Court Opinion

ID: 4603346
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:31:45.856617+00
Date Added: 2024-06-11T07:52:50.320449
License: Public Domain

FRANK G. HOGAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Hogan v. CommissionerDocket No. 75648.United States Board of Tax Appeals35 B.T.A. 26; 1936 BTA LEXIS 570; November 5, 1936, Promulgated *570  1.  Income of 1931 from a trust of which a husband is a beneficiary, assigned by him in 1918 to his wife in contemplation of divorce, is within the husband's 1931 gross income.  2.  Payments made in 1931 by an individual upon a note given in 1930 in discharge of a guaranty voluntarily given in 1925 to another that an investment would not fail, held not deductible, for the want of evidence that the payment was in the course of trade or business or a transaction entered into for profit.  A. Calder Mackay, Esq., and Arthur McGregor, Esq., for the petitioner.  Frank M. Thompson, Esq., for the respondent.  STERNHAGEN *26  The Commissioner determined a deficiency of $412.33 in petitioner's income tax for 1931.  Petitioner assails (1) the inclusion in income of an amount paid by the trustee of a trust, of which he was beneficiary, to his divorced wife, pursuant to a property agreement with her, and (2) the disallowance of the deduction as a loss of payments made in fulfillment of his guaranty against loss to an investor in the stock of a corporation in which he was interested.  FINDINGS OF FACT.  1.  Petitioner, a resident of Pasadena, California, *571  is beneficiary of a trust created by the will of his mother, who died in 1907, the trustee to pay him "the net income thereof to be by him used and expended for the support and maintenance of himself or of the members of his family in such proportions as he may from time to time think best." On petitioner's death, the trust is continued for the equal benefit of his children, who "shall receive their several proportions thereof" on reaching the age of 30 years.  Petitioner before 1918 regularly received the entire trust income in monthly installments.  In 1917 his total income amounted to $18,212.99, all of which was derived from the trust except $1,500 received as salary and dividends; in 1918 his income was probably less.  In February 1918, while enlisted in the Navy and stationed near Seattle, Washington, he and his wife discussed a property settlement between them which was incorporated in a written agreement executed in September 1918.  This instrument recites that marital differences made it impossible for the two to live together as husband and wife, and among other arrangements petitioner: * * * hereby assigns makes over and transfers to the second party one-half of the*572  net income from the fund left by his mother, * * *, in trust for him during his life, * * * less *27  $2,500 for each of the next 16 years, the trustee to pay her portion to the wife at such times as it paid his portion to petitioner.  In case of the wife's remarriage, she was to receive from the trust only $2,500 a year for as many years as should have elapsed between the date of the contract and the date of her remarriage, and the two daughters were to receive "fifty per cent of one-half of the annual net income from said trust fund, less Twenty-five Hundred Dollars * * *." Petitioner also transferred to his wife all his right, title, and interest in certain life insurance policies, on which he was to pay the premiums, and made further provisions for her benefit.  In February 1918 petitioner and his wife first discussed divorce; they have never lived together since.  On July 3, 1919, the Jefferson Circuit Court in Kentucky entered a judgment granting her a divorce from petitioner and making the property agreement a part thereof, with reservation of the court's right to alter, amend or change it in respect of the maintenance and custody of a child.  In 1931 the trustee paid*573  $11,903.95 to the wife from trust income.  2.  Petitioner was the organizer and a large stockholder in the Hogan Finance & Mortgage Co.  On August 15, 1925, a salesman brought into his office, as a prospective purchaser of stock in the company, a nurse who was willing to invest her life savings in the stock if petitioner would guarantee her against loss.  The company was then in good condition, and out of "bigness of heart or suckerplay" petitioner gave her a written guaranty that at the end of five years he would repurchase her stock at the price paid by her, if requested.  In 1930 the company became financially distressed, the stock had no market value, and the nurse made demand on petitioner for reimbursement of her investment, threatening suit.  Petitioner gave her his note for the amount, $3,437.50, and has since paid monthly installments on it of from $25 to $100.  During 1931 he paid a total of $600.  OPINION.  STERNHAGEN: 1.  The decision in ; ; and *574 , establish that income from a trust created by a husband to provide support for his wife and children is within his gross income.  This was later applied to income from a trust assigned to the wife after separation but before divorce, which was not embodied in the divorce decree, , reversing . In  (on review, C.C.A., 4th Cir.), trust income which was thus assigned by the husband for support in contemplation of a divorce which subsequently occurred was held to be within his gross income.  These decisions completely support the Commissioner's inclusion in petitioner's *28  income of the trust income which was paid to her in 1931 pursuant to the agreement of 1918 embodied in the divorce decree of 1919.  There is no need to consider the rule that an assignment of future income does not relieve the assignor of tax unless there is also an assignment of a present interest in the principal.  The petitioner attempted by his oral testimony to show that the 1918 agreement was not made in*575  contemplation of divorce; but the agreement and its embodiment in the divorce decree too clearly establish the anticipation of divorce to be affected by oral contradiction.  Testimony was also offered, of a lawyer who had been a judge in divorce proceedings in California, to show how much of the trust income could reasonably be regarded as in lieu of alimony.  On objection, this testimony was excluded.  The Commissioner's determination on this point is sustained.  2.  The petitioner deducted the $600 paid in 1931 on his note given in 1930 to mkae good his assurance to the purchaser of shares of stock in the finance corporation in which he was a large shareholder.  The Commissioner disallowed the deduction.  There is no evidence to show that this payment was made either in the course of his trade or business or in a transaction entered into for profit.  He was not selling the shares, and what his trade or business was is not shown.  Apparently he acted voluntarily and gratuitously.  In this he is in no stronger position than the taxpayer in *576 , who reimbursed his mother-in-law for losses which she had sustained in her investments which he had gratuitously guaranteed.  His interest in the corporation as a shareholder will not identify him with it, ; certiorari denied, . See also ; ; certiorari denied, ; ; ; and . The Commissioner's disallowance of the deduction is sustained.  Judgment will be entered for the respondent.