Court Opinion

ID: 9444017
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:38:29.747806+00
Date Added: 2024-06-11T17:29:41.176254
License: Public Domain

SWAN, Circuit Judge
(dissenting).
I agree that the 1929 separation agreement was “incident to” the divorce thereafter obtained. This is indicated by paragraph vi which provides that the payments shall continue during the wife’s life “irrespective of any change in the status of either party.” I agree also that the dividend-deficiency payments which the husband was obligated to malee were “periodic payments” within section 22 (k) of the Internal Revenue Code. I am unable to agree that the sum of $10,720 paid to her in 1946 was paid pursuant to the 1929 agreement. That agreement was superseded by the 1946 agreement as expressly therein stated, as follows:
“1. This agreement is in lieu of and supersedes as of January 1,1946 all other previous agreements between the parties, and Grant shall have no claim or claims of any kind upon Ross and Ross shall have no further obligations to Grant to make any payments or disbursements to or for her use or benefit except as herein expressly provided.”
The obligations Ross undertook by executing the 1946 agreement were to maintain the insurance policy and pay the premiums thereon (paragraph 5), and to pay Grant $10,720 and her attorney $1,500 (paragraph 7). It is true the payments required by paragraph 7 were to be made “upon the execution of this instrument.” It is true also that the $10,720 sum payable to Grant was described as “the amount due and owing to her up to January 1, 1946 pursuant to the separation agreement dated April 1, 1929.” But neither the description of the sum nor the fact that it was payable contemporaneously with executing the agreement militates, in my opinion, against the view that the obligation which the payment satisfied was the obligation Ross assumed in the 1946 agreement. The later agreement was to supersede the earlier and to put an end to Grant’s claims under the earlier. “An existing claim can be instantly discharged by the substitution of a new executory agreement in its place.” Cor-bin, Contracts, § 1293. Hence I think the payment was made pursuant to the later agreement.
This conclusion, however, is not itself dispositive of the case. It may well be, as the Commissioner’s brief suggests as an alternative argument, that the 1946 agreement was itself “incident to” the divorce since it superseded one which was. See Mahana v. United States, 88 F.Supp. 285, 290, 115 Ct.Cl. 716, cer-tiorari denied 339 U.S. 978, 70 S.Ct. 1023, 94 L.Ed. 1383; Smith v. Commissioner of Internal Revenue, 1 Cir., 192 F.2d 841, 842. Granting that the 1946 contract was incident to the divorce, the question then arises were the payments made pursuant to that agreement “periodic” payments. I do not think they were; they satisfied all Ross’ obligations except his promise to pay insurance premiums. Cf. Frank J. Loverin v. Commissioner of Internal Revenue, 10 T.C. 406; Gale v. Commissioner of Internal Revenue, 2 Cir., 191 F.2d 79, 81.
I am unable to follow my brothers’ conclusion that here the ordinary rules relative to private rights and duties growing out of a particular contract must give way to the paramount purpose of the tax statute to lessen the tax burden of a divorced husband. In my opinion that states the purpose of the statute too broadly. Section 22 (k) and section 23 (u) tax the recipient of alimony payments and give the payor the privilege of deduction provided the payments are “periodic”; otherwise not. For all we know the parties may have purposely drawn the 1946 contract so that the husband would have to pay the tax on the 1946 payment; he might well have been willing to do that in order to be relieved of future dividend-deficiency payments to the divorced wife and to obtain favorable modifications with respect to the $50,000 insurance policy. I think the decision of the Tax Court should be reversed.