintenance of each of the minor children of the parties the sum of $287.50 per month, being a total of $1,150.00, said amounts to be payable on the 15th day of each month commencing July 15, 1969 and continuing thereafter until the twenty-first birthday, marriage, emancipation or death of each of any of the four minor children of the marriage, upon which event the sum payable for the support of said minor child shall cease.

4. In accordance with the provisions of Paragraph 3 of the Addendum to the Separation Agreement, which Addendum is dated November 26, 1967, Cross-defendant is ordered by way of additional support of the minor children to maintain the Medical and Hospitalization Insurance now in effect through his employment, for the benefit of the minor children until the twenty-first birthday, marriage, emancipation or death of each or any of said minor children, whichever event occurs first.

a Italics indicate handwritten insertions, and the bracketed material was stricken.

Each deletion and each handwritten insertion was initialed "MC"; the decree was entered by Judge McCarry of the Superior Court. On July 17, 1969, upon the petitioner's motion, the court entered a final judgment of divorce, which incorporated the provisions of the interlocutory decree.

During the calendar year 1972, the petitioner paid to Dorothea the sum of $1,150 each month for a total of $13,800. The petitioners deducted such amount on their joint return for 1972, and the Commissioner disallowed such deduction in his notice of deficiency.

Opinion

The petitioner contends that he is entitled to deduct the payments made by him to his former wife in 1972 under the provisions of section 215. Such section allows a husband to deduct amounts includable under section 71 in the gross income of his former wife. Under the general rule of section 71, the wife's gross income includes periodic payments received in discharge of a legal obligation imposed on a husband under a decree of divorce or separate maintenance (sec. 71(a)(1) and (3)) or under a written separation agreement (sec. 71(a)(2)). However, section 71(b) provides that this general rule "shall not apply to that part of any payment which the terms of the decree, instrument, or agreement fix, in terms of an amount of money or a part of the payment, as a sum which is payable for the support of minor children of the husband." Consequently, the deductibility of the petitioner's payments turns on whether such payments were "fixed" as for child support within the meaning of section 71(b).

In Commissioner v. Lester 61-1 USTC ¶ 9463, 366 U.S. 299 (1961), the Supreme Court held that the term "fix," as used in the predecessor of section 71(b), meant that the agreement must expressly specify a sum certain or percentage of the payment for child support, and that even though the Court could infer that the parties intended for a particular portion of the payment to be for child support, such inference did not justify shifting the liability for tax on such portion to the husband. The petitioner contends that as the separation agreement did not specifically designate any portion or amount as child support, periodic payments made by the husband pursuant to such agreement were deductible by him under the rule announced in Lester. The Commissioner does not seriously dispute the petitioner's construction of the separation agreement; however, he argues that the terms of the divorce decree, which "fix" the entire payment as child support, are dispositive of the issue before us.

Generally, integrated property settlement agreements are highly favored under California law. Makzoume v. Makzoume, 50 Cal. App. 2d 229, 123 P. 2d 72 (1st Dist. Ct. App. 1942). The provisions of such an agreement are valid and binding on the parties (Cal. Civ. Code sec. 4802 (West 1970) (formerly Cal. Civ. Code sec. 159 (West 1954)); Kamper v. Waldon, 17 Cal. 2d 718, 112 P. 2d 1, 2-3 (1941); Hunter v. Hunter, 170 Cal. App. 2d 576, 339 P. 2d 247, 250-251 (2d Dist. Ct. App. 1959); Nicholas v. Nicholas, 110 Cal. App. 2d 349, 242 P. 2d 679, 681 (2d Dist. Ct. App. 1952)), and unless expressly disapproved by the court, the agreement survives a decree of divorce (Makzoume v. Makzoume, 123 P. 2d at 73; Brown v. Brown, 83 Cal. App. 74, 256 P. 595, 600 (3d Dist. Ct. App. 1927)). However, the parties may not, by their agreement, limit the power of the court in a proper proceeding to make any order necessary for the custody and support of their children.² Cal. Civ. Code sec. 4811(a) (West 1970) (formerly Cal. Civ. Code sec. 139 (West 1954)); Krog v. Krog, 32 Cal. 2d 812, 198 P. 2d 510, 512 (1948); Hunter v. Hunter, 339 P. 2d at 250-251; Allen v. Allen, 138 Cal. App. 2d 706, 292 P. 2d 581, 583 (1st Dist. Ct. App. 1956); Nicholas v. Nicholas, 242 P. 2d at 681; Metson v. Metson, 56 Cal. App. 2d 328, 132 P. 2d 513, 515 (1st Dist. Ct. App. 1942). Thus, the Superior Court had the authority, despite the agreement of the parties, to make provision for the support of their children, and it exercised such authority. The decree of such court imposed an obligation on the petitioner to make payments for the support of his children, and the payments made by him in 1972 discharged that obligation. Under such circumstances, we hold that the payments come within the terms of section 71(b) and are not deductible by him. Carle v. Commissioner Dec. 30,066, 54 T.C. 827, 830-831 (1970); Siegert v. Commissioner Dec. 29,415, 51 T.C. 611, 617 (1969); Thomson v. Commissioner Dec. 26,903, 42 T.C. 825, 833 (1964), affd. 65-1 USTC ¶ 9333 sub n...