*702 Income from a trust paid to a divorced and remarried wife held taxable to the husband who created the trust, under the terms of the trust agreement, even though, in the absence of such agreement, his obligation to support and maintain his wife would have been terminated, under the law of Pennsylvania, by her divorce and remarriage.
*486 The tax in controversy is the Federal income tax of Charles N. Welsh for the calendar year 1931. Respondent determined a deficiency for that year in the amount of $4,380.41. The question involved is whether the petitioners are liable for tax for the year 1931 on account of that portion of the income of an irrevocable trust created by the decedent on October 5, 1918, which was paid, according to the provisions of the trust, during the year 1931 to Helen Gallatin Welsh de Stubner, formerly the wife of the decedent, from whom he was divorced on November 17, 1918, and who thereafter married de Stubner in August 1921.
FINDINGS OF FACT.
The case was submitted upon a stipulation of facts entered into by the*703 parties. We adopt that stipulation as our findings, together with the exhibits referred to therein and incorporated therewith. Only such portions of the facts as are necessary for an understanding of the case are set out in the following opinion.
OPINION.
MILLER: The total net distributive income of the Charles N. Welsh trust during the year 1931 was $47,477.23. Pursuant to the terms of *487 the trust, this was distributed in part directly to the decedent; in part to Helen Gallatin Welsh de Stubner; in part to Charles N. Welsh, Jr., a son, who was emancipated during the entire year; and in part to a son, Albert R. G. Welsh, who was a minor until November 10, 1931. There is no dispute as to the tax liability of the petitioner for the income which was distributed directly to the decedent.
Petitioners concede, moreover, that the income distributed to the minor son prior to November 10, 1931, the date of his emancipation, should be taxed to decedent.
It is now well settled, following the decision in
In several recent cases, however, this proposition has been limited, where it appeared that the legal obligation of the husband to support and maintain his wife had been terminated, under the law of a particular state, by divorce or by subsequent remarriage of the wife;
The instant case arose in Pennsylvania, where the decedent, his former wife, and their children resided. This Board has held, and the respondent conceded in his brief, that under the laws of Pennsylvania, without more, a husband is not liable for the support and maintenance of a sane, divorced wife. See
Nevertheless, the respondent contends that under the circumstances of this case the rule*706 of
The trust agreement referred to was entered into on October 5, 1918, by Charles N. Welsh, party of the first part, Helen Gallatin Welsh, party of the second part, and the Pennsylvania Co. for Insurances on Lives & Granting Annuities, party of the third part. It recited the marriage of the parties of the first and second parts; the existence of two sons; the making of an order by the Municipal Court of Philadelphia County directing the first party to pay $3,000 per month to the second party for the support of herself and the two children; the existence of an agreement between the first and second parties, varying the order of the court; " the purpose of the first and second parties to supersede and terminate said support order and said agreement * * * and to release each other from all further performance thereunder, and in lieu*707 thereof to create a trust estate for the uses and purposes (t) hereinafter expressed * * *." The trust agreement next recited the creation of the trust in usual terms and thereafter set forth the following provisions:
ELEVENTH. The party of the first part also agrees to give each person to whom any fixed amount of income is payable hereunder, in addition to such amount, sums which will be sufficient to pay, with respect to said fixed amount and the payments made under the provisions of this Article, to wit, Article Eleventh, the following charges:
(a) All taxes imposed, levied, assessed or demanded by the United States or any State or Territory (or sub-division thereof) of the United States except taxes imposed, levied, assessed or demanded by reason of the residence of the beneficiaries outside of the State of Pennsylvania.
(b) The amount of the United States income tax imposed, levied, assessed or demanded thereon from time to time not exceeding the amount which would be payable under the law in force at the date of this agreement (if then in force), together with such amount of said tax imposed, levied, assessed, or demanded as aforesaid, as shall be in excess of double*708 the amount computed as above. Calculation of taxes under this subdivision, to wit, subdivision (b) shall be on the assumption that said fixed amount (plus payments under this article, to wit Article Eleventh), is the total income of such person.
Each of said payments shall be made at least thirty days prior to the last date for payment of such tax without penalty and shall be made by the Trustee, so far as it will accomplish that purpose, out of any income in the hands of the Trustee at such time or times to which the party of the first part shall be entitled hereunder; but in the absence of such income or to the extent that same is not sufficient for this purpose, then by the party of the first part.
* * *
THIRTEENTH. It is agreed by and between the parties of the first and second parts that the order of the Municipal Court dated the 21st day of June 1917. *489 shall be revoked and the agreement dated the 16th day of July 1917 between the parties of the first and second parts, be cancelled as of April 1st, 1918; the party of the second part hereby releasing the party of the first part from all claim and demand by reason of any payments heretofore made by the party*709 of the first part to the party of the second part, or for or on account of the party of the second part, or in payment of any bills contracted by the party of the second part or for which she might be or has been held liable.
FOURTEENTH. These presents are without prejudice to either party's right to institute, prosecute, maintain or obtain upon any legally sufficient grounds, any suit or suits for divorce and these presents shall remain in full force and effect notwithstanding any divorce between the parties should any occur or be granted. [Italics supplied.]
FIFTEENTH. Said Charles N. Welsh, party of the first part, agrees that in each and every year during the continuance of this trust, in which he or his estate is entitled to the excess income, if any, from the trust, in which there should not be produced a net sum sufficient to enalbe the Trustee to distribute hereunder the sum of Thirty-six thousand Dollars ($36,000) in such year, he or his estate will forthwith make up and pay to the Trustee the amount of such deficiency.
On November 18, 1918, a decree of the Court of Common Pleas of Philadelphia County was entered, divorcing Helen Gallatin Welsh and Charles*710 N. Welsh. On January 6, 1919, a petition was presented on behalf of Helen Gallatin Welsh in the Municipal Court of Philadelphia County, reciting the granting of the decree of divorce and the making of a settlement between the parties, and praying that the support order be vacated and arrears remitted. On the same day the prayer of the petition was granted. Thereafter, in August 1921, Helen Gallatin Welsh was married to one de Stubner and on July 21, 1931, she died.
The legal obligation described in
We do not regard the provisions of the statutes as to the taxation of trusts, fiduciaries and beneficiaries (Revenue Act 1926, §§ 2, 219,
To hold that the petitioner in the instant case was not liable for tax upon the income of the trust paid to Helen Gallatin Welsh de Stubner in 1931 would require us to hold that the trust instrument created no legal obligation upon the part of Charles N. Welsh which continued after her divorce and remarriage. Such a holding would be clearly*712 unjustified under the circumstances of this case. Helen Gallatin Welsh was a party to the trust agreement; there was a valuable consideration for the promises of Charles N. Welsh in the form of a legal obligation, then existing, to support her, together with a court order to pay to her, for her support, $3,000 per month; the agreement specified that the trust was being created for the purpose, among others, of providing support for her during her lifetime, in lieu of then existing obligations; the possibility of divorce was recognized, and it was expressly provided that the payments under the trust should continue to be made notwithstanding any divorce; the taxpayer agreed, further, to make up any deficiency which might occur in any year because of the failure of the trust to produce the required income; and he agreed further to pay to Helen Gallatin Welsh additional amounts sufficient to provide for taxes, imposed by the United States or any state or territory, with respect to the income paid by the trust.
If these various undertakings had been included in a simple contract by the terms of which a third party thereto had been required to pay, on behalf of the taxpayer, the various*713 amounts specified, such payments clearly would have been made in his behalf and in satisfaction of his obligations.
The facts in the instant case clearly distinguish it from other cases decided by this Board since Douglas v. Willcuts, in which the income of trusts paid to former wives was held not taxable to the settlors of the trusts following divorce or remarriage. In
The trust agreement does not show on its face that it was created to provide income for the support of the wife or in lieu of alimony, or that it constituted a settlement of the rights of the parties growing out of the marital relationship existing between them. It does not refer to a contemplated separation of the parties and contains no waiver or relinquishment by the wife of support or of her interest in petitioner's estate. * * * The instant proceeding is distinguishable from the above cases involving income from trusts created by the husband for the wife in that therein either the separation agreement, decree of the court, or stipulation of the taxpayer and the Commissioner disclosed that the income involved was provided for and paid in lieu of alimony or the wife's interest in the husband's property.
In
In the instant case there was a legal obligation existing at the time of creation of the trust and there was another legal obligation of Charles N. Welsh existing in 1931, in satisfaction of which income of the trust created by him was paid to Helen Gallatin Welsh de Stubner. Consequently, he was liable for tax thereon.
Decision will be entered for the respondent.