OPINION.

ARUNDELL, Judge: There is no dispute between the parties on the basic facts involved in this proceeding. The parties disagree only on the ultimate conclusion to be drawn from the facts. The only question we have to decide is whether the written agreement of separation, dated December 8, 1941, was "incident to" the divorce of petitioner and her husband within the meaning of section 22 (k) of the Internal Revenue Code. Briefly, this section provides that periodic payments received by a divorced wife, subsequent to the decree of divorce in discharge of a legal obligation, arising from the marital or family relationship, imposed upon or incurred by the husband in a written instrument incident to the divorce, shall be included in the gross income of the wife and taxed accordingly to her.

The respondent argues that the separation agreement here involved was incident to the eventual divorce decree because: (1) It provided for the cessation of payments on the contingency of the petitioner's remarriage; and (2) the swift consummation of the divorce proceeding, and remarriage of the husband, after the end of the 2-year separation period which commenced with the signing of the agreement. Against these arguments is the petitioner's testimony that divorce was not contemplated, at least not by her, at the time the agreement was signed. She had been married 22 years and hoped for an eventual reconciliation following the separation brought on by her husband's drinking. The witnesses at the signing of the agreement, among whom were petitioner's sister, testified that the matter of divorce or possible divorce was not mentioned or suggested by either spouse. The attorney who drafted the separation agreement testified that in his discussions with petitioner and her husband in connection with the drafting and execution of the agreement no mention of divorce was made or suggested by either of them. The petitioner contends that the purpose of the separation agreement was to protect her and provide for her during the period in which her husband hoped to give up his heavy drinking and rehabilitate himself.

The chief difficulty in cases of this kind is to determine from the facts whether the necessary connection or relationship exists between the agreement and the divorce. The connection is obvious when there is an express understanding or promise that one spouse is to sue promptly for a divorce after signing the settlement agreement, and the action is brought and followed through quickly. Robert Wood Johnson, 10 T. C. 647. The connection may also appear from something that is said in the pleadings before the divorce court, or from something said in the decree. Bertram G. Zilmer, 16 T. C. 365. Circumstances surrounding the separation may also indicate a relationship between the settlement agreement and the divorce. George T.

Brady, 10 T. C. 1192; Charles Campbell, 15 T. C. 355; Estate of Daniel G. Reid, 15 T. C. 573, affd. (C. A. 2) 193 F. 2d 625.

In this case we find no obvious connection between the separation agreement of December 1941, and the divorce of the parties in April 1944. Certain circumstantial deductions can be drawn from the terms of the agreement and from the fact that the husband instituted the divorce proceeding a short time after the expiration of the 2-year period of separation marked at the beginning by the signing of the agreement, and also from the fact that he remarried apparently a short time after the divorce was granted in April 1944. But these facts do not persuade us that the husband had definitely made up his mind to seek a divorce at the time the agreement was signed and we cannot find any facts or surrounding circumstances which indicate to us that either of the parties intended to sever the marriage relationship completely when they separated originally in December 1941.

We have evidence that the separation agreement was before the divorce court, informally at least. However, the decree of divorce made no mention of the terms of the agreement for the support and maintenance of the petitioner nor was alimony specified in the decree. Therefore, the monthly payments which her former spouse made cannot be taxed to petitioner under that provision of section 22 (k) which includes in the gross income of a divorced wife the periodic alimony which is received pursuant to a divorce decree.

Since we have concluded that there was no plan on the part of either spouse to break the marriage ties when the separation agreement was signed, we hold that the separation agreement was not incident to the divorce of petitioner from her former husband and that the monthly payments which she received under the separation agreement are not includible in her gross income.

Decision will be entered for the petitioner.

JOSEPH L. DORAN, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 42241. Promulgated December 21, 1953.

Held, value of living quarters furnished to the petitioner by his employer was compensation for services rendered and therefore in

cludible in the petitioner's gross income.

Joseph L. Doran, pro se.

A. F. Barone, Esq., for the respondent.

The respondent determined deficiencies in income tax for the calendar years 1949, 1950, and 1951 in the total amount of $133. The only

question presented is whether the value of living quarters furnished to the petitioner by his employer is compensation for services rendered and therefore includible in the petitioner's gross income. The petitioner filed his income tax returns for the years in question with the collector of internal revenue for the district of South Carolina.

FINDINGS OF FACT.

During the years 1949, 1950, and 1951 the petitioner was employed as a maintenance engineer by the Citadel Military Academy, a state college located in Charleston, South Carolina. A condition of the petitioner's employment was that he occupy living quarters on the grounds of the Citadel in order to be available 24 hours a day for any maintenance emergencies requiring his attention.

The petitioner's gross salary was made up of his base pay and an addition thereto for rental allowance. The rental allowance was deducted before the petitioner was paid. If the petitioner did not occupy living quarters at his place of employment, a rental allowance amount would not be included in his gross salary. The amount of the petitioner's income tax withheld by his employer was computed on the basis of his gross salary.

In his income tax returns for the calendar years 1949, 1950, and 1951 the petitioner deducted from his total wages the amount of his yearly rental allowance. These deductions were disallowed by the respondent.

OPINION.

TIETJENS, Judge: Although the petitioner deducted the amount of rental allowance from his total wages on his returns for each of the years in question, his argument and evidence were directed toward showing that his rental was excludible rather than deductible from gross income.

Section 22 (a) of the Internal Revenue Code includes in the definition of gross income "compensation for personal service *** of whatever kind and in whatever form paid, ***.” Ordinarily, living quarters provided for an employee in connection with his work are considered a part of the compensation for his services and their value is includible in his gross income. Where, however, quarters are furnished not as a part of the employee's compensation but for the convenience of the employer, their value is not includible in the employee's gross income. Herman Martin, 44 B. T. A. 185 (1941); Regs. 111, sec. 29.22 (a)-3.

The respondent contends that under the law of South Carolina the value of the living quarters furnished to the petitioner is considered a part of his compensation and is, therefore, includible in his gross

income. In support of his assertion the respondent cites the following from the Appropriations Act for 1949-1950 for the State of South Carolina:

Section 79. That salaries paid to officers and employees of the State, including its several boards, commissions and institutions, shall be in full for all services rendered, and no perquisites of office or of employment shall be allowed in addition thereto, but such perquisites, commodities, services or other benefits shall be charged for at the prevailing local value and without the purpose or effect of increasing the compensation of said officer or employee; *** [Acts 1949, No. 339, 46 Stat. at Large, p. 741.]

The South Carolina appropriations acts for the other years involved here contain the same language.

While the law of South Carolina has no binding force in our determination of whether the value of the petitioner's living quarters is compensation for his services within the meaning of section 22 (a) of the Internal Revenue Code, it is helpful in understanding what the terms of employment were between the petitioner and the Citadel, a state institution. The meaning of the above statutory language is that the base pay and rental allowance which make up the petitioner's salary are to be the full compensation for his services. He is required to pay for his living quarters in order that their receipt will not have the effect of increasing his compensation above the total of his base pay plus rental allowance. Accordingly, we find that the value of the petitioner's living quarters was a part of the compensation for his services.

The petitioner argues that since his living at the Citadel is for the convenience of his employer, the value of his quarters is not compensation. It is undoubtedly true that the petitioner lives at his place of employment for his employer's convenience, but it does not necessarily follow from this that the value of his living quarters is not compensation. The weakness of the petitioner's argument is that he considers "compensation" and "convenience of the employer" as necessarily alternative propositions. This is not so. The convenience of the employer rule is merely one test used to determine whether the value of living quarters furnished to an employee is compensation. In the absence of other criteria it has often been controlling. Arthur Benaglia, 36 B. T. A. 838 (1937). Here, however, it is apparent from the South Carolina statute that the value of the petitioner's quarters is considered a part of the compensation for his services to the Citadel, and the Internal Revenue Code requires the inclusion in gross income of all compensation received in return for personal services. Consequently, there is no necessity to apply the convenience of the employer test. Diamond v. Sturr, 116 F. Supp. 28 (1953).

Decision will be entered for the respondent.

ESTATE OF CHARLES I. AARON, DECEASED, MARCUS AARON, MARCUS LESTER AARON AND FANNIE H. AARON FRIEDMAN, EXECUTORS, ET AL., PETITIONERS,' v. COMMISSIONER OF INTERNAL REVENUE, RE

SPONDENT.

Docket Nos. 38348-38352. Promulgated December 22, 1953.

ESTATE TAX-ContemplaTION OF DEATH-FUNDED LIFE INSURANCE TRUST-SEC. 811 (c) (1) (A), I. R. C.-The value of bonds and life insurance policies transferred to trusts is includible in the decedent's gross estate as transfers made in contemplation of death where the trusts would not provide any economic or other benefit to the beneficiaries until the death of the decedent and the transfers were not made for motives associated with life.

Thomas J. McManus, Esq., and Carl E. Glock, Jr., Esq., for the petitioners.

Roy E. Graham, Esq., for the respondent.

The Commissioner determined a deficiency of $245,123.98 in estate tax against the estate and held that the other petitioners were liable as transferees to the extent of the value of assets of the estate received by them. The only issue requiring decision is whether the value of bonds and life insurance policies transferred by the decedent to four trusts on December 1, 1931, was properly included in the decedent's gross estate under the provisions of section 811 (c) (1) (A) of the Internal Revenue Code, made retroactively applicable by section 7 (b) of Technical Changes Act, 1949 (Public Law 378, 81st Cong.).

FINDINGS OF FACT.

Charles I. Aaron, the decedent, died testate on October 24, 1947, while residing in Pittsburgh, Pennsylvania. A Federal estate tax return for his estate was filed with the collector of internal revenue for the twenty-third district of Pennsylvania.

The decedent created four trusts on December 1, 1931, in which he named his nephew, Marcus Lester Aaron, trustee. The trusts were irrevocable and were for the benefit of the four grandnieces and grandnephews of the decedent then living, to wit: Maxine Goldmark Aaron, Jr. (now Rosston), Marcus Aaron II, Jean Louise Friedman (now Nathan), and Ruth Frances Friedman (now Ornitz). The decedent completely and irrevocably assigned to the trustee ordinary life and 20-payment life insurance policies on the decedent's life taken out by

1 Proceedings of the following petitioners are consolidated herewith: Marcus Lester Aaron, Trustee for Maxine Goldmark Aaron, Jr., Trustee and Transferee, Docket No. 38349; Marcus Lester Aaron, Trustee for Jean Louise Friedman, Trustee and Transferee, Docket No. 38350; Marcus Lester Aaron, Trustee for Ruth Frances Friedman, Trustee and Transferee, Docket No. 38351; and Marcus Lester Aaron, Trustee for Marcus Aaron II, Trustee and Transferee, Docket No. 38352.

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