Antoinette L. Holahan, Petitioner, v. Commissioner of Internal Revenue, Respondent, 222 F.2d 82 (2d Cir. 1955)

Before CLARK, Chief Judge, FRANK, Circuit Judge, and GALSTON, District Judge.

GALSTON, District Judge.

The petitioner complains of the decision of the Tax Court determining a deficiency in her federal income tax for the calendar year 1949 in the amount of $5,978.06.

On April 7, 1928, during the pendency of a divorce action, the husband and wife entered into a voluntary separation agreement providing for periodic payments for her support and the support and maintenance of their children. That was followed by a decree of divorce entered on May 19, 1928. The alimony payments set forth therein were in terms identical with those of the separation agreement. Subsequently, on January 12, 1949, the petitioner and her former husband entered into a further agreement to settle all differences between them, including arrearages due under the 1928 agreement.

The 1949 agreement provided that the husband pay the wife, the petitioner herein, $100,000 in cash in full settlement of all claims under said contract of April 7, 1928, and the sum of $75 per week in full settlement of any and all claims, support, maintenance or otherwise. The sum of $100,000 was to be paid in installments.

Thus the question arises whether the net aggregate sum and the weekly payments constituted periodic payments in discharge of a legal obligation which, because of the marital relationship, was incurred by the husband under a written instrument incident to a divorce.

The petitioner contends that the 1949 agreement, made some twenty years after the decree of divorce had been entered into, was a new agreement complete in itself, and superseded all previous agreements, and in consequence was not "incident" to such divorce. The Tax Court did not agree. It is difficult to escape the conclusion of the Tax Court, for the 1949 agreement in its recital states:

"The parties hereto have been in disagreement concerning the amount of money due to the party of the first part (i. e. the petitioner) from the party of the second part (her former husband) under a contract dated April 7, 1928 * * * for the support and maintenance of the party of the first part and support and maintenance of the then minor children."

Later, the 1949 agreement specifically describes the lump sum payment and the weekly payments to be "in full settlement of all claims under said contract dated April 7, 1928 * * *."

This 1949 agreement thus ties in effectively with the agreement of April 7, 1928 with the result that the payments contemplated, both the lump sum and the periodic payments, are incident to the decree of divorce entered in 1928. Newton v. Pedrick, 2 Cir., 212 F.2d 357; Grant v. Commissioner of Internal Revenue, 2 Cir., 209 F.2d 430; Smith v. Commissioner of Internal Revenue, 1 Cir., 192 F.2d 841, and Lerner v. Commissioner of Internal Revenue, 2 Cir., 195 F.2d 296. It is perhaps unfortunate for the taxpayer that the 1949 payment of the lump sum was not divisible into installment payments over the twenty lapsed years. However, that lump sum was a payment of arrears and was taxable when received.

Section 22(k) of the Internal Revenue Code of 1939, 26 U.S.C. 1952 edition, § 22, describes the conditions under which the payments here involved would be includible in the taxpayer's income. See footnote.¹ 

We agree that the Tax Court was correct in holding that the payments received by the taxpayer in 1949 were made pursuant to their decree of divorce and therefore includible under the aforesaid section.

The petitioner's contention on this appeal that it is a fundamental principle of tax law that income is taxable to the man who earns it, citing Lucas v. Earl, 281 U.S. 111, 50 S. Ct. 241, 74 L. Ed. 731, cannot override the provisions of Section 22(k).

Affirmed.