Johnson v. Comm'r of Internal Revenue, Docket No. 12749.
| Citation | 10 T.C. 647 |
| Decision Date | 20 April 1948 |
| Docket Number | Docket No. 12749. |
| Parties | ROBERT WOOD JOHNSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Petitioner separated from his wife in 1926. At that time he asked her to obtain a divorce and offered to pay her $16,000 yearly for her maintenance and support, plus $4,000 for the maintenance and support of their minor son. She refused the request and offer. Petitioner made further efforts in 1927 to induce his wife to procure a divorce and agree to a proposed financial arrangement for maintenance and support. In 1928 petitioner became engaged to be married, contingent upon his wife's obtaining a divorce. In 1928 petitioner offered to pay his wife $50,000 a year for maintenance and support. Negotiations on the basis of this offer were concluded in 1929. In the latter year petitioner obligated himself in writing to pay $30,000 annually to his wife in an unsegregated amount for the maintenance and support of her and their minor son. He also established a trust fund for her benefit, estimated to yield an additional $20,000. These financial provisions were made on the wife's verbal assurance that she would obtain a divorce. She procured a divorce. Pursuant to such obligations petitioner paid his wife $30,000 in each of the years 1942 and 1943. Held, the obligation in question was incident to divorce as provided in section 22(k), Internal Revenue Code, and that the payments thereunder in the years involved are deductible by petitioner under section 23(u), Internal Revenue Code. Paul F. Myers, Esq., Martin W. Meyer, Esq., and Kenneth Perry, Esq., for the petitioner.
A. H. Monacelli, Esq., for the respondent.
The respondent determined a deficiency in petitioner's income and victory tax for the calendar year 1943 in the amount of $33,536.39. The issue arises out of deductions claimed by petitioner on his 1943 and 1943 income tax returns in the amount of $30,000 for each year. However, due to the forgiveness feature of the Current Tax Payment Act of 1943, the deficiency relates only to the latter year. Because of certain adjustments made by respondent on petitioner's 1943 tax return, he claims an overpayment of approximately $600.
The sole question for our determination is whether the agreement of September 5, 1929 providing $30,000 periodic annual payments to petitioner's divorced wife, was executed incident to divorce in accordance with section 22(k), Internal Revenue Code.
The petitioner filed his income tax returns for the period here involved with the collector of internal revenue for the fifth district of New Jersey at Newark.
The record consists of a stipulation of facts, testimony, and exhibits. The facts as stipulated are so found.
FINDINGS OF FACT.
Petitioner resides at Rosedale Road, Princeton, New Jersey.
On October 18, 1916, petitioner married Elizabeth Ross. A son, Robert Wood Johnson, Jr., was born to them on September 9, 1920. Sometime during August 1926 petitioner and Elizabeth separated. During that month petitioner asked her for a divorce. At the same time petitioner offered to provide $16,000 a year for her maintenance and support and $4,000 a year for the support of their son during minority. These proposed financial arrangements were conditioned upon and in contemplation of Elizabeth instituting proceedings for divorce. They were rejected by petitioner's wife on the ground that the proposed financial arrangements were inadequate.
During September 1926 petitioner discussed with Elizabeth's lawyer the possibility of her obtaining a divorce in Paris and the amount Elizabeth would require for maintenance and support. The attorney would not agree either to a Paris divorce or to the amount petitioner believed sufficient for Elizabeth's maintenance and support. There were further negotiations between petitioner and Elizabeth during 1927. Petitioner, during this time, increased the amount of his offer for her maintenance and support. No agreement thereon resulted.
During May 1928, while petitioner was in Paris, he became engaged to Margaret Shea. Their marriage was contingent upon his obtaining a divorce from Elizabeth.
Sometime during 1928 petitioner offered to pay Elizabeth $35,000 annually for her maintenance and support. She refused the offer. In October 1928 petitioner agreed to pay Elizabeth $50,000 annually, payment to be made each month.
For the purpose of showing Elizabeth that his offers for her maintenance and support were fair, petitioner, during 1928, showed her an itemized list of maintenance and other expenses as follows:
+---------------------------------+
¦Furniture and fixtures ¦$1,000.00¦
+-----------------------+---------¦
¦Household wages ¦8,494.20 ¦
+-----------------------+---------¦
¦Telephone and telegraph¦401.98 ¦
+-----------------------+---------¦
¦Heat, light and power ¦3,949.21 ¦
+-----------------------+---------¦
¦Household miscellaneous¦5,704.45 ¦
+-----------------------+---------¦
¦Farm wages ¦9,152.28 ¦
+-----------------------+---------¦
¦Farm miscellaneous ¦462.44 ¦
+-----------------------+---------¦
¦Repairs to equipment ¦37.50 ¦
+-----------------------+---------¦
¦Repairs to buildings ¦3,824.61 ¦
+-----------------------+---------¦
¦Automobile wages ¦1,440.00 ¦
+-----------------------+---------¦
¦Oil, gas ¦913.08 ¦
+-----------------------+---------¦
¦Tires and tubes ¦377.05 ¦
+-----------------------+---------¦
¦Automobiles—repairs ¦1,500.00 ¦
+-----------------------+---------¦
¦Miscellaneous expenses ¦91.94 ¦
+-----------------------+---------¦
¦Repairs roads ¦544.22 ¦
+-----------------------+---------¦
¦Uniforms ¦150.00 ¦
+-----------------------+---------¦
¦Seeds, plants ¦608.90 ¦
+-----------------------+---------¦
¦Mrs. Johnson ¦12,000.00¦
+-----------------------+---------¦
¦Freight and express ¦31.76 ¦
+-----------------------+---------¦
¦Water ¦112.50 ¦
+-----------------------+---------¦
¦Automobiles licenses ¦129.00 ¦
+-----------------------+---------¦
¦Total ¦50,925.12¦
+---------------------------------+
Certain other items were added to this list at Elizabeth's request. These brought the total of the expenses paid by petitioner to roughly $56,000.
Negotiations continued after October 1928, which were concerned with the method of payments and what provision should be made to guarantee payments. Such matter as trust funds and insurance policies were discussed.
During August 1929 there were negotiations leading to a final arrangement with respect to divorce and Elizabeth's maintenance and support. Petitioner's attorney wrote him on August 8, 1929, of a conversation with Elizabeth's lawyer concerning the proposed agreement and divorce. The letter mentioned that Elizabeth's attorney wanted petitioner to understand that:
* * * the execution of these agreements by Mrs. Johnson would not be conditioned upon or in consideration of any promise or agreement on her part to institute a divorce proceeding, and that Mrs. Johnson will be absolutely free to do so or not to do so, as she sees fit. * * *
The letter further stated:
Mr. Faulks (Elizabeth's attorney) told me sometime ago that, in his opinion, you deserted Mrs. Johnson several years ago, although thereafter you and she lived under the same roof for successive limited periods of time, and I understood that he had advised Mrs. Johnson that a right of action on the ground of desertion accrued to her sometime ago. On August 5th, he told me that he intended to advise Mrs. Johnson not to proceed until June, 1930, two years subsequent to the time that you moved to Princeton in June 1928. Mr. Faulks said, as noted above, that Mrs. Johnson intends to institute a divorce proceeding, but so many new circumstances might intervene between now and next June, that I question the wisdom of executing these agreements at this time. While there is no agreement between you and Mrs. Johnson that she will institute divorce proceedings, nevertheless you are influenced in executing the agreements by the hope and expectation that she will do so. Her present intention may be relied upon by you with reasonable safety, but a present intention upon which action will be postponed for ten months is quite different.
On September 5, 1929, petitioner agreed in writing to pay $30,000 a year to Elizabeth for her maintenance and support and the maintenance and support of their son. That instrument contained no specific designation of the portion allocable to the support of the child. In addition he executed, on the same date, another agreement setting up a $400,000 irrevocable trust fund for Elizabeth's partial separate maintenance and for the partial support of the son during minority. The total annual amount payable to Elizabeth under both instruments was estimated at $50,000. The instrument giving Elizabeth $30,000 per year during her life provided in part as follows:
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