Feinberg v. Commissioner of Internal Revenue, 10598.

• Decision Date: 13 August 1952
• Docket Number: No. 10598.,10598.
• Citation: 198 F.2d 260
• Parties: FEINBERG v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

198 F.2d 260 (1952)

FEINBERG v. COMMISSIONER OF INTERNAL REVENUE.

No. 10598.

United States Court of Appeals Third Circuit.

Argued June 2, 1952.

Decided August 13, 1952.

Albert L. Solodar, New York City (Max Wechsler, Philip J. Smith, New York City, on the brief), for petitioner.

Walter Akerman, Jr., Washington, D. C. (Ellis N. Slack, Acting Asst. Atty. Gen., Helen Goodner, Sp. Asst. to the Atty. Gen., on the brief), for respondent.

Before BIGGS, Chief Judge, and KALODNER and STALEY, Circuit Judges.

KALODNER, Circuit Judge.

The question presented is whether certain payments by a taxpayer to his Florida-divorced wife were made pursuant to a written instrument "incident to" a decree of divorce, so as to be deductible from his gross income under Section 23(u) of the Internal Revenue Code.¹

The deductibility of such payments depends upon whether they are includible in the wife's income under Section 22(k),² which provides:

"(k) Alimony, etc., income. In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments * * * received subsequent to such decree in discharge of * * * a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife * * * This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix * * * as a sum which is payable for the support of minor children of such husband. * * *"

The material facts have been stipulated. George J. Feinberg ("taxpayer") and Anna Feinberg were married in 1918 in New York, and were continuously domiciled in that state until 1939. Two children were born of this marriage: Bernice, born in 1920; and Arthur, born in 1922.

On February 10, 1940, after marital difficulties, taxpayer and his wife entered into a separation agreement which provided in part as follows:

"1. * * * it shall be lawful for each of said parties, at all times, to live and continue to live separate and apart from the other * * * as if such parties were sole and unmarried.

* * * * * *

"6. * * * the first party (taxpayer), while the said parties hereto shall both remain alive and so long as the second party shall fully keep and perform the covenants and conditions to be kept and performed by her under this agreement, shall pay to the second party the sum of Three Thousand Nine Hundred ($3900) Dollars per annum in equal weekly installments of Seventy-five ($75) Dollars each, commencing with the date hereof.

* * * * * *

"14. The first party further agrees that in the event the children of the marriage * * * marry and become self-supporting, * * * the alimony to be paid to the second party * * * shall be reduced to Fifty ($50) Dollars per week; * * * in other words, as and when each of the children of the parties hereto marries and becomes self-supporting, the alimony to be paid to the second party shall be reduced Twelve and 50/100 ($12.50) Dollars per week per child.

* * * * * *

"16. * * * in case either party hereto should at any future date and in any jurisdiction, institute suit against the other for a Separation or Divorce, then, and in such event, such party bringing the action shall be obligated to have incorporated in the final Decree in said action the provisions of this agreement.

"17. * * * if, at any future time, the second party shall remarry then, and in such event, all the provisions for maintenance of the second party herein contained shall immediately cease and terminate."

Thereafter, on or about March 21, 1940, taxpayer instituted an action for divorce against his wife in the Circuit Court for the 11th Judicial District of Dade County, Florida. Anna Feinberg did not appear in that action, nor did counsel appear for her; service was by publication only. On May 27, 1940, taxpayer was granted a decree of divorce a vinculo matrimonii by the Florida court. In June, 1940, he married one Frances Finn, in New Jersey, where they now live.

In the year 1941, taxpayer's first wife, Anna Feinberg, instituted an action in the Supreme Court of New York, praying for a declaratory judgment that the Florida divorce decree was null and void and that she was still taxpayer's true and lawful wife. She also alleged that she had been induced to enter into the separation agreement as a result of taxpayer's fraudulent understatement of his earnings and assets, and requested the court to reform the agreement to conform to taxpayer's true financial condition. This action was settled by stipulation of the parties in June, 1942, and pursuant thereto the New York court entered a consent judgment, on November 17, 1942, declaring that Anna Feinberg was taxpayer's true and lawful wife and reforming the separation agreement in accordance with the stipulation of settlement.³

Pursuant to the original agreement of February 10, 1940, taxpayer made payments to Anna Feinberg in each of the taxable years here involved (1942 and 1943) at the rate of $3900 per annum ($75 per week),⁴ and deducted the entire amounts of these payments from his gross income for those years. The deductions were disallowed by the Commissioner of Internal Revenue, and taxpayer petitioned the Tax Court for a redetermination of the resulting deficiency in taxes.⁵ The Tax Court sustained the Commissioner on the ground that taxpayer had not met the burden of proving that the payments were made pursuant to a written instrument "incident to" a decree of divorce or separate maintenance, as required by Sections 23(u) and 22(k) of the Code.⁶

In doing so it stated that "While it appears that petitioner (taxpayer) and his wife (Anna Feinberg) had, prior to the execution of the separation agreement considered a possibility that petitioner (taxpayer) would seek a divorce * * *" such a possibility was insufficient under the applicable law. In support of the latter statement the Tax Court cited its prior ruling in Joseph J. Lerner, 15 T.C. 379, 386 that "* * * the possibility of divorce at some unspecified time is a far different thing from the anticipation of divorce by both parties at the time of the execution of the separation agreement which the statute requires in order that the payments under the separation agreement be considered `incident' thereto."

With respect to the Tax Court's reliance on Joseph J. Lerner, supra, it may be noted that its decision there was reversed by the United States Court of Appeals for the Second Circuit in Lerner v. Commissioner, 1952, 195 F.2d 296, 298. In reversing, the Court specifically held that there was no requirement in Section 22(k) that "* * * both parties jointly and positively anticipated legal divorce or separation at the moment they signed the agreement (for separate maintenance)", and cited its prior ruling to the same effect in Izrastzoff v. Commissioner, 1952, 193 F.2d 625, 627, 628.

We are in complete accord with the view expressed by the United States Court of Appeals for the Second...