1941 BTA LEXIS 1277 | B.T.A. | 1941
Lead Opinion
The first question is whether petitioner is taxable on the income from the 1918 and 1919 trusts which was distributed to his former wife, Anna Bush, in the taxable years. Such income was reported by Anna Bush on her returns for the taxable years and not by petitioner on his returns for those years. Respondent determined that petitioner is taxable on such income “under the provisions of sections 167 and 22 (a) of the existing Revenue Act and in accordance with the principles set forth in the decision of the United States Supreme Court in Douglas v. Willcuts, 296 U. S. 1.”
In his brief respondent contends that petitioner is taxable on the income from the two trusts which was distributed to Anna Bush in the taxable years solely on the ground that in those years petitioner had a continuing obligation to support her. Petitioner contends, on the other hand, that the local law (New Jersey) and the two trusts had given petitioner in the taxable years a full discharge and had left no continuing obligation to support Anna Bush.
As we view the situation, petitioner has shown by clear and convincing proof that in the taxable years he had no continuing obligation to support Anna Bush. At the time of the creation of the 1919 trust, Anna Bush executed and delivered to petitioner a general release in which she released him from “all rights to alimony, dower, thirds and all other rights to which” she might be entitled by reason of the marriage. Petitioner did not “underwrite the principal or income” from the 1918 and 1919 trusts “or make any commitments, contingent or otherwise, respecting them.” Compare Helvering v. Fuller, 310 U. S. 69, with Douglas v. Willcuts, 296 U. S. 1; Helvering v. Leonard, 310 U. S. 80; Alsop v. Commissioner, 92 Fed. (2d) 148; certiorari denied, 302 U. S. 767; Glendinning v. Commissioner, 97 Fed. (2d) 51. . The decree of divorce of the Court of Chancery of New Jersey contained no provision for alimony; and the record does not show that after the decree of divorce any order was made by that court providing for alimony. See New Jersey Stat., Ann., Title 2:50-37; Ingraham v. Commissioner, 119 Fed. (2d) 223. Under New .Jersey ■ law the court of . chancery could not make
In his brief respondent does not contend that petitioner is taxable under the doctrine of Helvering v. Clifford, 309 U. S. 331, on the income from the two trusts which was distributed to Anna Bush in the taxable years. It is clear that the doctrine of the Clifford case is not applicable in the present case. The trusts were for the joint lives of Anna Bush and petitioner and were not short term trusts. The trustee of each trust was a bank. While Anna Bush and petitioner had a joint power to substitute a new trustee of each trust, they could only substitute another bank and not petitioner. Cf. George H. Deuble, 42 B. T. A. 277; Herbert W. Hoover, 42 B. T. A. 289. The trustee of each trust had full power of investment except that under the 1918 trust the consent of Anna Bush and under the 1919 trust the joint consent of Anna Bush and petitioner was necessary to investment in nonlegal securities. The trusts were irrevocable. Petitioner had no power to withdraw, any of the corpora of the trusts. It is true that he did have the power to appoint the corpora of the trusts by will. However the retention of such a power is clearly not sufficient to bring about the application of the doctrine of the Clifford case. See Lady Marian Bateman, 43 B. T. A. 69.
Nor does respondent contend in his brief that petitioner is taxable on the trust income in question under section 166 or 167 of the applicable revenue acts. Section 166 is not applicable. Petitioner’s re-versionary interest in the corpora of the trusts in the event of his failure to appoint such corpora by will was riot a power to revest title to the corpora in the grantor under section 166. Helvering v. Wood, 309 U. S. 344. It follows that his power to appoint the cor
Accordingly, it is held that petitioner is not taxable on the income from the two trusts which was distributed to his former wife, Anna Bush,, in the taxable years.
The second question is whether petitioner realized taxable gain on the transfer of certain specified securities to his former wife, Lillian de Melinowska, in the taxable year 1938, pursuant to their property settlement in contemplation of divorce and to the divorce judgment of the Superior Court of Connecticut. On his income tax return for the taxable year 1938 petitioner did not report any taxable gain on such transfer of securities. Respondent determined that petitioner realized taxable gain on such transfer of securities in the amount of the difference ($301,848.65) between the cost of such securities to petitioner ($160,038.97) and the value thereof at the time of the transfer ($461,887.62) and that 50 percent of the gain realized, or $150,924.33, was includable in petitioner’s gross income, since the securities had been held for over two years.
Respondent contends in his brief that the property settlement and the divorce judgment created a money obligation, in the amount of $462,561, from petitioner to Lillian de Melinowska; that this money obligation was discharged by petitioner’s transferring to her securities having a value of $461,887.62 and cash in the amount of $673.38; and that thus petitioner realized taxable gain on the transfer of the securities in the amount of the difference between the cost of the securities to him and the value thereof at the time of transfer. In support of this contention respondent cites, among other cases, United States v. Kirby Lumber Co., 284 U. S. 1; William R. Kenan, Jr., Trustee, 40 B. T. A. 824; affd., 114 Fed. (2d) 217; Suisman v. Eaton, 15 Fed. Supp. 113; affd., per curiam, 83 Fed. (2d) 1019; certiorari denied, 299 U. S. 573; Twin Ports Bridge Co., 27 B. T. A. 346. Petitioner contends in his brief that the property settlement and the divorce judgment did not create a money obligation in the amount of $462,561 from him to Lillian de Melinowska and that the Board’s decision in L. W. Mesta, 42 B. T. A. 933, is controlling on the second question.
Our decision on the second question is controlled by L. W. Mesta, supra, which differs in no material respect from the case presently before us. In the Mesta case the taxpayer’s wife commenced an action for divorce against him in Pennsylvania. During the pendency of the action the taxpayer and his wife entered into an agreement under which the taxpayer agreed, inter alia, to transfer to his wife
In the present case, petitioner’s former wife, Lillian de Meli-nowska, in the taxable year 1938 commenced an action against him for divorce and alimony in the Superior Court of Connecticut. Under Connecticut law the Superior Court may provide for alimony by assigning to the wife'“a part of the estate of her husband.”
Both grounds for' the decision in the Mesta case apply with equal force in the present case. In the present case, it is also impossible to evaluate the rights received by petitioner, i. e., the rights of Lillian de Melinowska to her own support and to the support of their minor child and to share in petitioner’s property at his death, and thus to compute the amount realized by him on the transfer of the' specified securities and the small amount of cash under section 111 (b) of the Revenue Act of 1938.
United States v. Kirby Lumber Co., supra; William R. Kenan, Jr., Trustee, supra; Suisman v. Eaton, supra; Twin Ports Bridge Co., supra, which are relied on by respondent in his brief, are distinguishable. In each of those cases the transfer of property discharged a money obligation or indebtedness, and not an obligation in kind. See L. W. Mesta, supra, at p. 938. Cf. General Utilities & Operating Co. v. Helvering, 296 U. S. 200. Helvering v. Horst, 311 U. S. 112, and other cases cited by respondent are not in point.
Accordingly it is held that petitioner did not realize taxable gain on the transfer of the specified securities to his former wife, Lillian de Melinowska, in the taxable year 1938, pursuant to the property settlement and to the judgment of the Superior Court of Connecticut. L. W. Mesta, supra.
Reviewed by the Board.
Decision will be entered for the petitioner.
2 : 50-38 Remarriage of former wife; no order touching alimony; vacation of prior order.
If after tie decree of divorce the wife shall remarry, the court of chancery shall not make any order touching the alimony of such wife except that the court of chancery, upon application of the former husband, on notice and upon proof of the marriage after the decree of divorce, must modify any order or decree touching the alimony of the former wife by vacating and annulling any and all provisions in an.y such order or decree, or both, directing the payment of money for the support of the former wife.
General Statutes of Connecticut, 1930 Revision—
“Sec. 5182. Alimony and change of name. The superior court may assign to any woman divorced by such court a part of the estate of her husband and, in addition thereto or in lieu thereof, may order alimony to be paid from the husband’s income, may change her name and may order alimony pendente lite to be paid to the wife in any complaint or cross-bill for divorce pending in said court. * * *’*
SEC. 111. DETERMINATION OP AMOUNT OP, AND RECOGNITION OP, GAIN OR LOSS.
* * * * * * *
(b) Amount Realized.—The amount realizes from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received.