Howkins v. Comm'r of Internal Revenue
| Decision Date | 27 March 1968 |
| Docket Number | Docket No. 3563-65. |
| Citation | 49 T.C. 689 |
| Parties | WALTER A. HOWKINS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
David Joseph, for the petitioner.
William F. Chapman, for the respondent.
On Aug. 30, 1949, petitioner entered into an agreement obligating him to make monthly payments to his wife, a nonresident alien, for her support and maintenance. A decree of divorce was subsequently obtained in the United States. Petitioner at all times relevant was a resident alien in the United States. The payments here involved were made by petitioner upon his order, from an account maintained by him with bankers in London. Held, such payments constituted income to petitioner's former wife from ‘sources within the United States' in respect of which petitioner incurred liability as a withholding agent under sec. 1441(a), I.R.C. 1954, and sec. 143(b), I.R.C. 1939.
The Commissioner, pursuant to sections 143(b) and 1441(a) of the Internal Revenue Codes of 1939 and 1954, respectively, determined deficiencies against petitioner in respect of his failure to withhold tax at source on payments of income to a nonresident alien individual for the following years and in the following amounts:
+--------------------+
¦Year ¦Deficiency ¦
+------+-------------¦
¦1950 ¦$168 ¦
+------+-------------¦
¦1951 ¦300 ¦
+------+-------------¦
¦1952 ¦360 ¦
+------+-------------¦
¦1953 ¦360 ¦
+------+-------------¦
¦1954 ¦360 ¦
+------+-------------¦
¦1955 ¦360 ¦
+------+-------------¦
¦1956 ¦360 ¦
+------+-------------¦
¦1957 ¦360 ¦
+------+-------------¦
¦1958 ¦360 ¦
+------+-------------¦
¦1959 ¦360 ¦
+------+-------------¦
¦1960 ¦360 ¦
+------+-------------¦
¦1961 ¦360 ¦
+--------------------+
The question for decision is whether alimony payments made by petitioner, a resident of the United States, to his ex-wife, a nonresident alien, constituted ‘gross income from sources within the United States' where the payments were made from an account maintained by petitioner in England. The facts have been largely stipulated.
Petitioner is, and at all the periods involved herein has been a resident alien in the United States, whose present residence is at R.D. 1, West Redding, Conn.
On August 30, 1949, an agreement was entered between petitioner and his then wife, Lesley Margaret Howkins, a resident of the city and county of Northampton, England. Paragraph Twelfth of that agreement reads as follows:
The husband agrees to pay to the wife, as an allowance for her support and maintenance a minimum net sum of One Hundred Dollars ($100) per month, said payments to be credited to the account of the wife at Westminster Bank Limited, Northampton, England. Such payments for the support and maintenance of the wife shall cease on her death or remarriage.
A final decree of divorce was issued by the Superior Court of Rhode Island on April 10, 1950.
Petitioner, in individual income tax returns filed by him in 1950 and 1951, claimed deductions for alimony payments of $560 and $1,000, respectively. For the years 1952 through 1961, inclusive, petitioner, in joint returns filed with his present wife, Elizabeth P. Howkins, claimed deductions of $1,200 per year, as alimony. All such alimony payments were made by crediting to Lesley Margaret Howkins' account in Westminster Bank Ltd., Northampton, England, payments made, upon petitioner's order, from an account maintained by him with C. Hoare & Co., bankers, of 67 Park Lane, London, England. Although petitioner had claimed deductions for alimony in his own (or joint) income tax returns for each of the years 1950-61, he at no time during any of those years filed the annual return (Form 1042) required in respect of income tax to be paid at source, nor did he ever withhold income tax from the alimony payments made to his former wife.
The following schedule shows petitioner's foreign income (from C. Hoare & Co.) for the years 1953-61, the amount of United Kingdom tax paid on such foreign income, and the amount of foreign tax credit claimed by petitioner for each of these years:
+------------------------------------+
¦ ¦Petitioner's¦U.K. ¦Foreign ¦
+----+------------+-------+----------¦
¦Year¦foreign ¦tax ¦tax credit¦
+----+------------+-------+----------¦
¦ ¦income ¦ ¦ ¦
+----+------------+-------+----------¦
¦1953¦$1,010.22 ¦$430.97¦$281.32 ¦
+----+------------+-------+----------¦
¦1954¦1,838.95 ¦827.53 ¦374.37 ¦
+----+------------+-------+----------¦
¦1955¦1,293.48 ¦549.73 ¦350.25 ¦
+----+------------+-------+----------¦
¦1956¦1,830.42 ¦778.93 ¦493.47 ¦
+----+------------+-------+----------¦
¦1957¦1,787.38 ¦759.64 ¦413.05 ¦
+----+------------+-------+----------¦
¦1958¦1,139.04 ¦484.12 ¦344.75 ¦
+----+------------+-------+----------¦
¦1959¦1,422.68 ¦551.29 ¦370.44 ¦
+----+------------+-------+----------¦
¦1960¦1,882.02 ¦729.28 ¦532.10 ¦
+----+------------+-------+----------¦
¦1961¦1,181.90 ¦393.73 ¦313.22 ¦
+------------------------------------+
During the years 1950-52, petitioner had income from salary in the amounts of $5,600, $12,500, and $11,561.25, respectively. During the years 1953-61 petitioner conducted a wholly owned import-export business, which had reported sales, cost of goods sold, gross profit, expenses and other deductions, and net profit, as follows:
+---------------------------------------------------------------+
¦ ¦ ¦Cost of ¦ ¦Expenses ¦Net profit ¦
+----+----------+----------+------------+----------+------------¦
¦Year¦Sales ¦goods sold¦Gross profit¦and other ¦(or loss) ¦
+----+----------+----------+------------+----------+------------¦
¦ ¦ ¦ ¦ ¦deductions¦ ¦
+----+----------+----------+------------+----------+------------¦
¦1953¦$14,681.33¦$8,723.80 ¦$5,957.53 ¦$4,841.55 ¦$1,115.98 ¦
+----+----------+----------+------------+----------+------------¦
¦1954¦14,355.29 ¦9,074.88 ¦5,280.41 ¦6,046.80 ¦[1] (766.39)¦
+----+----------+----------+------------+----------+------------¦
¦1955¦27,218.95 ¦25,296.17 ¦1,922.78 ¦2,606.16 ¦(683.38) ¦
+----+----------+----------+------------+----------+------------¦
¦1956¦43,619.24 ¦39,245.05 ¦4,374.19 ¦2,421.87 ¦1,952.32 ¦
+----+----------+----------+------------+----------+------------¦
¦1957¦43,590.20 ¦35,871.05 ¦7,719.15 ¦15,219.08 ¦(7,499.93) ¦
+----+----------+----------+------------+----------+------------¦
¦1958¦37,652.03 ¦19,257.08 ¦18,394.95 ¦11,012.15 ¦7,382.80 ¦
+----+----------+----------+------------+----------+------------¦
¦1959¦45,619.32 ¦35,495.74 ¦10,123.58 ¦13,636.95 ¦(3,513.37) ¦
+----+----------+----------+------------+----------+------------¦
¦1960¦51,996.80 ¦32,908.22 ¦19,088.58 ¦15,447.82 ¦3,640.76 ¦
+----+----------+----------+------------+----------+------------¦
¦1961¦13,852.69 ¦10,062.40 ¦3,790.29 ¦6,288.20 ¦(2,497.91) ¦
+---------------------------------------------------------------+
During the years 1952-61 petitioner's present wife was a fashion editor and earned substantial amounts of income. The total amounts of adjusted gross income from all sources and net taxable income (computed after deductions and exemptions), as reported for both spouses on their joint returns for 1952-61, were as follows:
+-------------------------------+
¦ ¦Adjusted ¦Net ¦
+------+-------------+----------¦
¦ ¦gross ¦taxable ¦
+------+-------------+----------¦
¦Year ¦income [2] ¦income ¦
+------+-------------+----------¦
¦1952 ¦$38,950.33 ¦$23,519.25¦
+------+-------------+----------¦
¦1953 ¦27,445.47 ¦19,918.70 ¦
+------+-------------+----------¦
¦1954 ¦18,569.09 ¦11,420.32 ¦
+------+-------------+----------¦
¦1955 ¦32,402.49 ¦24,148.47 ¦
+------+-------------+----------¦
¦1956 ¦34,266.24 ¦23,943.10 ¦
+------+-------------+----------¦
¦1957 ¦24,907.51 ¦16,503.61 ¦
+------+-------------+----------¦
¦1958 ¦37,274.76 ¦29,902.50 ¦
+------+-------------+----------¦
¦1959 ¦31,066.52 ¦22,005.64 ¦
+------+-------------+----------¦
¦1960 ¦38,703.89 ¦27,356.22 ¦
+------+-------------+----------¦
¦1961 ¦34,335.34 ¦24,227.02 ¦
+-------------------------------+
Section 1441 of the Internal Revenue Code 1954,3 like its substantially identical predecessor, section 143(b) of the Internal Revenue Code of 1939, imposes a duty on ‘all persons' having control over certain ‘items of income’ of a nonresident alien to withhold and deduct a tax on such income, but only to the extent that the particular item constitutes ‘gross income from sources within the United States.’ Clearly, petitioner had the requisite control contemplated by the statute over the alimony payments made to his former wife, a nonresident alien, since it has been stipulated that those payments were made from an account maintained by petitioner with bankers in England, at his order. It is equally clear that the alimony payments in question were ‘fixed or determinable annual or periodical gains, profits and income,‘ the catchall provision of section 1441(b), which enumerates the items of income subject to withholding under the statute, Albert R. Gallatin Welsh Trust, 16 T.C. 1398, 1400, affirmed 194 F.2d 708 (C.A. 3), certiorari denied 344 U.S. 821. So much is not disputed by petitioner. Rather, he contends that his income from U.S. sources during the years in issue was insufficient to cover the alimony payments made in those years, and in some years was completely nonexistent; that he did, however, have foreign income from a trust in England which, due to regulations of the Bank of England, could only be used within the United Kingdom, and which in almost every year was in excess of the amounts required to satisfy his obligation...
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