Sperling v. C.I.R., 233
| Decision Date | 20 January 1984 |
| Docket Number | D,No. 233,233 |
| Citation | 726 F.2d 948 |
| Parties | 84-1 USTC P 9176 Herbert L. SPERLING and Janice Sperling, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. ocket 83-4087. |
| Court | U.S. Court of Appeals — Second Circuit |
Thomas A. Condon, New City, N.Y. (Birbrower, Montalbano, Condon, Seidenberg & Frank, New City, N.Y., of counsel), for petitioners-appellants.
Patricia A. Willing, Tax Div., Dept. of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Washington, D.C., Michael L. Paup, Gary R. Allen, Tax Div., Dept. of Justice, Washington, D.C., of counsel), for respondent-appellee.
Before FRIENDLY, VAN GRAAFEILAND and MESKILL, Circuit Judges.
This is an appeal from an order of the United States Tax Court, Cohen, J., entered on February 2, 1983 after a written decision ruling that the Petitioner Herbert Sperling's payments of life insurance premiums and children's college expenses pursuant to a separation agreement and judgment were not includable in his former wife's income as alimony and therefore not deductible by him under 26 U.S.C. Sec. 215(a) (1976).
We affirm the order of the tax court.
Appellant Herbert Sperling (Sperling) 1 asserts here as he did before the Commissioner of Internal Revenue (Commissioner) that college expenses of Sperling's children by his former wife paid by him pursuant to a stipulated separation agreement and judgment are alimony and thus deductible because a sum certain was not fixed and an economic benefit was conferred on his former wife. Appellant further maintains that life insurance premium payments made by Sperling were constructively received by his former wife and constitute alimony based on an economic benefit theory, even though his former wife did not own the policies and she and her children were not absolute beneficiaries thereof. The Commissioner disagreed and determined deficiencies in appellants' federal income taxes of $19,973.32 2 for the tax years 1974-76. The tax court found for the Commissioner. 45 T.C.M. (CCH) 193 (1982). We affirm.
When Herbert and Phyllis Sperling's marital problems became insoluble they retained attorneys to negotiate the terms of a separation and divorce agreement. In open court on March 20, 1967 they announced an agreement (separation stipulation) which stated in pertinent part:
1. The wife shall have full custody and control of the three infant issue ....
....
9. The husband agrees to pay to the wife as alimony for her support and for the support, maintenance and education of the children, except as hereinafter set forth, the sum of $33,500 per annum, payable $644.23 per week ....
10. In addition to the foregoing payment the ... husband is to pay for the following items:
....
(c) tuition, laboratory fees, books and residence fees for each child for four years at college, on condition that the college be selected jointly by the child and by the husband.
....
12. ... The husband shall pay the premiums necessary to keep [several enumerated whole life insurance policies on the life of the husband] in full force and effect, and shall not borrow against the cash value of any of them except against the cash value of Policy No. 43359 in order to have the proceeds of the loan applied against the premium of the said policy. So long as the wife remains unmarried and any of the children is under the age of twenty-one years or has not completed his education, the wife shall be the beneficiary of the said policies.
If the wife should remarry, the children, or such of them as shall be under the age of twenty-one years or shallnot [sic] have completed their education, shall be the beneficiaries, in equal shares, of the said policies. If the wife should remarry and if all of the children shall be over the age of twenty-one years and shall have completed their education, the said policies shall be transferred and delivered to the husband who shall thereafter have complete control thereover.
In order to assure the parties hereto that the provisions of this paragraph are carried out, ownership of said policies shall be transferred to David Coral and Milton Kail, who shall hold such policies as trustees in accordance with the terms of this paragraph.
Exhibit 13-M (emphasis added). This stipulation was incorporated into a judgment of separation (separation judgment) dated March 30, 1967. It provided in pertinent part:
[T]hat the [wife] is entitled to the general custody of the three children ....
....
... that the [husband] pay to the [wife], during the life of the [wife], or until the further order of this court, the sum of $644.23 per week ... for the support and maintenance of the [wife] and the support, maintenance and education of the infant children of the parties ....
....
... that the [husband] shall maintain each of his children who qualifies for entrance at a college to be selected jointly by the [husband] and the child who is to attend such college for a period of four years. During the said four years the [husband] shall pay all fees for tuition, laboratory, residence and books which may be required and necessary ....
....
... that the [husband] shall continue to maintain [several enumerated whole life insurance policies on the life of the husband] ... [and] shall pay the premiums necessary to keep these policies in full force and effect, and shall not borrow against the cash value of any of them except against the cash value of Policy No. 43359, in order to have the proceeds of the loan applied against the premium of the said policy. So long as the [wife] remains unmarried and any of the children is under the age of twenty-one years, or has not completed his or her education, the [wife] shall be the beneficiary of the said policies. If the [wife] should remarry, the children, or such of them as shall be under the age of twenty-one years, or shall not have completed their education, shall be the beneficiaries, in equal shares, of the said policies. If the [wife] should remarry and if all of the children shall be over the age of twenty-one years and shall have completed their education, the said policies shall be transferred and delivered to the [husband] who shall thereafter have complete control thereover, and it is further
ORDERED AND ADJUDGED, that for the purpose of carrying out the provisions of this decretal paragraph, ownership of said policies shall be transferred to David Coral, Esq. and Milton Kail, Esq., who shall hold such policies as trustees, in accordance with the terms hereof.
Sperling and Phyllis were divorced in Mexico on August 30, 1967. Phyllis remarried on June 6, 1975. On July 28, 1975 Phyllis was removed as the primary beneficiary of the life insurance policies and was replaced by the three Sperling children as co-beneficiaries. Ownership of the policies was transferred to Sperling on September 30, 1981 after all three of the children reached the age of 21 and completed their educations. He subsequently cashed in the policies and received the cash surrender value of $19,008.73 as proceeds.
The present controversy centers on the following alimony deductions taken by Sperling:
Year and Nature Amount
1974
Tuition and Expenses (Robin) .. $ 5,190.33
Life Insurance Premiums ......... 3,384.43
1975
Tuition and Expenses
(Robin and Cindy) ............ 14,582.41
Life Insurance Premiums ......... 4,734.37
1976
Tuition and Expenses
(Robin and Cindy) ............ 12,965.90
Life Insurance Premiums ......... 3,433.10
Tuition payments were made directly to Northwestern University. The premiums paid were for the policies held in trust under the separation stipulation and judgment.
26 U.S.C. Sec. 215(a) (1976) 3 permits a husband 4 to deduct from his gross income payments made to his former wife which are includable in her gross income as alimony pursuant to 26 U.S.C. Sec. 71(a) (1976). 5 A husband is not entitled to deduct from his gross income child support payments as defined in 26 U.S.C. Sec. 71(b) (1976) 6 and the wife is not required to include such payments in her gross income.
Section 71(b) dictates that the college expense payments were child support. They were made under the express provisions of the separation stipulation and judgment, which required Sperling to pay for his children's college tuition and expenses. Such payments were made "for and in behalf of the children," Mandel v. Commissioner, 229 F.2d 382, 388 (7th Cir.1956), and thus do not constitute alimony. See Emmons v. Commissioner, 36 T.C. 728, 738 (1961), aff'd mem., 311 F.2d 223 (6th Cir.1962).
Sperling relies on Commissioner v. Lester, 366 U.S. 299, 81 S.Ct. 1343, 6 L.Ed.2d 306 (1961), for the argument that section 71(b) does not control because the parties did not "specifically designate" or "fix" a sum certain to be paid on behalf of the children. In Lester the Supreme Court stated that where alimony payments are made "[t]he agreement must expressly specify or 'fix' a sum certain or percentage of the payment for child support before any of the payment is excluded from the wife's income." 366 U.S. at 303, 81 S.Ct. at 1346 (emphasis added).
There, the husband agreed to supply a periodic, fixed payment which would be reduced by a percentage upon the death, marriage or emancipation of minor children. The Court, interpreting the predecessor to section 71(b), specified the strict rule quoted above. Here, however, the issue is not whether a portion of a static payment should be deemed child support. The judgment of separation provides for fixed periodic payments "for the support and maintenance of the [wife] and the support, maintenance and education of the infant children" and additionally and separately requires Sperling to pay for his children's college expenses. The dispute centers around not the general payment for the support and maintenance of wife...
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