Lucas v. Commissioner , 44 B.T.A. 212 ( 1941 )

HENRY M. LUCAS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Lucas v. Commissioner

Docket No. 100516.

United States Board of Tax Appeals

44 B.T.A. 212; 1941 BTA LEXIS 1360;

April 18, 1941, Promulgated

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In 1925 petitioner entered into a separation agreement with his wife and in accordance therewith created an irrevocable trust for her benefit. Under the separation agreement his wife released him from all obligation of future support and agreed that the sums paid to her and for her benefit thereunder were in full satisfaction of all claims for alimony. Under the trust his wife was to receive the entire net income for life and had the right to dispose of the corpus by will; and in the event of her failure to exercise such right by will, the corpus was to be transferred to her issue. He did not underwrite the trust corpus or trust income or make any commitments, contingent or otherwise, respecting them. In 1925 an Ohiocourt granted an absolute divorce to his wife and in the divorce decree affirmed the separation agreement and ordered that the agreement was to stand in lieu of any decree for alimony. Under Ohio law the court had no power to modify the divorce decree in the taxable years, 1935, 1936, and 1937. Held, that in the taxable years the trust and the Ohio law had given petitioner a full discharge from his duty to support his divorced wife and that in the taxable years he is not taxable on any of the income of the trust. Helvering v. Fuller,310 U.S. 69">310 U.S. 69.

A. O. Dickey, Esq., for the petitioner.

Homer J. Fisher, Esq., for the respondent.

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HARRON

Respondent determined deficiencies on income tax for the years 1935, 1936, and 1937 as follows:

1935	$1,794.87
1936	3,604.76
1937	739.20
Total	6,138.83

The sole question is whether in the taxable years petitioner is taxable on all or any part of the income of a so-called alimony trust created by him for the benefit of his divorced wife. The correctness of all other adjustments made by respondent is conceded by petitioner. The facts have been stipulated.

FINDINGS OF FACT.

Petitioner is a resident of Cuyahoga County, Ohio. He filed his income tax returns for the years 1935, 1936, and 1937, the taxable years, with the collector of internal revenue for the eighteenth district of Ohio.

On and prior to August 1, 1925, petitioner and Maud L. Lucas were husband and wife. They had two children, Henry D. Lucas and Adelaide Lucas Johnson, each of whom was then more than twenty-one years of age.

On August 1, 1925, Maud L. Lucas commenced an action against petitioner for absolute divorce and alimony in the Court of Common Pleas of Cuyahoga County.

Under date of October 27, 1925, petitioner and Maud L. Lucas entered into a written separation agreement. The agreement recited in part that the parties had been living separate for some time and had agreed that such separation be permanent; that petitioner had turned over to the Central National Bank Savings & Trust Co. of Cleveland (hereinafter referred to as the trust company) $140,000 under a trust agreement (a copy of which was attached as an exhibit to the settlement agreement) providing that Maud L. Lucas was to receive the income therefrom during her life and was to have the right to dispose of the corpus by will; that petitioner had turned over to the trust company $20,000 which was to be turned over by the trust company to Maud L. Lucas for the purchase of a home for herself or for either of her children as she might elect; and that petitioner also had paid $15,000 to Maud L. Lucas. The agreement then provided that "in consideration of the premises" Maud L. Lucas released petitioner "from all obligations of future support for herself" and released to petitioner all rights by way of dower, inheritance, and descent in his real property and all rights to a distributive share of his personal estate and all claims for an allowance for year's support and to reside in his mansion house, and all rights as widow, heir, distributee, survivor, or next of kin in his estate and "all other rights and claims of every kind and nature arising or growing out of said marriage relation." The agreement further provided that Maud L. Lucas, "for the consideration aforesaid and in consideration of the agreements" of petitioner contained therein, agreed that "the said sums this day paid to her and for her benefit shall be in full satisfaction and settlement of all claims and demands for alimony, as well as of support, property rights, rights of dower, inheritance and distribution." Petitioner, "for the considerations aforesaid" released to Maud L. Lucas all rights of dower, inheritance, descent, distribution, and all rights as widower, heir, distributee, survivor, or next of kin, and "all other rights or claims in any manner arising or growing out of the marriage relation now existing between said parties" in Maud L. Lucas' estate.

Under date of October 27, 1925, petitioner, as grantor, and the trust company, as trustee, entered into the trust agreement, a copy of which was attached to the separation agreement. Petitioner transferred $140,000 in cash to the trustee. The trustee was to pay the net income from the trust corpus to Maud L. Lucas for life. She was to have the right to dispose of the trust corpus by her will. In the event that she failed to exercise her right to dispose of the trust corpus by will, the trust corpus was to be transferred to her children in equal shares; or in the event that she failed to exercise her right to dispose of the trust corpus by will and died without issue, the trust corpus was to be transferred to the persons (other than petitioner) entitled to inherit her personal property under the laws of the state of Ohio in force at the time of her death. The agreement provided that petitioner disclaimed any right "to revoke, amend or alter" the agreement without the written consent of the beneficiary.

On October 29, 1925, the Court of Common Pleas of Cuyahoga County entered a decree in the above action granting Maud L. Lucas an absolute divorce. The decree provided in part as follows; "And it further appearing to the Court that the said parties have agreed between themselves as to the amount of alimony to be paid by the defendant to the plaintiff, and have mutually released each to the other all right or claim of dower and inheritance in the property of the other, and that the amount therein agreed upon has been paid to plaintiff by defendant, the Court does hereby affirm the act of said parties in relation thereto and does order and decree that the said agreement thus made between them shall stand in lieu of any decree for alimony prayed for by petitioner of this Court." The above decree has not been vacated, overruled, revised, or modified, and is in full force and effect.

In the taxable years the trustee received income from the trust corpus as follows:

1935	$6,681.41
1936	3,539.16
1937	4,018.37
Total	14,238.94

In the taxable years the trustee distributed the entire net income from the trust corpus to, or for the benefit of, Maud L. Lucas.

OPINION.

HARRON: The sole question is whether in the taxable years petitioner is taxable on all or any part of the income of the so-called alimony trust created by him for the benefit of his divorced wife, Maud L. Lucas. On his income tax returns for the taxable years petitioner did not include in gross income any part of the income of the trust. On the statement attached to the deficiency notice respondent determined that the income of the trust should be included in the petitioner's gross income in the taxable years.

A taxpayer is taxable on the amounts distributed to his divorced wife under a so-called alimony trust which is "merely security for a continuing obligation of the taxpayer to support his divorced wife." Douglas v. Willcuts,296 U.S. 1">296 U.S. 1. However, a taxpayer is not taxable on the amounts distributed to his divorced wife under a so-called alimony trust where local law and the trust have given the taxpayer "pro tanto a full discharge from his duty to support his divorced wife and leave no continuing obligation, contingent or otherwise." Helvering v. Fuller,310 U.S. 69">310 U.S. 69. The taxpayer has the "burden of establishing not by mere inference and conjecture but by 'clear and convincing proof' that local law and the alimony trust have given him a full discharge." Helvering v. Fitch,309 U.S. 149">309 U.S. 149; Helvering v. Leonard,310 U.S. 80">310 U.S. 80.

In our opinion petitioner has established by clear and convincing proof that the law of Ohio (the local law) and the so-called alimony trust have given him a full discharge from his duty to support his divorced wife. The s0-called alimony trust was created by petitioner in accordance with the separation agreement entered into between him and Maud L. Lucas. In the separation agreement Maud L. Lucas released petitioner "from all obligation of future support" and agreed that the sums paid to her and for her benefit were to be "in full satisfaction and settlement of all claims and demands for alimony." In the divorce decree the Court of Common Pleas affirmed the separation agreement (to which was attached a copy of the so-called alimony trust agreement) and ordered that the agreement was to "stand in lieu of any decree for alimony prayed for by petitioner." The Ohio court retained no power to modify the divorce decree. Under Ohio law "where the terms of a decree as to alimony are fixed by the court pursuant to an agreement of the parties they are not subject to modification. " Law v. Law,64 Ohio St. 369">64 Ohio St. 369; 60 N.E. 560">60 N.E. 560. ¹ In his brief respondent does not contend otherwise. No power to modify the divorce decree was reserved in the decree or in the agreement affirmed by the decree. Cf. Helvering v. Fuller, supra.Furthermore, petitioner did not "underwrite the principal or income from the trust or make any commitments, contingent or otherwise, respecting them." Compare Helvering v. Fuller, supra, with Douglas v. Willcuts, supra, and Helvering v. Leonard, supra.Moreover, petitioner irrevocably alienated the trust corpus and retained no participation in the trust income. Cf. Douglas v. Willcuts, supra;Helvering v. Fitch, supra.The conclusion is inescapable that the law of Ohio and the s0-called alimony trust have given petitioner "a full discharge from his duty to support his divorced wife and leave no continuing obligation, contingent or otherwise." Helvering v. Fuller, supra.

In his brief respondent contends that petitioner has failed to establish that Ohio law and the s0-called alimony trust have given him a full discharge, because under Ohio law the divorce decree of the Court of Common Pleas was appealable. This contention is without merit. Under Ohio law decrees of the Court of Common Pleas are appealable to the Court of Appeals (Ohio Constitution, art. IV, sec. 6) and appeals to the Court of Appeals must be perfected within twenty days after entry of the decree (Ohio General Code, sec. 12223-7). The divorce decree of the Court of Common Pleas was entered on October 29, 1925. The parties have stipulated that the divorce decree has not been "vacated, overruled, revised or modified, and is in full force and effect." It is clear that in the taxable years the divorce decree was not appealable.

Accordingly, it is held that in the taxable years petitioner is not taxable on any of the income of the s0-called alimony trust. Helvering v. Fuller, supra.

Decision will be entered under Rule 50.

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Footnotes

• 1. See also Petersine v. Thomas,28 Ohio St. 596">28 Ohio St. 596; Olney v. Watts,43 Ohio St. 499">43 Ohio St. 499; Julier v. Julier,62 Ohio St. 90">62 Ohio St. 90; 56 N.E. 661">56 N.E. 661; Hassaurek v. Markbreit,68 Ohio St. 554">68 Ohio St. 554; 67 N.E. 1066">67 N.E. 1066; Connolly v. Connolly,16 Ohio App. 92">16 Ohio App. 92; Kettenring v. Kettenring,29 Ohio App. 62">29 Ohio App. 62; 163 N.E. 43">163 N.E. 43; Folz,42 Ohio App. 135">42 Ohio App. 135; 181 N.E. 658">181 N.E. 658; Sargent v. Sargent,11 Ohio Dec. 218">11 Ohio Dec. 218; 8 N.P. 238; Jones v. Jones,31 Ohio L.R. 253; Heimberger v. Joseph,↩ 55 Fed.(2d) 171.