Kent v. Comm'r of Internal Revenue

• Decision Date: 31 October 1973
• Docket Number: Docket No. 657-72.
• Citation: 61 T.C. 133
• Parties: GEORGE B. KENT, JR., AND SANDRA JO KENT, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

61 T.C. 133

GEORGE B. KENT, JR., AND SANDRA JO KENT, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 657-72.

United States Tax Court

Filed October 31, 1973.

Sheldon Mitchell, for the petitioners.

Harry Beckhoff, for the respondent.

Pursuant to a divorce decree, H made monthly payments of $600 to W in the year 1969. The decree provided that the payments were to be made for a period of 54 months. The decree did not expressly or implicitly subject the payments to any of the contingencies of death of either spouse, remarriage, or change in the economic status of either spouse. Held: The payments are nondeductible installment payments under sec. 71 (c)(1), I.R.C. 1954. Mere mathematics will ascertain a principal sum specified in the decree. Held, further, under the facts herein, our decision in Jack E. Golsen, 54 T.C. 742 (1970), is not applicable. Held, further: Arizona law does not impose any contingencies on the payments from H to W. Under Arizona law the payments are characterized as an award of alimony in gross and as such are not subject to modification by means of Ariz. Rev. Stat. Ann. sec. 25-321.

FAY, Judge:

Respondent determined a deficiency in petitioners' Federal income tax for the taxable year ending December 31, 1969, in the amount of $4,369.

The sole issue presented for our determination is whether amounts paid by petitioner George B. Kent, Jr., to his former wife, pursuant to a divorce decree, qualify as periodic payments within the provisions of section 71(a)(1) of the Internal Revenue Code of 1954,¹ and are therefore deductible by him under section 215.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.

Petitioners George B. Kent, Jr., and Sandra Jo Kent, husband and wife, resided in Scottsdale, Ariz., at the time their petition was filed. They filed a joint Federal income tax return for the calendar year 1969 with an office of the Internal Revenue Service. Any reference to ‘petitioner’ hereinafter shall be deemed to mean George B. Kent, Jr.

Prior to April 4, 1967, petitioner was married to Jeanne Diane Kent (hereinafter sometimes referred to as Jeanne).

On or as of March 30, 1967, petitioner and Jeanne, fully represented by counsel, executed a Property Settlement Agreement (agreement) pursuant to divorce proceedings instituted by Jeanne in the Superior Court of the State of Arizona in and for the County of Maricopa. This agreement recites, in pertinent part:

5. * * * that there is no other contract, oral or in writing, existing between the parties hereto relative to the matters herein contained and that all agreements and understandings between the parties are embodied in this Agreement; * * *

On April 4, 1967, Jeanne obtained a Judgement and Decree of Divorce in the aforesaid action which approved and incorporated the agreement of March 30; 1967. The decree provided, inter alia, for a distribution of property, child support, and support and alimony for Jeanne. Specific to the matter herein are the following provisions:

IT IS FURTHER ORDERED, ADJUDGED AND DECREED, Pursuant to said Property Settlement Agreement, that the defendant shall pay to the plaintiff, through the Clerk of the Superior Court of Maricopa County, Arizona, the following sums:

(b) For a period up to and including the 1st day of September, 1971, the sum of $600.00 per month as and for alimony and the support of the plaintiff, payable one-half thereof, or the amount of $300.00 on the 1st day of each month, then a like amount on the 15th day of each month, with the first payment commencing on the 1st day of April, 1967.

(c) After the 1st day of September, 1971, all alimony payments provided for herein and hereunder are to cease and the defendantS responsibility for said alimony shall abate and extinguish as of and subsequent to said date.

In 1969, pursuant to the decree, petitioner made 12 monthly payments of $600 each to Jeanne for alimony and support. On his Federal income tax return for said year, petitioner claimed as a deduction for alimony, under section 215, the amount of $7,500.²

Jeanne remarried in October 1970 and petitioner, upon notification of the marriage, felt he was no longer obligated to comply with the decree. He thereupon deducted the amount he had paid in October for alimony to Jeanne from the next-due child support payment and thereafter ceased making payment of the alimony award.

Up to and through the date of trial herein, Jeanne has not instituted proceedings in the appropriate court for recovery of the past due amounts.

In his notice of deficiency, dated October 29, 1971, respondent disallowed the claimed deduction for alimony for the year 1969.

OPINION

Section 215 allows the husband to deduct amounts which are paid to the wife during his taxable year and which are includable in her gross income by virtue of section 71. In pertinent part section 71 provides:

SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.

(a) GENERAL RULE.—

(1) DECREE 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 (or attributable to property transferred, in trust or otherwise, 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.

PRINCIPAL SUM PAID IN INSTALLMENTS.—

(1) GENERAL RULE.— For purposes of subsection (a), installment payments discharging a part of an obligation the principal sum of which is, either in terms of money or property, specified in the decree, instrument, or agreement shall not be treated as periodic payments.

Petitioner contends that the payments in dispute constitute periodic payments within the meaning of section 71(a)(1). Respondent, on the other hand, maintains that the payments are installment payments as described in section 71(c)(1) and, hence, are not to be considered periodic for purposes of section 71(a).

Specifically, petitioner argues that although provisions of the decree recite a monthly sum payable for an exact term of less than 10 years,³ from which the gross amount may be determined by mathematical computation, the fact that the total sum is not expressly stated precludes classification of the payments as installment payments under section 71(c)(1). In the alternative, petitioner maintains that even if the payments are initially determined to be installment payments within the general rule of section 71(c)(1), they qualify under the exception specified in section 1.71-1(d)(3)(i) and (ii), Income Tax Regs.,⁴ and, thus, should properly be treated as periodic payments.

We discuss petitioner's initial contention first.

It has long been this Court's view that there is no material difference between a decree where a total amount payable is so stated and one where it is necessary to multiply the payments by a period certain in order to determine the principal sum specified. Estate of Frank P. Orsatti, 12 T.C. 188 (1949); Frank R. Casey, 12 T.C. 224 (1949); Harold M. Fleming, 14 T.C. 1308 (1950). ‘there is at best only a formal difference between such a decree and one where the total amount is expressly set out.’ Estate of Frank P. Orsatti, supra at 192.

The decree herein provides for a $600 per month payment for 54 months. If we assume, arguendo, that the payments are not subject to any of the contingencies of death of Jeanne or petitioner, remarriage of Jeanne, or change in the economic status of either spouse (any one of which could serve to alter the aggregate amount of the payments), then it is clear that mere mathematics ($600X54) will ascertain an exact principal sum ($32;400) specified in the decree. See sec. 1.71-1(d)(5), example (3), Income Tax Regs. We are not persuaded by petitioner's argument that a literal compliance with section 71(c) (1) precludes multiplication and accordingly we hold that his initial contention must fail.

Notwithstanding the above, petitioner cloaks himself in the Ninth Circuit Court of Appeals' decision of Myers v. Commissioner, 212 F.2d 448 (C.A. 9, 1954), which reversed a Memorandum Opinion of this Court. Petitioner maintains that by virtue of our decision in Jack E. Golsen, 54 T.C. 742 (1970), affd. 445 F.2d 985 (C.A. 10, 1971), certiorari denied 404 U.S. 940 (1971), a decision in the matter before us is controlled by Myers. We disagree.

The Myers controversy originated in this Court (a Memorandum Opinion of this Court dated Nov. 28, 1952) with the issue the same as presented herein—periodic payments vs. installment payments. The property settlement agreement therein provided for payments of $250 per month for a period of 6 years, whether the wife remarried or not. The taxpayer in Myers argued in this Court that the payments were subject to a contingency based on survival of both spouses.⁵ However, the Tax Court held that the word ‘obligation,‘ used in section 22(k) of the Internal Revenue Code of 1939, included obligations subject to contingencies where those contingencies had not arisen and had not voided the obligation during the taxable year. See J.B. Steinel, 10 T.C. 409 (1948). The contingency of death was therefore not a factor considered.

The Court of Appeals for the Ninth Circuit reversed our Myers decision in 212 F.2d 448 (C.A. 9, 1954), but no statement as to the contingency issue was put forth.⁶ The court stated:

No principal sum was specified in the seventh paragraph of the agreement of June 1, 1945. Therefore the 24 payments mentioned above were not installment payments discharging a part of an obligation the principal sum of which was so specified. * * * (Fn. omitted.)

Notwithstanding that the Ninth...