Bartos v. Commissioner

Armand P. Bartos and Celeste G. Bartos, Petitioners, v. Commissioner of Internal Revenue, Respondent Bartos v. Commissioner Docket No. 54247 United States Tax Court 27 T.C. 1002; 1957 U.S. Tax Ct. LEXIS 236; March 27, 1957, Filed *236 Decision will be entered for the respondent. Neither a deductible loss in a profit transaction, nor a bad debt, held, on the facts, sustained by petitioner wife upon the subsequent settlement, pursuant to their separation agreement, of payments made to her former husband during their marriage for use in providing for their personal residence. Sydney C. Winton, Esq., and Arnold J. Hoffman, Esq., for the petitioners. Robert B. Wallace, Esq., for the respondent. Opper, Judge. OPPER *1002 Respondent determined a deficiency in income tax for petitioners for 1949 of $ 4,069.52. Petitioners do not contest several adjustments made by respondent. The remaining issue is whether Celeste G. Bartos is entitled to any deduction as a result of transactions with her former husband in connection with the construction of a house. FINDINGS OF FACT. Some facts are stipulated and are hereby found. Celeste G. Bartos, hereafter referred to as petitioner, and Armand P. Bartos are wife and husband, residing in New York, New York. They filed their joint individual income tax return with the collector of internal revenue for the third district of New York. In 1946 and 1947 petitioner*237 was married to Jerome J. Altman. During 1947 they became estranged and negotiated for a separation. On January 3, 1948, they executed a formal separation agreement and *1003 on February 24, 1948, they were divorced. She married Armand P. Bartos on April 23, 1949. In 1946 Altman contracted to purchase a parcel of real property in North Stamford, Connecticut. He took title in his name alone in 1947. In 1947 Altman and petitioner started constructing a residence on the property. Although Altman was a man of some wealth, he requested contributions toward the cost from petitioner to supplement his ready cash. Petitioner possessed substantial independent means from an inheritance. She turned over to Altman $ 10,000 in cash from those funds and $ 7,000 in furnishings she had purchased or ordered. Following their separation, petitioner took certain furnishings and canceled orders for others, so that her net cost for furnishings totaled $ 4,617.17. Petitioner and Altman negotiated their separation agreement at arm's length, both parties being represented by counsel. The agreement included this language: Now, Therefore, in consideration of the premises and the mutual covenants *238 and agreements hereinafter contained, the parties promise, covenant and agree * * * It included provisions for custody of children, visitation rights, obligations for maintenance of children, and other matters. The agreement provided that all furnishings and other property located in or purchased for the North Stamford house should belong to Altman. He agreed to attempt to sell the house furnished by June 1, 1948, but reserved the sole right to refuse to sell if the terms were unsatisfactory to him. If sold by June 1, 1949, the proceeds were to be divided "in proportion to their respective investments." The agreement authorized petitioner to secure purchase offers or to make her own offer. It obligated each party to communicate any offer received to the other. The agreement further provided that Altman pay petitioner her proportionate share of the value of the property if unsold by June 1, 1949. The value of the property was to be the greater of (1) the highest offer received by Altman or (2) the market value as fixed by a bank appraisal. Petitioner was deemed to have "invested" $ 10,000 in cash and $ 7,000 worth of furnishings. Altman's investment consisted of his total expenditures*239 for land, construction, furnishings and fixtures not furnished by petitioner, carrying charges prior to completion, and improvements through June 1, 1949; less the $ 10,000 which had come from her. The agreement provided: (iv) Nothing * * * shall be construed so as to give to the Wife any interest, legal or equitable, in the property or any lien thereon. * * * *1004 The agreement also provided that: In consideration of the mutual promises, terms, covenants and conditions herein contained, each of the parties * * * does release, waive, relinquish and convey to the other * * * any and all claims, right, title and interest in the nature of a dower or right of allowance or statutory provision, or otherwise, arising out of * * * the relation of Husband and Wife, and further agrees that each will make no claim against the other's estate, except as herein provided, or with respect to any Last Will and Testament * * * and each expressly waives any right provided by law * * * now or hereafter enacted in * * * any * * * jurisdiction wherein either of the parties may be domiciled or may be resident, or in which they * * * possess any property rights, and the parties shall execute simultaneously*240 * * * upon request, separate instruments to this effect. Petitioner thought that the arrangement for the property provided by the separation agreement might enable her to recover the total sum spent by her. She also considered the possibility of a rising real estate market. Altman and petitioner commenced the building of the house for residential purposes and Altman used it for that purpose since its completion in June 1948. Petitioner never resided in the house. Altman lived in it during the summer and rented it in the winter. Petitioner neither received nor was she entitled to any rental income from the property. She made no advancements of any kind to Altman after the separation agreement. In May 1948 petitioner listed with a real estate broker the completed house for sale furnished. Though the house was well built and well located, this listing failed to attract satisfactory offers. Petitioner knew of a high bid of $ 35,000 from a third party up to May 31, 1949. On May 31, 1949, she, acting through her attorney, made a bona fide, arm's-length offer to purchase the house from Altman for $ 38,000, but Altman rejected the offer. Petitioner and Altman did not secure an appraisal*241 from a bank as provided in the separation agreement. Altman and petitioner's attorney, acting on her instructions, agreed that $ 38,000 represented the value of the house as of June 1, 1949; that $ 14,617.17 constituted petitioner's aggregate outlays to be accounted for; that Altman had expended $ 51,525.93 on the house; its total cost amounted to $ 56,143.10; and that Altman owed $ 9,920.55 to petitioner, his entire obligation to her under the separation agreement in regard to the property. Petitioner considered the money received from Altman the final part of her share of the settlement. In 1949 petitioner did not suffer a loss from a bad debt or from a transaction entered into for profit, on settlement for her funds used by her former husband in constructing a residence for them. *1005 OPINION. It is impossible to conclude that petitioner furnished the sums in question to her then husband as a "loan." The presumption is otherwise. , affirmed per curiam (C. A. 2) ; see ; .*242 And petitioner's unsupported, self-serving declarations are far from that "proof" so "certain, definite, reliable, and convincing" as to "leave no reasonable doubt as to the intention of the parties," which is required in the premises. . Our interpretation of the facts is that petitioner, at the time she was married to her former husband and envisaged no marital difficulties, participated in the financial contributions to a personal residence which was intended to be her home. Such an expenditure is of a purely personal character. ; ; , certiorari denied ; all affirming decisions of the Board of Tax Appeals; . Even, however, assuming that this was a loan, it was apparently due on demand and there is not the slightest proof of worthlessness and, in fact, the evidence*243 indicates the contrary. Cf. . Certainly there is nothing to support the proposition that any such loan became worthless in the present tax year. The facts show that the husband, the presumptive debtor, was a man of some wealth and that, in fact, the very residence which was the source of the difficulty was itself worth more than the amount which would have been presently due to petitioner. If the debt was collectible in 1949 it was, for all that appears, equally collectible in 1948. And, for that matter, in 1947. , reversing , is relied on by petitioner. But that case, even on the theory adopted in the appellate court, is a good illustration of why petitioner cannot succeed here. In that case, a wife, having advanced collateral to her husband, was engaged in efforts to cut her loss when he became insolvent. Here petitioner's former husband was apparently solvent at all times and no reason appears why she should not have collected the full amount of her "advance" if that is what it really*244 was, and if she had decided to pursue legal remedies. . That she failed to do so for whatever reason falls short of transforming this marital agreement into a foundation for a deductible loss. Petitioner has constructed an intricate and possibly ingenious interconnected pattern of theories in an effort to justify the claimed deduction. These include the assumption of a loan; an exchange of *1006 this for an interest in the residence in a transaction giving rise to no tax liability; and a relinquishment of the latter interest for cash resulting in the claimed loss, the whole being based upon the hypothesis of a profit motive. Neither factually nor legally do we find support for this theory. And any case which deals with actual business transactions between husband and wife and with claims "made because of a legal obligation arising from the couple's former business relationship, not their marital or family relationship," is accordingly wide of the mark. Compare, e. g., , with .*245 This transaction was not entered into for profit, and while petitioner's loss is unfortunate it results from the combined personal interests of the construction of her own residence and the emergence of marital difficulties, and does not give rise to a deductible business loss. Decision will be entered for the respondent.