Respondent determined deficiencies in the income taxes of the petitioners as follows:
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These cases, consolidated for trial, involve questions relating to dependency exemptions and alimony: (1) Whether, during the year 1961, the petitioner, Neely B. Taylor, Jr., or the petitioners, William Eskridge and Betty Jean Eskridge, furnished more than one-half the support of three minor children bom of the former marriage of Neely B. Taylor, Jr., and Betty Jean; and (2) whether certain payments made by Neely B. Taylor, Jr., during the years 1960 and 1961 constituted alimony.
Respondent disallowed the payments deducted by Taylor as alimony in his 1960 return. For 1961, respondent similarly disallowed such payments as deductions to Taylor and also disallowed him dependency exemptions for the three children. Respondent for 1961 included the payments by Taylor as alimony in Betty Jean’s income and disallowed her dependency exemptions for the three children. The year 1960 is not before us as far as Betty Jean is concerned.
Respondent concedes that either Taylor or Betty Jean is entitled to the dependency exemptions and that if the payments by Taylor constitute alimony and are therefore includable in Betty Jean’s income, they are deductible by Taylor.
FINDINGS OF FACT
The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Petitioner Neely B. Taylor, Jr. (hereinafter sometimes referred to as Taylor), is an individual residing in Louisville, Ky. He filed individual Federal income tax returns for the years 1960 and 1961 with the district director of internal revenue at Louisville, Ky.
Petitioners William Eskridge and Betty Jean Eskridge (hereinafter referred to as Betty Jean) are husband and wife residing in Valley Station, Ky. They filed a joint Federal income tax return for 1961 with the district director of internal revenue at Louisville, Ky.
Prior to August 12,1960, Betty Jean was the wife of Neely B. Taylor, Jr. Three children were born of this marriage, namely, Robert Neely Taylor, born October 26, 1948, Linda Jean Taylor, born April 19, 1950, and Thomas Wayne Taylor, born November 1,1952.
Betty Jean and Taylor were divorced on August 12, 1960. Pursuant to an agreement dated June 27,1960, and incorporated into the divorce decree, Betty Jean was awarded custody of the three children with right of visitation in their father. Taylor was required to pay Betty Jean $100 per month for the support and maintenance of the three children, such payments to be reduced by one-third as each child became 21 years of age, married, or became self-supporting. Taylor further agreed to carry Blue Cross and Blue Shield insurance for hospital and medical care of the children.
Taylor and Betty Jean were the owners in “joint survivorship” of the residence of the parties located at 9216 Eonerail, Valley Station, Ky. Under the agreement of June 27,1960 (which was incorporated into the divorce decree), it was agreed that such ownership should continue and that, as “alimony,” Betty Jean and the children should continue to live in this residence and that Taylor would pay (1) the balance of the mortgage loan on the residence in the amount of $78 per month, inclusive of interest, amortization, taxes, and insurance; (2) the balance of a garage construction loan at the rate of $15.21 per month; and (3) the balance of a bank loan for storm windows and doors on said property at the rate of $7.87 per month. In the event Betty Jean remarried, or when all the children reached the age of 21, married, or became self-supporting, the real property was to be sold and the net proceeds divided equally between Betty J ean and Taylor.
During the years 1960 and 1961 (from June 27,1960, to and including June 30, 1961), pursuant to the agreement dated June 27, 1960, Taylor made the required payments on the mortgage loan, garage construction loan, and loan for the storm windows and doors in connection with the residence at 9216 Donerail.
Betty Jean and the three children lived together in the residence at 9216 Donerail throughout the years 1960 and 1961. Betty Jean and William Eskridge were married on July 1,1961, and lived together in the residence at 9216 Donerail during the remainder of 1961. Taylor made no payments on the loans after July 1, 1961, and the house was later sold.
During the year 1961, Taylor paid Betty Jean $1,200 for the support and maintenance of their minor children. He also paid $79.20 premiums on Blue Cross and Blue Shield hospital and medical-care insurance for the benefit of the three children.
The total amount spent for the support of the children during the taxable year 1961 was in excess of $2,600. Of this amount, Betty J ean contributed more than one-half.
OPINION
On brief, respondent stated that either Taylor or Betty Jean should be allowed the dependency exemption for each of the three minor children. While the evidence as to the total amount furnished for the support of the children and the relative contributions by Taylor and Betty Jean is not complete, we are satisfied on the basis of the record that Betty Jean contributed more than one-half of such support. Accordingly, we hold that she is entitled to the dependency exemption.
The second issue involves the question whether certain payments required to be, and, in fact, made by Taylor during the last 6 months of 1960 and the first 6 months of 1961 on the home mortgage and improvement loans represented alimony deductible by him under the provisions of section 215(a)1 and includable in the gross income of Betty Jean under the provisions of section 71.
Section 215(a) provides that a husband shall be allowed as a deduction amounts includable under section 71 in the gross income of the wife, payment of which is made within the husband’s taxable year. Section 71 provides that, if a wife is divorced from her husband, the wife’s gross income includes periodic payments received in discharge of a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce.
At the outset, it should be noted that the fact that the parties described these payments as “alimony” in the separation agreement is not determinative. Piel v. Commissioner, 340 F. 2d 887 (C.A. 2, 1965), affirming a Memorandum Opinion of this Court; Merchants’ L. & T. Co. v. Smietanka, 255 U.S. 509 (1921). Similarly, payments which realistically involve only the settlement of property rights as between husband and wife are not considered alimony. John Sidney Thompson, 22 T.C. 275 (1954); sec. 1.71-1 (c) (4), Income Tax Eegs. Nevertheless, under appropriate circumstances periodic payments by the husband can qualify as alimony even though such payments enhance a property interest of the wife. Cf. United States v. Davis, 370 U.S. 65 (1962); Hyde v. Commissioner, 301 F. 2d 279 (C.A. 2, 1962).
Where property is owned under “joint survivorship,” as was the case here, neither party can take any action without the other party’s consent, e.g., increasing the mortgage, which would impair the value of the other party’s equity. Cf. James Parks Bradley, 30 T.C. 701 (1958). Moreover, the property was required to be sold in the event of Betty Jean’s remarriage, the attainment of age 21 by all the children, or their marriage, or their becoming self-supporting. All of these eventualities were more likely to occur than Betty Jean’s death and when they occurred the property was required to be sold and Betty Jean was entitled to one-half the net proceeds. One-half of each payment of mortgage principal by Taylor thus increased the amount which she would potentially receive from any sale. Even the portion of the mortgage payment which represented insurance protected Betty Jean’s potentiality of realization. Cf. Seligmann v. Commissioner, 207 F. 2d 489 (C.A. 7, 1953).
In the usual situation, where there is coownership of property, such as involved herein, the husband and wife are personally liable on the mortgage loan. Each payment by one party pro tanto discharges the legal obligation of the other party to the lender. Under local law each party is generally entitled to a contribution of one-half of any mortgage payment from the other. 2 Tiffany, Law of Real Property, sec. 460 (3d ed. 1939). In such circumstances, an agreement and decree imposing the obligation for the entire mortgage payments on the husband cuts off the husband’s right of contribution which would otherwise arise each time a payment was made. As a result, each payment by the husband appears to confer a current benefit upon the wife by discharging pro tanto her legal obligation to the lender, and relieving her of her obligation to contribute.
Even in the absence of personal liability, a right of contribution by one coowner against the other may exist, albeit enforceable only against the latter’s interest in the property itself. Tiffany, supra. Here, too, an agreement and decree such, as are involved herein effectively cut off the husband’s right of contribution. Moreover, although no legal obligation of the wife is discharged by a mortgage payment, a current benefit is conferred upon her through decreasing the amount of the encumbrance against the property which she would have to discharge to protect her interest in the event that she became the sole owner, e.g., in the event of the husband’s death. Cf. Hyde v. Commissioner, supra.
Unfortunately, in the present case, none of the documents evidencing any of the loans was placed before us, so we are unable to determine whether Betty Jean had any personal liability to the lenders. The only document submitted was the payment book of the Greater Louisville First Federal Savings & Loan Association; this book merely categorizes Taylor and Betty Jean as borrowers without indicating whether there was any personal liability beyond the property itself, i.e., for any deficiency in the event of sale. Nor is there any evidence indicating that Taylor may not at some time prior to the agreement and decree have waived his right of contribution. Moreover, Betty Jean’s ability to realize any benefit in the event of sale was at best speculative. It depended upon whether the proceeds realized were in excess of any then-existing encumbrances and the expenses of sale. Her ultimate receipt of proceeds was so exposed to destruction2 as to make it impossible to find that she constructively received the payments as they were made. Cf. Florence H. Griffith, 35 T.C. 882 (1961). Of course, absent a finding that the payments were includable in the wife’s income under section 71, the husband would not be entitled to a deduction under section 215(a).3
In view of the foregoing, we are compelled to hold that the payments by Taylor on the three loans during I960' and 1961 are not includable in Betty Jean’s income and therefore not deductible by him as alimony.4
Finally we note that in a cotenancy, regardless of the form of common ownership, there is a right of occupancy separate and distinct from the ownership of the property itself. Cf. Lilly v. Smith, 96 F. 2d 341 (C.A. 7, 1938); sec. 86.19 (h), Regs. 108; 2 Tiffany, Law of Real Property, secs. 418, 435 (3d ed. 1939).
By virtue of the agreement and decree, Taylor was required to give up his right in this regard and Betty Jean and the children were given exclusive occupancy.
The rental value of the right to occupy premises can, of course, constitute taxable income. Where such value is furnished in discharge of a legal obligation (as is the case where a husband is obliged to furnish living quarters to his former wife under a divorce decree), the person furnishing the same may be entitled to a deduction but that deduction may be offset by an equivalent amount of realization of income. Reynard Corporation, 30 B.T.A. 451 (1934) and 37 B.T.A. 552 (1938), appeal dismissed (C.A. 2, 1938).
The record in this case is devoid of any evidence as to the nature or value of Taylor’s right of occupancy. Nor do we believe that we can equate any portion of the loan payments to such value without such evidence. This is particularly true where the property is sold at or about the same time for less than the mortgage — far less, for all the record shows. We therefore do not reach such questions as whether the relinquishment of such right of occupancy constitutes “payment” within the meaning of sections 71(a) and 215(a); whether, if there is “payment,” such right of occupancy is depreciable on the ground that the realization of income from the “payment” qualifies the property as being held for the production of income under section 212; or whether such “payment” is periodic or constitutes the nonrecurring receipt of a property interest in the nature of a life estate, thus falling outside the alimony sections of the Internal Eevenue Code, as appears to be the case where the wife acquires such right from the divorced, sole-owner husband. Compare James Parks Bradley, supra; Pappenheimer v. Allen, 164 F. 2d 428 (C.A. 5, 1947). We merely hold that, in this case, there is no income to Betty Jean nor deduction to Taylor stemming from the former’s right of exclusive occupancy.
Eeviewed by the Court.
Decisions will be entered under Rule 50.
DkeNNEN, J., concurs in the result.unless otherwise stated, all statutory references are to the Internal Revenue Code of 1954, as amended.
There is a statement in the record that the original mortgage was for the full value of the house. This, coupled with the statement that there were no net proceeds on the ultimate sale, indicates that neither Taylor nor Betty Jean ever had any equity. Obviously, if the unpaid balance of the mortgage had been substantially less than the value of the property the mortgage payments would have meaningfully increased Betty Jean’s equity.
In view of our ultimate decision in this case, we do not reach the questions as to the effect, if any, of the existence of a prepayment clause in the mortgage or of the fact that the remaining term of the mortgage may be more or less than 10 years. See sec. 71(c), and sec. 1.71-1 (d), Income Tax Regs.
On brief, respondent urged that this case is controlled by decisions involving the treatment of premiums paid by a former husband on insurance on his life in which the former wife has an interest, citing Seligmann v. Commissioner, 207 F. 2d 489 (C.A. 7, 1953); Rev. Rul. 58-52, 1958-1 C.B. 29, as modified by Rev. Rul. 62-38, 1962-1 C.B. 15; and Florence S. Griffith, 35 T.C. 882 (1961). We do not believe that the insurance premium eases are necessarily determinative of the treatment of mortgage payments as alimony. In those cases, the wife has a mere expectancy, whereas, in situations involving mortgage payments, the wife may well realize a measurable current benefit because of the existence of a legal obligation of both spouses to the lender and/or a right of contribution inter sese. Respondent seemingly did not consider these distinctions when he promulgated Rev. Rul. 58-52 and Rev. Rul. 62-38.