*176 Decision will be entered under Rule 50.
1. Held, that monthly payments to wife for her support prior to divorce are not taxable to the wife under section 22 (k), and are not deductible from petitioner's income under section 23 (u), I. R. C.George D. Wick, 723">7 T. C. 723; affd., 161 Fed. (2d) 732.
2. Held, that payments of an obligation under a separation agreement made in contemplation of the divorce of petitioner's wife from him were not "periodic payments" within the definition thereof in section 22 (k), since the entire amount of the obligation was to be paid within a period of five years, and, therefore, the payments were not taxable to the wife under section 22 (k), and are not deductible by petitioner under section 23 (u).
*1132 The Commissioner determined a deficiency in petitioner's income tax for the taxable year 1945 in the amount of $ 721.84. The only question presented is whether payments made by the petitioner to and for the benefit of his wife pursuant to a separation agreement, *177 entered into prior to but in contemplation of a divorce, are deductible by petitioner under section 23 (u) of the Internal Revenue Code. As to one payment of $ 75 made by petitioner directly to his wife subsequent to the divorce decree, respondent concedes on brief that petitioner is entitled to a deduction for that amount.
The petitioner filed his return with the collector for the eighteenth district of Ohio, at Cleveland, Ohio.
All of the facts have been stipulated.
FINDINGS OF FACT.
The facts which have been stipulated are found as facts, and the stipulation is incorporated herein by this reference.
The petitioner resides in Cleveland, Ohio. Petitioner and Esther Fox were married on August 24, 1927, and two sons were born of that marriage. The sons were 15 and 13 years of age in 1945. Petitioner and his wife became separated in 1935 and have lived apart continuously since then.
On July 19, 1945, Esther Fox, as the party of the first part, and petitioner, as the party of the second part, entered into a written agreement of separation, expressly in contemplation of the filing of an action for divorce by Esther Fox against petitioner. The relevant portions of that agreement are*178 as follows:
(2) Second Party agrees to pay unto First Party as and for alimony the sum of Fifty Dollars ($ 50.00) per month beginning with the date of this contract and continuing until such time as she remarries or dies; agrees to pay unto First Party the sum of Fifty Dollars ($ 50.00) per month for maintenance and support of the two minor children now residing with the First Party. It is further agreed that in the event the income of Second Party is increased, he shall be obliged to increase the amount of payments hereinabove stipulated for alimony and for the support of the said children in the same proportion as 15 is to 40, i. e. for every $ 40.00 increase in the income of Second Party the First Party shall receive $ 15.00 increase. In addition to the payments herein stipulated for *1133 alimony and for support of the children aforesaid, Second Party shall, at his own cost and expense, supply all coal or other materials used for heating the home in which the First Party and the children shall reside, as well as, at his own cost and expense, supply all the clothing for said children. The amounts herein specified for the maintenance of the children shall not be payable *179 if said children should not reside with the First Party, or, if one of said children should not reside with First Party then only one half of the amount herein stipulated shall be payable.
(3) Second Party further agrees to pay unto First Party the sum of Five Hundred Dollars ($ 500.00) in cash immediately upon the signing of a decree for divorce and to deposit in escrow the sum of Two Thousand Dollars ($ 2,000.00) with H. B. Fishman to be held by him for the benefit of First Party for a period of five (5) years at which time he is hereby specifically authorized to deliver said amount to First Party. In addition, Second Party agrees, at the end of five (5) years from date hereof, to pay to First Party an additional sum of Five Hundred Dollars ($ 500.00). It is further stipulated and agreed that the sum of $ 2,000.00 herein mentioned shall be immediately used to purchase war bonds in the name of the First Party and said bonds be retained in escrow as above set forth. In the event First Party purchases a home for herself and children any time within the five (5) year period herein mentioned, said escrow agent is specifically authorized to immediately turn over said war bonds to First*180 Party without further authorization from Second Party, and Second Party shall immediately pay First Party said sum of $ 500.00. In the event First Party desire to buy a business said escrow agent is specifically authorized to turn over to her all of the bonds in his possession or so much as may be necessary to accomplish said purchase. If said bonds should be insufficient then Second Party shall pay to First Party said sum of $ 500.00. In the event First Party should become ill and in need of money because of such illness, said escrow agent is specifically authorized to turn over to said First Party all of the bonds or so much of the bonds as may be necessary to maintain First Party throughout said illness or to pay for her treatments.
Petitioner and his wife at no time during their marriage owned real property or personal property of any character other than earnings.
In July, 1945, Esther Fox instituted a suit for divorce in the Common Pleas Court of Cuyahoga County, Ohio, which averred, inter alia, that she and petitioner had entered into a written agreement, subject to the approval of the court, for alimony and support of the children. During the period from July, 1945, *181 up to December 3, 1945, petitioner made periodic monthly payments aggregating $ 300 to his wife in accordance with paragraph 2 of the separation agreement, as set out above.
Between July, 1945, and November 22, 1945, petitioner made additional payments to or for the benefit of his wife of $ 2,500, in part performance of his obligation under paragraph 3 of the separation agreement, as set out above. Of this amount of $ 2,500, petitioner made intermittent payments totaling $ 154.45 directly to his wife, and on or about November 21, 1945, petitioner paid to H. B. Fishman, in his capacity as counsel for Esther Fox, the sum of $ 2,345.55.
*1134 H. B. Fishman paid Esther Fox, out of the $ 2,345.55 which he received from petitioner for her benefit, the following amounts at the following times:
| Nov. 27, 1945, cash | $ 550.00 |
| Jan. 2, 1946, cash | 14.30 |
| Jan. 2, 1946, one U. S. "E" bond | 37.50 |
| Aug. 23, 1946, cash | 293.25 |
| Aug. 23, 1946, in U. S. bonds | 1,950.00 |
| Total | 1 2,845.05 |
*182 The amount of $ 2,500 paid by petitioner to or for the benefit of his wife in partial discharge of his obligation under paragraph 3 of the separation agreement did not represent periodic payments made subsequent to a decree of divorce or of separate maintenance.
On December 3, 1945, the Common Pleas Court of Cuyahoga County, Ohio, granted a divorce decree in favor of Esther Fox. The court incorporated in its decree all the terms of the separation agreement which the parties had entered into on July 19. There was no court order for alimony prior to December 3, 1945. There was no court order or decree of separate maintenance at any time.
Between December 3 and December 31, 1945, petitioner paid $ 75 as alimony to his former wife.
OPINION.
This proceeding presents the question of the deductibility of certain payments by the petitioner to or on behalf of his wife under a separation agreement entered into prior to but in contemplation of the divorce. The facts may be briefly summarized. In July of 1945 the petitioner's wife filed a petition for divorce, and on December 3, 1945, a divorce decree was entered. Between July, 1945, and December 3, 1945, petitioner made certain payments*183 pursuant to a separation agreement previously entered into by the parties, which is set out in its essential details in the findings of fact. Two classes of payments were made by petitioner under the separation agreement. These were: (1) Periodic monthly payments aggregating $ 300 made by petitioner to his wife pursuant to paragraph 2 of the separation agreement, and (2) additional payments totaling $ 2,500 in part performance of his obligation under paragraph 3 of the separation agreement. The $ 2,500 paid by petitioner pursuant to paragraph 3 consisted of intermittent payments totaling $ 154.45 paid directly to his wife and a lump sum of $ 2,345.55 paid to H. B. Fishman in *1135 his capacity as counsel for petitioner's wife. Petitioner also paid $ 75 to his wife as alimony during 1945 subsequent to the date on which the divorce decree was entered. The petitioner claimed a deduction under section 23 (u) of the Internal Revenue Code for all of these payments for the year 1945, i. e., for $ 2,875, the amount which he deducted in his return for 1945, which the respondent disallowed. Respondent concedes that petitioner is entitled to deduction of $ 75 which was paid after *184 the divorce decree was entered.
The right to a deduction under section 23 (u) depends upon whether or not the payments in question come within the scope of section 22 (k) so as to be includible in the gross income of the wife. Section 22 (k) specifically provides that:
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 * * *. [Emphasis added.]
The periodic monthly payments of $ 50 each, aggregating $ 300, made by petitioner directly to his wife pursuant to paragraph 2 of the separation agreement and paid prior to a decree of divorce or of separate maintenance, rather than subsequent to such a decree, are not includible in the wife's income under section*185 22 (k). Therefore, they are not deductible by the husband under section 23 (u). George D. Wick, 723">7 T. C. 723; affd. per curiam, 161 Fed. (2d) 732; Robert L. Daine, 9 T. C. 47; affd., 168 Fed. (2d) 449.
The second class of payments in question are those made in partial performance of petitioner's obligation under paragraph 3 of the separation agreement. Under this paragraph, petitioner was obligated to pay $ 500 to his wife immediately upon the signing of a decree of divorce and to deposit in escrow $ 2,000 with his wife's attorney for her benefit, payable to the wife at the end of five years or sooner if required by her. In satisfaction of this obligation, petitioner paid $ 154.45 directly to his wife and deposited $ 2,345.55 with her attorney prior to the entry of the decree of divorce. The aggregate of this second class of payments, or $ 2,500, was a payment made out of petitioner's capital rather than from his income. It clearly constituted the discharge of a lump-sum obligation, rather than a periodic payment, and, as such, was not taxable to the petitioner's*186 wife under section 22 (k). Cf. Barbara B. LeMond, 13 T. C. 670. Therefore, petitioner is not entitled to deduct these payments from his income under section 23 (u).
Decision will be entered under Rule 50.
Footnotes
1. The discrepancy between the $ 2,345.55 which the attorney received for the benefit of Esther Fox and the $ 2,845.05 which he paid to her is not explained by the parties, but appears to be due to the difference between the amount of bonds given to petitioner's wife and the amount of cash required for the purchase thereof.↩