*232 Decision will be entered for the respondent.
Section 23 (u) -- Deductions for Payments to Divorced Wife Denied:
1. Held, that a payment of $ 3,000 to wife prior to divorce is not deductible under section 23 (u).
2. The terms of a separation agreement which was ratified and confirmed by a decree of divorce in 1946 are construed. Held, that payments made by the husband after the divorce to the divorced wife were not periodic payments within section 22 (k) and therefore are not deductible under section 23 (u), because the principal sum to be paid in installments was not to be paid within a period ending more than 10 years from the date of the divorce decree.
3. Upon the facts, held that insurance policies of which the divorced wife was the beneficiary during the term of the agreement providing for payments by the husband were merely security for performance of the husband's contractual obligation, and, therefore, that sums paid by the husband to discharge the insurance premiums do not come within the scope of section 22 (k) and are not deductible under section 23 (u).
*1610 The respondent has determined that there is a deficiency in income tax for 1946 in the amount of $ 1,151.81. The deficiency results from disallowance of a claimed deduction for alleged alimony payments in 1946. The issues to be decided are: (1) Whether certain payments made by the petitioner F. Ellsworth Baker to his former wife pursuant to the terms of a mutual separation agreement constitute alimony which is deductible by F. Ellsworth Baker under section 23 (u) of the Internal Revenue Code; and (2) Whether certain life insurance premiums paid by F. Ellsworth Baker, pursuant to the separation agreement, on policies insuring his life, wherein his former wife is designated as the sole and irrevocable beneficiary of the proceeds thereof *1611 during the term of the separation agreement, constitute allowable deductions by the petitioner as alimony within the scope of section 23 (u) of the Internal Revenue Code. All of the facts have been stipulated. The stipulation of facts is incorporated herein by this reference. The essential facts are as follows:
FINDINGS OF FACT.
The petitioners are residents of New York City.
Prior to September 1946, F. Ellsworth*234 Baker, hereinafter called petitioner, was the husband of Viva Cynthia, hereinafter referred to as Viva. In consequence of unhappy differences, petitioner and Viva separated and entered into an agreement, dated July 17, 1946, providing that they might live apart and for the maintenance and support of Viva by petitioner. The agreement provided in regard to maintenance and support as follows:
4. The Husband agrees that, commencing with September 1, 1946, he will pay to the Wife, if living, and she agrees to accept as and for her maintenance and support in full the following sums:
(a) For the period commencing September 1, 1946 and ending August 31, 1947 the sum of $ 300.00 per month.
(b) For the period of five years commencing September 1, 1947 and ending August 31, 1952, the sum of $ 200.00 per month.
On July 1, 1947 or January 1, or July 1 of any year thereafter during the term of this agreement, the Husband may request a review of his books and records by a certified public accountant of the State and City of New York satisfactory to him and to Mr. Richard Remsen or to the Wife, for the purpose of ascertaining whether the $ 200.00 monthly payments agreed to be paid by him shall *235 exceed one-third of his net income received for the calendar year next preceding the date as of which such review is requested, such review to be at the expense of the Husband exclusively.
If such review discloses that such $ 200.00 monthly payments shall exceed one-third of the net income received by him during the calendar year next preceding the date on which such review shall be requested, then and in such event the monthly payments to be made during the ensuing period of one year shall be reduced to the monthly pro-rata part of one-third of such reduced annual net income; provided, however, in any event that the Wife shall receive $ 300.00 monthly payments for the year commencing September 1, 1946 and ending August 31, 1947, and that the monthly payments to be made during the succeeding five years shall not be less than $ 150.00 per month in any event.
* * * *
Any amount by which any of the $ 200.00 monthly payments called for hereby are reduced in the aggregate shall be paid commencing with the 73rd month after the date of this agreement, at the rate of $ 200.00 per month, subject to the provisions of this Article 4 as to the right of review and reduction until such aggregate*236 sum required by this agreement shall be paid in full.
It is expressly understood and agreed, however, that, should the Wife remarry at any time after August 31, 1947, the obligation of the Husband to make any further payments to the Wife for her support shall cease and come to an end.
In furtherance of the adjustment of the financial affairs between the parties, the Husband has this day given to the Wife, by his check payable to the order *1612 of Bernard, Remsen, Millham & Ryan, as attorneys, of 165 Broadway, New York City, New York, the sum of $ 3,000.00. Said sum of $ 3,000.00 shall be disbursed as follows: $ 750.00 for the Wife's attorneys plus their disbursements, and the balance thereof as the Wife shall from time to time direct between the date hereof and September 1, 1946.
5. The Husband agrees on the signing of this Agreement to deliver to the Wife's attorneys an insurance policy or policies upon his life in such face amount or amounts that the net proceeds payable to the Wife, if living, in the event of the death of the Husband during the term of this Agreement shall at all times equal or exceed the sum of $ 10,000.00. On the delivery of the policy or policies the*237 Husband will provide the Wife with a certified statement by the insurance company or companies or by a duly authorized agent thereof of the existing amount of the loan, if any, on each policy and the present state of each loan. Such policy or policies shall contain appropriate endorsements whereby the Husband irrevocably surrenders the right to change the beneficiary during the term of this agreement. The Husband further agrees to pay the premiums and loan interest, if any, by cash or premium note upon such policies during the term of this Agreement, less all dividends which may be payable on such policy or policies. He agrees to furnish the Wife with a statement showing the due dates of the premiums on the signing hereof and he agrees to send her premium receipts within fifteen days after the premiums are due. He further agrees not to make any further cash loans on such policy or policies for any purpose. At the expiration of this Agreement the Wife agrees to execute such papers as may be required by the insurance company or companies to permit the Husband thereafter to change the beneficiary of such policy or policies and will forthwith deliver the same to the Husband. * * *238 *
* * * *
15. In the event that the parties hereto on June 1, 1947, are still united together in the bonds of matrimony, it * * * [is] mutually agreed that all the foregoing terms, covenants and agreements shall cease to be binding upon either of the parties for any purpose, excepting insofar as this agreement has been performed up to said date by the parties hereto, and they shall be at liberty to readjust their differences. In such event the Wife shall return the insurance policies mentioned in Article 5 hereof and shall make, execute and deliver to the Husband such instrument or instruments as may be necessary in accordance with the rules of the insurance company issuing such policies to reinstate the right of the Husband to change the beneficiary.
Pursuant to the agreement, petitioner paid to Viva the sum of $ 3,000 by his check, dated July 17, 1946, payable to her order and endorsed by her to the order of her attorneys to be disbursed as provided in the agreement.
Thereafter Viva established her residence in the State of Nevada and brought an action for divorce in the District Court in Elko County, Nevada, against petitioner, who appeared in the action by his attorney. In the*239 action Viva obtained a judgment and decree of divorce under date of September 4, 1946. The judgment was corrected and amended by corrected and amended judgment and decree of divorce filed September 11, 1946. After the signing of the decree, petitioner, pursuant to the agreement as ratified and confirmed thereby in 1946, made payments to Viva aggregating $ 1,225 for her maintenance and support.
*1613 On their joint income tax return for 1946, the petitioners, under the heading "Miscellaneous Deductions," took as a deduction for alimony the sum of $ 4,150. The sum was the aggregate of the payments of $ 3,000 and $ 1,150 (the aggregate of the monthly payments as erroneously computed instead of the correct aggregate sum of $ 1,225).
In 1946, pursuant to the agreement, petitioner made Viva the irrevocable beneficiary, during the term of the agreement, of two life insurance policies issued on his life by National Life Insurance Company of Montpelier, Vermont. In order to keep the policies in force after the making of the agreement, petitioner in 1946 paid certain premiums on the policies. The record of premiums due and paid on the insurance policies were as follows:
| Amount | Paid by | Balance | |||
| Policy No. | Due date | Date paid | due | loan | in cash |
| June 9, 1946 | July 24, 1946 | $ 61.82 | $ 40.00 | $ 21.82 | |
| 675413 | Sept. 9, 1946 | Oct. 27,1946 | 33.85 | 10.00 | 23.85 |
| Dec. 9, 1946 | Jan. 20, 1947 | 33.85 | 15.00 | 18.85 | |
| June 15, 1946 | July 29, 1946 | 117.39 | 117.39 | ||
| 780023 | July 15, 1946 | Aug. 26, 1946 | 70.70 | 66.20 | 14.50 |
| Oct. 15, 1946 | Nov. 25, 1946 | 66.20 | 25.00 | 41.20 |
*240 Viva was remarried on or about September 25, 1949. On September 7, 1951, Viva ceased to be the irrevocable beneficiary of the insurance policies.
OPINION.
This proceeding presents the question of the deductibility of certain payments by the petitioner to Viva under a separation agreement which was later made a part of a judgment and decree of divorce. Part of the payments were made before and part were made after the date of the divorce.
The petitioner made a payment of $ 3,000 on July 17, 1946, the date the separation agreement was signed, almost two months before the date of the divorce. In regard to the deductibility of this amount, the only argument advanced by the petitioner on brief is that "Petitioner F. Ellsworth Baker personally insists upon the deductibility of such payment." The petitioner does not advance any theory under the statutes that the amount can be allowed as a deduction, and we know of none. The payment was made for the benefit of the wife prior to divorce. Clearly it is not taxable to the wife under section 22 (k) of the Internal Revenue Code, and it is not deductible from petitioner's income under section 23 (u) of the Internal Revenue Code. George D. Wick, 723">7 T. C. 723,*241 affd. 161 F. 2d 732; Joseph D. Fox, 14 T. C. 1131. Furthermore, the language of the instrument indicates that the payment of this amount was intended as a lump sum payment *1614 and as an adjustment of the financial affairs of the parties and not as a periodic payment. Since it was not a periodic payment within section 22 (k) of the Internal Revenue Code, it follows that it is not deductible by petitioner under section 23 (u). Arthur B. Baer, 1418">16 T. C. 1418; William M. Haag, 17 T.C. 55">17 T. C. 55.
We next consider the question of the deductibility of the additional payments made by the petitioner to Viva during 1946 after entry of the decree of divorce in the amount of $ 1,225. 1 The petitioner claims that such monthly payments were periodic payments within the meaning of section 22 (k).
*242 An analysis of the separation agreement discloses that the payments were to be made on the basis of a definite sum of money. The monthly payments were to extend over a 6-year period, payable at the rate of $ 300 per month for the first year and $ 200 per month thereafter. The provision also provided that after July 1, 1947, the husband would have the privilege of having a periodic examination made of his financial condition and that if it should be ascertained that $ 200 a month was in excess of one-third of his net income (as defined in the agreement) such payments were to be reduced to the monthly pro rata part of one-third of his income but were to be not less than $ 150 per month. A further provision respecting the monthly payments provided that the aggregate sum by which the $ 200 monthly payments might be reduced in accordance with the provisions for reduced payments must be paid at the rate of $ 200 per month commencing with the 73d month after the date of the agreement or, in other words, on July 17, 1952. These payments were also subject to the same provision for reduced payments as were the initial monthly remittances. Simple arithmetic indicates that the principal *243 sum to be paid was $ 15,600. The only effect of the provision for reduced payments was to extend the prescribed period of payments from a period of 6 years to a maximum of 7 years and 8 months. The amount paid under this part of the agreement represented installment payments to be paid within a period of less than 10 years. In order to be deductible under section 23 (u), the payments here in dispute must meet the conditions prescribed by section 22 (k). 2 We have heretofore considered this *1615 problem, i. e., where the installment payments of a principal sum were to be made within a period of 10 years, and have concluded that they are not deductible from the husband's gross income under section 23 (u). J. B. Steinel, 10 T. C. 409; Estate of Frank P. Orsatti, 188">12 T. C. 188; Harold M. Fleming, 14 T. C. 1308.
*244 The final question is whether certain life insurance premiums paid by the petitioner, pursuant to the separation agreement, on policies insuring his life, wherein his former wife was designated the sole and irrevocable beneficiary of the proceeds thereof during the term of the separation agreement, constitute allowable deductions by the petitioner within the provisions of section 23 (u) of the Internal Revenue Code.
The separation agreement required the petitioner to designate Viva as the irrevocable beneficiary of certain life insurance policies. The policies were to be delivered to her and at the expiration of the agreement they were to be returned to the petitioner, and the right to change beneficiaries was to be restored to him. Actually, petitioner delivered to Viva two insurance policies on his life in the total face amount of $ 15,000, and Viva was designated as the sole beneficiary. In order to keep the insurance in force, the petitioner paid the premiums that became due for 1946. The remarriage of Viva in September 1949 caused the insurance policies to be returned to petitioner, and in September 1951 Viva ceased to be a beneficiary on the policies.
We have examined the*245 cases relied on by the petitioner and conclude that none of them stand for the proposition that insurance premiums paid under circumstances similar to the ones here in controversy are deductible as alimony payments under section 23 (u) of the Internal Revenue Code. Upon examination of the facts here, we conclude that the insurance policies in question were merely collateral security for the payment of the monthly amounts, to safeguard Viva against the possible contingency of petitioner's death before he had fulfilled his contractual obligations. It is clear, as pointed out in Blumenthal v. Commissioner, 183 F. 2d 15, affirming 13 T. C. 28, that the security for the faithful performance of the taxpayer's continuing obligation does not of itself give the divorced wife more than was provided for her in the agreement. Neither does the fact that the petitioner provided collateral security serve to increase the length of the agreement's duration. Its maximum term is still 7 years and 8 months. Even if the amount paid as insurance premiums was deductible as alimony, which we conclude is not so, the petitioner still would *246 be confronted with the 10-year proposition discussed above under the second issue. We therefore conclude that the payment of insurance premiums is not deductible under section 23 (u).
Decision will be entered for the respondent.
Footnotes
1. It has been stipulated that $ 1,225 is the correct aggregate sum rather than the amount of $ 1,150 claimed as a deduction in the joint return.↩
2. Section 22 (k), I. R. C., provides in part as follows:
* * * Installment payments discharging a part of an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument shall not be considered periodic payments for the purposes of this subsection; except that an installment payment shall be considered a periodic payment for the purposes of this subsection if such principal sum, by terms of the decree or instrument, may be or is to be paid within a period ending more than 10 years from the date of such decree or instrument, but only to the extent that such installment payment for the taxable year of the wife (or if more than one such installment payment for such taxable year is received during such taxable year, the aggregate of such installment payments) does not exceed 10 per centum of such principal sum.↩