Howard v. Comm'r of Internal Revenue , Docket No. 4948-67.

• Decision Date: 27 April 1970
• Docket Number: Docket No. 4948-67.
• Citation: 54 T.C. 855
• Parties: LUCILLE HOWARD, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

54 T.C. 855

LUCILLE HOWARD, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4948-67.

United States Tax Court

Filed April 27, 1970.

Robert O. Rogers, for the petitioner.

J. Patrick McElroy, for the respondent.

In 1944, petitioner's former husband Vince Nelson, who was in the U.S. Army, instituted a suit for divorce in the Circuit Court of St. Lucie County, Fla., and on the basis of allegations in his complaint, inter alia, that he was unable to ascertain her place of residence, the court allowed service by publication on petitioner and granted him a decree of divorce. In September 1944, she learned of the divorce. In 1947, she married again and for more than 20 years took no positive steps to restore the marriage or claim any marital rights through legal proceedings. Between 1950 and 1961, Nelson acquired several parcels of land in Florida and during 1965, he entered into a contract to sell a portion of the property for $322,350. The purchaser questioned the validity of Nelson's divorce decree and requested a release of petitioner's dower right as a condition to closing of the sales contract. An oral agreement was reached between petitioner and Nelson whereby she agreed to join in the deed for $30,000 in cash and two waterfront lots having a combined value of $10,000. The sales transaction was closed on Apr. 19, 1965. At that time, Nelson was in dire need of a substantial amount of cash because a mortgage foreclosure suit against him involving the land to be sold and other property owned by him was scheduled to be held on Apr. 19, 1965. Held, petitioner has failed to prove that Nelson's divorce decree was invalid and, therefore, she had no inchoate dower right in his land to release in April 1965. Accordingly, the $40,000 in question constitutes ordinary taxable income to her under sec. 61, I.R.C. 1954.

WITHEY, Judge:

Respondent determined a deficiency in petitioner's income tax for the taxable year 1965 in the amount of $12,362.65.

The sole issue presented for our consideration is whether the two lots valued at $5,000 each and the cash amount of $30,000 received by petitioner on April 19, 1965, from Vince Nelson for signing her name to a deed constituted a nontaxable payment for her inchoate right of dower or taxable income under section 61, I.R.C. 1054.¹

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The facts reflected in the exhibits received in evidence are incorporated herein by reference.

Lucille Howard, hereinafter sometimes called petitioner, filed her Federal income tax return for the year 1965 with the district director of internal revenue, Jacksonville, Fla. Petitioner was born in Lockport, N.Y., and raised in Pennsylvania and New York. At the time of filing of her petition, she resided at Juno Beach, Fla.

On May 6, 1942, petitioner married Vince Nelson, hereinafter sometimes referred to as Nelson. On August 15, 1944, Nelson instituted a suit for divorce against petitioner in the Circuit Court of St. Lucie County, Fla. In his bill of complaint, Nelson alleged, inter alia:

that diligent search and inquiry has been made to discover the place of residence of the Defendant and that the same is set forth herein as particularly as is known to Complainant. That the Defendant is above twenty-one years of age, and that there is no person in Florida upon whom service of process would bind said Defendant.

In an affidavit attached to this bill of complaint, Nelson stated that he had read the complaint and its contents were true. Nelson obtained service of process in the divorce proceeding upon petitioner by publication.

On September 22, 1944, the circuit judge rendered a final decree of divorce upon Nelson's complaint.² When Nelson obtained this divorce, he was in the U.S. Army and petitioner had not been living with him.

Nelson notified the Armed-Service Forces that he had obtained a divorce from petitioner. The U.S. Army, Office of Dependency Benefits, mailed a family-allowance form to petitioner notifying her that as of September 30, 1944, the allotment payment to her was discontinued and the reason given for this action was ‘soldier divorced.’

Petitioner was notified by the U.S. Army that her allotment had been terminated at Lake Park, Fla.

After petitioner learned that Nelson had obtained a divorce, she did not attempt to restore the marriage through legal proceedings.

In November of 1947 at Folkston, Ga., petitioner entered into a ceremony of marriage with Edgar Charles Kingsbury. Thereafter, she filed a complaint for divorce against Kingsbury in the Circuit Court, Palm Beach County, Fla., and under oath alleged that she and Kingsbury were ‘lawfully married to each other on or about the 24th day of November 1947 at Folkston, Georgia, and thereafter lived and co-habited as man and wife until on or about September 1, 1949, when the parties separated.’ A final decree of divorce of this marriage was entered by the court on December 15, 1949.

Nelson was a reclusive person who preferred the wilderness of Florida to modern civilization. Between 1950 and 1961, he acquired several large parcels of land near the Loxahatchee River in Martin County, Fla. In September 1960, he obtained a $100,000 loan at 10- percent annual interest from George W. Offutt III, giving in return a mortgage on this land. It was a loan for 5 years without any provision for amortization.

During the year 1965, Nelson entered into a sales contract for a portion of the property (214.9 acres) with Bessemer Properties, Inc., for $322,350.

In the course of examining the title to the property, the purchaser's attorney became aware of the foregoing facts relating to petitioner's marriage to Nelson, including the fact that Nelson had obtained a divorce from her by mail and publication, i.e., without personal service on petitioner, in Fort Pierce, Fla., and determined in his opinion that there was a question as to the validity of the divorce. Bessemer then requested a release of dower as a condition to closing. An agreement, which was not reduced to writing, was eventually reached between petitioner and Nelson whereby she agreed to join in the deed for a consideration of $30,000 in cash and two waterfront lots having a combined value of $10,000. Prior to this time, she had not claimed any rights in any other land owned by Nelson. In connection with this proceeding, she incurred and paid attorney fees in the amount of $4,000.

The transaction involving the sale of land to Bessemer was closed on April 19, 1965. The amount of $30,000 in cash was paid to petitioner at the time of closing and was designated in the buyers-sellers closing statement as ‘Paid Lucille Howard for release of dower.’ At the same time, she received by deed the two waterfront lots mentioned above.

The deed of conveyance to Bessemer dated April 19, 1965, states that the grantors were ‘Vince Nelson, joined by Lucille Nelson Howard, formerly Lucille Nelson, the wife of said Vince Nelson.’ In the warranty deed dated April 19, 1965, in which Nelson conveyed the two waterfront lots to petitioner, each of them is designated therein as ‘a single adult.’

A mortgage foreclosure proceeding was instituted against Nelson on December 11, 1964, relating to the property to be sold to Bessemer, together with other property owned by Nelson. The mortgage foreclosure sale was to be held on April 19, 1965, the same date as the closing between Nelson, Lucille, and Bessemer. The outstanding balance of the mortgage at that time was $114,412.60.

After paying off all indebtedness against the land sold to Bessemer, including $30,000 paid to Lucille ‘for release of dower,‘ Nelson received a net payment of $63,323.15.

Nelson died in 1968 while a resident of Martin County, Fla. Probate proceedings have been instituted and petitioner has filed a claim for dower therein.

In his notice of deficiency, respondent determined that petitioner realized ordinary income in the amount of $40,000 from ‘a transaction relative to clearing of title to land’ which she failed to report on her income tax return for the taxable year 1965. Respondent allowed a deduction in the amount of $4,000 from the $40,000 involved herein as legal expense incurred by petitioner in this transaction.

OPINION

Respondent contends that the $30,000 in cash and the two waterfront lots valued at $5,000 each received by petitioner from her former husband Vince Nelson on April 19, 1965, for signing her name to a deed constitute taxable income to her under section 61 of the 1954 Code and the correlative regulations.³ Essentially, it is respondent's position that petitioner was validly divorced from Nelson in 1944 and, consequently, she had no inchoate dower rights in his land to release upon the sale thereof to Bessemer more than 20 years after this divorce. Petitioner, in opposition, claims that the Nelson divorce was invalid because of fraudulent constructive service of the divorce complaint on her and, therefore, she still had her inchoate dower rights which she released in 1965 for the $40,000 in controversy which constitutes nontaxable income.

Respondent's determination is, of course, prima facia correct and the burden is on petitioner to demonstrate error therein. For reasons hereinafter discussed, we do not believe that she has sustained her burden of proof.

Preliminarily, we note there is no dispute herein that under a valid divorce decree and in accordance with a property settlement agreement incorporated therein, any real estate or other property transferred by a husband to his wife in consideration for a discharge of her dower rights is generally not taxable to her. Rev. Rul. 67-221, 1967-2 C.B. 63. See United States v. Davis, 370 U.S. 65 (1962), which holds that under present administrative practice, a payment for the release of marital rights is not considered a taxable event as to the wife.

It has long been settled under Florida law that a decree of divorce based...