*29 Decision will be entered under Rule 50.
1. In 1948, the taxable year, and immediately after the granting of a decree of divorce to his wife, petitioner, pursuant to a settlement agreement, paid to her an initial payment of $ 12,500. The agreement also provided for annual payments of $ 3,000, to begin in January of 1949, until her death or remarriage. Of the initial payment of $ 12,500, $ 3,000 was comparable to and for the same purpose as the annual payments which were to begin in January of 1949; $ 2,500 was to pay the fees of her attorneys; and the remainder was to cover nursing, medical, and surgical services for which she had made herself liable at the time of the divorce, or for which it was anticipated she would become liable in 1948. Held, that, except for $ 3,000, the initial payment of $ 12,500 was not a periodic payment within the meaning of section 22 (k) of the Internal Revenue Code, and was not, therefore, deductible by petitioner, under section 23 (u) of the Code, in computing his net income.
2. Contemporaneously with the settlement agreement, petitioner signed a guaranty agreement with a trust company, whereunder he was to deposit securities of a specified*30 market value to guarantee the payments to his divorced wife under the settlement agreement. The various payments under the agreement were to be paid by him to the trust company and by it paid to his divorced wife. In the absence of default, the securities were to remain in the petitioner's name and the income therefrom was payable directly to him. Held, that the fees paid by petitioner to the trust company in the taxable year were not expenditures of the character which are deductible under section 23 (a) (2) of the Internal Revenue Code.
*212 The respondent determined a deficiency in income tax against the petitioner for the calendar year 1947 of $ 7,578.76. The questions are whether $ 12,500 paid by petitioner to his divorced wife, upon the procurement by her of a decree of divorce, was deductible from his gross income, under section 23 (u) of the Internal Revenue Code, and whether he is entitled to a deduction as a nonbusiness expense, under section 23 (a) (2) of the Code, of $ 125 in fees paid by him to the St. Louis Union Trust Company.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found as stipulated.
The petitioner is a resident of St. Louis, Missouri. He filed his income tax return for the year 1947 with the collector of internal revenue for the first district of Missouri. The return was made on a cash receipts and disbursements basis.
Petitioner and Marguerite D. Haldeman were married on October 8, 1946, in New York City. They lived together as husband and wife, either in petitioner's home at 5185 Lindell Boulevard, in St. Louis, or at his summer home in Barnstable, Massachusetts, until July 1947, when they separated. *32 After the separation and until December 22, 1947, on which date she procured a decree of divorce from petitioner in the Circuit Court for the City of St. Louis, Marguerite lived at the *213 5185 Lindell Boulevard address. The petitioner lived elsewhere. Immediately after procuring the divorce decree, Marguerite left St. Louis, and has not lived there since that time. Petitioner and Marguerite had no children.
At the time of the separation, petitioner owned a substantial amount of income-producing securities and was an income beneficiary of a trust estate. On his 1947 income tax return, he reported a gross income of $ 37,811.79. In 1946, Marguerite had an independent income of approximately $ 8,000 from some oil properties and a trust fund. She was familiar with petitioner's financial affairs.
After their separation, petitioner and Marguerite both employed counsel, who undertook to negotiate a settlement of their difficulties. Marguerite's position was that, unless petitioner was willing to resume married life with her, she would file a proceeding for divorce. After it appeared that a reconciliation could not be effected, she asked for a lump-sum settlement from the petitioner*33 of $ 150,000, which petitioner refused. In the alternative, her counsel proposed annual payments to her by petitioner of $ 10,000 a year. Petitioner also rejected this proposal.
Petitioner was advised by his counsel that in the case of a settlement providing for annual payments to his wife for the period of her life or until her remarriage, the payments made by him to her would be income to Marguerite, and deductible by him in computing his taxable net income.
On December 22, 1947, a settlement was agreed upon and a written agreement covering the terms thereof was executed by the petitioner and Marguerite. The agreement recited that Marguerite, as party of the second part, intended to institute forthwith a proceeding for divorce and that the parties desired to effect a settlement of their property rights, in the event a divorce decree should be granted to her. The agreement was to be valid and effective only in the event that the divorce decree should be granted and the decree contained no provisions for attorneys' fees or alimony. Paragraph Second was as follows:
SECOND: In the event that such decree of divorce be granted to said second party, the said first party agrees*34 thereafter to pay to second party, periodically, the following sums of money, namely, the sum of $ 12,500.00 immediately after the granting of such decree, and in addition the sum of $ 3,000.00 per annum, beginning on the 15th day of January in 1949 and continuing thereafter on the 15th day of January in each year, until the death or remarriage of said second party. Upon the happening of either of such events the obligations of first party hereunder shall cease and no further payments shall thereafter be due. Such payments will be made by first party in full discharge of his duty to support second party, and in lieu of any alimony or suit money judgment in said divorce decree, and in consideration thereof said second party relinquishes and surrenders her claim to support from first party growing out of their marital relations;
*214 As security for performance on his part, petitioner agreed to deposit securities, which at all times would have a fair market value of at least $ 50,000, with the St. Louis Union Trust Company. It was stated in the agreement that the securities to be deposited immediately had a present market value of $ 53,100. The securities were to be held by*35 the trust company under the terms of a guaranty agreement to be executed contemporaneously between the petitioner and the trust company.
With respect to the initial payment of $ 12,500, which was to be paid under paragraph Second above, immediately after the granting of the divorce decree, paragraph Fourth provided as follows:
FOURTH: Upon the signing of this agreement by both parties hereto, and before or at the time of the filing of said petition for divorce, said first party will deposit with said Trust Company the sum of $ 12,500.00 in cash and the securities above listed, to be held pending the divorce suit. If such divorce decree be not granted to second party within ten days thereafter said cash and said securities shall be immediately returned to first party by said Trust Company, free from any claims hereunder. If such divorce decree be granted to second party within said time the said Trust Company shall, out of the said cash deposited with it by first party, pay to second party the sum of $ 10,000.00, and upon her order and instructions, the sum of $ 2,500.00 to Leahy & Leahy, her attorneys for their legal services to said second party, and said Trust Company shall*36 thereafter hold said securities under the terms of said Guaranty Agreement;
The agreement further provided that the payments of $ 3,000 a year, beginning on January 15, 1949, should be effected by the depositing of the said amount by petitioner with the trust company each January, so as to enable the trust company to make payment to Marguerite on or before the fifteenth day of such month.
Conditioned upon the granting of the divorce decree, the parties also agreed that they would "release, waive and surrender all dower and marital rights whether conferred by statute or otherwise, in the property of the other." Finally, it was provided that the settlement agreement was not to be filed in court, and there was to be no publicity other than a statement to be made in the proposed court proceeding that a property settlement had been agreed to.
The guaranty agreement between petitioner and the St. Louis Union Trust Company was also executed on December 22, 1947. It recited the deposit by petitioner with the trust company of the sum of $ 12,500 in cash and the securities specified, which securities were to be retained by the trust company as a fund to guarantee the payment thereafter by *37 petitioner of the $ 3,000 a year to Marguerite, until her death or remarriage. In the event petitioner should fail to deposit with the trust company the annual payment of $ 3,000 within 10 days after the fifteenth day of January in any year, the trust company was to mail written demand therefor, and if within an additional 10 days the payment was not made, the trust company was *215 authorized to enter suit for the said sum, and upon request of Marguerite, to sell a sufficient amount of the securities to pay to her the amount then due. If the securities on deposit should drop below $ 50,000 in market value, the trust company was to make written demand for additional securities, and in the event of failure to respond on the part of petitioner, to file suit for performance of the request.
With respect to the $ 12,500 in cash deposited at the time the guaranty agreement was signed, it was provided that if Marguerite did procure a decree of divorce on or before December 31, 1947, which decree made no provision for her legal expenses or for alimony, the trust company would immediately thereafter disburse the $ 12,500 by delivering to Marguerite its check for $ 10,000, payable to *38 her order, and, with her written consent, by paying her attorneys the amount of $ 2,500 in cash. The agreement contained further provisions to meet contingencies which might arise in the case of the death of the petitioner prior to the death or remarriage of Marguerite.
In paragraph Fifth, it was provided that so long as there should be no default on the part of the petitioner in the payment of the $ 3,000 annual payments, the securities deposited by him with the trust company should remain registered in his name, and all income should be payable directly to him; and further, that he should have the right to withdraw any of the securities, provided other securities having at least an equal market value should be contemporaneously deposited in place of the securities withdrawn.
In paragraph Twelfth, it was provided that the trust company should receive "as compensation for its services in holding stock certificates and handling the payments" under the agreement, a fee of $ 50 for its initial services and an annual fee, payable in advance, at the rate of $ 75 a year.
The divorce decree entered December 22, 1947, made no provision for alimony and contained no reference to any property*39 settlement between the parties.
On December 22, 1947, the date of the divorce decree and of the signing of the settlement and guaranty agreements above, the petitioner deposited with the St. Louis Union Trust Company, pursuant to the agreements, the securities described therein and $ 12,500 in cash. After the divorce decree and on the same date, Marguerite advised the trust company, in writing, that the divorce decree had been granted, and authorized and directed the trust company to pay $ 10,000 of the $ 12,500 deposited by petitioner to her, and the remaining $ 2,500 to her attorneys. Also on December 22, 1947, the trust company issued its checks making payment of those amounts as directed.
The initial payment of $ 12,500, although shown in the agreement merely as a lump-sum payment, was composed of three items, namely, $ 3,000 representing an amount for 1948 comparable to the payments *216 of $ 3,000 a year, which were stated to begin in January of 1949; $ 2,500 to pay Marguerite's attorneys; and the remainder, which was an extra amount to cover the costs of nursing, medical, and surgical services for which Marguerite had made herself liable, or for which she would become*40 liable in 1948.
Pursuant to the settlement agreement, the first of the $ 3,000 payments provided for was made in January 1949. Up to the date of the trial herein, the petitioner had made similar payments in January of each year.
In December 1947, the petitioner paid $ 125 to the St. Louis Union Trust Company to cover the fees provided for in paragraph Twelfth of the guaranty agreement.
The securities deposited by petitioner under the above agreements had continued in possession of the trust company up to the time of the trial herein.
On his income tax return for 1947, the petitioner claimed the $ 12,500 representing the cash payment made upon the execution of the settlement agreement and $ 100 of the fees paid in December 1947 to the trust company pursuant to the guaranty agreement as deductions, in computing his taxable net income.
The respondent, in determining the deficiency herein, disallowed the deductions so claimed.
OPINION.
Under section 23 (u) of the Internal Revenue Code, 1 it is provided that amounts which are includible, under section 22 (k), in the gross income of the wife, are deductible by the husband in computing his net income, and in section 22 (k) of the Code, *41 2 it is provided that periodic payments received by a wife, under a decree of divorce or a written instrument incident to the divorce and in discharge of a legal obligation which, because of the marital or family *217 relationship, is imposed upon the husband by such decree or written instrument, shall be includible in the gross income of the wife. It is the claim of the petitioner that the $ 12,500 payment made upon the granting of the divorce decree meets the requirements of the above sections, and is deductible by him in computing his taxable net income for 1947, the year of the payment.
*42 Deductions from gross income are matters of legislative grace, and payments claimed as deductions must fall squarely within the statutory provisions under which the deductions are claimed. That the initial payment of $ 12,500 to Marguerite, upon her procurement of the decree of divorce, was in fact made under a written instrument incident to the divorce is clearly and definitely established, and it is not necessary, under the statute, that the settlement agreement must have been incorporated or mentioned in the decree. Jane C. Grant, 18 T. C. 1013; Margaret C. Izrastzoff, 15 T. C. 573, affd. 193 F. 2d 625; Jessie L. Fry, 13 T. C. 658; George T. Brady, 10 T. C. 1192; Robert Wood Johnson, 10 T. C. 647; and Tuckie G. Hesse, 7 T.C. 700">7 T. C. 700. In addition, however, the payment must have been one of a series of "periodic payments" within the meaning of the statute.
The petitioner argues that as used in the settlement agreement the word "periodically" refers to the $ 12,500 payment*43 which was to be made "immediately after the granting" of the divorce, as well as the annual payments of $ 3,000 each beginning in January of 1949, and that the payment in question was thus one of the periodic payments and deductible as such. The argument begs the question. A payment must meet the test of the statute on the allover facts, and the use of the word "periodically" is of no consequence if it does not. As an indication that the answer may not be so simply derived, the counsel themselves, both being aware of the Federal income tax aspect of the settlement, gave wholly contradictory interpretations of the said payment to their clients, the petitioner's counsel advising him that, under the statute, the said payment was includible in Marguerite's income and deductible by him, in computing his net income, and Marguerite's counsel advising her that, under the statute, the $ 12,500 payment at the time of the divorce, unlike the annual payments of $ 3,000 each, which were to begin in January of 1949, was not taxable income to her.
The evidence shows, and we have found, that the sum of $ 12,500 was in fact made up of three items. Of that amount, $ 3,000 was to be paid for the*44 same purpose as the annually recurring payments of *218 $ 3,000, which were stated to begin in January of 1949; $ 2,500 was to pay for the services of Marguerite's attorneys in negotiating the settlement agreement and procuring the divorce; while the remainder was an added nonrecurring sum, paid by petitioner to cover medical, surgical, and nursing expenses for which Marguerite had made herself liable, or anticipated in 1948. Such being the facts, $ 3,000 of the amount paid was one of the series of admitted periodic payments of $ 3,000 each incurred by the petitioner because of the marital or family relationship, and being such, is includible in Marguerite's taxable income and is deductible by petitioner. The $ 2,500 paid to cover the services of Marguerite's attorneys was not a periodic payment, under the statute. Amounts paid by a husband to cover the wife's attorney fee is a lump-sum payment for a definite nonrecurring purpose, and is not income to her and not, therefore, deductible by the husband. Arthur B. Baer, 16 T.C. 1418">16 T. C. 1418, affd. 196 F.2d 646">196 F. 2d 646. Petitioner's agreement to pay the remainder of the initial amount*45 appears to have been the result of a visit by Marguerite at his separate residence during the period of their separation prior to the divorce. In the course of their married life she had told him that previously she had required considerable medical and surgical attention, including several operations, one of which was for cancer. At the time of her visit at his separate residence she stated that she was not feeling well, and would require nursing and medical attention. The payment which resulted was a lump-sum, nonrecurring payment to cover the medical, surgical, and nursing fees for which Marguerite had made herself liable, or for which she would become liable in 1948, and does not meet the statutory test of a periodic payment. It was not, therefore, income to Marguerite and deductible by petitioner on his return. Ralph Norton, 16 T. C. 1216, affd. 192 F. 2d 960; Arthur B. Baer, supra; and Lemuel Alexander Carmichael, 14 T. C. 1356, 1366.
The remaining question is as to the deductibility of the $ 50 and $ 75 fees paid by petitioner to the St. Louis Union Trust*46 Company in December 1947 under the guaranty agreement. It is the claim of the petitioner that the payments in question fall within the provisions of section 23 (a) (2) of the Code, which provides for the deduction, in the case of an individual, of all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. The petitioner argues that the fees were paid under the guaranty agreement for safeguarding, conserving, and maintaining securities of the petitioner, from which he was deriving a substantial income, and that under the reasoning of the Supreme Court of the United States, in Bingham's Trust v. Commissioner, 325 U.S. 365">325 U.S. 365, they are deductible as claimed.
*219 The petitioner's position, in our opinion, is not well taken. The guaranty agreement, which provided for the payments in question, rather plainly shows that the fees were paid by petitioner to the trust company for its handling of the payments to his divorced wife, as required under the settlement agreement. According to the*47 agreement, the securities remained registered in the petitioner's name and all of the income was payable directly to him. He had the right to take them down as he saw fit, provided other securities having a market value of at least $ 50,000 was substituted therefor. They were being held by the trust company for the protection of petitioner's divorced wife and to assure the payment to her of the alimony payments of $ 3,000 a year. The function served was in no way comparable to that covered by and dealt with in Bingham's Trust v. Commissioner, supra, cited and relied on by petitioner. Any preservation or conservation of income-producing properties which may have resulted was purely coincidental. It was not for that that the fees were paid.
We accordingly conclude and hold that the respondent did not err in failing to allow the deduction claimed.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
(u) Alimony, Etc., Payments. -- In the case of a husband described in section 22 (k), amounts includible under section 22 (k) in the gross income of his wife, payment of which is made within the husband's taxable year. If the amount of any such payment is, under section 22 (k)↩, or section 171, stated to be not includible in such husband's gross income, no deduction shall be allowed with respect to such payment under this subsection.
2. SEC. 22. GROSS INCOME.
(k) Alimony, Etc., Income. -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments (whether or not made at regular intervals) received subsequent to such decree in discharge of, or attributable to property transferred (in trust or otherwise) in discharge of, a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife, and such amounts received as are attributable to property so transferred shall not be includible in the gross income of such husband. * * * 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 the 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. * * *↩