Opinion
Docket No.17433.
1949-06-22
ESTATE OF ROSALEAN B. OTTMANN, CHEMICAL BANK & TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
H. Edwin Goldberg, Esq., for the petitioner. J. Frost Walker, Jr., Esq., for the respondent.
Petitioner paid $14,518 to decedent's former divorced husband in settlement of a claim which he asserted against her estate. His claim was based upon agreement with decedent providing for payment by her or her estate to him of $416.66 per month for his life, in consideration of his releasing all his rights, claims, privileges; and remedies in and to the custody, supervision, companionship and guardianship of their minor son, and in and to all earnings of such son which he might at any time receive, or be entitled to receive. Respondent disallowed the deduction, determining that it was not based upon an agreement contracted for an adequate and full consideration. Held, the proof does not establish that there was adequate and full consideration in money or money's worth for the agreement upon which the claim is based within the meaning of section 812(b)(3) of the Internal Revenue Code, and accordingly the claimed deduction was properly disallowed. H. Edwin Goldberg, Esq., for the petitioner. J. Frost Walker, Jr., Esq., for the respondent.
Respondent determined a deficiency in estate tax against the petitioner in the amount of $58,730.47. That certain expenses should be allowed as deductions upon presentation of proof of payment was stipulated and will be computed under Rule 50. The only issue is whether petitioner should be permitted to deduct the amount of $14,518 which was paid to decedent's first husband in settlement of his claim for moneys purportedly due him under an agreement entered into between him and the decedent.
FINDINGS OF FACT,
The estate tax return involved was filed with the collector of internal revenue for the third district of New York.
Under date of April 24, 1922, the decedent, Rosalean B. Ottmann, entered into an agreement with her first husband, Augusto Fernando Pulido. In paragraph 1 of that contract decedent's first husband agreed to accept $5,000 ‘in full settlement and satisfaction of all the claims, demands and rights of actions of every kind whatsoever which I now have or may have hereafter against the said Rosalean B. Pulido from the beginning of the world to the date of the execution of this agreement; * * * ‘
Paragraphs III, V, and VI of that agreement provided as follows:
III. And I, the said Augusto Fernando Pulido, in consideration of the undertaking and agreement hereinafter made by the said Rosalean B. Pulido to pay me in the manner hereinafter set forth the sum of Four Hundred and Sixteen Dollars and Sixty-six cents ($416.66) during each and every calendar month for the balance of my life beginning with the first month following the date of this agreement, do hereby forever relinquish in favor of and transfer to the said Rosalean B. Pulido all the rights, claims, privileges and remedies which I have at law or by virtue of the decree in divorce heretofore obtained from me by the said Rosalean B. Pulido or in any other manner whatsoever, of in and to the custody, care, direction, supervision, control, companionship and guardianship of our son, John F. Pulido, the sole issue of the marriage heretofore existing between the said Rosalean B. Pulido and me; and of, in and to all earnings of the said John F. Pulido which he may at any time receive or be entitled to, and in consideration of the said undertaking and agreement of the said Rosalean B. Pulido to pay me the said monthly sum of Four Hundred and Sixteen Dollars and Sixty-six cents ($416.66), I hereby grant the exclusive right to the said Rosalean B. Pulido to appoint by her last will and testament a guardian for the person and entire estate of the said John F. Pulido during his minority, excepting, however, that I shall have the privilege of visiting the said John F. Pulido at any place that he may be at the time of my visit, the said place to be exclusively determined by the said Rosalean B. Pulido, once every two weeks on Saturday during daylight and of having the said John F. Pulido accompany me for not more than four hours on such occasions, and shall have the further privilege of having him visit me for such single period of one month during the summer vacation in each year as shall be convenient to the said Rosalean B. Pulido, with the understanding, however, that I shall at no time take the said child out of the State of New York or out of any other State or country in which he may be at the time of my said fortnightly visits to him or of his said yearly visits to me except with the written consent of the said Rosalean B. Pulido. And it is further expressly understood and agreed that this right herein reserved or granted to me to visit my said child and take him out once every two weeks and to have him visit me one month in every year during summer vacation shall in no way affect the right, which is hereby unrestrictedly conferred upon his mother, Rosalean B. Pulido, to send the child away to school and college, the selection of both of which is to be entirely within her sole discretion, and to keep the said child there continuously for such periods as she may think proper and right; nor shall it in any way interfere with the right, which is hereby unrestrictedly conferred upon his mother, Rosalean B. Pulido, to take the said child with her to Europe or elsewhere where she may desire to go either for pleasure or business and keep the said child there continuously for such period as she may desire to stay.
V. And I; the said Rosalean B. Pulido, do hereby undertake and agree to pay to the said Augusto Fernando Pulido, as long as I shall live, the sum of Four Hundred and Sixteen Dollars and Sixty-six cents ($416.66) during each and every calendar month from now on to the time of his death, commencing with the first month succeeding the date of this agreement, in consideration of his forever relinquishing to me, as evidenced by his execution of this agreement and by his receipt of the first of said monthly payments, all the rights, claims, privileges and remedies which he may have or have had in and to the custody, care, direction, supervision, control, companionship and guardianship of the said John F. Pulido, subject to the conditions and qualifications as set out in this agreement, it being understood and agreed, however, that the mailing to the said Augusto Fernando Pulido of any of the said monthly payments to the address last communicated by him to me shall be a complete performance by me of my undertaking and agreement to make to him such monthly payment.
VI. And I, the said Rosalean B. Pulido, for the consideration set forth by me in the paragraph of this agreement numbered V. do hereby undertake and agree that I will forthwith execute a new will, or a codicil to my present will, wherein and whereby I shall in the exercise of my testamentary power of appointment reserved to me in the Deed of Trust of all my property executed by me to P. F. Rothermel as Trustee, dated November 2, 1910, appoint and direct a trustee appointed in my said will to pay to said Augusto Fernando Pulido out of the income of the appointed estate the sum of Four Hundred and Sixteen Dollars and Sixty-Six cents ($416.66) during each and every month from the date of my death to the date of the death of the said Augusto Fernando Pulido in the same manner and to the same extent that I have in the preceding paragraph hereof undertaken and agreed to myself pay him the said monthly sums during my life time, and I hereby further undertake and agree to insert and maintain such provisions in any will that I shall hereafter make during the life time of the said Augusto Fernando Pulido.
Augusto Fernando Pulido filed a claim against the petitioner based upon the above mentioned agreement. In settlement of such claim the petitioner paid to him the amount of $14,000 and to his attorneys the amount of $518, or a total of $14,518. In respect of that claim petitioner deducted the amount of $15,000 in its estate tax return.
In disallowing the deduction respondent stated as follows in the statement attached to the notice of deficiency:
No deduction is allowed for the claim of Augusto F. Pulido, it having been determined that the obligation was not contracted for a full and adequate consideration in money or money's worth.
OPINION.
HILL, Judge:
Petitioner claims the right under section 812(b)(3), Internal Revenue Code, to deduct the amount of $14,518 which it paid to decedent's first husband in full settlement of any claim which he might have had against her estate as a result o the agreement which is set forth in part in our findings. Respondent claims that the amount in question is not deductible by petitioner because the only rights which the ‘husband relinquished under the agreement were marital rights and that the only marital right he possessed in property was his right of curtesy.‘ He adds that ‘it is well settled that claims founded upon contracts releasing marital rights in a spouse's property or estate are not deductible.‘ Sec. 812(b)(3), I.R.C.; Meyer's Estate v. Commissioner, 110 Fed.(2d) 367; Estate of Eben B. Phillips, 36 B.T.A. 752.
Petitioner's contention that the amount involved is deductible is based upon the agreement mentioned above, and its argument that that agreement was supported by adequate and full consideration may be summarized in its own words as follows:
The husband of the decedent in relinquishing to his former wife all his rights, custody, control and guardianship of their son, released a valuable and inherent right which he possessed, in and to the earnings of their son. * * *
Before petitioner may take a deduction for the amount involved under section 812(b)(3) it must show that the agreement in question was contracted for an adequate and full consideration in money or money's worth. There is nothing in the record before us to show the value of any earnings of the son, or that he was capable of any earnings, or that he ever had any earnings which decedent might have claimed under the agreement in question. Hence, so far as the record is concerned, there may have been no value received by decedent in respect of this part of the agreement, except the mere right to any earnings of the son. However, we do not believe that that right, which has not been shown to be of any ascertainable value in money or money's worth, should be considered full and adequate consideration within the meaning of section 812(b)(3) of the code. As pointed out by the Supreme Court in Taft v. Commissioner 804 U.S. 351 it was the evident purpose of Congress, in its successive changes of the provision of the code involved, to narrow the class of deductible claims. So in this case it was incumbent upon the petitioner to show not only that the agreement was supported by some consideration, or fair consideration, as was required by a previous wording of the section involved,
but full and adequate consideration in money or money's worth. Petitioner having failed to present any evidence whatever on the subject of the value of that consideration, we can not say that the disallowance was erroneous.
See sec. 303(a)(1), Revenue Act of 1924.
Petitioner invokes no other portion of that agreement in support of its connection. But even if it had, we could not sustain its position on the evidence before us, for it is apparent that the only other rights which were relinquished were of the nature which section 812(b)(3) clearly provides ‘shall not be considered to any extent a consideration 'in money or money's worth.’‘
It follows that respondent's determination must be sustained.
Reviewed by the Court.
Decision will be entered under Rule 50.