Docket No. 632-66.
James H. Leeds, for the petitioner. Joseph Nadel, for the respondent.
James H. Leeds, for the petitioner. Joseph Nadel, for the respondent.
Held, a separation agreement providing a single sum as support money for the wife and support and maintenance of children without designating a specific sum payable for the support of the children either in dollar amount or proportion of the total sum paid is not cured to come within sec. 71(a)(2) and (b), I.R.C. 1954, by a subsequent order of a State court issuing a divorce decree amendatory of the separation agreement fixing in both dollar amount and percentage of the total payment for child support.
The Commissioner has determined deficiencies in the income tax of petitioner for the taxable years 1961, 1962, and 1963 in the respective amounts of $479.06, $433.14, and $452.69. The sole issue to be determined is whether respondent has erred in including in petitioner's gross income amounts paid to her by her former husband during the above years pursuant to a written property settlement agreement. Due to concessions made by the parties on brief, other issues raised by the pleadings are no longer before us and those concessions will be given effect under Rule 50.
FINDINGS OF FACT
All stipulated facts are found.
Mary James Wilson, petitioner herein, resides at San Francisco, Calif., and filed her 1961, 1962, and 1963 income tax returns with the district director of internal revenue, San Francisco, Calif.
Petitioner and John P. Wilson entered into a property settlement and support agreement on March 12, 1957. She obtained a divorce from John P. Wilson on March 22, 1957, in the city of Juarez, Mexico. Thereafter, she obtained a decree from the Cook County Circuit Court, State of Illinois, on January 26, 1966. That court had never previously issued a decree of divorce or an order of support regarding the rights of petitioner or her former husband until the above decree was entered in 1966.
Petitioner has never resided in the State of Illinois. John P. Wilson was at the time of the action domiciled in the State of Illinois and appeared in person and through counsel and contested the action.
The respondent has proposed to include as alimony income the following additional amounts received from John P. Wilson, pursuant to the support agreement, which were not included in the petitioner's income tax returns: 1961, $2,200, 1962, $2,100, 1963, $2,000. Additionally, the respondent included in petitioner's income in 1963, $48.41 which constitutes a premium for accident and health insurance for petitioner paid by her former husband pursuant to this agreement.
The provision of the separation agreement which provides for the payments to be made by petitioner's former husband is as follows:
5. That during the lifetime of this agreement and during the lifetime of the wife, the husband shall pay to the wife at the address designated by her in writing, the sum of Three Hundred Dollars ($300.00) per month, payable by check or money order on the first day of each and every month, commencing with the first day of January, 1957 and monthly thereafter for the support and maintenance of the wife and the support, maintenance and education of the issue of the marriage. In the event of the wife's remarriage or decease, the payments shall be reduced to the sum of One Hundred Fifty Dollars ($150.00) per month. In the event of the emancipation, marriage or decease of either of the infant issue of the marriage, then the monthly sum above provided shall be reduced by the amount of Seventy-Five Dollars ($75.00) per month for each child so emancipated, married or deceased.
The provision of the decree of the Circuit Court of Cook County, Ill., which relates to the above paragraph of the separation agreement is as follows:
FIVE: That the THREE HUNDRED DOLLARS ($300.00) payment set forth in the agreement provided for Fifty percent (50%) of said payment or ONE HUNDRED FIFTY DOLLARS ($150.00) to be applied to alimony and Fifty percent (50%) of said payment or SEVENTY-FIVE DOLLARS ($75.00) per child or a total of ONE HUNDRED FIFTY DOLLARS ($150.00) be applied to child support.
The parties are in agreement that the separation agreement made by petitioner and her former husband, in writing, on March 12, 1957, under which the payments here in controversy were made, does not comply as so made with section 71(a)(2) and (b) of the Internal Revenue Code of 1954 so as to exclude the amounts in dispute from petitioner's gross taxable income as child-support payments fixed as such by the agreement. It is petitioner's contention, however, that the January 26, 1966, decree of the Circuit Court of Cook County, Ill., had the retroactive effect of amending the agreement nunc pro tunc as of the date of its execution and that therefore it did during the years at issue ‘fix, in terms of an amount of money or a part of the payment, as a sum which is payable for the support of minor children of the husband.’
SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.(a) GENERAL RULE.—(2) WRITTEN SEPARATION AGREEMENT.— If a wife is separated from her husband and there is a written separation agreement executed after (August 16, 1954) the date of the enactment of this title, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such agreement is executed which are made under such agreement and because of the marital or family relationship (or which are attributable to property transferred, in trust or otherwise, under such agreement and because of such relationship). This paragraph shall not apply if the husband and wife make a single return jointly.(b) PAYMENTS TO SUPPORT MINOR CHILDREN.— Subsection (a) shall not apply to that part of any payment which the terms of the decree, instrument, or agreement fix, in terms of an amount of money or a part of the payment, as a sum which is payable for the support of minor children of the husband. For purposes of the preceding sentence, if any payment is less than the amount specified in the decree, instrument, or agreement, then so much of such payment as does not exceed the sum payable for support shall be considered a payment for such support.
We find upon examination of the January 26, 1966, decree of the Circuit Court of Cook County, Ill., that it has no retroactive effect whatsoever. Paragraph Five thereof, set forth in our findings, is not amendatory of the separation agreement, but merely sets forth that court's conclusion as to the effect of the agreement with respect to amounts therein provided for child support. Our reading of paragraph Five of the separation agreement leads us to the unavoidable conclusion that the author thereof had resorted to inference and conjecture in contravention of the Supreme Court's determination in Commissioner v. Lester, 366 U.S. 299 (1961), that ‘the allocations to child support * * * must be ‘specifically designated’ and not left to determination by inference or conjecture.' It is true that the later decree ‘specifically designated’ and fixed the amount of each payment to be allocated to child support, but it is clear that in doing so it made an amendment of the separation agreement which would have only prospective, not retroactive effect.
The Supreme Court was there considering sec. 22(k) of the 1939 Code, but we find its language equally applicable here for that section is identical with sec. 71(b) of the 1954 Code in all respects which are pertinent here.
This case is distinguished from Gloria P. Johnson, 45 T.C. 530 (1966), by the difference in the State court decrees. While the decree here is clearly prospective in its effect and is not in any sense nunc pro tunc in character, the decree in Gloria P. Johnson, supra, is clearly nunc pro tunc in that is is amendatory with respect to a previous decree of the same court which amended its own decree as of the date of its issuance.
It follows then that the agreement for the years at issue must be held to have retained its original uncertainties with respect to the amount or portion of the payments thereunder which were allocable to child support. The whole amount of each payment for those years is therefore held to be gross income to petitioner.
Although neither on brief nor otherwise has petitioner specifically conceded the correctness of respondent's inclusion in her gross income of a $48.41 accident and health insurance premium payment by her former husband for her benefit, we read the last paragraph of her reply brief as such concession and do not pass upon that issue.
Because of concessions on the part of each party.
Decision will be entered under Rule 50.