Goldring v. Commissioner

JOHN ERNEST GOLDRING, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Goldring v. Commissioner Docket No. 87498. United States Board of Tax Appeals 36 B.T.A. 779; 1937 BTA LEXIS 662; October 27, 1937, Promulgated *662 1. RESIDENCE. - The Commissioner determined that petitioner was a resident alien during 1933. On the evidence that petitioner bought property in the United States in 1930, that he was in the United States some part of the time in subsequent years and lived in the United States continuously from January 1 to May 24, 1933, and on the latter date definitely determined to take up permanent residence in Canada, held, that he was a resident of the United States in the period January 1 to may 24, 1933, and not during the remainder of the year. 2. TRUST INCOME PAID TO DIVORCED WIFE. - In 1930 petitioner's wife, in consideration of petitioner's creation of a trust for her benefit, released her claims against petitioner for the proceeds of stock that had stood in her name and had been sold by petitioner and also released her dower rights in real estate. The trust created by petitioner provided for payment of income to petitioner's wife for her use for life and payment to her of specified sums for support of minor children. Petitioner and his wife were subsequently divorced. Held that trust income paid to the divorced wife during the period of petitioner's residence in the United*663 States in 1933 is taxable to him, following Helvering v. Brooks, 82 Fed.(2d) 173, and Helvering v. Schweitzer,296 U.S. 551. H. B. Jones, Esq., for the petitioner. B. M. Coon, Esq., for the respondent. ARUNDELL *779 In this proceeding the respondent determined a deficiency in income tax for the year 1933 in the amount of $802.80 and a 25 percent delinquency penalty in the amount of $200.70. The issues are whether or not the petitioner was a resident of the United States during any part or all of 1933, and if so whether income of a trust created by petitioner in 1930 and paid to his divorced wife in 1933 is taxable to him. *780 FINDINGS OF FACT. The petitioner resides in British Columbia, Canada, and is a citizen of Canada. He was born in Canada and has always been a Canadian citizen. In 1912, when a resident of Toronto, he married Robena Nicholas and they thereafter lived together in Toronto until in 1930. They had two children, John Elmer Goldring, Jr., born November 30, 1913, and Robena Lenore Goldring, born May 3, 1915. In 1925 the petitioner was a stockholder of Simpson's Ltd. *664 , a Canadian corporation. An opportunity was offered him to acquire 3,000 additional shares at $35.33. Neither he nor his wife had the funds to purchase the stock outright and the petitioner was reluctant to personally go in debt to make the purchase. He discussed the matter with his wife and they concluded that it would be advisable to borrow the money to buy the stock and have the shares placed in the name of the wife. That procedure was adopted. They procured a loan from a bank on a note signed by both and deposited as collateral the Simpson's stock and other securities. Thereafter, until 1929, dividends on the stock were applied against the loan. In 1929 an offer of $150 per share was made for the Simpson's stock. In June 1929 petitioner sold his own stock and, with the knowledge and consent of his wife, sold the 3,000 shares registered in his wife's name. The proceeds were received by the bank and part of them was used to pay off the unpaid balance of the loan made at the time of purchase of the 3,000 shares and the remainder was credited to petitioner's account with the bank. Subsequently the bank, at petitioner's direction, purchased other securities for him with the*665 funds in his account. About June 1930 the petitioner bought a house in Beverly Hills, California, with title thereto in himself and his wife as joint tenants, and he and his wife at that time intended making their home there. At about this same time some marital difficulty arose between petitioner and his wife. Shortly thereafter the wife employed an attorney, who made a demand on the bank that had handled the Simpson's stock for the proceeds of the sale and threatened suit to recover some $450,000. She had not previously discussed the matter with the petitioner. After conferences between the petitioner, the attorneys for the bank, and Mrs. Goldring's attorney, it was decided that the petitioner would create a trust with the income payable to his wife in settlement of her claims against him and the bank. Accordingly, on August 1, 1930, an agreement between the petitioner and his wife was executed wherein the wife, in consideration of the creation of a trust for her, released the petitioner from all claims arising out of the Simpson's stock transactions; she also released her dower rights, but retained the right to occupy the Beverly Hills property. In that *781 agreement*666 the parties thereto are named as: "Robena Nicholas Goldring, of the City of Beverly Hills in the State of California of the United States of America, wife of John Ernest Goldring, of the same place hereinafter called the party of the first part, and the said John Ernest Goldring hereinafter called the party of the second part." On the same date, by a separate document, the wife released the bank from all claims arising out of the Simpson's stock. On the same date, August 1, 1930, and as a part of the same transaction, the petitioner as settlor, his wife as beneficiary, and a Toronto trust company as trustee entered into a trust agreement. The agreement names the settlor as "John Ernest Goldring, of the City of Beverly Hills, in the State of California" and the beneficiary as "Robena Nicholas Goldring * * * of the same place." The trust agreement recites that an agreement had been reached between the settlor and beneficiary as to certain claims made by the beneficiary, and that property listed in an attached schedule had been delivered to the trustee in trust for the beneficiary and for the two children of the settlor and beneficiary. The property delivered to the trustee consisted*667 of stocks and bonds of the par value of $400,000. The trust agreement was modified by a supplemental agreement entered into on February 17, 1932, between "John Ernest Goldring of Los Angeles, California" and "Robena Nicholas Goldring of Beverly Hills, Los Angeles County, California." The trust agreement, as modified, provided that the trustee should divide the corpus into two parts of $200,000 each; that the wife was to receive the income from one of such parts "for her separate maintenance and support" and in the event such income did not amount to $800 per month the trustee was to pay out of the corpus enough to make up that amount; out of the other one-half of the trust fund the trustee was to pay the wife $100 per month "for the support of each child" * * * "that is, for food and shelter, clothes, tuition and entertainment * * *." Other provisions of the trust were that if the wife remarried the amount payable to her for her maintenance and support was to be reduced by one-half; upon the death of the wife the part of the corpus set aside for her benefit was to be added to the part set aside for the children; upon the death of the petitioner or upon the children reaching specified*668 ages, whichever occurred later, the children were to receive outright a part of the corpus and ultimately all of it. At the time the agreements of August 1, 1930, were executed petitioner and his wife had not separated, and there had been no discussion of the possibility of a divorce. After the agreements were signed, Mrs. Goldring sold the furniture in the Toronto residence and at that time a separation occurred. They never thereafter lived *782 together. Mrs. Goldring went to California in August or early in September and the petitioner stayed at a hotel in Toronto. Later, in September 1930, the petitioner went to California. At that time he had some investments in Canada and he maintained his office and a secretary at Toronto. From that time through May 1933 the petitioner resided in California, but occasionally went back to Canada. In the early part of 1931 Mrs. Goldring instituted a suit for divorce in the Superior Court, Los Angeles County, California. An interlocutory decree was entered on March 23, 1932, and a final decree of divorce was entered on March 24, 1933. No provision was made in either decree for alimony or for support of the wife or the children; *669 no mention is made in either decree of any settlement of property rights. Shortly after the final decree was entered the petitioner married a Canadian citizen who desired to return to Canada and take up permanent residence there. On May 24, 1933, they left the United States and went to Canada with the intention of establishing residence there. Their subsequent entries into the United States have been only for the purpose of making temporary visits. The petitioner was a resident of the United States from January 1 to May 24, 1933, but not thereafter in the year 1933. During the period January 1 to May 31, 1933, the trustee under the above trust agreement paid to petitioner's divorced wife for herself and the children the following amounts: Trust account of Mrs. Goldring $3,807.05 Trust account of John E. Goldring, Jr 750.53 Trust account of Robena Lenore Goldring 606.26 For the year 1933 the Commissioner prepared a return for the petitioner under the provisions of section 3176 of the Revised Statutes, showing therein as "income from fiduciaries" the amount of $12,000 and as dividends from "United States investments" the amount of $25.46. The deficiency*670 determined is based on that return. To the deficiency determined in the amount of $802.80 the Commissioner has added a 25 percent penalty of $200.70. OPINION. ARUNDELL: This proceeding raises two questions. First, whether or not the petitioner was a resident of the United States after May 24, 1933. Second, whether he is taxable on the income from the trust created in 1930 for the benefit of his wife and children. In determining the deficiency herein the respondednt regarded the petitioner as a resident of the United States during the entire year 1933, and treated as taxable to him the $9,600 payable to petitioner's divorced wife for her use and also the $2,400 payable to her for the support of the two children. *783 In the amended petition filed the petitioner alleges that he "ceased to be a resident of the United States on or about the 24th day of May, 1933." This we take to be a concession that he was a resident in 1933 until May 24. However, if the quoted allegation can be construed otherwise, the evidence satisfies us that he was a resident from January 1 to May 24, 1933. He bought a house in California in the summer of 1930 and he and his wife intended to*671 establish their residence there. Because of subsequent marital difficulties he never occupied the house, but it is at least doubtful whether he abandoned his intention of establishing residence in California. He retired from active business in Canada, closed his house there, and went to California in September 1930. The petitioner's testimony is that after he and his wife separated he decided that he would not become a permanent resident of the United States. Permanent residence is not necessary to bring an alien within the definition of a resident. See article 1022, Regulations 77. Cf. . The evidence as to petitioner's activities from September 1930 to 1933 is very meager. His testimony is that in that period he was in California "off and on. I was touring around a great deal * * *. We were back and forth to Canada * * *. I was not a permanent resident of any place. I spent some weeks out in the south part, California, in a beach home." In the year before us, 1933, he was living in California at the beginning of the year and remained there until May 24. During the period when, as he testified he was in California "off and*672 on", he several times declared himself to be a resident of California. These declarations appear in the written documents of August 1, 1930, and February 17, 1932, which are described in the findings of fact. The evidence on the point of residence up to May 24, 1933, not only fails to overcome the presumptive correctness of the Commissioner's determination, but tends to support it. For the remainder of the year we are satisfied that the petitioner was not a resident of the United States. The evidence is that on May 24, 1933, he and his second wife packed up their possessions and departed from the United States with the definite intention of taking up residence in Canada and that they carried out that intention. They have been in the United States since then, but only for temporary visits. Consequently, we hold that the petitioner can be classified as a resident in 1933 only for the period ending May 24. The decisions concerning the taxability of income from trusts established by husbands for the benefit of wives have been recently summarized in *673 , as follows: It is now well settled, following the decision in , that the income of a trust paid directly to a divorced wife is taxable to *784 the husband who created the trust, whenever the purpose of the trust and the provision for payment of its income is to satisfy a legal obligation of the husband to support and maintain his wife, whether the satisfaction of that obligation results from the payment of alimony decreed by a competent court, or from the carrying out of a separation agreement which provides for such payments in lieu of alimony, dower, or other rights of the wife in the property of the husband. ; . See also , reversing ; , reversing . In several recent cases, however, this proposition has been limited, where it appeared that the legal obligation of the husband to support*674 and maintain his wife had been terminated, under the law of a particular state, by divorce or by subsequent remarriage of the wife; ; affd., Fed.(2d) (June 28, 1937); ; . And in these cases it was held that the income of the trust distributed to the wife after divorce or remarriage is not taxable to the husband. Also, it is now held that income from trusts created for the support of minor children is taxable to the settlor where he is under a legal duty to support them. ; . The $400,000 face amount of securities placed in trust in this case was held by the trustee on two trusts; one for the benefit of the wife for life and the other for the benefit of the two children. The corpus of each was $200,000. At the time the trust instrument of August 1, 1930, was executed by petitioner and his wife they had reached an agreement settling their dispute over the proceeds of the sale of the Simpson's stock. *675 The trust instrument refers to the fact that an agreement has been reached in connection with certain claims made by the wife. The settlement agreement of the same date refers to the creation of the trust. The settlement agreement provides that "in consideration of the settlement of said stocks and securities [in trust] and of certain other good and valuable consideration" the wife accepts the trust provisions in settlement of her claims in connection with the Simpson's stock and releases her dower in a described parcel of Canadian realty and in any of the lands owned by the petitioner. These facts bring the case within the holding of There a husband created an irrevocable trust, to pay the income to his wife as a settlement of their property rights arising from the marital relation. A divorce decree subsequently granted to the wife contained no provision for alimony or settlement of property rights. The opinion reads in part: * * * The taxpayer argues that there is a distinction between an agreement to pay alimony and an agreement for the settlement of property rights between husband and wife. The asserted distinction is without*676 substance on the present issue. Whether the trust income is used to discharge the husband's duty, made specific by agreement, to support the wife, or to discharge *785 an obligation to pay her agreed sums for a release of rights in his property cannot be material in determining the taxability of the husband. The creation of a trust the income of which is to be used to discharge any legal obligation of the settlor enables him to enjoy the benefit of the income; hence the income is properly taxable to him. See, as apparently contra to the Brooks and Coxey cases, . The argument of the petitioner follows that made in the Brooks case, supra, claiming a distinction between agreements for ettlement of property rights and agreements in contemplation of divorce for the purpose of discharging a husband's family obligations. If any such distinction can be drawn from the decided cases it can not be made here. Although the petitioner testified that the matter of a divorce had not been mentioned when the agreements of August 1, 1930, were executed, it is obvious from the entire record that a separation*677 was imminent. Some marital difficulty had arisen in June 1930; this was followed by the wife's demand for some $450,000 repreenting the proceeds of the stock: shortly after the agreement the wife sold off the household furniture and, as the petitioner testified, he was forced to move to a hotel in Toronto and Mrs. Goldring went to California. Moreover, the language of the agreements here definitely establishes that they were entered into for the specific purpose of providing for the support of the petitioner's wife and children. Under the trust agreement the wife was to receive certain sums for life "for her separate maintenance and support" and specified amounts for the "ordinary support" of the children. Consequently, it can not be said that they were solely for the purpose of settling the wife's claim growing out of the Simpson's stock or that they were made without reference to petitioner's obligations to support his wife and children. This case is not like the case of , where under state law there was no obligation on the part of the husband to support his wife after divorce. *678 See also . The statutes of California, applicable here, make it discretionary with the divorce court to compel the husband to provide for support and maintenance of the wife and cahildren. Secs. 137, 139, 142, Civil Code of California. We are of the opinion that all of the income distributed to the wife in 1933 prior to May 24 is taxable to the petitioner for the reasons above given. If it can be said that the income from $200,000 of the trust fund is primarily for the support of the children, rather than in settlement of the wife's claimed property rights, then that part of the income becomes taxable to the petitioner under the Schweitzer and Grosvenor case, supra. The son did not become of age until November 1, 1934, which was after the taxable period. The *786 daughter became of age on May 3, 1933. On May 1, 1933, she received the last installment of the amount set out in the findings of fact as the amount paid her in 1933 prior to the time that the petitioner gave up residence in the United States. The petitioner having failed to file a return for the year 1933, the imposition of a 25 percent penalty is*679 mandatory. ; affd., . Decision will be entered under Rule 50.