Deitsch v. Commissioner

Mark B. Deitsch and Dorothy M. Deitsch, Petitioners, v. Commissioner of Internal Revenue, Respondent Deitsch v. Commissioner Docket No. 48148 United States Tax Court 26 T.C. 751; 1956 U.S. Tax Ct. LEXIS 131; June 29, 1956, Filed *131 Decision will be entered under Rule 50. Petitioner was divorced from his former wife in 1949 pursuant to a decree which incorporated a separation agreement, which provided, among other things, that petitioner pay $ 250 per month or $ 3,000 per year to his former wife for her support and maintenance and for the support, maintenance, and education of their two minor children. Upon the death, emancipation, or attainment of age 18 of either of the children, petitioner was required to pay only one-half of such payments and on the death, emancipation, or attainment of age 18 of both of the children, such payments were to cease entirely. In 1950, petitioner deducted $ 3,000 from his gross income under section 23 (u) of the Internal Revenue Code of 1939, which deduction was disallowed in its entirety by the Commissioner. Held, the entire $ 3,000 paid by the petitioner to his former wife in 1950 was solely for the support of his minor children and was not deductible by him. Stanley Schwartz, Jr., Esq., for the petitioners. John J. Larkin, Esq., for the respondent. Tietjens, Judge. TIETJENS *752 The Commissioner determined a deficiency in income tax for the year *132 ended December 31, 1950, in the amount of $ 2,707.98. That part of the deficiency at issue here arises by reason of the Commissioner's determination that $ 3,000 deducted by petitioner as alimony payments was not an allowable deduction under the provisions of sections 23 (u) and 22 (k) of the Internal Revenue Code of 1939. Other adjustments have been agreed upon and can be reflected in a Rule 50 computation. FINDINGS OF FACT. The stipulated facts are so found and are incorporated herein by this reference. The petitioners are husband and wife and are residents of Columbus, Ohio. They filed their income tax return for the year 1950 with the collector of internal revenue for the eleventh district of Ohio. The petitioner, Mark B. Deitsch, married Virginia Deitsch in June 1940 at Union, Missouri. During this marriage two children were adopted, Gary Evan Deitsch, whose date of birth was December 1, 1945, and Rita Jeannine Deitsch, whose date of birth was March 17, 1947. Pursuant to a decree of divorce granted on October 2, 1949, effective as of October 7, 1949, by the Court of Common Pleas, Division of Domestic Relations, Franklin County, Ohio, the marriage of Mark B. Deitsch and Virginia*133 Deitsch was dissolved. A separation agreement was entered into by the aforesaid parties under date of October 4, 1949, which agreement was approved by the court and made a part of the decree of the divorce. The separation agreement contained the following provisions, inter alia: This agreement is made at Columbus, Ohio, this 4th day of October, 1949, by and betweeen Mark B. Deitsch, herein referred to as "Husband", and Virginia M. Deitsch, herein referred to as "wife." * * * * The parties hereby declare that the express purpose and intent of this contract is to finally and conclusively settle all rights and claims of every possible kind between the parties, including a division of their property, and to settle and adjust all differences between them which relate to alimony and support of said Wife and their two minor children, Gary Evan and Rita Jeannine. The promises of each of the parties to this contract are expressly made and declared to be in consideration of those made by the other party; and each party hereby covenants and warrants that this contract is entered into without reliance *753 on or claim of any promises or representations made by the other party, excepting*134 only those promises, covenants and agreements which are contained in and specifically set forth in this contract. * * * * 4. Husband agrees to pay wife for her support and maintenance and the support, maintenance and education of said minor children the sum of $ 10,000.00, which sum shall be payable $ 5,000.00 on the date of the execution of this agreement and $ 5,000.00 on or before thirty days after the date of the execution of this agreement; and it is mutually agreed and understood that Wife shall not be required to account to Husband for the expenditure of said sum and she shall not be required to hold said sum in trust. Husband agrees to pledge as collateral security for the payment of said balance of $ 5,000.00 all of his shares of stock in Prima, Inc., an Ohio corporation. 5. Husband agrees to convey by quit claim deed to Wife all of Husband's right, title and interest in the real estate located at No. 230 West Royal Forest Boulevard in the City of Columbus, Ohio, being the residence in which the Wife now resides; and Husband agrees to pay and discharge the present mortgage loan on said residence as the same falls due. 6. Husband agrees to execute a Bill of Sale transferring*135 to the Wife all of Husband's right, title and interest in the furniture, equipment and household effects located in said residence, and all jewelry now in the possession or custody of the Wife. 7. Husband agrees, during his lifetime, to pay Wife for the support and maintenance of the Wife and for the support, maintenance and education of said minor children the sum of $ 250.00 a month until said oldest child reaches the age of 18 years, and $ 125.00 per month thereafter until said youngest child reaches the age of 18 years, provided, however, that if the parties are divorced and if Wife remarried Husband agrees to pay Wife for herself and the support, maintenance and education of said children the sum of $ 150.00 per month until said oldest child reaches the age of 18 years, and $ 75.00 per month thereafter until said youngest child reaches the age of 18 years; and provided further that if either of said children should die or become emancipated before reaching the age of 18 years the amounts which the Husband agrees to pay thereafter shall be reduced one-half; and provided further that if both of said children die or are emancipated before the youngest reaches the age of 18 years*136 said payments shall then cease and end. 8. It is mutually agreed that the provisions of this contract for the support, maintenance and education of said children are adequate and sufficient; and Wife covenants and agrees that she will not seek or request an increase in the payments herein provided, in consideration of which Husband covenants and agrees that he will not seek or request a decrease in the payments herein provided. * * * * 11. In the event that a divorce decree is granted to either of the parties it is mutually understood and agreed that this contract, and the provisions thereof, shall be incorporated in and made a part of said decree and the same shall be in lieu of any other provisions for child support and maintenance, division of property, settlement of property rights and alimony; and the court shall have and retain continuing jurisdiction for the enforcement of this contract; * * * During the year 1950, pursuant to paragraph 7 of the separation agreement, petitioner, Mark, paid to his divorced wife, Virginia, $ 250 per month or $ 3,000, which payments were deducted by the petitioners in the determination of their net income for such year. *754 In the notice*137 of deficiency, the Commissioner disallowed the entire $ 3,000 payment made in 1950. In their income tax return filed for the taxable year 1950, petitioners Mark and Dorothy Deitsch claimed both minor children of Mark and Virginia Deitsch as dependent relatives and took exemptions therefor. The monthly payments of $ 250 totaling $ 3,000 made by petitioner, Mark, to his former wife, Virginia Deitsch, in the taxable year 1950 were amounts paid solely for support of the minor children. OPINION. The only question presented here is whether the $ 3,000 paid by Mark to Virginia in 1950, pursuant to the terms of paragraph 7 of the separation agreement, is a sum which is payable for the support of Mark's minor children within the meaning of section 22 (k) of the Internal Revenue Code of 1939. If it is, then the Commissioner's disallowance of the deduction as an alimony payment under section 23 (u) of the Internal Revenue Code of 1939 is correct. Section 23 (u) allows as a deduction from gross income the amount of alimony payments paid by a husband to his former wife if such payments are includible in the gross income of the wife under section 22 (k). The relevant provisions of section 22*138 (k) are set out in the margin. 1 It has been held in previously decided cases on this issue that "any adequate consideration of the problem here presented requires a construction of the agreement as a whole, and the reading *139 of each paragraph in the light of all the other paragraphs thereof." Robert W. Budd, 7 T. C. 413 (1946), affd. (C. A. 6, 1947) 177 F. 2d 198. When paragraph 7 is read in the light of the entire separation agreement it is apparent to us that the payments of $ 250 per month were intended to be solely for the support of the minor children of Mark and Virginia Deitsch, even though the separation agreement specifically states that the payments are for the support and maintenance of the wife as well as the support, maintenance, and education of the minor children. We see no element of alimony in these payments in view of the fact that the payments are cut in half on the death, emancipation, or attainment *755 of age 18 of one of the children and the payments are entirely eliminated on the death, emancipation, or attainment of age 18 of both of the children. Thus, if both children were to die tomorrow, then petitioner would not be obligated to make any further monthly payments to his former wife. Further indication that the monthly payments were not intended as alimony is derived from the other provisions of the separation agreement*140 which provided that Virginia was otherwise to receive a substantial amount of property upon entering into the separation agreement, namely, the family residence free and clear of the mortgage then existing on the home, the furniture, equipment, and other household effects located in the residence, all jewelry then in the possession or custody of Virginia, and $ 10,000 in cash which she could do with as she pleased. The division of the payment on the stated contingencies sufficiently earmarks the payments as being made solely for the support of the children and thus not deductible by the petitioner in computing his net income. Warren Leslie, Jr., 10 T. C. 807 (1948); Harold M. Fleming, 14 T. C. 1308 (1950); Saxe Perry Gantz, 23 T. C. 576 (1954). Decision will be entered under Rule 50. Footnotes 1. SEC. 22. GROSS INCOME. (k) Alimony, Etc., Income. -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, 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 or separation shall be includible in the gross income of such wife * * * This 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. * * *↩