*91 Decision will be entered under Rule 50.
Amounts received by petitioner wife from divorced husband after motion for alimony arrearages due under prior decree, and pursuant to his agreement to pay fixed amount related to arrearages, and her agreement for vacating of prior decree, held, on the facts, to constitute periodic payments of alimony to wife in discharge of legal obligation imposed on husband under decree of divorce taxable to her under section 71, I.R.C. 1954.
*879 Respondent determined a deficiency in petitioner's income tax for 1954 of $ 764.65. The issues are (1) whether payments to petitioner from her former husband in 1954, totaling $ 3,040, represented periodic payments of alimony and taxable income within section 71(a), I.R.C. 1954; and (2) if issue No. 1 is decided adversely to petitioner, whether, in spite of the election of the standard deduction, $ 1,014 of the $ 3,040 payment, which was retained by and paid to petitioner's attorney, is deductible under section 212(1), I.R.C. 1954.
*880 FINDINGS OF FACT.
The stipulated facts are found.
Petitioner is an individual residing in Brooklyn, New York. She filed her return for the year in issue with the district director of internal revenue for the district of Brooklyn, New York.
Petitioner and Robert Dalton, hereinafter called Dalton, were married in Boston, Massachusetts, on June 15, 1924. From about 1926 until May 1938 they resided continuously in Brooklyn, New York. In May 1938, Dalton left their abode. Petitioner and their two children have since continued to reside in Brooklyn, New York.
In the latter part *93 of 1942, Dalton instituted an action for divorce against petitioner in the Superior Court of Cook County, Illinois, hereinafter called the Illinois court. Service was not effected upon petitioner personally but by publication. Petitioner did not appear in this action either personally or by an attorney. By decree dated February 10, 1943, the Illinois court granted Dalton a divorce from petitioner on the ground of desertion and ordered that petitioner be given "the sole care, custody, control and education" of their two children, Rosemary and Dorothy. The decree made no provision for payment of any alimony to petitioner or for payment of any amount for support of their two children.
In 1942 and 1943, Dalton wrote several letters to one of his children. The return address on five of these letters was "P.O. Box 305, Arlington, Va."
Subsequent to the Illinois court's divorce decree Dalton remarried and had children by his second wife. Dalton resides presently with his second wife and their children in Maryland.
In the latter part of 1944, petitioner instituted an action for divorce against Dalton in the Supreme Court of New York, New York County, hereinafter called the New York court, *94 on the ground of adultery. Prior to or at the time of the institution of this proceeding, petitioner knew or thought Dalton had secured a divorce in Illinois and had remarried. Service was not effected upon Dalton personally but by publication. Dalton appeared in and answered this action by his attorneys. He failed to appear at the trial of the action on April 4, 1946. By decree dated April 18, 1946, the New York court granted petitioner a divorce from Dalton on the ground of adultery. The court gave petitioner custody of their two children and ordered Dalton to pay petitioner $ 15 per week for her support and maintenance from and after the date of the decree.
Dalton made none of the payments required by the New York court's decree dated April 18, 1946. On September 1, 1953, petitioner moved the New York court to enforce its decree. This motion was made to obtain judgment for alimony arrearages due from *881 Dalton. On September 14, 1953, Dalton cross-motioned the same court to vacate its decree. The court referred the matter to an official referee.
During the pendency of the motion and cross-motion, petitioner and Dalton entered into an agreement to settle their marital*95 difficulties. On December 15, 1953, a hearing was held before the referee. The stenographic minutes of the proceedings before the referee, which embodied a stipulation of settlement between petitioner and Dalton, stated, in part:
Q. Mrs. Dalton [petitioner], * * * [Dalton's attorney] will read to you the terms of the settlement which I have discussed with you prior to this time. If you agree with the terms of the settlement, then you just say "Yes." Now listen to this very carefully. It is in his handwriting, so * * * [Dalton's attorney] will read it.
[Dalton's attorney]: Mrs. Dalton [petitioner], the terms of the settlement which we have tentatively reached with your attorney, and which your attorney has discussed with you, are the following:
[Dalton] is to pay to you [petitioner] the sum of Two Thousand Dollars [$ 2,000] within one week, provided the decree or order in this proceeding has been signed by that time.
In the event it has not been signed by that time, then the $ 2,000 will be paid immediately after it has been signed subsequent to one week.
The check, which will be a certified check, will be made payable to you [petitioner] and to your attorney. Commencing with *96 January 4, 1954, provided the decree has been signed by that time, and, if not, then immediately after the decree has been signed, * * * [Dalton] will pay to you [petitioner], by cash or money order, the sum of $ 20 per week, such payments to continue until a total of $ 4,000 has been paid, including the [aforementioned] $ 2,000 * * *. These amounts will be paid to you [petitioner] care of your attorney * * *
You [petitioner] do now consent that * * * [Dalton's] cross-motion to vacate your decree of divorce, which became final on July 23, 1946, be vacated [sic], and you [petitioner] do consent that your motion to enter judgment for arrears of alimony be withdrawn, but this shall not be with prejudice to your right to renew the motion in the event * * * [Dalton] does not pay the $ 2,000, as set forth above.
I speak in behalf of my [law] firm * * *, do hereby appear generally in behalf of * * * [Dalton] in this action, and do consent that in the event of a default by * * * [Dalton] in the making of payments in accordance with the terms of this stipulation, the action for divorce now pending on behalf of * * * [petitioner], may be noticed for trial for the next matrimonial term succeeding*97 the default.
In the event of a default on the part of * * * [Dalton] in making the payments provided for in this agreement, -- and it is hereby agreed that there shall be thirty days to cure any such default, -- judgment in the amount of $ 15 per week for the six years next preceding the service of the order to show cause in this proceeding, dated September 1, 1953, may be entered, plus appropriate interest, allowing, however, credit to * * * [Dalton] for any amount paid between now and the entry of any such judgment, if any.
You [petitioner] are to deliver promptly to your attorney, and your attorney is to hold in escrow the following:
*882 1. A nunc pro tunc appearance in the divorce action brought by * * * [Dalton] against you in Illinois in 1943.
2. A confirmation of the validity of the Illinois decree.
3. A stipulation discontinuing with prejudice your action for divorce in the State of New York.
Your attorney is to hold the foregoing documents in escrow, and is to deliver them to me [Dalton's attorney] when and only when * * * [Dalton] has completed the payments in accordance with the terms of this stipulation. [The] total amount to be paid in accordance with this stipulation*98 is $ 4,000, including the down payment first referred to.
By an order dated February 18, 1954, the New York court approved the stipulation of settlement between petitioner and Dalton and confirmed the report of the referee which embodied such stipulation of settlement, as follows:
[Petitioner], having moved this court by an order to show cause * * * requiring * * * [Dalton] to show cause why an order should not be made directing the entry of judgment for the amount of arrears in the payment of the sums of money required to be paid by * * * [Dalton] under judgment of this court made and entered * * * [on April 18, 1946],
And * * * [Dalton], having made a cross motion * * * for an order vacating the judgment of divorce and opening defendant's default upon trial * * *
* * * *
And this court * * * designated * * * [a referee] to hear and report the issue of whether the default on the part of the defendant on the second trial of this action was or was not intentional, decision on the motion and cross motion be held in abeyance pending the coming in of the Referee's report;
[And] * * * [the referee], having conducted a hearing * * * and the matter settled during trial pursuant to a stipulation*99 read into the record, and the said Referee having made and filed his report with his opinion * * * [with the clerk of this court]
And * * * [petitioner] having moved this court * * * for an order confirming said report of * * * [the] Referee;
* * * *
it is
Ordered, that * * * [petitioner's] motion to confirm the Referee's report be and the same hereby is granted, and it is further
Ordered, that * * * [Dalton] pay to * * * [petitioner] the sum of Four thousand ($ 4,000.00) Dollars, and it is further
Ordered, that the decree and judgment of divorce entered and filed in this court on April 18, 1946 be vacated, without prejudice to a new trial in this action.
During the negotiations in 1953 and 1954, petitioner's attorney made no effort to commute or relate the $ 4,000 settlement to any previous alimony to which petitioner might have been entitled.
Pursuant to the stipulation of settlement, petitioner (1) entered a voluntary written appearance, nunc pro tunc, in the previous Illinois divorce action and submitted nunc pro tunc to the jurisdiction of the Illinois court for all purposes; (2) filed a written consent, nunc pro tunc, to the entry of the previous Illinois divorce*100 decree dated February 10, 1943, and ratified and confirmed the validity of *883 such decree; and (3) filed a written stipulation vacating the New York divorce decree dated April 18, 1946, and consenting that any action or proceeding arising therefrom be discontinued with prejudice.
The nunc pro tunc appearance in the Illinois divorce action, the confirmation of the validity of the Illinois divorce decree, and the stipulation discontinuing with prejudice petitioner's action for divorce in New York, were all delivered to petitioner's attorney to be held in escrow until Dalton paid the $ 4,000.
During 1954, Dalton paid petitioner $ 2,000 upon the New York court's entry of the order confirming the settlement, and $ 1,040 in installments at the rate of $ 20 per week. Dalton made these payments through petitioner's attorney who deducted therefrom legal fees in the amount of $ 1,014. Petitioner reported none of these amounts on her 1954 return. Respondent determined that petitioner omitted "income from alimony" in the amount of $ 3,040.
Petitioner elected the standard deduction on her 1954 return.
As of December 31, 1954, there remained the sum of $ 960 due and owing to petitioner*101 under the stipulation of settlement.
The amounts totaling $ 3,040 received by petitioner from Dalton in 1954 represented alimony arrearages. Such amounts constituted periodic payments received after the New York court decree of divorce in discharge of a legal obligation which, because of the marital relationship, was imposed on Dalton under the decree.
The sum of $ 1,014 retained by and paid to petitioner's attorney in 1954 represented a deductible nonbusiness expense.
OPINION.
Whether the amounts received by petitioner are taxable under section 71(a), I.R.C. 1954, 1 depends primarily upon *884 whether the controversial amounts received pursuant to an agreement between petitioner and her former husband providing for a lump-sum settlement, sanctioned by the divorcing court, constituted alimony arrearages and whether they discharged a legal obligation imposed on the husband under such court's original decree.
*102 While petitioner apparently agrees with respondent that a lumpsum settlement or installment payment of alimony arrearages meets the section 71 prerequisite of "periodic," if such amounts were paid when due and would have been then considered as "periodic," Elsie B. Gale, 13 T.C. 661">13 T.C. 661, affd. (C.A. 2) 191 F. 2d 79; Jane C. Grant, 18 T.C. 1013">18 T.C. 1013, affd. (C.A. 2) 209 F. 2d 430, she argues that the settlement here was not related to her prior accrued alimony rights. With this we cannot agree. The testimony of petitioner's matrimonial representative that the $ 4,000 was not related to alimony arrearages and that it represented solely the settlement of other matrimonial difficulties in a single sum is speculative and seems merely negative and wholly unconvincing. 2 See Jerome A. Blate, 34 T.C. 121">34 T.C. 121. Four thousand dollars was less than the total amount of arrearages accrued from the 1946 decree through the 1953 motion. The settlement terms related all payments to the original decree and even permitted a judgment in the specified original amounts*103 in the event of default. The original proceeding was not discontinued. Petitioner's conditional consent to the validity of the Illinois decree and ultimately to discontinue the New York action, combined with her right to reinstate the arrearages, indicates that the settlement was intended to discharge the accrued alimony rights. And that the settlement failed to specify petitioner's consideration to be a substitute for arrearages does not establish this as an affirmative fact. We have accordingly found that the amounts received represented alimony arrears since, in any event, petitioner has not proved that they were not. See Ann Hairston Ryker, 33 T.C. 924">33 T.C. 924, 929.
*104 We think it necessarily follows that the payments in question were in discharge of the obligation imposed on the husband under the original decree. The only difficulty lies in the New York court's order that the "April 18, 1946 [decree and judgment] be vacated, without prejudice to a new trial in this action." Although when taken literally this seems to imply that no decree continued in existence under which any alimony would be payable, the same order not only confirmed the Daltons' agreement whereby the subsidiary stipulation to discontinue the New York action would be conditioned upon the husband's discharge of the $ 4,000 obligation and *885 in the meantime petitioner reserved the right to renew her motion for arrearages, but it was not even issued nunc pro tunc3 nor with prejudice and on the merits.
*105 And even assuming, without deciding that the 1946 decree was vacated prior to petitioner's receipt of the arrearages, it does not follow that the accrued alimony rights arising from such decree were automatically eliminated. While New York statutory and case law permit the courts there to divest a wife of unpaid sums or installments of alimony accrued, such rights not having vested prior to their reduction to judgment, New York Civil Practice Act, as amended, sections 1155, 1170, 1171-b; Karlin v. Karlin, 280 N.Y. 32">280 N.Y. 32, 19 N.E. 2d 669 (1939); Eisinger v. Eisinger, 261 App. Div. 1031, 26 N.Y.S. 2d 22 (1941); Van Dusen v. Van Dusen, 258 App. Div. 1020, 17 N.Y.S. 2d 96 (1940); Griffin v. Griffin, 327 U.S. 220">327 U.S. 220, 226, petitioner has not cited, nor have we found, a case holding that the bare vacating of a final decree of divorce, having no retroactive effect and entered without prejudice, nullifies such rights. 4 Under Helvering v. Fitch, 309 U.S. 149">309 U.S. 149, and Helvering v. Leonard, 310 U.S. 80">310 U.S. 80,*106 it was incumbent upon petitioner to prove the local law in her favor.
The taxpayer has the burden of showing by "clear and convincing proof" that the local law supports his contentions. [Bonney v. Commissioner, (C.A. 2) 247 F. 2d 237, 239, affirming 24 T.C. 199">24 T.C. 199, certiorari denied 355 U.S. 906">355 U.S. 906.]
See also Pearce v. Commissioner, 315 U.S. 543">315 U.S. 543.
The situation here is entirely dissimilar to Frank J. Loverin, 10 T.C. 406">10 T.C. 406, a case not involving alimony arrears, where an agreement executed subsequent to the decree of*107 divorce provided for a lumpsum settlement in consideration, inter alia, of the wife's consent to annul the prior decree's alimony provisions, including all claims for future support and maintenance, and the divorcing court annulled its previous alimony order.
Petitioner's position throughout the taxable year, in invoking the continuous aid of the New York courts to preserve her rights to the alimony, can only lead to the conclusion that the amounts paid during 1954 constituted taxable income to her within the purview of section 71.
*886 As for the remaining issue, the parties agree that petitioner is entitled to a deduction for the amounts retained by and paid to her attorney, in lieu of the standard deduction claimed, she having been unsuccessful under the principal issue. Accordingly, and to take into account an uncontested adjustment,
Decision will be entered under Rule 50.
Footnotes
1. SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
(a) General Rule. --
(1) Decree of divorce or separate maintenance. -- If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments * * * received after such decree 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 or separation.
* * * *
(c) Principal Sum Paid in Installments. --
(1) General Rule. -- For purposes of subsection (a), installment payments discharging a part of an obligation the principal sum of which is, either in terms of money or property, specified in the decree, instrument, or agreement shall not be treated as periodic payments.
(2) Where period for payment is more than 10 years. -- If, by the terms of the decree, instrument, or agreement, the principal sum referred to in paragraph (1) is to be paid or may be paid over a period ending more than 10 years from the date of such decree, instrument, or agreement, then (notwithstanding paragraph (1)) the installment payments shall be treated as periodic payments for purposes of subsection (a), but (in the case of any one taxable year of the wife) only to the extent of 10 percent of the principal sum. * * *↩
2. The attorney testified that it was her "personal feeling, that the legitimacy [of the children by his second wife] here is what he [the husband] was paying for more than anything else." This statement is far too conjectural to base any favorable findings on petitioner's behalf, particularly in the light of Ill. Ann. Stat., ch. 89, sec. 17a (Smith-Hurd), expressly assuring legitimacy in such circumstances.↩
3. As to the effect of nunc pro tunc decrees, see Robert L. Daine, 9 T.C. 47">9 T.C. 47, affd. (C.A. 2) 168 F. 2d 449; Peter Van Vlaanderen, 10 T.C. 706">10 T.C. 706, affd. (C.A. 3) 175 F. 2d 389; cf. Velma B. Vargason, 22 T.C. 100">22 T.C. 100, 103-104, where we said: "In both the Daine case and the Van Vlaanderen↩ case, the decree of the State court which was made retroactive in its provisions was not seeking to correct an error which had been made in the original decree but sought to change the status of the parties as it existed in prior years. Our Court held this could not be done, to change Federal tax liability for the prior years, and in this holding we were affirmed by the Circuit Courts."
4. Cf. Polizotti v. Polizotti, 305 N.Y. 176">305 N.Y. 176, 111 N.E. 2d 869↩ (1953), a contempt proceeding, where the Court of Appeals held "the right to enforce payment of temporary alimony ends when the action in which it was awarded is terminated by settlement, abandonment, discontinuance, or dismissal of the complaint."