Gale v. Commissioner of Internal Revenue, 87

• Decision Date: 24 July 1951
• Docket Number: Docket 21703.,No. 87,87
• Citation: 191 F.2d 79
• Parties: GALE v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. GALE.
• Court: U.S. Court of Appeals — Second Circuit

191 F.2d 79 (1951)

GALE v. COMMISSIONER OF INTERNAL REVENUE.

COMMISSIONER OF INTERNAL REVENUE v. GALE.

No. 87, Docket 21703.

United States Court of Appeals Second Circuit.

Argued May 2, 1951.

Decided July 24, 1951.

Thomas N. Tarleau, Sandow Holman, New York City, for petitioner-respondent.

Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson and Harry Baum, Special Assts. to the Atty. Gen., Charles Oliphant, Washington, D. C., for the Commissioner.

Before L. HAND, CHASE and FRANK, Circuit Judges.

CHASE, Circuit Judge.

These two petitions, which were argued together, raise two questions. The first is whether, when the modification in 1944 of a New York decree of divorce increased for the future, and for part of the past, the periodic payments of alimony originally decreed to the petitioning taxpayer, the additional alimony received for the preceding years is taxable as income to the divorced wife in the year of its receipt under § 22(k) of the Internal Revenue Code, 26 U. S.C.A. § 22(k). The second is contingent upon the answer to the first, and is whether if such payments for the preceding years are not taxable to the wife she may deduct the reasonable attorneys' fees she was required to pay to obtain the modification. The Tax Court held that these payments were taxable as income of the divorced wife and that the attorneys' fees were deductible by her. Both the taxpayer and the Commissioner petitioned for review, the petition of the Commissioner, however, being filed only as a matter of precaution, for he is supporting the judgment of the Tax Court and seeks no modification provided the taxpayer's liability is left undisturbed.

The facts are not in dispute. The taxpayer and her husband were residents of New York when, in May, 1940, they executed a separation agreement in contemplation of an action for divorce to be instituted by the wife. This agreement, which provided for the payment by the husband to the wife of $666.67 a month, was to survive a decree of divorce and was to continue until she died or remarried. This amount was subject to adjustment for any year in which the husband's net income exceeded $28,000, and the husband was bound in each year to make available to his wife his income tax return for the preceding year. The taxpayer obtained a divorce from him in the state court in November, 1940, and the decree was later amended to provide for the payment of alimony to her in accordance with the provisions of the separation agreement. In 1941, the taxpayer received additional payments from her divorced husband for the year 1940, but, despite their efforts, they were unable to agree upon her claims for 1941 and 1942. In 1943 she brought suit in the state court on the separation agreement and, when that suit was dismissed on jurisdictional grounds, applied to that court for a modification of the alimony provisions of the decree of divorce. In this she was successful and the decree was amended to provide for the payment of alimony to her on and after July 1, 1944, at the rate of $1500 a month. It also required that, for each of the years 1941, 1942, 1943, and for the first six months of 1944, additional alimony be paid to her, amounting in all to $24,000, in six equal monthly installments of $4000 beginning July 1, 1944. As a result, she received in 1944 the sum of $19,000 as additional alimony for the years 1941, 1942, and 1943. In her return for 1944 she failed to include this $19,000 but did deduct $4,000 which she paid to her attorneys as their fee for obtaining it for her. The Commissioner determined a deficiency by including the $19,000 in her gross income for 1944 and by disallowing the deduction of the attorneys' fee. The Tax Court affirmed after a modification allowing the attorneys' fee to be deducted.

Decision as to the taxability of the $19,000 turns upon the construction to be given § 22(k), I.R.C. That subsection was enacted, as its legislative history shows,¹ to make certain types of alimony payments taxable to the recipient, and, under the provisions of § 23(u), 26 U.S.C.A. § 23(u), deductible by the payor. It did this by limiting such payments to those made under, and subsequent to, a decree of divorce, or of separate maintenance, or under a written instrument incident to such a divorce or separation. Daine v. Commissioner, 2 Cir., 168 F.2d 449, 4 A.L.R.2d 248; Van Vlaanderen v. Commissioner, 3 Cir., 175 F.2d 389. It further limited them to what were called "periodic" payments, whether or not made at regular intervals. But it excluded from such "periodic...