Before KERNER, FINNEGAN and LINDLEY, Circuit Judges.
The Commissioner of Internal Revenue files this petition for review of a decision of the Tax Court of the United States.
It involves asserted deficiency in income taxes of the respondent, Tillie Blum, in the amounts of $5,218.30 and $4,384.21, respectively, for the years 1943 and 1944. The petition was filed on October 29, 1948, under the provision of Section 1141(a) of the Internal Revenue Code, as amended, 26 U.S.C.A. 1141(a).
In the years 1942,*fn1 1943 and 1944, the taxpayer Tillie Blum, received certain payments provided for in an agreement with her former husband, which agreement was incorporated by reference in a divorce decree entered in the Superior Court of Cook County, Illinois.
The question here presented is whether the Tax Court erred in holding that these payments were not properly includible in the gross income of the taxpayer, Tillie Blum, under Sections 22(k) and 23(u) of the Internal Revenue Code.
The taxpayer and Harry Blum were married in 1914. They resided at all times material herein in Chicago, Illinois.
Harry Blum filed suit for divorce against his wife in the Superior Court of Cook County, Illinois, on February 29, 1932. She appeared, filed her answer and a cross bill for separate maintenance.
The cause remained pending and undisposed of in the Superior Court until 1935.
On February 27, 1935, the said Harry Blum and his wife, Tillie Blum, executed a contract, called a Settlement Agreement.
The agreement recites that the wife, Tillie Blum, on said 27th day of February 1935, filed an amendment to her cross complaint for separate maintenance in and by which she prayed for a divorce from Harry Blum on the same grounds she had already set forth as a basis for her prayer for separate maintenance. The agreement provides that it shall become effective only when and if the Superior Court of Cook County, on consideration of the cross bill as amended, and the evidence adduced in support thereof, shall enter a decree severing the bonds of matrimony between said parties. In that event the husband undertakes and promises to pay to Tillie Blum the sum of One Hundred and Twenty Thousand ($120,000) Dollars, in the following manner: Seventy-Five Hundred ($7500) Dollars on or before March 1, 1936, and a like sum of Seventy-Five Hundred ($7500) Dollars on or before the first day of March in each and every year thereafter for the next succeeding eight (8) years with a final payment of FiftyTwo Thousand Five Hundred ($52,500) Dollars on or before March 1, 1945. Under the terms of the agreement, petitioner had the right to make prepayments in multiples of Twenty-Five Hundred ($2500) Dollars at any time thereafter in addition to all installments due under the instrument. He also agreed to pay Tillie Blum interest at 5% per annum on the balance of the principal sum remaining unpaid from time to time. The interest was payable in equal monthly installments beginning April 1, 1935.
The agreement further provides that in addition to said sum of $120,000, Harry Blum agrees to pay to Tillie Blum a sum of money equal to thirty-three and onethird (33 1/3) per cent of the amount realized from assets belonging to him, designated and set forth in an attached Exhibit "A" and referred to as "Personal Assets." In order to secure payment to his wife of said one-third interest, Harry Blum agrees, contemporaneously with the execution of the agreement, to transfer, assign and set over, all his interest in said "Personal Assets" to trustees named in the agreement, who are to proceed to liquidate said "Personal Assets" and are by the agreement given power to reduce said "Personal Assets" to possession and all necessary rights and powers to the end that said "Personal Assets" may produce the greatest sum possible. It is provided that the trustees shall make distribution of the proceeds of said "Personal Assets" monthly beginning April 1, 1935. Harry Blum is required to supply the cash and face value of all items listed in "Exhibit A" which he fails to account for to the trustees, he having the right to turn over to the trustees the face value of any items in cash when he desires to retain such items.
It is provided that said sum of $120,000 and said one-third interest in the "Personal Assets" shall be paid over to the wife, Tillie Blum, in any event, regardless of the death of either of the parties or the remarriage of the wife. The undertakings of the husband are made binding upon his representative and assigns, and he agrees that they shall be a charge against his estate in the event of his death.
To secure the payment of said $120,000, the husband agrees to deposit with the trustees six hundred shares of the capital stock of Philip Blum & Company, Inc., to be dealt with by ...