Piel v. Commissioner, Docket No. 89480.
| Decision Date | 31 December 1963 |
| Docket Number | Docket No. 89480. |
| Citation | 1963 TC Memo 346,22 TCM (CCH) 1818 |
| Parties | Gerard Piel and Eleanor Jackson Piel v. Commissioner. |
| Court | U.S. Tax Court |
Eleanor Jackson Piel, for the petitioners. John B. Murray, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency in 1957 income tax in the amount of $577.17. The issue is whether petitioners may deduct as periodic alimony payments premiums paid by petitioner husband on life insurance policies of which his former wife was primary beneficiary, and which, under a written separation agreement incorporated in the divorce decree, were credited against alimony he was obligated to pay.
Some of the facts are stipulated and are found accordingly.
Petitioners Gerard and Eleanor Jackson Piel are husband and wife, residing at 320 Central Park West, New York 17, New York. Petitioners filed a timely joint Federal income tax return for the calendar year 1957 with the district director of internal revenue, Upper Manhattan district, New York. Gerard Piel will hereinafter be referred to singly as petitioner.
Petitioner and his former wife, Mary Bird Piel, hereinafter referred to as Mary, were divorced in the State of Nevada on June 6, 1955. A written separation agreement executed previously by the parties was incorporated in full by reference in the divorce decree and made a part thereof.
Under the separation agreement, petitioner was to make periodic alimony payments to Mary so long as she lived and remained unmarried, based on a sliding scale depending on petitioner's income. The minimum amount in any calendar year was $3,750 and the maximum amount was $6,250 plus 10 percent of petitioner's income in excess of $30,000. In the agreement petitioner agreed to maintain insurance policies on his life in an aggregate face value of $45,000 in which Mary was the primary beneficiary. The separation agreement further stated:
* * * There shall be credited each year against the Husband's payments of income for the support of the Wife the amount of net premiums paid or to be paid by the Husband in such year to maintain $45,000 of life insurance to the primary benefit of the Wife * * * provided, however, that the amount of net premiums so credited shall in no event exceed $1,200 per annum. * * *
The separation agreement specified three policies in the face amounts of $25,000, $16,000, and $4,000 issued by The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin, to be maintained for Mary's benefit although petitioner might substitute other policies provided he maintained an aggregate value of $45,000. A rider was incorporated in each of the policies providing that "the interests of the parties * * * shall be as provided in the Separation Agreement * * *."
The two sons of petitioner and Mary were named contingent beneficiaries so long as Mary was primary beneficiary. In the event of Mary's remarriage or her death prior to petitioner's death, petitioner was required to name the sons as primary beneficiaries until both had finished their undergraduate college education or the younger attained the age of 25, whichever was sooner.
Petitioner reserved the right in the agreement to borrow on the policies up to 50 percent of their cash value. Petitioner's estate was obligated to repay any such loans if they had not been repaid at the time of his death. So long as Mary was primary beneficiary she alone had the right to select the settlement option to become applicable under the policies.
If petitioner failed to make a required premium payment, Mary was entitled to make the payment and to hold petitioner accountable for the money advanced. To secure performance of his obligations under the agreement, including the maintenance of the insurance, petitioner executed a separate instrument, which was also incorporated into the decree of the Nevada Court, assigning, pledging, and placing in escrow his interest in the undistributed estate of his late father.
After respondent determined the deficiency involved here, petitioner transferred complete ownership of the policies in question to Mary on April 29, 1960. In accordance with the stipulation of petitioner and Mary, the Nevada Court on July 25, 1961 ordered that the original separation agreement and divorce decree be amended to reflect the irrevocable transfer of the insurance policies and that the Court's order be entered nunc pro tunc as of June 6, 1955.
Petitioners deducted the sum of $1,200 for premiums on the life insurance policies as part of the $6,774.59 alimony payment claimed on their 1957 income tax return. Mary reported the $1,200 as income on her return. Upon being advised by respondent that she was entitled to a refund, Mary applied for and received a refund of the amount of tax imposed as a result of including the $1,200 in her income.
OpinionMary could benefit from the premium only if she remained unmarried and survived petitioner. Meyer Blumenthal Dec. 17,092, 13 T. C. 28 (1949), affd. 50-2 USTC ¶ 9363 183 F. 2d 15 (C. A. 3, 1950); Smith's Estate v. Commissioner 53-2 USTC ¶ 9616, 208 F. 2d 349 (C. A. 3, 1953), affirming on this issue a Memorandum Opinion of this Court Dec. 21,174(M).
Petitioner relies principally upon Estate of Boies C. Hart Dec. 16,484, 11 T. C. 16 (1948), which bears some similarity to the case at bar. Under the property settlement agreement there, the husband paid premiums on insurance policies on his life maintained for his former wife's benefit through a trust arrangement. The former wife was to receive on the husband's death two-thirds of the income if she was alive and not remarried, one-third if alive but remarried and none if she failed to survive. The remainder went to the husband's descendants —a son of the marriage being the only descendant. The wife received alimony equal to 38.5% of the husband's income which sum "shall include all payments made by husband for or on account of the insurance." The wife had the right to decrease the amount of the insurance (upon agreement of the son and, if the amount dropped below a certain figure, the husband also) thereby increasing the amount of cash alimony to her, and did so. Under a New York court decree the husband...
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