Grant v. Commissioner of Internal Revenue
209 F.2d 430
2d Cir.
1953
Check Treatment

*3 SWAN, ME- FRANK and Before DINA, Judges.

Judge. FRANK, Circuit wisely taxpayer I. As the conceded argument court, oral in this on days

agreement, made some 35 before began, suit was “incident divorce to” divorce.1 If, Ross, more, without May 1946, paid $10,- had Jane Grant the agree due under ment, indisputable have been “periodic pay sum that that ments,” constituted statute, taxable to her under the notwithstanding they paid were in a making lump. delay pe several change payments does not their riodic original character.2 We think same In Izrastzoff Commissioner -See 2. Estate of Narischkine v. Commissioner Cir., Revenue, 2 Revenue, ternal of Internal T.C. af Commissioner of Internal Reve Lerner v. firmed 2 189 F.2d 257. judi- agreement cept.” demonstrates He here, since is true opinions cial tion, which voice the distinc- as “the plainly describes vary actually Jan “the solutions due and amount uary 1, separation purposes in view and with the char- pursuant solved”;3 April 1, problem acter of the to be dated settlement contends, by government and he how in shows some instances As the 1929.” agreement May, separate may courts suits very held terms brought supersede separate prom- for breaches of did not undertake given single January agreement previous ises in one for a 1929 1946, $10,720 had be consideration.4 Nevertheless we shall assume, time the *4 obligation. arguendo, of that the courts Ross’ fixed come York, 1946 where the contract was however, taxpayer, the stresses The performed, made and was to be agree- that, pursuant 1946 to the fact wholly hold that that contract was uni- $10,720 ment, as paid con- Ross her “the tary determining purpose for the of the discharge of Ross’ full the sideration for future, rights obligations parties and of the obligations sup- past as well as between themselves. stock,” the plement” “dividends on the insurance in Ross’ “for reduction apply provision and policy.” a But we must here a of argues, $10,720, was she the federal Revenue Code with re due lump sum, Tax Court gard congressional and the purpose therefore a to the it em unitary “ignored erroneously na- the bodies, e., i. to lessen tax of burden agreement which May 1946 allowing of the ture” a divorced husband him to receipt “gave a mere gross far more than income, Ross deduct his from in com point.” Al- what owed that puting income, periodic for though he his taxable net stipulation states facts alimony of payments. have in mind We $10,- nothing except the that she received 720, Supreme decisions that on Court dwell although in in this and her briefs peculiar perspective many of tax mention of the item telling legal she makes no laws, signifi court us that attorney’s fees, we shall angle of (relevance) of from cance facts assume, arguendo, paid Ross that that of laws is often not those identical with taxpayer’s assumption, On that legal sig item. (“private law”) their usual augmented By argument may thus: Supreme Thus holds nificance. Court $12,- agreement, received legal she govern of rules that the niceties i.e., $10,720plus her re- ing rights obligations $1500 private in re —for and 220— obligation (a) lease of $10,720 Ross’ spect to estates or remainders must trust alimony (b) and of yield purpose of the revenue statu obligations important from due other As have tax tes.5 we said: “Income agreement. Even Ross under the pure ‘law’ is a matter of reason. not so, Tax cor- we think the Court’s decision composite a of constitutional doctrine is changing rect. interpretations of statu having history. tory provisions each Corbin, great master of the “law of meaning ascertaining the In those contracts,” deems distinctions be- guided by provisions, we must be “divisibility” “entirety” and of a tween light Supreme We Court decisions. single largely mirage-like, crea- serving ju merely reflector, a as a are obscurity,” tive of “confusion expressing merely our Nor is dicial moon.”6 usable con- “no clear and 991; Helvering 356, v. 74 L.Ed. 694-696, S.Ct. Corbin, (1951) 3. 3 Contracts §§ 336, 335, Clifford, 331, 60 S.Ct. 309 U.-S. 698. Helvering Hallock, 788; 554, v. 84 L.Ed. § 4. Ibid. 118, 444, 698. 106, 84 L.Ed. 60 S.Ct. 309 U.S. Bowers, Sec, g., 281 U.S. e. Corliss Internal Reve- 376, 379, v. Commissioner L.Ed. 6. Choate 50 S.Ct. 497, 503, Tyler States, U.S. United Any spe us to “universe of discourse.” such induces moon-like function think-world) (or just mean cialized has talk-world include as elsewhere ing atti fact— its own restricted “attentional what is a of a fact—indeed tudes,” reality purpose in hand— and confers accent of often with the varies (and un g., fact to on some matters accent of the same e. a hammer is not reality upon others) physicist painter, in another carpenter, a whereas a a legal (that what alternative realm talk-world decedent’s a murderer —so special example) depends estates for some of the reals a on the fact often unreals, legal question the “tax-law” world become context ghosts phantoms. particularly, applying or arises.7 More statutes, Supreme fre tax quently Consequently, we think away interpreta from the turns ordinary rules, rights private relative to “pri “local” or tions conduct under growing and duties out of the facts of “speak law,” vate that it is and remarks particular contract, give way a must ing deal with reference to taxation” paramount aim of the revenue stat ing purposes.” an event “for See, g., ute before us here. e. Lucas v. *5 When, cases, says in tax the Earl, 111, 114, 241, 281 U.S. 50 S.Ct. * ** eminently because is “taxation 731, (per 74 L.Ed. where the Court 10 regards practical,” rath Holmes, it “substance” J.), applying when a section of through “form,” Act, disregarded legal er a than or looks the Revenue the “disguise” consequences “masquerade” of a contract state “sham” or under 11 Accordingly, applying “law.” “realities,” in saying, Section in it is ef (k) case, payment 22 to this we take the fect, that it treats as mere “form” or periodic the of of arrears sums due un a in as “sham” that which a different der the 1929 contract the the as nub of legal setting represents “substance” or 1946 contract in whatever was done “reality.”12 thinking in the do carrying it out.13 necessarily main of “tax law” con operates specialized textual. It in a Affirmed. single perspective Revenue, 439, 436, 7. Nor is a in of there even Internal U.S. 319 1132, 1499; Gregory the of area federal taxation: 63 S.Ct. Conduct 87 L.Ed. uniformly interpreted creating Helvering, 465, 266, is not as v. 293 U.S. 55 S.Ct. gift gift-tax Act, 596; States, a under the income- 79 L.Ed. cf. Kocin United v. Act, Cir., 707, tax Act. See 2 estate-tax F.2d 187 708. Commissioner Internal Revenue v. Judge Hand, dissenting, 12. Cf. Learned in Cir., Beck, 243, 246, 2 where Sage v. Commissioner of Internal Reve- suggested, “Perhaps assuage we feelings to 221, 224, 225; 2 F.2d 83 Com- understanding and aid the missioner of Internal Revenue v. San- taxpayers, Congress might affected use sone, 931, 933; Paul, 2 60 F.2d symbols different to describe the taxable (1937) Studies in Federal Taxation 88- statutes, calling conduct in the several 91; Paul, Selected in Studies Federal ‘gift’ gift law, ‘gaft’ a in the tax a Taxation, (1938) 200; Second Series law, ‘geft’ income and a in the estate Paul, 2 Federal & Gift Estate Taxation tax law.” (1942) 1084. Bowers, 376, 378, 8. Corliss v. 281 U.S. 50 government suggests, 13. As the it was 336, 337, S.Ct. 74 L.Ed. 916. taxpayer, May natural for in the 1946 See, contract, g., improved 9. e. Commissioner of Internal because of Reve- earn- Sunnen, ing capacity 591, 604, nue v. 333 condition, U.S. S. financial to 68 715, 722, 898; Higgins Ct. Smith, 92 future, L.Ed. make concessions to as but 473, only 476, period 355, 308 U.S. she did this as to S.Ct. after January 1, 1946, 84 L.Ed. 406. at which time was her. Tyler See, g., States, 10. e. v. United laying We are not to be understood as 497, 503, 356, 359, U.S. 50 S.Ct. 74 L.Ed. rigid governing a down rule all contracts 991. agrees sum, in which a husband a See, Higgins g., Smith, e. regardless amount, U.S. (1) its 473, 476, 355, 406; 60 S.Ct. periodic payments very L.Ed. (2) other Properties, Moline Inc. v. Commissioner substantial consideration. “An earlier. Judge, in to under the Grant’s claims MEDINA, concurs Circuit instantly existing dis- claim can be the result. charged by a new the substitution agreement place.” executory Cor- Judge SWAN, (dissenting). Contracts, bin, I Hence think § agree- agree separation I that the 1929 payment pursuant was made there- to” divorce was “incident ment agreement. later by indicated This is obtained. after paragraph provides however, that conclusion, vi which is not itself This during be, wife’s payments may dispositive continue well shall of the case. change any suggests “irrespective as life as the Commissioner’s brief agree party.” I also argument, an the 1946 status either alternative that dividend-deficiency payments agreement to” the itself “incident was obligated to superseded was which husband divorce one since it payments” “periodic States, within malee were was. Mahana v. United See 285, 716, Revenue (k) F.Supp. 290, of the Internal cer- section 22 115 Ct.Cl. agree I unable Code. am tiorari 1023, 70 S.Ct. denied U.S. $10,720 paid in 1946 was to her sum of 94 L.Ed. Smith v. Commis- agreement. Revenue, Cir., paid pursuant the 1929 sioner of Internal agreement superseded Granting That was that the 1946 agreement expressly divorce, therein was incident to the stated, question payments as follows: then arises were agreement “pe- pursuant made to that lieu of is in “1. This *6 they payments. I not riodic” do think January 1,1946 supersedes obligations were; they satisfied all Ross’ agreements previous be- all other except promise pay pre- to insurance his parties, shall and Grant tween the miums. Frank Loverin v. Com- Cf. J. any kind or claims have no claim Revenue, 10 of Internal T.C. missioner 406; upon have no and Ross shall Ross of Internal Gale v. Commissioner obligations to Grant to make further any Revenue, Cir., payments to or disbursements or except as here- for her use benefit my I am unable follow brothers’ to expressly provided.” ordinary that here the rules conclusion by obligations private rights ex- Ross undertook The and duties relative to growing ecuting agreement particular were to out of a pay give way policy paramount purpose maintain the insurance must (paragraph 5), premiums thereon of the tax statute to lessen the tax bur- pay $10,720 my opin- and her at- In and to Grant den of a divorced husband. 7). torney (paragraph $1,500 purpose It is true ion that states the the statute required paragraph broadly. (k) payments too Section and section “upon alimony (u) recipient pay- to made the execution 23 were be give payor privilege instrument.” true also ments this $10,720 payable provided payments sum to Grant deduction are “periodic”; as “the amount due not. all was described otherwise we January 1, pur- parties may purposely to know have separation agreement dated suant April 1, drawn the contract so that the hus- descrip- 1929.” But neither the band have to tax on the might payment; tion of sum nor the fact that it was 1946 he well have been contemporaneously willing payable do that in order to execut- be relieved agreement militates, my dividend-deficiency ing opin- payments future against obliga- ion, view the divorced and to obtain fa- wife payment respect which the satisfied was the vorable modifications with tion obligation policy. Ross assumed the 1946 insurance I think the agreement. later was to decision of Tax Court should re- supersede put and to earlier an end versed.