Gammill v. Comm'r of Internal Revenue
| Decision Date | 28 February 1980 |
| Docket Number | Docket Nos. 9578-75,9602-75,9955-75. |
| Citation | 73 T.C. 921 |
| Parties | MARJORIE J. GAMMILL, et al., v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held: A $250,000 money judgment entered against the husband in a decree of divorce was part of a property settlement and not in the nature of support. Therefore, the payments are neither includable in the wife's gross income under sec. 71(a)(1), I.R.C. 1954, nor deductible by the husband under sec. 215(a), I.R.C. 1954. Held, further, sec. 483, I.R.C. 1954, imputed interest provision not applicable to property settlements incident to divorce. Fox v. United States, 510 F.2d 1330 (3d Cir. 1975), followed. George F. Saunders, for the petitioner in docket No. 9578-75.
Gene A. Castleberry, for the petitioners in docket Nos. 9602-75, 9955-75.
D. Michael Adcock, for the respondent.WILES, Judge:
Respondent determined the following deficiencies in petitioners' Federal income taxes:
+-------------------------------------------------------------------+
¦Taxpayer ¦Docket No. ¦Year ¦Deficiency ¦
+----------------------------------+------------+------+------------¦
¦ ¦ ¦ ¦ ¦
+----------------------------------+------------+------+------------¦
¦Marjorie J. Gammill ¦9578-75 ¦1971 ¦$4,351.00 ¦
+----------------------------------+------------+------+------------¦
¦ ¦ ¦1972 ¦4,458.20 ¦
+----------------------------------+------------+------+------------¦
¦ ¦ ¦1973 ¦4,348.00 ¦
+----------------------------------+------------+------+------------¦
¦John S. Gammill ¦9602-75 ¦1971 ¦5,211.00 ¦
+----------------------------------+------------+------+------------¦
¦ ¦ ¦1972 ¦4,205.98 ¦
+----------------------------------+------------+------+------------¦
¦John S. Gammill and Betty Milliren¦9955-75 ¦1973 ¦6,253.00 ¦
+-------------------------------------------------------------------+
The issues for decision are: (1) Whether payments received by Marjorie J. Gammill from her former husband, John S. Gammill, are includable in her gross income under section 71(a)(1)2 and, therefore, are deductible by John S. Gammill under section 215(a); and (2) whether John S. Gammill is entitled to deductions for imputed interest under section 483 if the payments he made to Marjorie J. Gammill are determined to be in satisfaction of a property settlement. As to both issues, respondent is a mere stakeholder in this case.
Some of the facts have been stipulated and are found accordingly.
Marjorie J. Gammill and John S. Gammill resided in Oklahoma City, Okla., when they filed their 1971, 1972, and 1973 Federal income tax returns with the Internal Revenue Service Center, Austin, Tex., and when they filed their petitions in this case.3
Marjorie J. and John S. Gammill were married on February 23, 1946, and two children were born of the marriage. In April 1970, Marjorie commenced an action in the District Court for Oklahoma County, State of Oklahoma, seeking a divorce from John, the custody of their minor son, an equitable division of the property, and an alimony award. On April 21, 1970, the court ordered John to pay $1,000 a month for Marjorie's living expenses pending the divorce proceedings. On May 8, 1970, the court reduced the temporary support from $1,000 to $500 and ordered John to pay the utility bills and the mortgage on the family residence in which Marjorie continued to reside. On November 5, 1970, the court granted Marjorie a divorce from John and filed a “Decree of Divorce and Journal Entry of Judgment” (hereinafter divorce decree).
Neither John nor Marjorie had any separate property of substantial value at the time of their marriage, and the record does not indicate that either party had any separate property at the time of their divorce. Therefore, all the assets they had at the time of their divorce were acquired jointly during the course of their marriage. John owned 942,294 of the 2,508,176 outstanding shares of stock of Reserve National Insurance Co. (hereinafter Reserve National), a corporation he formed in 1956. The office building occupied by Reserve National was also titled in John's name. Marjorie, though never having made any payments on the mortgage on the family residence, held a legal interest therein which was quitclaimed to John upon divorce. No other property was legally held in Marjorie's name at the time of the divorce.
Marjorie's contribution toward the marriage was essentially that of housewife and mother. She never finished high school and had not been employed outside the home while married to John. Furthermore, her contribution to the success of Reserve National was minimal.
During the divorce proceedings, the parties neither agreed to the value of the property acquired during their marriage, nor agreed that either would get a certain percentage of the property. Marjorie believed, however, that she was entitled to one-half the property the couple acquired during the course of their marriage. Her attorney valued the estate to be divided at $811,261, broken down as follows:
In contemplation of the divorce, Marjorie and John executed an instrument entitled “Property Settlement Agreement” (hereinafter agreement). Marjorie and John entered into the agreement with the advice of their attorneys. With respect to the $250,000 money judgment against John, the agreement provided as follows:
6. Second Party (John) is to pay to First Party (Marjorie), by way of further division of property and not as alimony, the sum of $250,000 which shall be incorporated in the decree as a judgment. (Emphasis added.)
The agreement was approved and made a part of the divorce decree by order of the District Court, which found that it fully and fairly divided the marital estate. The portions of the divorce decree which incorporated the paragraph of the agreement pertaining to the $250,000 money judgment at issue in this case read as follows:
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the property settlement agreement entered into by and between the parties on this date is hereby approved and made a part of this Decree, and that as a part of the property and assets set over to the plaintiff as provided by said Contract, that plaintiff is granted judgment against the defendant in the sum of $250,000.00 the same to be payable at the defendant's option, without interest, in equal monthly installments of $1,041.47 for a period of 240 months with the right of pre-payment of same. That said judgment shall be secured by a judgment lien against 300,000 shares of stock of the defendant in Reserve National Insurance Company, the same representing a portion only of the stock in said insurance company, owned by the defendant.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that in the event that defendant should die or become and remain in default upon the payments due on this judgment for more than 30 days, then this entire judgment shall become due and payable in full, and in addition to the collateral provided for above, that plaintiff shall have all other remedies provided by law against the defendant or his estate, successors or assigns, for collection of said judgment.
(Emphasis added.)
Both the agreement and the divorce decree provided that the judgment lien on John's Reserve National stock was to be released annually as to 15,000 shares of such stock unless he defaulted in the payment of the installments due during the preceding year or as to a proportionate number of shares of such stock if he prepaid any part of the judgment.
In addition to the $250,000 money judgment payable, at John's option, by lump sum or in installments over a maximum of 20 years, Marjorie received the following assets valued by her attorney as follows:
The office building transferred to Marjorie was subject to a lease with Reserve National. The lease had 5 years remaining at a monthly rent of $1,600. Under the lease, Reserve National had to maintain the building in good repair, pay the utilities, and carry liability insurance on the building. The total value of the money judgment and the assets Marjorie received under the agreement was $417,000, or approximately one-half the entire estate as valued by her attorney.
Under the agreement, John received the family residence, subject to a mortgage, along with the furnishings therein and “all of those assets accumulated since the date of the marriage save and except those specifically * * * set aside to” Marjorie. As such, John retained ownership of the 942,294 shares of Reserve National stock.
OPINIONThe first issue for decision is whether payments received by Marjorie from her former husband, John, are periodic payments in the nature of support or part of a property settlement. If the payments are...
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