Lester v. Comm'r of Internal Revenue, Docket No. 67540.

• Decision Date: 09 September 1959
• Docket Number: Docket No. 67540.
• Citation: 32 T.C. 1156
• Parties: JERRY LESTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

32 T.C. 1156

JERRY LESTER, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 67540.

Tax Court of the United States.

Filed September 9, 1959.

Louis Mandel, Esq., and Leonard J. Lefkort, Esq., for the petitioner.

John A. Dunkel, Esq., for the respondent.

ALIMONY— DEDUCTION— CHILD SUPPORT— SECS. 23(u) AND 22(k).— Periodic payments made by a divorced husband to his wife not only for her support and maintenance but specifically to include support and maintenance of their three minor children, held not deductible by the husband to the extent that the agreement and decree indicated that they were for the support and maintenance of the minor children.

The Commissioner determined deficiencies in income tax of $7,572.39 for 1951 and $13,761.72 for 1952. The sole issue is whether the Commissioner was correct in determining that a part of payments made by the petitioner to his former wife was for the support of their children and not deductible under section 23(u) of the Internal Revenue Code of 1939.

FINDINGS OF FACT.

The petitioner, herein called Jerry, filed his income tax returns for 1951 and 1952 with the district director of internal revenue, Upper Manhattan, New York.

Jerry and his wife, Ardell, entered into a property settlement agreement on April 16, 1951. The agreement recited that they were married on August 24, 1934, in Los Angeles, California; they had three children, Judy age 13, Joan age 11, and Jay age 9; and Jerry and Ardell were separated and living apart.

Paragraph (d) of the agreement was as follows:

(d) The parties desire by this agreement to settle for all times their respective property rights, interests, duties and obligations with respect to each other, and to arrange by agreement for the making of periodic payments to the wife as and for the maintenance and support for her and the aforesaid children of the parties, in discharge of the husband's legal obligations arising out of, or in connection with the marital and family relationship between the parties, whether or not a divorce or decree of separation may hereafter be granted in favor of either of the parties hereto against the other.

The agreement recited that a suit for separate maintenance by Ardell was pending against Jerry in the Superior Court of the State of California.

It was agreed ‘that the welfare and best interests of the minor children of the parties hereto are of paramount concern and interest to the parties,‘ both the husband and wife were fit and proper persons to ‘have the care, custody and control of the children’ but such care, custody, and control would be given to the wife, subject to the petitioner's reasonable right of visitation and the right to have the children stay with him for 30 days during the summer vacation.

Paragraph 11 of the agreement is, in part, as follows:

11. The husband agrees to pay the wife for the support and maintenance of herself and the children of the parties, namely, JUDY LESTER, JOAN LESTER and JAY LESTER, the following amounts commencing with the effective date of this agreement (as said term is hereinafter defined in subdivision (j) of the Article 11);

(a) For the period ending December 31, 1951, a sum equal to 50% of the husband's gross income commencing with the effective date of this agreement, but not in excess of a total sum of $50,000.

(b) For the calendar year immediately following the period set forth in subdivision (a) hereof, a sum equal to 25% of the husband's annual gross income during said period of one year, but not in excess of a total sum of $45,000.

(c) For the calendar year immediately following the period set forth in subdivision (b) hereof, a sum equal to 25% of the husband's annual gross income during said period of one year, but not in excess of a total sum of $45,000.

(d) For each year immediately following the period set forth in subdivision (c) hereof, a sum equal to 20% of the husband's annual gross income during each such year, but not in excess of that sum each year which, after the payment of all income taxes assessable upon the wife with respect to the amounts thus paid to the wife shall equal $15,600.

(f) In addition to the payments above provided the husband agrees to pay for any extraordinary and unusual medical and dental expenses and fees incurred with respect to any of the children of the parties so long as they are minors and are not emancipated.

(i) All payments herein specified shall cease upon the death of the husband or the wife or upon the remarriage of the wife, whichever shall first occur. It is expressly agreed that the wife shall not have any claim against the estate of the husband, should he predecease her, for any sums payable hereunder, except such sums as may have been due and payable to her pursuant to the terms hereof prior to his death. In the event that any of the children of the parties hereto shall marry, become emancipated, or die, then the payments herein specified shall on the happening of each such event be reduced in a sum equal to one-sixth of the payments which would thereafter otherwise accrue and be payable in accordance with the terms and provisions hereof.

A California court on April 27, 1951, entered an interlocutory judgment of divorce between Jerry and Ardell, which ratified, confirmed, and approved the agreement of April 16, 1951, and set forth the substance of the provisions of the above-quoted paragraph 11. It ordered the petitioner to commence making the payments provided in the agreement 1 day after the entry of the decree. It also provided that the petitioner and Ardell were to remain husband and wife until the entry of the final judgment of divorce 1 year after the entry of the interlocutory judgment. A final judgment of divorce was entered November 5, 1952, in the action in the California court. The petitioner made periodic payments totaling $23,000 in 1951 and $39,500 in 1952, pursuant to the agreement of April 16, 1951. Ardell resided in California during 1951 and 1952.

Jerry deducted the full amounts of the payments for each year. The Commissioner in determining the deficiency for each year disallowed one-half of each deduction and explained:

It is held that $11,500.00 of the $23,000.00 claimed as alimony payments for the taxable year 1951 and $19,750.00 of the $39,500.00 claimed as alimony payments for the taxable year 1952 do not constitute deductions allowable under the provisions of section 23(u) of the 1939 Internal Revenue Code and the corresponding sections of the regulations.

OPINION.

MURDOCK, Judge:

The issue for decision is whether Jerry is entitled to a deduction under section 23(u) but the answer must be sought in section 22(k) of the Internal Revenue Code of 1939. Section 23(u), as applicable to the taxable years 1951 and 1952, provides that a husband may deduct amounts which are includible in the income of his wife under section 22(k) if paid within his taxable year. Section 22(k), as applicable to the taxable years, provides insofar as material hereto, that a wife who is divorced from her husband under a decree of divorce shall include in her gross income periodic payments received subsequent to such decree in discharge of a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce. It further provides that the subsection shall not apply ‘to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband.’

The intention of Congress in enacting these provisions was to allow the husband to deduct alimony payments and to require the wife to report alimony payments as income. Congress did not intend to allow the husband deductions for amounts supplied by him to be expended in support of his minor children. Section 24(a)(1) expressly provides that no deduction shall be allowed in any case in respect of ‘(p)ersonal, living, or family expenses, except extraordinary medical expenses deductible under section 23(x).’ The obligation to support his minor children is imposed upon the husband by law and cannot be escaped by him through any agreement with his wife, whether incident to divorce or otherwise. However, Congress provided that the part of any periodic payment made by a husband to the wife which would not be taxable to the wife would only be such ‘part of any such periodic payment...