Duffy, Senior Circuit Judge, Fairchild, Circuit Judge, and Campbell, Senior District Judge.*fn1
FAIRCHILD, Circuit Judge.
Mrs. Salapatas, a taxpayer, has appealed from a decision of the Tax Court.*fn2 The Tax Court decided, as had the commissioner, that payments received from her divorced husband were income. It upheld the commissioner's determination of deficiencies and his additions to tax of 5% of the underpayments on the ground of negligence.*fn3 The issue was whether a series of payments of $50 per week were periodic payments under 26 U.S.C. § 71(a) or installment payments of a principal sum under 26 U.S.C. § 71(c).
The decree of divorce, dated February 27, 1958, provided that Mr. Salapatas shall pay to Mrs. Salapatas, if living, the total sum of $20,000 at the rate of not less than $50 per week, starting February 24, 1958; said sum shall be in lieu of all claims for alimony and child support, except for unusual expenses for the child; if Mrs. Salapatas shall die before full payment of $20,000, the obligation shall be terminated except that if the child shall then remain a minor, Mr. Salapatas shall support the child as may be ordered by the court; if Mr. Salapatas shall die before full payment, the balance shall become a charge against his estate.
The decree awarded Mrs. Salapatas the custody of the daughter of the couple. At the date of the decree she was 15 years of age and, assuming payments of $50 per week, would be a few months short of 23 at the time of the last payment.
The decree also provided for the conveyance to Mrs. Salapatas of her husband's interest in their home. There is no evidence that either party owned property other than the home, household furnishings, assigned to Mrs. Salapatas, Mr. Salapatas' personal effects, to be retained by him, and a cause of action for injuries sustained by Mrs. Salapatas, which was to be hers alone.
The weekly payments were all made, $12,400 being paid in the years under consideration.
Mrs. Salapatas contends that since the decree specified a total sum of $20,000, the applicable statute compels the conclusion that the weekly payments were installments of a principal sum and not income; that a treasury regulation, relied on by the commissioner and the Tax Court is invalid; and that even if valid, the facts require decision in her favor.
§ 71(a)(1) provides in part that a divorced "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 * * * the husband under the decree * * *." § 215 permits the husband to deduct such payments.
§ 71(c) provides that for the purpose of § 71(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 shall not be treated as periodic payments unless the principal sum is to be or may be paid over a period longer than ten years.
The $20,000 mentioned in the Salapatas decree was to be paid in less than ten years, but it was subject to reduction in the event of Mrs. Salapatas' early death. There is nothing in the record to suggest that the $20,000 figure represented a division or transfer of capital, and a good deal to suggest that it represented the aggregate of weekly support payments at an agreed rate and for an agreed period, terminable earlier in the event of her death.
A treasury regulation, 26 C.F.R. § 1.71-1, was adopted in 1957, apparently for the purpose of modifying and clarifying the commissioner's position on questions of interpretation of the statute.*fn4
In several cases prior to the adoption of the regulation, courts had decided whether a series of payments which must be completed within ten years were periodic payments or installments of a principal sum.
Baker v. Commissioner of Internal Revenue (2d Cir. 1953), 205 F.2d 369, held a series of monthly payments for five years periodic. Payments were terminable at the wife's death or remarriage and the court held the latter, at least, so unpredictable that there could not be said to be a principal sum. The court noted but left unanswered the question whether the failure explicitly to specify the total sum in the decree would always prevent the payments being deemed installments of a principal sum and the question whether, if ...