Opinion ID: 378314
Heading Depth: 1
Heading Rank: 2

Heading: periodicity of payments

Text: 6 Bernstein argues that the periodicity of payments for purposes of section 71(a)(1) should be determined by examining all payments required by the decree as a single stream of payments and by applying to that single stream the appropriate characterization. When this is done it is clear that the total amount that his former wife will receive and the duration of payments is uncertain. From this it follows, Bernstein insists, the payments are periodic. This conclusion is reinforced by the fact that his former wife received the value of one half the family assets under a separate and distinct property settlement provision in the decree. 7 The Commissioner rejects this approach. Initially he points out that the legislative history of section 71 makes clear that periodic payments are only those made in recognition of the general obligation to support . . . . H.Rep. No. 2333, 77th Cong., 1st Sess., at 72 (1942), reprinted in 1942-2 C.B. 372, 428; see Coker v. United States, 327 F.Supp. 169, 172-75 (D.Neb.1971), aff'd, 456 F.2d 676 (8th Cir. 1972); Sharp v. Commissioner, 41 T.C.M. (P-H) P 72,159 (1972). The Commissioner's primary argument, however, is that case law has established that payments pursuant to a divorce decree are not treated as a single stream but rather each type of payment is treated separately and subjected to individual analysis to determine its proper characterization. Fidler v. Commissioner, 231 F.2d 138 (9th Cir. 1956); Hunt v. Commissioner, 22 T.C. 561 (1954); Glasgow v. Commissioner, 21 T.C. 211 (1953); see also Houston v. Commissioner, 442 F.2d 40 (7th Cir. 1971); Knowles v. United States, 290 F.2d 584 (5th Cir. 1961); Bartsch v. Commissioner, 203 F.2d 715 (2d Cir. 1953) (mem.), aff'g 18 T.C. 65 (1952). 8 We agree with the Commissioner. Previously we have expressed a willingness to penetrate attempts to camouflage installment payments by means of a decree that combines them with periodic payments. Fidler, supra, 231 F.2d at 142. To treat payments that would be classified as installment payments if taken in isolation, as periodic merely because they precede such payments in time would add more confusion to an already adequately confused area of tax law. The parties to divorce decrees have considerable freedom in controlling the tax consequences of the divorce. The approach suggested by Bernstein would reduce the scope of this freedom. We believe this would be unwise. 9 Bernstein, however, relies on Glasgow v. Commissioner, supra, 21 T.C. 211 for the proposition that a payment to which the recipient has an indefeasible right may be treated, at least in part, as a periodic payment if it appears to have the same support purpose as clearly periodic payments required by the decree. In Glasgow the taxpayer and his then spouse had negotiated a settlement in advance of a divorce. The taxpayer undertook to pay $12,500 immediately on the granting of the divorce and $3,000 annually beginning on January 15, 1949, which was about one year after the divorce. The Tax Court found that $3,000 of the initial payment was to be paid for the same purpose as the annually recurring payments of $3,000, which were stated (sic ) to begin in January of 1949 . . . . Id. at 217-18. The court, however, singled out no factual circumstances of the case as indicating this purpose. Bernstein points out that during the installment payment years he too was obliged to make no other payments for his ex-wife's support. However, the duration of his installment payments was five years while in Glasgow only a single balloon payment was involved. This might indicate that the purpose of the installment payments here was different from that of the balloon payment in Glasgow. The Commissioner also points out that the Tax Court here found no basis for treating part of the taxpayer's installment obligation as contingent, but neither did the court in Glasgow. In brief, Glasgow provides support for Bernstein's position. 10 Glasgow, however, has never been followed on the point in question. Nor are we inclined to follow it here. In general, we are in agreement with the Tax Court when it observed: 11 We may, we think, take judicial notice that divorce settlements or decrees not uncommonly provide some considerable amount payable immediately to the wife, in addition to regular or recurring payments for current support thereafter. We consider it reasonable to believe that Congress had such a practice in mind and did not intend to make the wife taxable upon the lump sum, original, or principal payment . . . , but that it was something in the nature of a division of capital . . . . At any rate, we think Congress failed to provide that such a payment was periodic . . . . 12 Norton v. Commissioner, 16 T.C. 1216, 1218-19, aff'd, 192 F.2d 960 (8th Cir. 1951). Therefore, we reject the first and third of Bernstein's arguments.