however, that there was at stake, not only the right to receive the income, but primarily the petitioner's title to the royalty interests themselves. Had the decision been adverse to the petitioner, the pooling agreements would have been canceled and the petitioner would have lost all right, title, and interest in and to the royalty interests and, as a natural consequence, to the royalty payments. The decree of the Michigan Supreme Court firmly established the petitioner's title to such royalty interests, providing that the petitioner was “the sole and only owner of all of said royalty rights" and that the stockholders "have no right, title, interest, claim or demand in or to any of the oil royalties save only in their capacity as stockholders * Since the litigation involved the defense of the petitioner's title to the royalty rights, no deduction is allowable with respect to the legal expenses and attorneys' fees incident thereto. "The authorities quite generally hold that expenditures made in defense of a title upon which depends the right to receive oil and gas royalty payments are capital expenditures and not deductible as ordinary business expenses." Farmer v. Commissioner, 126 Fed. (2d) 542; Murphy Oil Co. v. Burnet, 55 Fed. (2d) 17; Bowers v. Lumpkin, 140 Fed. (2d) 927. Decision will be entered under Rule 50. TUCKIE G. HESSE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 9623. Promulgated September 10, 1946. Petitioner, a resident of Pennsylvania, received an absolute divorce William J. Kenney, Esq., for the petitioner. Respondent determined a deficiency in income and victory tax for the year 1943 in the amount of $725.10. Respondent has included the sum of $3,600 in petitioner's income for each of the years 1942 and 1943, under the provisions of section 22 (k) of the Internal Revenue Code. Petitioner received these sums annually from her former husband, Frank M. Hesse, from whom she is divorced. The only question is whether the payments from the former husband are includible in the income of petitioner. Petitioner filed her returns with the collector for the twenty-third district of Pennsylvania. FINDINGS OF FACT. Petitioner was married to Frank M. Hesse in August 1914 and they lived together as husband and wife until September 13, 1933, at which time Frank M. Hesse deserted his wife. There were two children born of this marriage, and the children continued to live with petitioner after September 13, 1933. Barbara Hesse was born on August 3, 1921, and Eleanor Hesse was born on November 6, 1927. After petitioner's husband left his home on September 13, 1933, he made payments to her for her support. Extremely difficult relations developed. Petitioner made use of credit accounts, for which Frank Hesse was liable, to an extent which he considered excessive, with the result that he felt he would have to bring matters to a head to protect himself, and to this end he stopped making payments to petitioner for her support. Petitioner countered by instituting a proceeding against Frank Hesse and causing him to be arrested in the spring of 1934. This trouble was terminated by the execution of an agreement on June 1, 1934. This agreement was a separation agreement under which Frank Hesse agreed to pay petitioner $400 a month for the support of herself and her two children and to provide for the education of the two children in a university after the completion of a high school education. The payment of $400 a month was to represent $300 for the support of petitioner and $50 a piece for the support of each child until she attained the age of 21 years. Frank Hesse agreed to establish a trust to provide a fund for the higher education of the children. He also agreed to continue his present life insurance for the benefit of petitioner for so long as she continued to be his wife or until she should remarry; and, in the event of petitioner's remarriage, the insurance would be continued for the benefit of the children. Petitioner agreed to release her husband from all claims for other or additional support for herself and the children. Both of the parties agreed to live separate and apart during their natural lives. They also agreed to release each other and his or her estate from all claims in and to any property now belonging to the other. Frank Hesse ceased to make payments under the 1934 agreement in the early part of 1935. Petitioner instituted desertion and nonsupport proceedings against him in the County Court of Allegheny County, Pennsylvania, in May 1935, for the purpose of obtaining support for herself and her two children. Thereafter, Hesse com menced to make payments to petitioner again. On July 20, 1935, petitioner and Hesse entered into an agreement entitled "Confirmation Agreement," which referred to the agreement of June 1, 1934, and a trust agreement dated September 1, 1934, and which stated that the parties mutually contended that the agreements had been broken, and that they desired that the agreements should be and remain in full force and effect as though no controversies had arisen concerning the matters dealt with in the agreements. Accordingly, the parties agreed that the agreements of June 1 and September 1, 1934, were in full force and of the same effect as when executed, with the understanding that any payment of money which was delinquent would be promptly paid; and that the parties agreed hereafter to comply with the provisions of the above agreements. On February 14, 1936, Frank Hesse and petitioner entered into an agreement which provided that Hesse assigned to petitioner, her executors, and assigns, 55 per cent of his monthly salary and 55 per cent of any compensation which might become payable to him, the assignment being made to secure his performance under a contemporaneous agreement, dated February 14, 1936, the terms of which are set forth hereinafter. On June 14, 1936, Hesse executed an agreement to provide for the education and support of his children and for the support of petitioner. On the same day Hesse executed a trust agreement. The parties appointed the Fidelity Trust Co. of Pittsburgh to act as trustee of the trust. Hesse agreed to deposit $1,700 with the trust company upon the execution of the trust agreement, to be held in trust to provide for the college education for each of his two children, and he agreed to pay to the trustee $50 per month, after the deposit of $1,700, for each child until each child became 21 years of age, whereupon such monthly payments were to cease. The trust fund so accumulated is to be used solely to pay for the education expenses of the children. Hesse also agreed to make irrevocable his present life insurance for the benefit of petitioner until she should remarry, and, in the event of her remarriage, for the benefit of the children. Under the trust agreement of February 14, 1936, Hesse agreed to pay petitioner $400 a month for the support of herself and the two children, provided that the monthly payment should be reduced $50 per month as each child attained the age of 21 years. The monthly payments were to continue as long as petitioner lived or until she remarried. In the event that petitioner should remarry before the children became 21 years of age, then Hesse was to continue to pay for each child the sum of $100 per month until each child became 21 years of age. Hesse also agreed to pay to petitioner, or to her executors in the event of her death, the sum of $10,000, to further insure the support and maintenance of petitioner and her children, the $10,000 to be paid in installments beginning on December 31, 1936, and ending on December 31, 1941. Three days after the execution of the above agreements petitioner instituted an action for divorce from Hesse in the Court of Common Pleas, Allegheny County, on February 17, 1936. On June 26, 1936, a decree of absolute divorce from Hesse was granted to petitioner. Hesse did not contest the divorce proceedings. The absolute divorce was obtained on the grounds of desertion. The agreements executed on February 14, 1936, were prepared by the attorney of Frank Hesse who represented him in the divorce proceedings and during the period of his marital difficulties. The agreements were prepared by the attorney upon the understanding that petitioner intended to commence an action for divorce on the grounds of desertion. Frank Hesse agreed to pay counsel fees and the costs of petitioner's divorce proceeding, and to pay alimony pendente lite. In a letter of February 17, 1936, from Frank Hesse's attorney to the attorney of petitioner who represented her in her divorce proceeding the following is stated: We understand that inasmuch as all of the said agreements and assignment are executed and delivered to you to become effective only after a final decree in divorce has been secured by your client, they shall be so held by you in escrow, and in the event that your client does not secure a divorce, for any reason whatsoever, the same will be considered as null and void, and shall be returned to us for destruction, with the understanding that the prior agreement for which these agreements are to be substituted, shall, in such event, continue in full force and effect. On February 18, 1936, the petitioner's attorney acknowledged receipt of the agreements and stated that the papers were being held in escrow pending the entry of a final decree of divorce. The decree of divorce made no reference to any agreements of any kind which had been executed by petitioner and Hesse. OPINION. HARRON, Judge: Petitioner contends that she is not required to include in her gross income $3,600 in each of the years 1942 and 1943, under section 22 (k) of the Internal Revenue Code,' the amount she 1(k) ALIMONY, ETC., INCOME. In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments (whether or not made at regular intervals) received subsequent to such decree in discharge of, or attributable to property transferred (in trust or otherwise) in discharge of, a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife, and such amounts received as are attributable to property so transferred shall not be includible in the gross income of such husband. 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. received in each year for her own support and maintenance from her former husband, Frank Hesse. Petitioner's contention is predicated upon the particular law of Pennsylvania which does not allow or require the payment of alimony to a spouse who receives an absolute divorce from the bonds of matrimony. The question presented calls for construction of section 22 (k) in the light of the situation in the State of Pennsylvania where alimony is allowed to a spouse who receives a limited divorce, a divorce from bed and board (in which divorce neither spouse may remarry), but does not allow alimony to a spouse who receives an absolute divorce, a divorce from the bonds of matrimony (in which case the spouses may remarry). The only guide in making the construction of the statute which is necessitated is the statement in the congressional committee reports that "the amended sections will produce uniformity in the treatment of amounts paid in the nature of or in lieu of alimony regardless of variance in the laws of different states concerning the existence and continuance of an obligation to pay alimony." 3 The payments in question here were in the nature of alimony, and they were in lieu of alimony. Petitioner desired at all times to receive support from her husband, and the record shows clearly that the respective agreements of petitioner and Frank Hesse (on her part to get an absolute divorce; and, on his part, to execute an agreement to provide for her support until she might remarry, with security of various kinds to assure payments to her) were made in connection with a contemplated divorce, and were made to take care of the lack of any provision under law which would require the payment of alimony to petitioner if she sued for and obtained an absolute divorce. Petitioner is divorced, and was during 1942 and 1943. Thus section 22 (k) applies to her, in that she is in the class described therein. Cf. Charles L. Brown, 7 T. C. 715. The sums in question are periodic payments received subsequent to the decree of divorce. The narrow question is whether the payments were made under a written instrument incident to such divorce. It is concluded from all of the evidence (1) that the payments in question were made under the agreement of February 14, 1936; and (2) that they were in discharge of a legal obligation which was incurred by the former husband under a written instrument incident to divorce. In our opinion, these payments come within the scope and Vernier, American Family Laws, vol. II, sec. 104: "Every American jurisdiction except South Carolina (which grants no divorces), Delaware, North Carolina and Texas has a statute allowing alimony to the wife in absolute divorce cases. in Pennsylvania the only provision for permanent alimony after absolute divorce is in favor of an insane spouse who is defendant." H. Rept. No. 2333, 77th Cong., 2d sess., p. 72; S. Rept. No. 1631, 77th Cong., 2d sess., p. 83. |