Before DUFFY, Chief Judge, and MAJOR and FINNEGAN, Circuit Judges.
This is a petition to review three decisions of the Tax Court, entered February 16, 1955, sustaining the Commissioner's determination of deficiencies in the income tax of petitioners for the taxable years 1942, 1943, 1944, 1945, 1946 and 1948. While there are three decisions under attack, they all relate to the same subject matter and in the main are concerned only with George R. Joslyn, one of the petitioners, who will subsequently be referred to as petitioner.
Petitioner and Charlotte C. Joslyn (hereinafter referred to as Charlotte) were married August 18, 1928. Four children were born of the marriage, who during the years in issue were minors. On October 1, 1940, in a proceeding in the Superior Court of Cook County, Illinois, a decree was entered divorcing Charlotte from petitioner. By the terms of this decree, petitioner was required to pay $100 each month to Charlotte "for her alimony" and also to pay Charlotte "as and for the support of the said four minor children, $100 for each of said children, that is the aggregate sum of $400 for the support of said children each and every month."
The obligations of petitioner to Charlotte and the minor children were altered by court decree both as to amount and form on numerous occasions in the years that followed, by the same court which entered the original decree. Such orders were entered December 15, 1942, March 16, 1944, and December 29, 1947. Furthermore, a written agreement was entered into on June 14, 1946, between petitioner and Charlotte, by which petitioner consented to the entry of a consent decree relative to his obligation to make payments to Charlotte. By reason of the terms of these subsequent decrees, as well as the agreement of June 14, 1946 between the two parties, petitioner during the years at issue paid Charlotte large sums for her support and maintenance and that of the minor children.
The contested issues in the main arise from petitioner's contention that the Tax Court erroneously decided that he was not entitled to deduct from his gross income for the various years at issue certain payments made by him to Charlotte. Petitioner's contention is predicated upon Section 23(u) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 23, in connection with Section 22(k) of the same Code. These sections have recently been set forth in our opinion in Mandel v. Commissioner, 1956, 7 Cir., 229 F.2d 382, and in the interest of brevity will not be repeated. We think there is no dispute but that petitioner's right under 23(u) to deduct payments made to Charlotte is dependent upon her obligation under 22(k) to include such payments in her gross income.
The record presents no serious question but that all of the payments made by petitioner for the years at issue were made under a decree of court or a written instrument in discharge of a legal obligation, except some of the payments made for the years 1942, 1943, and the first two months of 1944. The principal challenge of the Commissioner is that the payments in controversy for the years 1944, 1945, 1946 and 1948, come within a provision contained in 22(k) (hereinafter referred to as the child support provision), which reads as follows:
"This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband. * * *"
It is obvious that if payments made by petitioner come within the terms of this provision, there was no obligation on the part of Charlotte to include them in her gross income and, consequently, no right on the part of petitioner to deduct under 23(u).
It is asserted by petitioner that all payments made to Charlotte, for which deductions have been sought under 23(u), were included in her gross income as required by 22(k). Respondent denies this assertion, but at the same time states in his brief, "The record clearly shows, however, that the taxpayer was required to reserve sufficient funds out of such monthly payments and to pay the income taxes thereon in her behalf under those supplemental decrees." In the discussion to follow we shall again refer to this subject matter, but at this point we observe that it is not discernible how it makes any difference in the application of 22(k) and 23(u) as to whether the income tax on payments made by petitioner to Charlotte was paid directly by her or by petitioner on "her behalf."
We think that the payments in controversy may appropriately be divided into two categories, (1) payments made during 1942, 1943 and in January and February 1944, and (2) payments made in the last ten months of 1944, 1945, 1946 and 1948. This is so for the reason that payments made during the period listed in the first category were made either under the original decree of October 1, 1940, or the decree entered December 15, 1942. We have already noted that under the original decree of 1940, petitioner was obligated to pay Charlotte $100 per month "for her alimony" and $400 per month "for the support of said children." By the 1942 decree petitioner was required to pay Charlotte $1,000 per month for a period of three years and thereafter $500 per month until the further order of the court. There was no apportionment of the payments as between alimony and child support. However, the decree contained the following provision:
"It Is Further Ordered, Adjudged and Decreed that George R. Joslyn may at his election discontinue to make the payments herein next above ordered and revert to the decree entered herein on October 1, 1940 and that upon such discontinuance the said George R. Joslyn shall thereafter make the payments as provided in the said decree of October 1, 1940."
For the year 1942, petitioner claimed a deduction of $2,100, eleven $100 payments made under the 1940 decree and a $1,000 payment made in December under the 1942 decree. The Tax Court allowed a deduction of $1,200. For the year 1943, petitioner paid $1,000 for each of the first four months and $500 for each of the remaining eight months. In August of that year he served written notice on Charlotte that he would cease to pay under the 1942 decree and would pay under the original decree of 1940. Petitioner claimed a deduction of $6,000 for 1943, of which $1,200 was allowed by the Tax Court. In January and February 1944, petitioner paid Charlotte $500 per month, also under the original decree of 1940. The Tax Court allowed a deduction of $100 per month for these two months of 1944.
We agree with the Tax Court that petitioner was entitled only to a deduction of $100 per month for payments made during 1942, 1943, and for January and February 1944. Certainly petitioner was entitled to nothing more on account of payments made under the 1940 decree because, of such payments, only $100 per month was allowtted as alimony to Charlotte and the remaining $400 per month as support for the children. The latter payments were squarely within the terms of the "child support provision" contained in 22(k). And we agree with the Tax Court that the payments made under the 1942 decree fall in the same category for the reason that the decree expressly authorized petitioner "at his election" to discontinue payments under the 1942 decree and to make payments as provided in the 1940 decree. Thus, the 1942 decree did not alter the legal obligation imposed upon him by the 1940 decree and, as already pointed out, under that decree he was only obligated to pay Charlotte as alimony $100 per month. Obviously, Charlotte could not have enforced monthly payments of $1,000 under the 1942 decree, when petitioner ...