Hoffman v. Comm'r of Internal Revenue , Docket No. 5906-67.
| Decision Date | 12 August 1970 |
| Docket Number | Docket No. 5906-67. |
| Citation | 54 T.C. 1607 |
| Parties | ALLEN HOFFMAN AND PEARL S. HOFFMAN, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Leslie R. Bishop and Charles P. Kocoras, for the petitioners.
Bert L. Kahn, for the respondent.
Petitioner and her former husband entered into an agreement, contemporaneous with the entry of a decree of divorce, pursuant to which the petitioner received periodic payments for permanent alimony and child support. Held: Under Illinois law, any ‘legal obligation’ of the petitioner's former husband with respect to the payment of alimony was terminated upon the petitioner's remarriage. Therefore, the payments in question are not includable in petitioner's income under sec. 71(a)(1), I.R.C. 1954.
The respondent determined that there was a deficiency in the income tax due from the petitioners for the taxable year 1963 in the amount of $456.97. This determination was based on two adjustments, namely (1) the inclusion of $1,690 received by petitioner Pearl S. Hoffman from her former husband, George R. Chamlin, and (2) the disallowance of $67.60 of the claimed medical expense deduction due to the increased medical expense limitation occasioned by the first adjustment.
The only issue presented for decision is whether $1,690 paid to petitioner Pearl S. Hoffman in 1963 by George R. Chamlin, her former husband, was received by her in discharge of a legal obligation imposed on George R. Chamlin within the meaning of section 71(a)(1), I.R.C. 1954,1 and therefore includable in her gross income.
An additional issue arising from the medical expense adjustment is entirely dependent on the outcome of the major issue defined above.
The facts have been stipulated. The stipulation of facts and exhibits thereto are incorporated herein by this reference.
Petitioners Pearl S. Hoffman (hereinafter referred to as petitioner) and Allen Hoffman (hereinafter referred to as Hoffman), husband and wife, were legal residents of Skokie, Ill., at the time their petition was filed. They filed a joint income tax return for 1963 with the district director of internal revenue at Chicago, Ill.
Petitioner, whose maiden name was Silver, and George R. Chamlin (hereinafter referred to as Chamlin) were married on November 23, 1943. Two children, both girls, were born of said marriage, being: Lynn Chamlin, born June 2, 1945; and Sherry Chamlin, born October 7, 1948.
In 1950, petitioner instituted divorce proceedings against Chamlin in the Superior Court of Cook County, Ill. (which was subsequently merged into the Circuit Court of Cook County).
On July 13, 1951, petitioner and Chamlin entered into a memorandum of agreement (hereinafter referred to as the agreement) incident to the contemplated divorce. After noting that divorce proceedings had been initiated, the agreement provided in pertinent part that:
WHEREAS, the parties hereto have come to an amicable agreement concerning the disposition of certain proprietary rights arising out of the said marital relationship heretofore existing between them and are mutually desirous (sic) of reducing the same to written form;
NOW, THEREFORE, it is mutually covenanted and agreed by and between the parties hereto as follows:
1. It is mutually covenanted and agreed by and between the parties hereto that all articles of household furniture, furnishings and fixtures owned by the parties hereto and located at 20 South Central Avenue, Chicago, Illinois, shall be and remain the sole and separate property of the wife.
2. It is mutually covenanted and agreed by and between the parties that the wife shall have the sole custody, care and education of the minor children of the parties herein, to-wit: LYNN CHAMLIN and SHERRY CHAMLIN, and the Husband shall have reasonable rights of visitation.
3. The Husband agrees to pay to the Wife the sum of $32.50 each and every week as and for permanent alimony and permanent child support of the minor children herein.
4. The Wife covenants and agrees that she will and she hereby waives, remises and relinquishes any and all right, title or interest which she now has or might hereafter assert, in and to any property of the Husband, real, personal or mixed, of whatever nature and wheresoever situated, by reason of the marital relationship heretofore existing between them, or for any other cause including dower, homestead, and any and all other rights which arose as between the parties by virtue of the marital relationship heretofore existing between them as aforesaid, except alimony, which she does not waive.
5. The Husband covenants and agrees that he will and he does hereby waive, remise and relinquish any and all right, title or interest which he now has or might hereafter assert, in and to any property of the Wife, real, personal or mixed, of whatsoever nature and wheresoever situated, by reason of the marital relationship heretofore existing between them, or for any other cause including, but not limited by alimony, support, dower, homestead, attorneys' fees and court costs, and any and all other rights which arose as between the parties by virtue of the marital relationship heretofore existing between them as aforesaid.
9. The Husband further agrees that he will make the minor children of the parties herein, namely LYNN CHAMLIN and SHERRY CHAMLIN, irrevocable beneficiaries of a certain life insurance policy in the sum of Ten Thousand ($10,000.00) Dollars, Northwestern Mutual Life Insurance Co. No.
10. * * * This agreement shall be subject to the approval of the Chancellor hearing the above designated cause, and shall be included verbatim or by reference in any decree of divorce and shall become effective simultaneously with the entry of any such decree.
A ‘Decree for Divorce’ (hereinafter referred to as the divorce decree), dissolving the bonds of matrimony between petitioner and Chamlin, was granted by the Superior Court of Cook County on July 23, 1951. The divorce decree characterized the agreement as a property settlement agreement. It then recited the provisions of the agreement and made orders with respect to these provisions. The language of the divorce decree remained unchanged as December 31, 1963 (the end of the taxable year in question). The divorce decree stated in part that:
IT IS FURTHER ORDERED, ADJUDGED AND DECREED, that the defendant pay to the plaintiff the sum of $32.50 each and every week as and for permanent alimony and permanent child support of the minor children herein.2
On June 19, 1953, petitioner married Hoffman and remained married to him as of December 31, 1963. After petitioner remarried, Chamlin continued making the weekly payments of $32.50 to petitioner. Prior to January 1, 1963, Chamlin had knowledge of petitioner's remarriage. During the calendar year 1963, he made the aforesaid weekly payments to petitioner in the total amount of $1,690 (52 x $32.50).
Chamlin deducted the aforesaid amount of $1,690 on the 1963 Federal income tax return he filed. Upon audit of Chamlin's 1963 return in August of 1964, the deduction was allowed. The revenue agent who conducted the audit was not aware of petitioner's remarriage and believed that ‘Hoffman’ was her maiden name.
None of the said $1,690 was included by the petitioner and Hoffman on their 1963 joint Federal income tax return.
In this case, petitioner and Chamlin entered into a memorandum of agreement incident to a contemplated divorce. The agreement, in pertinent part, required Chamlin to pay petitioner $32.50 a week as permanent alimony and permanent child support of the minor children of the couple. The divorce decree recited the provisions of the agreement and then made orders with respect to these provisions.
It has been observed numerous times that section 71(a)(1) makes no reference to alimony and that, as a consequence, the characterization given payments by State law is not controlling in determining their Federal income tax consequences, see, e.g., Laughlin's Estate v. Commissioner, 167 F.2d 828 (C.A. 9, 1948); Ada M. Dixon, 44 T.C. 709(1965). The foundation of section 71 is not the decree itself but the ‘legal obligation’ which is made specific by the instrument or decree. The pertinent part of that section provides that:
SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
(a) GENERAL RULE.—
(1) DECREASE OF DIVORCE OR SEPARATE MAINTENANCE.— If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such decree in discharge of * * * a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation.
The petitioner contends that the existence of a ‘legal obligation’ depends upon State law and that, pursuant to Illinois law, Chamlin was relieved of any obligation to support or pay alimony to the petitioner upon her remarriage. Consequently, such payments do not meet the conditions of section 71(a)(1).
The petitioner's argument is predicated on Ill. Rev. Stat., ch. 40, sec. 19(1956), which provides, in part, as follows:
A party shall not be entitled to alimony and maintenance after remarriage; but, regardless of remarriage by such party or death of either party, such party shall be entitled to receive the unpaid instalments of any settlement in lieu of alimony ordered to be paid or conveyed in the decree. * * *
Respondent contends that the ‘legal obligation’ requirement of section 71(a) (1) is not an obligation dependent on the enforceability under local law of each individual payment, but rather is a Federal standard using the phrase ‘legal obligation’ in the sense of the general obligation to support arising from the marital or family relationship. On this basis, respondent further contends that...
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