Reisman v. Commissioner

George F. Reisman and Evelyn Reisman, Petitioners v. Commissioner of Internal Revenue, Respondent; Fredricka K. Reisman, Petitioner v. Commissioner of Internal Revenue, Respondent Reisman v. Commissioner Docket Nos. 2809-63, 5258-65 United States Tax Court 49 T.C. 570; 1968 U.S. Tax Ct. LEXIS 168; February 29, 1968, Filed *168 Decisions will be entered under Rule 50. Held, periodic support payments made to a former wife and child, under a New York annulment decree granted after 5 years of marriage on grounds of the husband's premarital fraud, are tantamount to payments under a "decree of divorce" and are includable in the former wife's gross income under sec. 71(a)(1), I.R.C. 1954, and deductible by the former husband under sec. 215, I.R.C. 1954. Edwin Fradkin, for the petitioners in docket No. 2809-63. Irving H. Lessen, for the petitioner in docket No. 5258-65. Alan M. Stark, for the respondent. Drennen, Judge. DRENNEN *570 In these consolidated cases, respondents determined the following income tax deficiencies and additions to tax against the petitioners: Docket Addition to No. Petitioner Year Deficiency tax sec. 6651, I.R.C. 1954 2809-63 George F. Reisman and Evelyn Reisman [1960] $ 951.55 [1961] 690.00 5258-65 Fredricka K. Reisman [1958] 341.00 $ 85.25 [1959] 287.00 71.75 [1960] 305.00 76.25 [1961] 450.00 [1962] 564.58 By amended answer in docket No. 2809-63, respondent alleged that petitioners inadvertently omitted from their returns additional partnership income of $ 390.43 and $ 408.96 for taxable years 1960 and 1961, respectively. Petitioners *169 have conceded liability for taxes based upon this additional partnership income. By amended answer in docket No. 5258-65, respondent alleged an increased deficiency of $ 215 1 and an increased addition to tax of $ 53.75 for the year 1958. In his brief, respondent has now conceded all additions to tax for the years 1958, 1959, and 1960. The principal issue for decision is whether periodic payments made by petitioner George F. Reisman to petitioner Fredricka K. Reisman under a New York decree annulling their marriage qualify as alimony payments under section 71(a)(1), I.R.C. 1954, 2 so as to be includable in Fredricka's income and deductible by George. If so, we must determine the amount so qualified. *571 FINDINGS OF FACT Some of the facts have been stipulated and are found accordingly. Petitioners George F. Reisman (sometimes referred to herein as George) and Evelyn Reisman, husband and wife, were residents of Chester Gardens, Englewood, N.J., at the date their petition *170 herein was filed. For the calendar years 1960 and 1961 they filed joint Federal income tax returns with the district director of internal revenue at Newark, N.J. Petitioner Fredricka K. Reisman (sometimes referred to herein as Fredricka) was a resident of Syracuse, N.Y., at the time her petition was filed. Fredricka did not file Federal income tax returns for years 1958, 1959, and 1960, but for the calendar years 1961 and 1962 she filed individual returns with the district director of internal revenue at Syracuse, N.Y. George and Fredricka were married in Syracuse, N.Y., on September 2, 1951. A daughter, Lisa Reisman, was born to them on August 10, 1954. After a separation in August 1955, Fredricka filed suit in the Supreme Court of New York for annulment of the marriage. An interlocutory judgment of annulment was entered on March 14, 1957, and became final on June 14, 1957. The decree, which was based upon George's fraudulent misrepresentation of his premarital financial condition, provided, inter alia: * * * it is hereby Ordered, Adjudged and Decreed that the marriage between the plaintiff, Fredricka K. Reisman, and the defendant, George F. Reisman, be and the same hereby is declared *171 null, void and of no effect, and the said marriage be and the same is hereby annulled, and the parties are freed from the obligations of the said marriage, and it is further * * * * Ordered, Adjudged and Decreed that the exclusive care and custody of Lisa M. Reisman, the issue of the said marriage, be and hereby is awarded to the plaintiff, Fredricka K. Reisman, * * * and it is further Ordered, Adjudged and Decreed that the defendant, George F. Reisman, shall pay to the plaintiff, Fredricka K. Reisman, the sum of Fifty ($ 50.00) Dollars per week for the support and maintenance of the plaintiff, Fredricka K. Reisman, and the said infant daughter, Lisa M. Reisman, and that the said payments shall commence on the 1st day of February, 1957, and shall be made on the first day of each month thereafter, * * * Subsequently, Fredricka brought another action before the Supreme Court of New York alleging that George was in contempt of court for his failure to pay "alimony" of $ 783.35 under the decree of March 14, 1957. On December 13, 1957, George was held to be in contempt of court and was ordered to pay to Fredricka $ 783.35 plus interest to the date of judgment and court costs of $ 150. *572 Pursuant *172 to the annulment decree, George paid the following amounts to Fredricka during the years 1958 through 1962: Year Amount [1958] 1 $ 3,524.20 [1959] 2,265.00 [1960] 2,350.00 [1961] 2,300.00 [1962] 2,450.00 OPINION The principal issue for our consideration is whether periodic payments made by George to Fredricka from 1958 through 1962 under a New York annulment decree qualify as alimony under section 71(a)(1)3*173 so as to be includable in Fredricka's gross income and deductible by George under section 215(a). Respondent and Fredricka argue, under a strict construction theory, that section 71(a)(1) is inapplicable because it contains no reference to support payments made under an annulment decree. The answer is simply that this Court is not bound by the New York court's characterization of its decree. In determining that an interlocutory decree of divorce was not a "decree of divorce" under section 51(b)(5)(B), I.R.C. 1939, this Court recognized in Marriner S. Eccles, 19 T.C. 1049, 1051 (1953), affirmed per curiam 208 F. 2d 796 (C.A. 4, 1953), that marital status should be determined by State law for the marital relation, but also that we must look to the actual effect of a judicial action in determining what constitutes a decree of divorce. "Analysis, in contrast to a mere reliance on labels, is decisive" (p. 1054). While we agree that substantive determinations of marital status by State courts may be binding on this Court, it is equally clear that the characterization of actions concerned with the relationship under State law does not govern the construction of the language of a Federal tax statute. Lyeth v. Hoey, 305 U.S. 188. *174 We believe the Federal statute here involved is more concerned with the function of the payments rather than the label of the action under which they were decreed. Accordingly, after a review of New York statutes and cases, we conclude that the support payments made by George were "alimony payments" within the purview of section 71(a)(1). Under New York *573 law marriages induced by fraud are merely voidable and are valid for all purposes until judicially declared void. N.Y. Dom. Rel. Law, sec. 7; Hahn v. Gray, 203 F. 2d 625 (C.A. D.C., 1953). In Gaines v. Jacobsen, 308 N.Y. 218, 124 N.E. 2d 290, 294 (1954), the New York Court of Appeals said: The fiction that annulment effaces a marriage "as if it had never been" is sometimes given effect and sometimes ignored, as the "purposes of justice" are deemed to require. The courts and the legislature have, accordingly, attached to annulled marriages, for certain purposes, the same significance that a valid marriage would have, when a more desirable result is thereby achieved. Thus, although a distinction is sometimes made between void and voidable marriages, the annulled marriage has been given sufficient vitality to constitute valid consideration *175 for a gift in contemplation of the marriage, see American Surety Co. of New York v. Conner, 251 N.Y. 1, 166 N.E. 783, 65 A.L.R. 244; to make a remarriage by one of the parties during its continuance bigamous, see McCullen v. McCullen, 162 App. Div. 599, 147 N.Y.S. 1069; and, by statute in this state, to legimatize [sic] any children born of the union, Civ. Prac. Act, § 1135. The support payments provided for by the decree in issue here were authorized by the New York Civil Practice Act, sec. 1140-a, which was incorporated into and superseded by New York Domestic Relations Law, sec. 236 (1964), which now provides: Sec. 236. Alimony, temporary and permanent In any action or proceeding brought (1) during the lifetime of both parties to the marriage to annul a marriage or declare the nullity of a void marriage, or (2) for a separation, or (3) for a divorce, the court may direct the husband to provide suitably for the support of the wife * * * The legislative history of section 22(k), I.R.C. 1939, progenitor of section 71, I.R.C. 1954, which was changed only to extend equal tax treatment to periodic payments under a written separation agreement, shows that section 22(k) applied "only where *176 the legal obligation being discharged arises out of the family or marital relationship in recognition of the general obligation to support, which is made specific by the instrument or decree." H. Rept. No. 2333, 77th Cong., 2d Sess. (1942), 1942-2 C.B. 428. Under New York law, George clearly had a general legal obligation, arising out of the family or marital relationship, to support his former wife and child which was made specific by the annulment decree. It is evident that this factual pattern falls within the ambit of section 71(a)(1). The propriety of this approach is recognized in Rev. Rul. 59-130, 1959-1 C.B. 61, in which support payments under a New York annulment decree were determined to be includable in the gross income of the former wife under section 71(a)(1). The decree was based upon the wife's incurable insanity, apparently arising subsequent to the marriage. We do not, however, consider the time at which the grounds for annulment arise to be determinative, so long as a valid marital relationship exists for some period of time which gives rise to an obligation of *574 support and which is terminated by a decree specifically ordering support payments. In Anne S. Laster, 48 T.C. 178 (1967), *177 and Lily R. Reighley, 17 T.C. 344 (1951), we held that support payments under a separation agreement received by a former wife after annulment of the marriage were includable in her gross income. In both cases the grounds for annulment arose before the marriage was consummated, and in both the local law provided for support payments in such instances. We said in Anne S. Laster, supra at 188: Actually, in Reighley, as in the instant case, the annulment was granted because of personal "defects" existing in the husband prior to the marriage and the marriage under local law would have been considered a nullity or void from the outset and not merely from the date of the decree. Lily R. Reighley, supra at 346. Yet we held explicitly that the periodic payments under the support agreement were in discharge of a legal obligation which was incurred by the husband because of the marital relation. Lily R. Reighley, supra at 355. In both the Laster and Reighley cases cited above we held that where, under local law, an annulment can have the same effect as a divorce for purposes of support, payments made pursuant to a support agreement incident to a decree of annulment are treated as alimony taxable *178 to the recipient. We see no reason why this rule should not also apply to payments for support made payable by the decree of annulment itself. Our conclusion on this basic issue raises the further question whether all or a portion of the periodic payments is excepted from the provisions of section 71(a) as a sum payable for the support of a minor child under section 71(b). The annulment decree provides, inter alia: [It is ordered] that the defendant, George F. Reisman, shall pay to the plaintiff, Fredricka K. Reisman, the sum of Fifty ($ 50.00) Dollars per week for the support and maintenance of the plaintiff, Fredricka K. Reisman, and the said infant daughter, Lisa M. Reisman * * *. It is plain that there is no "specifically designated" allocation to child support. Since the entire amount of each payment is at Fredricka's unfettered command, it is all includable in her gross income under section 71(a)(1). Commissioner v. Lester, 366 U.S. 299 (1961). This determination is dispositive of George's right to deductions under the corollary section 215(a). 4*179 We therefore hold that the amounts includable in Fredricka's gross income are deductible by George in the year paid. *575 Finally, there is no question as to amounts paid under the annulment decree except in the year 1958. We find such payments amounted to $ 3,524.20 in 1958, which represents total payments of $ 3,674.20 less the $ 150 attributable to reimbursement for court costs incident to the contempt proceedings. To reflect concessions by the parties and our findings and conclusions, Decisions will be entered under Rule 50. Footnotes 1. This is based on the additional amounts George was required to pay Fredricka in 1958 as a result of the contempt proceedings.↩ 2. All statutory references are to the Internal Revenue Code of 1954 unless otherwise indicated.↩ 1. The sum of $ 3,524.20 represents the total payments of $ 3,674.20 less the sum of $ 150 attributable to reimbursement for court costs.↩ 3. SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS. (a) General Rule. -- (1) Decree of divorce or separate maintenance. -- If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such decree in discharge of (or attributable to property transferred, in trust or otherwise, in discharge of) a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation. 4. SEC. 215. ALIMONY, ETC., PAYMENTS. (a) General Rule. -- In the case of a husband described in section 71, there shall be allowed as a deduction amounts includible under section 71 in the gross income of his wife, payment of which is made within the husband's taxable year. No deduction shall be allowed under the preceding sentence with respect to any payment if, by reason of section 71(d) or 682↩, the amount thereof is not includible in the husband's gross income.