21 T.C. 1063">*1063 1954 U.S. Tax Ct. LEXIS 253">*255 The Commissioner has determined income tax deficiencies and penalty, as follows:

The contested adjustments are alimony deductions disallowed by the respondent in the deficiency notice, as follows:

The amounts of $ 7,993.24 and $ 7,611.83 claimed by you as deductions from gross income for the taxable years 1944 and 1945, respectively, and which are alleged by you to represent alimony payments, are disallowed.

In addition to assigning error in his petition to the above adjustments petitioner now claims alimony deductions of $ 15,986.47 and $ 15,223.65 for 1944 and 1945, respectively, instead of the ones actually taken on his return and disallowed by respondent. For the year 1945, petitioner alleges:

During the calendar year 1945, petitioner paid to or for the account of his former wife, 1954 U.S. Tax Ct. LEXIS 253">*256 Miriam Cooper Walsh, from whom he was divorced prior to said 21 T.C. 1063">*1064 year, $ 15,223.65, representing the total of periodic payments in discharge of a legal obligation which, because of the marital or family relationship, was imposed upon him under a written instrument incident to their said divorce. In computing his net taxable income for said year, petitioner claimed as a deduction his community half of said amount. Without warrant in fact or law, respondent has not only refused to allow as a deduction the full amount paid but has disallowed as a deduction the half thereof claimed.

Petitioner has a similar allegation except as to amount for the year 1944, but we do not set it out here because we shall presently hold we have no jurisdiction for the year 1944. Petitioner raises the issue of jurisdiction for the year 1944 on the ground that since the deficiency alleged by the Commissioner was paid prior to the issuance of the deficiency notice, there was no deficiency at the time the notice was issued.

Petitioner concedes all other issues raised in his petition except those relating to 1944 jurisdiction and alimony deductions for both years.

FINDINGS OF FACT.

The facts have all1954 U.S. Tax Ct. LEXIS 253">*257 been stipulated and are found accordingly.

Petitioner is an individual residing in Los Angeles County, California. His Federal income tax returns for the calendar years 1944 and 1945 were filed with the collector for the sixth district of California. The returns were filed on the cash basis.

Petitioner and Miriam Cooper Walsh, hereinafter referred to as Miriam, were married on February 19, 1916. They adopted two children, John R. Walsh and Robert R. Walsh, hereinafter referred to, respectively, as John and Robert. On or about October 2, 1926, petitioner and Miriam separated as the result of domestic difficulties and thereafter never lived together.

On February 21, 1927, petitioner and Miriam entered into a written agreement. At the time of the execution of this agreement petitioner and Miriam contemplated a divorce and the agreement was entered into because they intended to be divorced. The agreement included provisions for payments to Miriam of $ 500 per week, but if petitioner's gross income was less than $ 1,000 per week, one-half of such income.

On May 23, 1927, Miriam filed suit for divorce against petitioner in the Los Angeles County, California, superior court. An interlocutory1954 U.S. Tax Ct. LEXIS 253">*258 decree of divorce was entered in this action on June 10, 1927, and a final decree on August 1, 1928. The 1927 written agreement was not incorporated into the divorce decree.

On and prior to October 15, 1934, petitioner was delinquent in the payments required by the above mentioned agreement and on said date Miriam filed suit against petitioner to recover the delinquent payments. Negotiations between petitioner, Miriam, and their respective attorneys resulted in a reappraisal of the positions of the 21 T.C. 1063">*1065 parties in the light of the economic circumstances then existing, and, on October 17, 1934, a second written agreement was entered into under which weekly payments were reduced from $ 500 to $ 325. Miriam's suit against petitioner was dismissed with prejudice on May 11, 1936.

During October of 1939, while away from Los Angeles, petitioner failed for 3 consecutive weeks to make the weekly payments of $ 325 to Miriam. Upon his return he tendered his check for these delinquent payments and thereafter tendered weekly checks for $ 325, all of which were rejected by Miriam on the grounds that his delinquency had reinstated the $ 500 per week payments.

On October 27, 1939, Miriam1954 U.S. Tax Ct. LEXIS 253">*259 filed suit against petitioner for reinstatement of the $ 500 weekly payments. On March 6, 1940, she received judgment for payments at $ 325 per week. Upon her appeal this judgment was affirmed on March 7, 1941. Satisfaction of the judgment was filed December 1, 1941.

On February 15, 1940, John, the son, sued Miriam for money had and received, alleging himself to be a third party beneficiary under the 1927 agreement. Miriam's motion to dismiss was granted on March 18, 1940, but was reversed on August 18, 1941. The suit was dismissed January 10, 1942, without trial.

On February 16, 1940, petitioner filed an action against Miriam for declaratory relief, alleging that she had violated the agreements and that he was no longer liable for payments thereunder. The suit was dismissed January 10, 1942, without trial.

On April 3, 1940, Robert, the other son, sued Miriam for money had and received, alleging himself to be a third party beneficiary under the 1927 agreement. Miriam's motion for summary judgment was granted April 30, 1940, but was reversed on December 31, 1940. The suit was dismissed January 10, 1942, without trial.

On November 13, 1941, a third written agreement was entered1954 U.S. Tax Ct. LEXIS 253">*260 into by petitioner and Miriam. This agreement settled the pending family disputes and rescinded the earlier 1927 and 1934 contracts. Again the weekly payment provisions were changed as follows:

Raoul agrees to pay to Miriam, for her support and maintenance, the sum of two hundred twenty-five (225) dollars per week for a period of two hundred (200) weeks, payable on Thursday of each week, commencing on the 6th day of November, 1941, and, after said two hundred (200) payments shall have been made, Raoul will thereafter pay to Miriam on Thursday of each week the sum of two hundred (200) dollars; provided, however, that all unaccrued weekly payments hereinabove provided for shall cease and terminate upon either the death or remarriage of Miriam.

The obligations of this paragraph are undertaken by reason of the fact that heretofore the parties were husband and wife and, under the contracts of 1927 and 1934 hereinabove referred to, Raoul had undertaken to pay certain sums for the support and maintenance of Miriam. Since said contracts are being rescinded 21 T.C. 1063">*1066 and annulled, it is the intent and purpose of the parties hereto that these payments shall have the same characteristic, 1954 U.S. Tax Ct. LEXIS 253">*261 to wit, of being for support and maintenance, and are made in recognition of the status of the parties as it existed on February 21, 1927.

There were provisions for reduced weekly payments in the event petitioner did not receive certain minimum income and also provisions for petitioner's paying premiums for life insurance policies on his own life for the contingent benefit of Miriam. With reference to the life insurance policies on which Raoul agreed to pay the premiums, it was further provided:

SIXTH: * * *

The parties hereto agreed to, and shall immediately, execute such instruments and documents as may be necessary to provide a trust so that, in the event of the death of Raoul prior to the death of Miriam, the net proceeds from said policies shall be payable to Miriam at the rate of two hundred (200) dollars per week, with Miriam having the power of appointment of beneficiaries to succeed to her rights in the event that, prior to her death, she has not received the full return therefrom; further, such papers and documents as may be necessary to provide that, in the event of the death or remarriage of Miriam prior to the death of Raoul, Raoul shall thereupon succeed to all rights1954 U.S. Tax Ct. LEXIS 253">*262 and benefits in and to said policies without any claim, right, or demand of Miriam, or her estate, heirs, successors and assigns.

The payments in question here, including the $ 225 weekly payments to Miriam and the life insurance premiums, were made pursuant to this 1941 agreement.

During the calendar year 1944, petitioner paid to Miriam a total of $ 11,700, representing 52 weekly payments of $ 225 each as required by the 1941 agreement and paid $ 4,286.47 net premiums on life insurance policies as required by the agreement. The total of these amounts is $ 15,986.47, the amount claimed as alimony deduction for said year.

During the calendar year 1945, petitioner paid to Miriam a total of $ 11,700, representing 52 weekly payments of $ 225 each as required by the 1941 agreement and paid $ 3,523.65 net premiums on life insurance policies as required by paragraph sixth of the agreement. The total of these amounts is $ 15,223.65, the amount claimed as alimony deduction for said year.

The origin or motive for the 1941 agreement can be traced to no obligation other than one arising from a family or marital relationship. Having considered all the facts, we find as an ultimate fact that1954 U.S. Tax Ct. LEXIS 253">*263 the 1945 payments of $ 225 a week to Miriam, aggregating $ 11,700 in that year, constituted periodic payments received subsequent to a decree of divorce in discharge of a legal obligation which, because of the family or marital relationship, was imposed upon or incurred by petitioner under a written instrument incident to such divorce.

The payments aforesaid were made from the community income of petitioner and his then wife, Lorraine Walsh, to whom he was married 21 T.C. 1063">*1067 throughout the calendar years 1944 and 1945. On his 1944 and 1945 tax returns, petitioner claimed his community one-half of these payments as alimony deductions.

Prior to October 30, 1950, the date of mailing of the notice of deficiency upon which this proceeding is based, to wit, on September 27, 1950, petitioner paid to the collector for the sixth district of California the entire amount of tax alleged by said notice to be due for the calendar year 1944, together with interest thereon. The tax had been theretofore assessed by respondent, the portion representing the alleged deficiency having been assessed on April 28, 1950, and payment demanded by the collector on May 5, 1950.

OPINION.

Prior to discussing 1954 U.S. Tax Ct. LEXIS 253">*264 the major issue in this case, there is a question of this Court's jurisdiction of the calendar year 1944.

It has been stipulated that the entire amount of tax claimed by the respondent to be due for the year 1944, including the deficiency proposed and interest thereon, was paid by the petitioner prior to the mailing of the deficiency notice upon which this proceeding is based. The jurisdiction of the Tax Court for 1944 is predicated upon an initial determination of a deficiency by respondent, section 272, Internal Revenue Code. Since there is no deficiency for the Court to redetermine, there is no jurisdiction as to the year 1944. In Stanley A. Anderson, 11 T.C. 841, 843, the Court held:

Since, on the date of the mailing of the letter purporting to be a notice of deficiency, it appears that the tax there involved had already been paid, it must be held that the letter was not a valid notice of deficiency within the definition of the Internal Revenue Code. See Internal Revenue Code, section 271 (a). The inescapable prerequisite of our jurisdiction is consequently lacking. Cf. Will County Title Co., 38 B. T. A. 1396.1954 U.S. Tax Ct. LEXIS 253">*265 * * *

The proceeding will, therefore, be dismissed as to the year 1944 for lack of jurisdiction.

The major issue to be decided is whether the payments made by petitioner in 1945 to his former wife, Miriam, are deductible under section 23 (u) of the Code. The applicable statutory provisions are printed in the margin. ¹ Respondent's argument is based on the earlier 21 T.C. 1063">*1068 decision of this Court holding that the payments received in 1942 and 1943 by petitioner's former wife, Miriam, pursuant to the same agreement involved here were not income to her under section 22 (k). Miriam Cooper Walsh, 11 T.C. 1093, affd. (C. A., D. C. Cir., 1950) 183 F.2d 803. Petitioner contends that the above decisions were incorrectly decided. We agree with petitioner.

1954 U.S. Tax Ct. LEXIS 253">*266 However, at the outset of this discussion we should point out that the Miriam Cooper Walsh case, supra, did not involve the taxability to her of life insurance premiums which Raoul had paid on insurance policies taken out on his life. The Commissioner in that case had determined his deficiencies by including in Miriam's income the $ 225 per week cash payments which had been paid to her under the terms of the November 13, 1941, agreement. Nothing was included in her income by reason of the premiums which Raoul had paid on his life insurance policies.

In the instant case it has been stipulated that petitioner paid, in the taxable year 1945, $ 3,523.65 net premiums on these policies and he is claiming this amount as a part of the alimony which he paid Miriam in 1945. Under the rationale of our recent decision in Lillian Bond Smith, 21 T.C. 353, we do not think this claim can be sustained. In the Smith case we held that the premiums paid on a policy of insurance were not includible in the wife's gross income as alimony under section 22 (k), Internal Revenue Code, since she had only a contingent interest in the policy and it was not for her1954 U.S. Tax Ct. LEXIS 253">*267 sole benefit. In so holding, we said:

The petitioner argues that she is not the owner of the policy; that it is not for her sole benefit; that her rights and interest in the policy are contingent upon her death or remarriage; and that although the separation agreement does not specifically so provide, the obvious intent and purpose of the provision of the agreement requiring Sydney to keep the insurance in force, is to secure to the petitioner support payments in the event she remains unmarried and survives Sydney. The petitioner relies, principally, on Meyer Blumenthal, 13 T.C. 28, affd. 183 F.2d 15, and a Memorandum Opinion of this Court. We agree with the petitioner.

* * * *

It is clear from the terms of the policy, and from the provisions of the separation agreement that the petitioner's rights under the policy are contingent on her death or remarriage. * * *

It is therefore apparent that the petitioner's only interest in the policy is contingent, and that the premiums on the policy were not paid for her sole benefit. * * *

21 T.C. 1063">*1069 We think it also may be correctly said in the instant case that Miriam's only interest1954 U.S. Tax Ct. LEXIS 253">*268 in the policies of insurance on Raoul's life is contingent and that the premiums on the policies were not paid for her sole benefit. She will only receive benefits from these policies in case she survives Raoul. We sustain the Commissioner in his disallowance of the $ 3,523.65 net premiums which petitioner paid on the insurance policies in 1945. They did not represent periodic payments of alimony to Miriam.

We shall next turn our attention to the deductibility of the $ 11,700 which petitioner paid to Miriam in weekly installments of $ 225 during the year 1945.

Section 22 (k) of the Code sets forth prerequisites which must be satisfied before such payments are includible in the former wife's income, hence deductible by the husband. They are: (1) There must be a divorce or legal separation under a decree of divorce or of separate maintenance, (2) the payments must be periodic, although they need not be made at regular intervals, (3) only those payments made and received subsequent to the decree qualify, (4) the payments must be in discharge of a legal obligation arising out of the marital or family relationship, (5) the obligation must be imposed upon or incurred by the husband 1954 U.S. Tax Ct. LEXIS 253">*269 under the decree or under a written instrument incident to the divorce or separation, and (6) the subsection does not apply to such portion of the payments as the decree or written instrument fixes as a sum payable for the support of minor children. The Commissioner makes no argument that petitioner has not met all the tests named above except those named in (5). He does contend, however, that the payments were not made under a written instrument incident to the divorce or separation agreement as provided in (5) above. It is conceded by the petitioner that the payments were not made under the decree of divorce itself.

The essential facts of the instant case can be stated briefly. Contemplating a divorce, petitioner and his former wife, Miriam, entered into a written agreement in 1927, which included provision for weekly payments of $ 500. It has been stipulated that this agreement was entered into because the parties intended to be divorced. Subsequently, petitioner and Miriam were divorced, the final decree entered in 1928 without incorporating the 1927 written agreement or any other provisions for alimony. The weekly payments were reduced twice under later agreements in 19341954 U.S. Tax Ct. LEXIS 253">*270 and 1941. None of the later agreements were incorporated in the divorce decree. The 1945 payments in dispute here were made pursuant to the 1941 agreement and included 52 weekly payments of $ 225 each, and $ 3,523.65 net premiums on life insurance policies. We have already held that the $ 3,523.65 21 T.C. 1063">*1070 life insurance premiums paid by petitioner on policies taken out on his own life were not payments of alimony to Miriam and, therefore, not deductible under section 23 (u).

California law, under which the decree in this case was entered, provides that if the decree of divorce merely refers to an agreement, or approves it, but does not make the agreement a part of the decree, the agreement cannot be enforced under the decree. Howarth v. Howarth, 81 Cal. App. 2d 266">81 Cal. App. 2d 266, 183 P.2d 670 (1947); Baxter v. Baxter, 3 Cal. App. 2d 676">3 Cal. App. 2d 676, 40 P.2d 536 (1935); Schnerr v. Schnerr, 128 Cal. App. 363">128 Cal. App. 363, 17 P.2d 749 (1932). Therefore, under California law none of the various agreements in the case at bar were enforceable under the divorce decree.

1954 U.S. Tax Ct. LEXIS 253">*271 The payments in question were made under a revised written agreement subsequent to the divorce decree, and neither the original agreement prior to the divorce nor the revised agreement was incorporated in the decree. The legal question thus raised is whether the payments of $ 225 per week in 1945 were "in discharge of a * * * legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such [divorce or separation] decree or under a written instrument incident to such divorce or separation * * *," (emphasis added) under section 22 (k).

From considerable litigation involving the deductibility of alimony payments pursuant to written agreements not incorporated in divorce decrees, there have emerged two conflicting general views regarding a basic concept of sections 22 (k) and 23 (u). One view is exemplified by the language of the United States Court of Appeals for the District of Columbia Circuit in Miriam Cooper Walsh, supra, as follows:

Second, it is not disputed that there must be a decree of divorce or a decree of separation before this section of the statute has any application. 1954 U.S. Tax Ct. LEXIS 253">*272 It is also settled that "divorce" as used in the phrase "incident to such divorce or separation" means more than mere status. As was held in the Cox case, it refers to the actual dissolution of the marriage ties. Since such dissolution can be accomplished only under a decree, if Section 22 (k) is to apply, "divorce" or "separation" as used in the phrase "incident to such divorce or separation" must mean decree of divorce or decree of separation. * * * [Emphasis added.]

The second view, developed later, regards the statutes in question as indicating a "congressional policy of placing the tax burden of all general marriage settlement payments on the party entitled to their enjoyment," Lerner v. Commissioner, (C. A. 2, 1952) 195 F.2d 296, reversing 15 T.C. 379. The circuit court elaborated as follows:

The term "written instrument incident to such divorce" was designed, we think, only to insure adequate proof of the existence of the obligation when divorce has occurred, and not to deny relief to the husband when merely legal formalities have not been rendered their full due. So where the payments obviously take1954 U.S. Tax Ct. LEXIS 253">*273 the place of alimony and otherwise satisfy the stringent requirements of I. R. C. Section 22 (k), although not formally incorporated into the decree, they should 21 T.C. 1063">*1071 not be denied effect under the statute merely because there is no evidence that divorce and settlement were not contemporaneously planned and carried out. Compare Smith v. C. I. R., 1 Cir., 192 Fed. (2d) 841, which goes somewhat farther than we are here called upon and holds within the statutory ambit even a later and post-divorce revision of an earlier agreement.

See also Rowena S. Barnum, 19 T.C. 401; Elizabeth E. Guggenheim, 16 T.C. 1561; Bertram G. Zilmer, 16 T.C. 365; Estate of Daniel G. Reid, 15 T.C. 573, affd. 193 F.2d 625.

The purpose of Congress in enacting the statutes in question was discussed in Smith v. Commissioner, (C. A. 1, 1951) 192 F.2d 841, affirming 16 T.C. 639. In that case the circuit court said as follows:

This1954 U.S. Tax Ct. LEXIS 253">*274 section was explained in the Report of the Ways and Means Committee (H. Rep. No. 2333, 77th Cong., 2d sess., pp. 71-72 (1942-2 Cum. Bull. 372, 427)) in which it was stated that Section 22 (k) was added:

'in order to provide in certain cases a new income tax treatment for payments in the nature of or in lieu of alimony or an allowance for support as between divorced or legally separated spouses. These amendments are intended to treat such payments as income to the spouse actually receiving or actually entitled to receive them and to relieve the other spouse from the tax burden upon whatever part of the amount of such payments is under the present law includible in his gross income. In addition, the amended sections will produce uniformity in the treatment of amounts paid in the nature of or in lieu of alimony regardless of variance in the laws of different States concerning the existence and continuance of an obligation to pay alimony.'