Court Opinion

ID: 4607984
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:41:49.286391+00
Date Added: 2024-06-11T07:53:37.752568
License: Public Domain

Estate of Frank P. Orsatti, Deceased, Estella Orsatti Burress and Bank of America National Trust and Savings Association, Co-Administrators With the Will Annexed, Petitioners, v. Commissioner of Internal Revenue, RespondentOrsatti v. CommissionerDocket No. 13466United States Tax Court12 T.C. 188; 1949 U.S. Tax Ct. LEXIS 280; February 10, 1949, Promulgated 1949 U.S. Tax Ct. LEXIS 280">*280 Decision will be entered for the respondent.  Decedent and his wife, incident to a divorce, entered into a property settlement agreement dated July 16, 1942, which provided that the wife was to receive alimony payments of $ 125 per week for a period of two years or until such time as she died or remarried.  Decedent made such payments to his wife each week from July 18, 1942, continuously until and including July 29, 1944.  Held, the payments made by decedent to his divorced wife in the taxable years 1942, 1943, and 1944 were "installment" payments within the meaning of section 22 (k) and were therefore not deductible under the provisions of section 23 (u) of the Internal Revenue Code.  Arthur Manella, Esq., for the petitioners.Byron M. Coon, Esq., for the respondent.  Arundell, Judge.  ARUNDELL12 T.C. 188">*189  This proceeding involves deficiencies in income and victory tax for 1943 and income tax for 1944 in the amounts of $ 7,461.74 and $ 4,289.71, respectively.The sole question is whether the decedent was entitled, under the provisions of sections 22 (k) and 23 (u) of the Internal Revenue Code, to claim as deductions for the years 1942, 1943, and 1944 certain payments1949 U.S. Tax Ct. LEXIS 280">*281  made by him during these years to his divorced wife.  The Commissioner's disallowance of the deduction claimed by decedent for 1942 is reflected in the deficiency determined for 1943 due to the provisions of the Current Tax Payment Act of 1943.FINDINGS OF FACT.The Bank of America National Trust & Savings Association and Estella Orsatti Burress, the petitioners herein, are administrators c. t. a. of the estate of Frank P. Orsatti, hereinafter sometimes referred to as decedent.Decedent was a resident of Los Angeles, California, and filed his Federal income tax returns for the years involved with the collector of internal revenue for the sixth district of California.Frank Orsatti and Lien Orsatti were married on or about December 26, 1940.  For some three of four months prior to July 16, 1942, decedent was dissatisfied with his marital status and the conduct of his wife and was advised by his attorney that he had grounds for obtaining a divorce. His attorney also advised him to discuss the matter with his wife and suggested that he have her consult an attorney for the purpose of arriving at a property settlement and perhaps permitting her to obtain the divorce. Lien Orsatti retained1949 U.S. Tax Ct. LEXIS 280">*282  counsel and thereafter the parties' attorneys negotiated a property settlement which was embodied in a written instrument executed by Frank P. and Lien Orsatti on July 16, 1942.This property settlement provided in part as follows:Husband agrees, by way of alimony and as and for the maintenance and support of Wife, to pay to Wife the sum of One Hundred Twenty Five Dollars 12 T.C. 188">*190  ($ 125.00) per week commencing with the 18th day of July, 1942, and a like payment of One Hundred Twenty Five Dollars ($ 125.00) per week for each and every week thereafter for a period of two (2) years or until the Wife remarries or dies, whichever of the foregoing first occurs.This agreement was executed by the parties incident to and in contemplation of a divorce. On July 24, 1942, Lien Orsatti instituted divorce proceedings in the Superior Court of the State of California in and for the County of Los Angeles.  On August 20, 1942, she was granted an interlocutory judgment of divorce by that court.  On August 23, 1943, the same court entered a final judgment of divorce between Lien Orsatti and Frank P. Orsatti.Neither the interlocutory nor the final decree made any reference to the agreement of July1949 U.S. Tax Ct. LEXIS 280">*283  16, 1942, or made any further provision for alimony.Commencing on July 18, 1942, Frank Orsatti paid to Lien Orsatti $ 125 per week continuously until and including July 29, 1944, these payments amounting to $ 3,000 in 1942, $ 6,500 in 1943, and $ 3,250 during 1944.  Prior to August 20, 1942, the date of the interlocutory decree, 5 such payments, amounting to $ 625, had been made and prior to August 23, 1943, the date of the final decree of divorce, 58 payments, amounting to $ 7,250 had been made.  These payments were shown on the books of the Orsatti Agency and charged to the account of Frank P. Orsatti, as partner.Frank P. Orsatti died on May 19, 1947.  On July 16, 1947, the Superior Court of the State of California in and for the County of Los Angeles issued letters testamentary appointing the Bank of America National Trust & Savings Association and Estella Orsatti Burress as administrators c. t. a. of the estate of Frank P. Orsatti.The deficiency notice in the instant case reads as follows:In computing your liability under the Current Payment Tax Act of 1943 and the calendar year 1944, the amounts of $ 3,000.00, $ 6,500.00 and $ 3,250.00 claimed as deductions on your returns1949 U.S. Tax Ct. LEXIS 280">*284  for 1942, 1943 and 1944, respectively, representing payments allegedly made to Lien Orsatti (now Lien Rubin), your divorced wife, have been disallowed since such amounts do not constitute proper deductions within the meaning of section 22 (k) of the Internal Revenue Code.OPINION.The principal issue between the parties is whether, under the facts in the instant case, payments made by decedent to his wife pursuant to the property settlement agreement incident to their divorce were "periodic" or "installment" payments within the 12 T.C. 188">*191  meaning of section 22 (k) of the Internal Revenue Code.  11949 U.S. Tax Ct. LEXIS 280">*285  The deductibility of these payments by decedent under section 23 (u)2 rests upon the determination of this issue.Petitioners point to the fact that under the agreement herein the total amount which decedent was obligated to pay was contingent upon the death or remarriage of the wife.  Petitioners contend that the settlement agreement, which provided for payments of $ 125 per week for 104 weeks, set only a maximum ceiling and did not constitute "an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument" and the payments were therefore "periodic."This issue is essentially the same as that presented in J. B. Steinel, 10 T.C. 409, and we regard our ruling in that case as determinative of our decision herein.  In J. B. Steinel, supra, we held that the word "obligation" 1949 U.S. Tax Ct. LEXIS 280">*286  as used in section 22 (k) is to be construed in its general sense and as including obligations subject to such contingencies as the death or remarriage of the divorced spouse "where those contingencies have not arisen and have not avoided the obligation during the taxable years."On the authority of this interpretation of section 22 (k) we are of the opinion that the "principal sum" of an obligation may be "specified" in a decree or instrument regardless of the fact that the obligation to make payments thereon may be cut short by the death or remarriage of the wife.  We believe that the principal sum must be regarded as specified until such time as the contingencies actually arise and avoid the obligation.We are in agreement with counsel for petitioners that it is of no importance that under the settlement agreement one must multiply the specified weekly payments by the number of weeks over which they 12 T.C. 188">*192  were to be paid to determine the principal sum specified.  There is at best only a formal difference between such a decree and one where the total amount is expressly set out.  J. B. Steinel, supra.The cases of Roland Keith Young, 10 T.C. 724,1949 U.S. Tax Ct. LEXIS 280">*287  and John H. Lee, 10 T.C. 834, relied upon by petitioners, are distinguishable upon the terms of the instruments involved in those cases.Upon authority of J. B. Steinel, supra, we hold that the payments made by decedent to his divorced wife are "installment" payments within the meaning of section 22 (k) and, therefore, are not deductible under section 23 (u).  The respondent's determination must be sustained.Decision will be entered for the respondent.  Footnotes1. SEC. 22. GROSS INCOME.* * * *(k) Alimony, Etc., Income.  -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments * * * received subsequent to such decree in discharge of * * * a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife * * *.  Installment payments discharging a part of an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument shall not be considered periodic payments for the purposes of this subsection↩ * * *.  [Italics supplied].2. SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:* * * *(u) Alimony, Etc., Payments.  -- In the case of a husband described in section 22 (k), amounts includible under section 22 (k)↩ in the gross income of his wife, payment of which is made within the husband's taxable year.