11 T.C. 1016">*1016 The Commissioner has determined a deficiency in petitioner's gift tax for the calendar year 1943 in the amount of $ 14,560.69. The deficiency results from an addition to the amount reported on petitioner's gift tax return of "Additional item A -- $ 118,181.52." The Commissioner in his deficiency notice explained the addition of this item as follows:

Additional item A represents the value of the property which the donor transferred to Julie C. Taurog pursuant to a pre-divorce property settlement dated October 5, 1943. It appears that the transfer was not made for a full and adequate1948 U.S. Tax Ct. LEXIS 12">*14 consideration in money or money's worth and that it, therefore, is includible in gifts.

11 T.C. 1016">*1017 The petitioner by appropriate assignments of error contests this determination of the Commissioner.

FINDINGS OF FACT.

Most of the facts have been stipulated, and we adopt the stipulated facts as part of our findings of fact. Any of the facts hereinafter recited which are not contained in the stipulation are found from the oral testimony.

Petitioner is a resident of California and the gift tax return for the taxable year was filed with the collector at Los Angeles.

The petitioner and Julie C. Taurog were married in California in 1925. Their daughter Patricia, born in 1932, was the sole issue of the marriage. Petitioner and his wife separated about November 1, 1941, lived separately until about February 11, 1942, then resumed marital relations, and again separated about July 1, 1943, and ever since have lived separately. They both employed attorneys, both after the first separation and after the second, in connection with their marital troubles, the wife's attorney being employed to represent her in the negotiation for a settlement of her right to support and maintenance and her property1948 U.S. Tax Ct. LEXIS 12">*15 rights in the community property, all of which was acquired subsequent to July 29, 1927. The community property had a fair market value on October 5, 1943, of $ 236,363.04.

About August 20, 1943, the wife filed a divorce action in the State of Nevada and the husband employed an attorney there to represent him in the action. There was strong adverse feeling between the husband and wife, requiring intercession of counsel, and, after prolonged negotiations carried on exclusively between counsel, the husband and wife executed an instrument which was dated October 5, 1943. Thereby the community property was divided as near equally as reasonably possible, each taking one-half as separate property. The instrument was signed by the parties about August 15 to 20, 1943, with the agreement that there was to be no delivery to either party until the divorce decree was obtained. On October 5, 1943, the wife's action for divorce was heard and a judgment and decree of absolute divorce was granted to her against the petitioner. The ground for divorce does not appear in the record herein. After the divorce, petitioner and his former wife each received one-half of the community property, each1948 U.S. Tax Ct. LEXIS 12">*16 receiving property of a value of $ 118,181.52. The petitioner agreed to the division of community property, among other reasons, because he was advised by his attorney that if he went into court with respect to such division the court would give one-half of it to his wife.

The instrument dividing the community property provided, in pertinent part, as follows: That the parties were desirous of fully determining and settling their property rights, and all other matters 11 T.C. 1016">*1018 by agreement and without resort to court for that purpose; that the agreement was freely and voluntarily entered into by both; that each "hereby sells, assigns, grants, transfers and conveys" to the other as separate property "all his [her] right, title and interest" in the community property, list of which was attached; that (paragraph 7) the husband should pay the wife as and for her future support and maintenance, until her death or remarriage, $ 24,000 for the first year and $ 20,000 per annum thereafter until his death (with possible reduction if she allowed her insurance to lapse, but not less than $ 18,000); with provision for proportionate increase or reduction as his net income compared with that 1948 U.S. Tax Ct. LEXIS 12">*17 for 1942, or in case of change after December 31, 1943, in tax rate, allowable deductions, exemptions or credits, in Federal income taxes, or change in his salary above or below the amount thereof on October 5, 1943; that the husband would keep and furnish the wife, under oath, a written record of his income; that the wife should support, educate and maintain the daughter, of whom she should have custody, with certain rights of visitation and temporary custody in the husband; that he would assign to her certain insurance policies and she "hereby assigns, relinquishes, waives, quitclaims and transfers" to him any claim to certain other policies; and "hereby waives, quitclaims, transfers and vests" in him still other policies; that each agreed to execute all papers and documents required by the insurance companies; that the wife "hereby relinquishes, releases and quitclaims all her right, title and interest in and to any property" that the husband might thereafter acquire and any claim or obligation with respect to property, maintenance, or support, other than as provided, and to any claim to his estate, or to any family allowance; that "The Husband hereby relinquishes, releases and 1948 U.S. Tax Ct. LEXIS 12">*18 quitclaims all his right, title and interest in and to any property" that his wife had or might thereafter acquire, other than as in the agreement provided, and any claim or obligation with respect to property, maintenance, or support which he might have or assert against the wife, and all right to her estate or any part thereof, or to seek any family allowance; that "This agreement * * * shall constitute a final settlement, adjustment and division of the property and financial matters of said parties"; that each released and discharged the other from all existing debts and obligations, other than as in the agreement provided, and agreed to contract no debts or obligations in the name of the other; that (paragraph 16) "In the event that the bonds of matrimony * * * shall be dissolved and a decree of divorce granted in favor of either party" each waived and released any right to alimony or for support and maintenance (except that the husband was not released from agreement to pay the wife the sums in the instrument agreed upon); that "Such decree of divorce, if any may 11 T.C. 1016">*1019 incorporate this agreement or any decree or court order based hereon, as a part thereof"; that each "shall1948 U.S. Tax Ct. LEXIS 12">*19 be given immediate and exclusive possession and control of any and all property owned by them respectively, or hereby agreed to be given to them respectively"; and that each would execute all instruments required for the purpose of giving full effect to the agreement.

The decree of divorce, after dissolving the bonds of matrimony, recited further, in pertinent part:

It Is Further Ordered, Adjudged and Decreed that all matters concerning property and the support and maintenance of the plaintiff and the care, custody, control and support of the minor child, to-wit: Patricia Ann Taurog be, and they hereby are settled in accordance with the terms and provisions of the agreement in writing made and entered into by the plaintiff and defendant on October 5th, 1943, a copy of which is now in evidence as plaintiff's Exhibit "A" and which is hereby expressly referred to and made a part hereof; and the said agreement, in all respects, is hereby approved and adopted in full by the Court and is hereby merged into and made a part of this decree by reference as completely as if herein set forth in full. The plaintiff and defendant herein are hereby ordered and required to perform all of the obligations1948 U.S. Tax Ct. LEXIS 12">*20 of said agreement and the defendant is specifically directed to perform and comply with all of the terms and conditions of Paragraph 7 of said agreement.

At the time of trial herein, the parties were in litigation over the custody of the child.

The petitioner filed a gift tax return for the year 1943, reporting gifts to his daughter and containing a statement with reference to the property settlement with his wife, as follows:

A property settlement agreement was entered into on the 5th day of October, 1943 by and between Norman Taurog and Julie Taurog, husband and wife, respectively, by which a division of their community property was made. Inasmuch as there was no donative intent present in making said division of community property, but said division of property resulted from the separation of the parties which terminated in divorce, the provisions of Regulations 108, section 86.2 (c) are not deemed to be applicable.

OPINION.

The Commissioner, in support of his determination that petitioner made a gift of $ 118,181.52 to his wife when in 1943 he agreed to an equal division of community property with her, attendant upon their divorce, relies upon section 1000 (d) and section 10021948 U.S. Tax Ct. LEXIS 12">*21 of the Internal Revenue Code, which are printed in the margin. ¹

1948 U.S. Tax Ct. LEXIS 12">*22 Petitioner denies that he made any gift of property to his wife or had any intention of doing so. He contends that what he did 11 T.C. 1016">*1020 do was to consent to a division of community property with her which had been arrived at after considerable negotiations conducted by the attorneys on both sides and that these negotiations at all times were at arm's length. Furthermore, petitioner contends that, when the instrument making the division of property was signed by the parties it was agreed between them that there was to be no delivery to either party until the divorce decree was obtained and that the agreement was to be made a part of the divorce decree, that it was so made, that in carrying out the division of property provided therein petitioner was discharging an obligation imposed upon him by the Nevada court, and that under such circumstances there was no taxable gift. Among the cases which petitioner cites in support of his contention are Herbert Jones, 1 T.C. 1207 (appeal dismissed, CCA-7, May 1, 1944); Edmund C. Converse, 5 T.C. 1014; affd., 163 Fed. (2d) 131; Clarence B. Mitchell, 6 T.C. 1591948 U.S. Tax Ct. LEXIS 12">*23 (appeal dismissed CCA-7, Oct. 7, 1946); and Albert V. Moore, 10 T.C. 393.

Respondent relies principally on the Supreme Court's decisions in Commissioner v. Wemyss, 324 U.S. 303">324 U.S. 303, and Merrill v. Fahs, 324 U.S. 308">324 U.S. 308. He states that his position is set forth in E. T. 19, 1946-2 C. B. 4, as follows:

With respect to transfers made pursuant to legal separation agreements or divorce decrees, it is the position of the Bureau that, for both estate and gift tax purposes, a release of support rights may constitute a consideration in money or money's worth. Accordingly, to the extent that a transfer does not exceed the reasonable value of the support rights of the wife it is to be treated as made for an adequate and full consideration in money or money's worth. The question whether the transfer is in excess of reasonable support rights is for the determination of the Bureau. That portion of any transfer which is allocable to the release by the wife of her property or inheritance rights is to be considered as not made "to any extent" for an adequate and full consideration1948 U.S. Tax Ct. LEXIS 12">*24 in money or money's worth.

In the recent case of Edward B. McLean, 11 T.C. 543, we discussed E. T. 19 and, among other things, said:

* * * For reasons not clear to us E. T. 19 excepts support and maintenance from marital rights, the release of which does not constitute full and adequate consideration. We deem the ruling invalid in so far as it does not also except transfers made to settle presently enforceable claims.

See also the discussion of E. T. 19 in the Second Circuit's opinion in Commissioner v. Converse, supra.

11 T.C. 1016">*1021 In Edmund C. Converse, supra, we distinguished that case from the Supreme Court's decisions in 324 U.S. 303">Commissioner v. Wemyss, supra, and 324 U.S. 308">Merrill v. Fahs, supra, and in doing so we said:

* * * The Commissioner does not contend that the Jones case is distinguishable from the present case, but argues that it is no longer the law, since the error therein was pointed out by the subsequent decisions of the Supreme Court in Commissioner v. Wemyss, 324 U.S. 303">324 U.S. 303, and Merrill v. Fahs, 324 U.S. 308">324 U.S. 308.1948 U.S. Tax Ct. LEXIS 12">*25 This Court, in the Wemyss case, pointed out the difference between that case and the Jones case. The two Supreme Court cases just mentioned, as well as the Bristol case, all dealt with antenuptial agreements. The Supreme Court did not deal with the question which was in the Jones case and did not indicate its views on that question. We follow the Jones case and hold that the Commissioner erred by increasing the petitioner's taxable gifts for 1941 by the amount of $ 625,000 which he paid to his wife. Cf. Commissioner v. Mesta, 123 Fed. (2d) 986; certiorari denied, 316 U.S. 695">316 U.S. 695; rehearing denied, 317 U.S. 704">317 U.S. 704.

The Second Circuit, in affirming us in the Converse case, stated that it found it unnecessary to resolve the question "as to any distinction between antenuptial and postnuptial agreements under the doctrine of the Wemyss and Merrill cases." The court thereupon based its decision squarely upon the proposition that the amount which the taxpayer in that case paid to his divorced wife was paid to her in pursuance of the judgment of a court of competent jurisdiction1948 U.S. Tax Ct. LEXIS 12">*26 and therefore was in discharge of an obligation "and the discharge thereby of the respondent's obligation to pay that debt was an adequate and full consideration in money or money's worth for the transfer."

It would be unreasonable, we think, to say, where, as here, a husband and wife had come to the parting of the ways and had separated and after prolonged negotiations had arrived at a property division in which the wife was to receive one-half of the community property, which property she was entitled to receive under the laws of California and which division of property was to be embodied in the divorce decree and was in fact made a part of the decree, that the husband was thereby making a gift to his wife of the property which was transferred to her. We, therefore, hold, on the strength of the authorities cited above, that the division of community property which took place between petitioner and his wife in an arm's length agreement which was made a part of the divorce decree, was made pursuant to and in discharge of an obligation imposed by the judgment of divorce and was for an adequate and full consideration in money or money's worth and, therefore, was not a gift.

Decision1948 U.S. Tax Ct. LEXIS 12">*27 will be entered for the petitioner.

11 T.C. 1016">*1022 Disney, J., dissenting: The question here is whether the division of community property between husband and wife, agreed upon and made in writing by them and adopted by a divorce decree, constituted a gift from the husband to wife.

Section 1002 of the Internal Revenue Code, a part of the law of gift tax, provides that there is gift to the extent that property is transferred for less than adequate and full consideration in money or money's worth. Thus, it is seen that the criterion is not mere consideration, the common law test of gift, but that, as stated by the Supreme Court in Commissioner v. Wemyss, 324 U.S. 303">324 U.S. 303:

* * * Congress intended to use the term "gifts" in its broadest and most comprehensive sense. * * * For purposes of the gift tax it not only dispensed with the test of "donative intent". It formulated a much more workable external test, that where "property is transferred for less than an adequate and full consideration in money or money's worth," the excess in such money value "shall, for the purpose of the tax imposed by this title, be deemed a gift * * *." And Treasury 1948 U.S. Tax Ct. LEXIS 12">*28 Regulations have emphasized that common law considerations were not embodied in the gift tax.

The Court states also: "The section taxing as gifts transfers that are not made for 'adequate and full [money] consideration' aims to reach those transfers which are withdrawn from the donor's estate." In Merrill v. Fahs, 324 U.S. 308">324 U.S. 308, that Court in addition expressed, from Estate of Sanford v. Commissioner, 308 U.S. 39">308 U.S. 39, the rule that: "The gift tax was supplementary to the estate tax. The two are in pari materia and must be construed together." The petitioner on brief so concedes. He also agrees that the primary purpose of the gift tax "is to tax inter vivos transfers which deplete the estate that the donor would otherwise leave at death."

Section 1000 (d) of the code provides in substance that gifts of community property shall be considered gifts of the husband (with exception not here applicable). The petitioner's argument, sustained by the majority opinion, is in effect that donative intent is necessary to gift; that here it was absent because the transfer was an arm's length transaction and made pursuant1948 U.S. Tax Ct. LEXIS 12">*29 to judgment of the Nevada divorce court, which divorce decree was a debt enforceable against the petitioner and deductible as a claim against estate at his death, so that the transfer to the wife by the husband, of community interest, in the division made, therefore is based upon full and adequate consideration in money's worth, within the requirements of the Wemyss case as to transfers withdrawn from the donor's estate.

The majority opinion relies primarily upon Herbert Jones, 1 T.C. 1207; Edmund C. Converse, 5 T.C. 1014; affd., 163 Fed. (2d) 131; Clarence B. Mitchell, 6 T.C. 159, and Albert V. Moore, 10 T.C. 393, to demonstrate arm's length transaction, and also to show a decree as consideration for the transfer to the wife and to distinguish this situation from the prenuptial contracts involved in the Wemyss and 11 T.C. 1016">*1023 Merrill v. Fahs cases. Upon examination of the cases relied upon, I find that in general they involved money judgments for support or maintenance of the wife. The Jones case, holding that1948 U.S. Tax Ct. LEXIS 12">*30 there was no gift (in addition to being decided prior to the Wemyss and Merrill v. Fahs opinions), stresses the fact that the judgment against the husband was one for the wife's support, and that no property rights were involved. The Converse case, following the Jones case and pointing out that the Supreme Court cases above cited dealt with antenuptial agreements, involved a money judgment for $ 625,000 in lieu of monthly payments of $ 1,250, provided for the wife's support in a previous agreement.

On appeal the Circuit Court relied for affirmance upon the fact that there was "liquidated debt created by the judgment," also "discharge of a money judgment," and "a transfer which discharged that debt," and pointed out particularly that the judgment was not based upon the previous agreement, but upon evidence and an agreement during the trial, and that the previous agreement was disregarded by the Circuit Court. Though in the Converse case, as pointed out by the majority, we recited: "This Court, in the Wemyss case, pointed out the difference between that case and the Jones case," reference to the Wemyss case, 2 T.C. 876,1948 U.S. Tax Ct. LEXIS 12">*31 reveals that no difference between the Jones and Wemyss cases was there pointed out, and that, indeed, the Jones case was mentioned only as a parenthetical reference in discussing the Bristol case, 42 B. T. A. 263. So infirm is the foundation for the majority view here! In Clarence B. Mitchell, 6 T.C. 159, the transfers were made by the husband to the wife pursuant to a settlement agreement merged into a divorce decree "in order to obtain the discharge of his obligation to support her," and we held that he "received a thing of real and substantial value when by reason of the transfers in question he was relieved of any further legal obligation to support his wife * * *." It seems plain that property transferred in discharge of a money judgment constitutes full and adequate consideration within the statutory intent. Here, however, there is only the matter of community property divided, by an agreement and instrument of conveyance adopted by the judgment of divorce. The element of support does not enter, for it was separately taken care of by the provision of paragraph 7 of the agreement for payment to the1948 U.S. Tax Ct. LEXIS 12">*32 wife of $ 24,000 for the first year and $ 20,000 per annum thereafter (with exception not here of interest) "as and for her future support and maintenance," and with provision for proportionate increase or decrease as his net income compared with that for 1942, or was affected by changes in Federal income tax, ¹ while the husband and wife, in 11 T.C. 1016">*1024 other paragraphs, each respectively thereby transfers to the other his or her interest in the community property. The property the division of which here concerns us was no part of the subject matter of the agreement, or judgment, for support or maintenance.

Albert V. Moore, supra, does not involve community property, and therein the money involved1948 U.S. Tax Ct. LEXIS 12">*33 was paid by the husband for transfer to him of certain real estate which she alone owned, and certain counsel fees. Also, both property and rights to support were involved and insurance policies conveyed by him, and on which he was to pay the premiums during his life, were obviously a matter of support.

Though we have distinguished the Wemyss and Merrill v. Fahs cases, we have not done so in any cited case where only transfer of property, as contrasted with settlement of alimony or support rights, was involved, and in Roland M. Hooker, 10 T.C. 388, we were careful to limit the Converse case to its facts and to deny that the mere fact of judgment settles the consideration question.

So far as involves the idea that lack of donative intent is evidenced by an arm's length transaction, the majority, in my view, disregards Commissioner v. Greene, 119 Fed. (2d) 383, holding donative intent unnecessary to gift tax, and relies too much upon ordinary ideas of donative intent and cases prior to the Wemyss and Merrill v. Fahs cases, and does not take into consideration Regulations 108, section 86.21948 U.S. Tax Ct. LEXIS 12">*34 (c) ²1948 U.S. Tax Ct. LEXIS 12">*35 or give weight to E. T. 19, I. R. B. 1946-2, p. 166, issued in August 1946. ³ The petitioner does not attack that regulation as invalid or going beyond the statute.

11 T.C. 1016">*1025 It is apparent that if we apply the rationale of the Wemyss and Merrill v. Fahs cases the donative intent is to be viewed in no ordinary common law sense, but it is to be tested by the effect in reduction of donor's estate. In my view, the arm's length idea can not be1948 U.S. Tax Ct. LEXIS 12">*36 permitted to override the positive provision of section 1002 of the Internal Revenue Code that for gift tax purposes the consideration must be adequate, full, and in money or its worth, where community property is divided, as here. We can not conform to the broad pronouncement of the Supreme Court that the gift tax statute, as to consideration "aims to reach those transfers which are withdrawn from the donor's estate," and that gift and estate tax laws, in this respect, are directed to the same purpose, not to be separated in application, and at the same time hold that the mere fact that the transaction is arm's length satisfies the statute in this matter of community property where we have said, in Estate of Edwin W. Rickenberg, 11 T.C. 1, that division thereof does not constitute consideration excepting the transfer from inclusion in gross estate. It is to be noted that the expression "arm's length" is found in Regulations 108, section 86.8, a general regulation as to transfer, yet that section 86.2 (c), another regulation, more specific and especially dealing with community property, says that there is gift by the husband in the division of community1948 U.S. Tax Ct. LEXIS 12">*37 property. Ordinary rules of interpretation require that the more specific provision should outweigh the more general. Moreover, E. T. 19, promulgated in conformity with the Wemyss and Merrill v. Fahs cases, recognizes that release of rights to support is sufficient consideration, in both estate and gift tax cases, but that on the contrary transfer of property rights "is to be considered as not made 'to any extent' for an adequate and full consideration in money or money's worth." Clear it is that the respondent is not, as the majority opinion seems to infer, committed, in the matter of gift tax, to any view that such consideration is found merely because of an arm's length transaction. I am completely unable to discern a difference between agreements between spouses-to-be in the Wemyss and Merrill v. Fahs cases, and between spouses in this case. All are equally at arm's length. Though as stated in my dissent in Edward B. McLean, 11 T.C. 543, sweethearts may, romantically speaking, be thought not to deal "at arm's length," in any realistic business sense the transfers between them in the Wemyss and Merrill v. Fahs1948 U.S. Tax Ct. LEXIS 12">*38 cases were not only just as arm's length as the transfer here involved or involved in the cases relied upon by the majority, but it is clear that such prenuptial arrangements were precisely the antithesis of gifts in the ordinary sense. 11 T.C. 1016">*1026 Sweethearts wishing to make gifts do not coldly require quid pro quo, such as property or release of marital rights, as in those cases required. Yet the Supreme Court held that, despite lack of ordinary donative intent, under Federal law they were gifts. Therefore, similar contractual arrangements between husband and wife can not logically be differently classed, merely because of some idea of "arm's length" plainly equally present in the transactions in the cases last named.

I note, too, that section 86.6 speaks of arm's length transactions with reference to transfers "made in the ordinary course of business." In my opinion this division of community property was not made in the ordinary course of business within the intent of the regulation. Nothing indicates that division of community property was intended to be covered; to the contrary is the fact that section 86.2 (c) specifically covers it. Moreover, the mere fact that there1948 U.S. Tax Ct. LEXIS 12">*39 was adverse and bitter feeling between the parties in the matter of the divorce does not demonstrate that, in the division of the community property, they dealt at arm's length. The evidence is affirmative that under the advice of counsel they were agreed that a California court would divide the property equally. Obviously, neither had any hope of getting more, nor fear of getting less, than one-half. The division was by agreement as fully as if there was no divorce in the offing. There was, as to community property, no such haggling as would be the essence of the arm's length transaction meant by the regulation. They merely divided the property by agreement, equally, because they thought they must. Assuming that there was, in such mutuality, some consideration under common law doctrine, it is not, under the statute, sufficient; and to hold that the animosity between the parties makes an arm's length transaction effective under the regulation to override the statute would be to say that some consideration is full and adequate in money or money's worth. Regulations 108, section 86.8, should not here be given the effect desired by the petitioner and given effect by the majority.

1948 U.S. Tax Ct. LEXIS 12">*40 Moreover, even if it is assumed that, in general, a divorce judgment ordering transfer of property constitutes such a debt as is a claim against estate (and therefore under petitioner's argument meets the test of the Wemyss and Merrill v. Fahs cases), there is error in not recognizing that under section 812 (b), Internal Revenue Code, a claim against an estate must conform to estate tax law, Commissioner v. Porter, 92 Fed. (2d) 426; and, therefore, must be examined as to its foundation, and any promise or agreement upon which it is based must have full and adequate consideration in money or its worth; and that division of community property does not furnish it. I am fully cognizant that such cases as Edythe C. Young, Executrix, 39 B. T. A. 230, and Estate of Silas B. Mason, 43 B. T. A. 813, (both involving alimony and emphasizing that a wife's right to support 11 T.C. 1016">*1027 grows out of the husband's legal duty, not from promise or agreement) are to the effect that such a divorce decree, rather than previous agreement, is the foundation for the claim against estate and, therefore, 1948 U.S. Tax Ct. LEXIS 12">*41 there is, in such circumstances, no requirement of full and adequate consideration under section 812 (b). But no case cited to that general import involves mere division of property, especially community property, as here. I, therefore, examine the facts to find whether the conveyance here was "founded on promise or agreement" or upon judgment, and so whether the consideration requirements of section 812 (b) are applicable. Scrutiny of the instrument signed about August 15-20, 1943, though dated October 5, 1943, reveals that each of the parties did not merely promise and agree to deliver property according to a divorce decree, but actually by that instrument conveyed such property, i. e., divided the community property; for "The Husband hereby sells, assigns, grants, transfers and conveys to the Wife, as her separate property, all his right, title and interest in and to all items of said community property * * *," with the conveyance by the wife reading the same, while in other paragraphs each "hereby relinquishes, releases and quitclaims" all his (her) "right, title and interest in and to any property" of the other. "This agreement * * * shall constitute a final settlement, adjustment1948 U.S. Tax Ct. LEXIS 12">*42 and division of the property and financial matters of said parties." Had this instrument been delivered when signed, there could be no doubt that the conveyance was founded on promise or agreement, within the language of section 812 (b), and not the later divorce decree. What then of the fact that it was agreed orally that the instrument would be delivered "on the day that the decree was rendered" or "not to be delivered * * * until the divorce was obtained" (in the varying language of the testimony. ⁴ The instrument is silent on that point.), and that it was delivered on the day of divorce? Here it is necessary to examine the precise provisions of the instrument. It provides that the parties desire to settle property rights "by agreement and without resort to any court for that purpose." The only mention of divorce or decree is in paragraph 16, where it is provided that, in the event that the bonds of matrimony then existing "shall be dissolved and a decree of divorce granted * * *," each releases right to alimony or support and maintenance (except as provided) and "Such decree of divorce, if any, may incorporate the agreement or any decree or court order based thereon, 1948 U.S. Tax Ct. LEXIS 12">*43 as a part thereof." Thus, it is seen that immediately upon the granting of "any" divorce, and without respect to its terms, the mutual conveyances of property became effective; ⁵ and that there was no provision, in the instrument 11 T.C. 1016">*1028 or orally, that it and the mutual conveyances therein made would be effective only if the court so decreed. Even had the decree been silent on the matter of the agreement or property, the conveyance recited in the instrument would nevertheless have been binding on each party from the moment of divorce. At the instant of divorce neither party needed any further instrument of conveyance, for that signed about August 15-20 was a conveyance, upon divorce. The record indeed indicates no later instruments of conveyance after the decree. How then may it validly be argued that the conveyance by the husband, so set forth in the instrument previously signed, deliverable upon any divorce, and delivered immediately after divorce, is "founded" upon the provisions of the judgment and not upon the instrument already executed? In his gift tax return the petitioner relied, to negative donative intent, not on transfer under judgment, but on "a property 1948 U.S. Tax Ct. LEXIS 12">*44 settlement * * * by which a division of their community property was made," (italics added) and on the fact that the "division * * * resulted from the separation of the parties which terminated in divorce." This is no case where a divorce decree alone could be or was relied upon for enforcement of an executory agreement. This was an instrument of conveyance executed and enforceable from the moment of divorce and, so far as the instrument of conveyance was concerned, it seems to me impossible to say that the conveyance to the wife of community property is founded upon provisions of a decree of divorce which were in no degree necessary thereto, as against actual previous conveyance. They were "mutually desirous" of settling their property matters "without resort to any court for that purpose." By the latter expression it is made clear that the conveyances recited were made independently of the court, or the content of its decree, so far as property was concerned. Nor does the decree in logic add anything to the conveyance made. After dissolving the bonds of matrimony, the decree adds that all property matters are "hereby settled in accordance with the terms and provisions" of1948 U.S. Tax Ct. LEXIS 12">*45 the instrument dated October 5, 1943, copy of which, in evidence, is "expressly referred to and made a part hereof," also "approved and adopted in full by the court" and "merged into and made a part of this decree by reference as completely as if set forth in full. The plaintiff and defendant are ordered and required to perform all of the obligations of said agreement" (not of the decree). (Italics supplied.) There is no adjudication of respective rights or contentions as to such property, no order as to what division is by the court found just or proper, but mere adoption of agreement made. Indeed, it is apparent that the parties intentionally refrained from submitting to the court any contention as to property. They were desirous of settling their property rights "without resort to any court for that purpose." (Italics added.) In the matter of taxes, is the 11 T.C. 1016">*1029 instrument nevertheless to be considered judgment of court rather than an agreement and conveyance merely because it is, as such, adopted by the court (without any determination as to its fairness or justice)? Freuler v. Helvering, 291 U.S. 35">291 U.S. 35, founds a line of authority1948 U.S. Tax Ct. LEXIS 12">*46 that judgments by consent will not be allowed to determine tax consequences. Can anything else be discerned in the above recitations from the decree? There is much reading on the subject of realism in taxes. It would be altogether unrealistic to view this decree as to property as anything but the consent decree mentioned in the Freuler case, or to regard the conveyances set forth in the instrument as in truth founded, within the text of section 812 (b) of the code, on the decree or anything but the agreement and conveyance so expressly therein adopted and relied upon.

The substance is seen through transparent form. Assuming that the court could have decreed otherwise as to the property, this does 1948 U.S. Tax Ct. LEXIS 12">*47 not prevail over the fact that in this case it affirmatively appears that the court entered purely a consent judgment. (In fact, the petitioner appears to argue that a court of California, the situs of the community property, would have recognized only an equal division, so that it appears that the Nevada divorce court, in petitioner's view, was in reality without power except to follow the agreement for equal division. We said in Roland M. Hooker, supra, that we can not agree that no payment in liquidation of a judgment is a taxable gift within section 1002, and that Congress may not be supposed to pass a law which could be circumvented by the clear process of entering into an agreement to make transfer, supported by inadequate money consideration, and then making the transfer to satisfy a judgment on the agreement. The petitioner here, in substance, argues successfully for precisely that effect. I conclude that the conveyance of community property by the petitioner to his wife was "founded upon a promise or agreement" within the language and intent of section 812 (b), and, therefore, that the claim against the petitioner's estate, which he contends1948 U.S. Tax Ct. LEXIS 12">*48 belonged to his wife and which he says he satisfied by the transfer, must be shown to have been contracted for adequate and full consideration in money or money's worth, and that the mere fact of the judgment, relied upon herein to prove the claim against estate, so as to negative donative intent, is not sufficient; and since in Estate of Edwin W. Rickenberg, supra, we have held that division of California community property is relinquishment of marital rights in the decedent's property within the language of section 812 (b), and so not to be considered to any extent a consideration in money or money's worth, it follows that there is here no showing of the consideration necessary to negative gift under section 1002 of the code, and that under section 1000 (d) there was gift by the petitioner as husband.

11 T.C. 1016">*1030 I would not adhere to the ideas expressed in the Jones case, prior to the Wemyss and Merrill v. Fahs opinions by the Supreme Court, nor extend such ideas to cover community property settlements, not money judgments for support; but would hold that the transfer by division of community property to petitioner's wife was gift by1948 U.S. Tax Ct. LEXIS 12">*49 the petitioner. I therefore dissent.