Newman v. Comm'r of Internal Revenue

• Decision Date: 11 July 1977
• Docket Number: Docket No. 6435—74.
• Citation: 68 T.C. 494
• Parties: BLEMA NEWMAN, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

68 T.C. 494

BLEMA NEWMAN, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6435—74.

United States Tax Court

Filed July 11, 1977.

Pursuant to a decree of divorce entered July 3, 1967, petitioner was awarded $66,550, payable in 121 monthly installments of $550 each. The payments commenced May 1, 1967, the date specified by the court in its findings of fact and conclusions of law issued in the proceedings. Failing to meet the requirements of sec. 71(c), the payments were not alimony. After extensive litigation in the Ohio courts, a nunc pro tunc judgment was eventually entered correcting the original decree to provide payments commencing on July 3, 1967. Held, the cases requiring strict compliance with the formalistic requirements of sec. 71(c) do not debar the application of Johnson v. Commissioner, 45 T.C. 530 (1966), recognizing for Federal income tax purposes the effect of a nunc pro tunc order relating to child support. Johnson v. Commissioner, supra, followed. Robert M. Lustig, for the petitioner.

James E. Dunn, Jr., for the respondent.

WILBUR, Judge:

Respondent determined deficiencies in petitioner's Federal income tax for the calendar years 1968, 1969, and 1970 in the amounts of.$1451.41, $1535.89, and $1507.40, respectively. Petitioner received $6600 in each of the years 1968, 1969, and 1970 from her former husband pursuant to a 1967 divorce decree. We must decide whether these amounts were installment payments in discharge of a principal sum and thus nontaxable to petitioner under section 71(c)(1), ¹ or whether, under a 1973 nunc pro tunc court entry retroactively correcting the original decree, such payments represent periodic payments taxable to petitioner under section 71(a).

FINDINGS OF FACT

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

Blema Newman, petitioner herein, resided in Cleveland, Ohio, at the time the petition in this case was filed. For the years 1968, 1969, and 1970, petitioner timely filed her individual Federal income tax returns with the Internal Revenue Service Center in Cincinnati, Ohio.

Petitioner and Jerry I. Newman were married on September 3, 1943. On December 2, 1966, petitioner filed a complaint for divorce with the Common Pleas Court of Stark County, Ohio. Separate findings of fact and conclusions of law were made in the divorce action on April 3, 1967, by the Common Pleas Court. The court also made the following order:

(16) It will be the order of the Court that beginning May 1, 1967, the defendant pay to the plaintiff as and for permanent alimony the sum of $400.00 per month for a period of five years and $350 per month for a period of fifteen years thereafter. Provided, however, that said alimony shall terminate upon the remarriage of plaintiff, or upon her gainful employment in any month in which she earns in excess of $350.00 gross income.

This above order regarding alimony payments was not included in the schedule of the assets and liabilities (and their distribution) attached as part of the April 3, 1967, findings and conclusions.

On June 26, 1967, pursuant to a motion for reconsideration filed by Blema Newman, the Common Pleas Court filed supplemental findings of fact and conclusions of law. These supplemental findings altered the April 3, 1967, findings of fact in pertinent part as follows:

(23) Item (16) will be stricken from the ‘Separate Findings.’

(24) In addition to the other provisions of these orders, the Plaintiff will be granted, by way of alimony, the sum of $66,000, payable at $550 per month without interest, provided that delinquent installments shall carry interest at 7% per annum. These payments will begin May 1, 1967.

(27) The Court will expect a Journal Entry, conforming to these Opinions, to be provided to the Court by July 3, 1967. In the event counsel are unable to agree upon an Entry, the Court will prepare its own Entry or sign such Entry as is prepared by either counsel, consistent with these orders.

On July 3, 1967, the Common Pleas Court entered a divorce decree granting petitioner a divorce from her husband, Jerry I. Newman. In addition to the allocation of various assets and liabilities between Blema Newman and Jerry I. Newman, the court in a separate paragraph required that alimony be paid to petitioner in the following manner:

It is further ordered, adjudged and decreed that plaintiff be granted the sum of Sixty-Six Thousand Five Hundred Fifty Dollars ($66,550.00) as gross alimony, payable at the rate of Five Hundred Fifty Dollars ($550.00) per month without interest. Delinquent installments, however, shall bear interest at the rate of seven per cent (7%) per annum. Payments on this award shall begin May 1, 1967. * * * (Emphasis added.)

Concurrently with the entry of the divorce decree, the Common Pleas Court filed the following memorandum explaining the basis for its order regarding the alimony payable to the petitioner herein:

Apropos the Memorandum of the Court, dated June 26, 1967, let it be clearly understood that the Order of the Court, fixing provisions for alimony (Item 24), was made upon the mistaken interpretation of the Internal Revenue Code that an order of ten years would qualify for alimony deduction to the Payor and income inclusion to the Payee. The Court has been advised that his understanding of the law is incorrect and that periodic payments in excess of ten years is (sic) required.

The Court will, therefore, approve a Journal Entry providing for the increase in the gross alimony, sufficient to provide for minimal, periodic requirements of the Internal Revenue Service.

Petitioner's counsel in the divorce proceeding was not involved in the preparation of the July 3, 1967, divorce decree. Moreover, neither petitioner nor her counsel in the divorce action had any prior knowledge of the modification to which the Common Pleas Court referred in its July 3, 1967, memorandum, i.e., that the principal sum (labeled gross alimony in the divorce decree) payable in monthly installments of $550 was being changed from $66,000 (120 months) to $66,550 (121 months). Petitioner's former husband actually commenced payment pursuant to the divorce decree July 5, 1967, by paying the first three installments due petitioner under the divorce decree of July 3, 1967, in one check dated July 5, 1967, covering the months of May, June, and July 1967.

A considerable amount of litigation regarding the decree of divorce ensued. Petitioner's former husband initiated the litigation on January 3, 1972, when, in an ex parte proceeding, he secured a nunc pro tunc judgment entry which attempted to backdate the effective date of the July 3, 1967, order of the Common Pleas Court to May 1, 1967. In issuing this January 3, 1972, nunc pro tunc judgment, the Common Pleas Court stated, in part:

This nunc pro tunc entry is entered on the records to correct the judicial records insofar as they fail to record or improperly record the judgment heretofore entered in this cause.

Petitioner appealed the January 3, 1972, nunc pro tunc judgment entry to the Court of Appeals for Stark County, the Fifth Appellate District of Ohio (hereinafter the Court of Appeals). The Court of Appeals vacated this nunc pro tunc judgment entry on September 5, 1972, finding no authority under Ohio law for the backdating of the divorce decree.

Petitioner's former husband filed a second motion with the Common Pleas Court for an order nunc pro tunc with regard to the July 3, 1967, judgment entry. This motion was denied December 22, 1972. Subsequently, on February 27, 1973, the former husband filed a third motion for nunc pro tunc relief, which motion was denied by the Common Pleas Court. The Court of Appeals reversed the denial of this third motion for nunc pro tunc relief by the Common Pleas Court. The Court of Appeals explained its position in a memorandum opinion issued September 13, 1973, as follows:

In its memorandum refusing relief, the trial court erroneously expressed the view that it was without power to do so because of a previous judgment of this court which held that the July 3, 1967 judgment could not be made to speak effective as of May 1, 1967.

We did not hold that the trial court could not have corrected its entry nunc pro tunc as of July 3, 1967. Indeed it could have done so because that was the date when the entry was in truth and fact first filed with the Clerk for journalization.

There is no question about the merits of this case, for the trial court expressly declared in writing that the alimony payments were intended to be a tax deduction for the husband and income taxable to the wife who received them.

Therefore, we will enter final judgment which the trial court should have entered correcting nunc pro tunc that portion of the July 3, 1967 judgment entry heretofore entered in Court of Common Pleas in this cause in the limited particular that that portion of the judgment entry dealing with alimony payments shall provide, instead of the present provision, that the ‘defendant, Jerry I. Newman shall pay to the plaintiff, Blema W. Newman, alimony at the rate of $550.00 per month commencing on July 3, 1967 and continuing at the rate of $550.00 per month for a period of 121 months, so that 121 monthly payments of $550.00 each shall have been paid.’

This cause will be remanded to the Court of Common Pleas, Division of Domestic Relations, for execution of the final judgment herein entered nunc pro tunc to be effective July 3, 1967.

Petitioner's appeal to the Supreme Court of Ohio from the nunc pro tunc relief granted by the Court of Appeals was not successful.

Petitioner received the amount of $6600 per year during each of the years 1968, 1969, and 1970, from her former husband pursuant to the 1967 divorce decree. Petitioner included no part of the $6600 in her reported gross income for any of these 3 years. Respondent, in the statutory...