Reports of the Tax Court of the United States

Revenue Code of 1954 so as to exclude the amounts in dispute from petitioner's gross taxable income as child-support payments fixed as such by the agreement. It is petitioner's contention, however, that the January 26, 1966, decree of the Circuit Court of Cook County, Ill., had the retroactive effect of amending the agreement nunc pro tunc as of the date of its execution and that therefore it did during the years at issue "fix, in terms of an amount of money or a part of the payment, as a sum which is payable for the support of minor children of the husband."

We find upon examination of the January 26, 1966, decree of the Circuit Court of Cook County, Ill., that it has no retroactive effect whatsoever. Paragraph Five thereof, set forth in our findings, is not amendatory of the separation agreement, but merely sets forth that court's conclusion as to the effect of the agreement with respect to amounts therein provided for child support. Our reading of paragraph Five of the separation agreement leads us to the unavoidable conclusion that the author thereof had resorted to inference and conjecture in contravention of the Supreme Court's determination in Commissioner v. Lester, 366 U.S. 299 (1961), that "the allocations to child support *** *** must be 'specifically designated' and not left to determination by inference or conjecture."2 It is true that the later decree "specifically designated" and fixed the amount of each payment to be allocated to child support, but it is clear that in doing so it made an amendment of the separation agreement which would have only prospective, not retroactive effect.

This case is distinguished from Gloria P. Johnson, 45 T.C. 530 (1966), by the difference in the State court decrees. While the decree here is clearly prospective in its effect and is not in any sense nunc pro tunc in character, the decree in Gloria P. Johnson, supra, is clearly nunc pro tunc in that it is amendatory with respect to a previous decree of the same court which amended its own decree as of the date of its issuance.

It follows then that the agreement for the years at issue must be held to have retained its original uncertainties with respect to the amount

and because of such relationship). This paragraph shall not apply if the husband and wife make a single return jointly.

(b) PAYMENTS TO SUPPORt Minor ChiLDREN.-Subsection (a) shall not apply to that part of any payment which the terms of the decree, instrument, or agreement fix, in terms of an amount of money or a part of the payment, as a sum which is payable for the support of minor children of the husband. For purposes of the preceding sentence, if any payment is less than the amount specified in the decree, instrument, or agreement, then so much of such payment as does not exceed the sum payable for support shall be considered a payment for such support.

* The Supreme Court was there considering sec. 22(k) of the 1939 Code, but we find its language equally applicable here for that section is identical with sec. 71(b) of the 1954 Code in all respects which are pertinent here.

or portion of the payments thereunder which were allocable to child support. The whole amount of each payment for those years is therefore held to be gross income to petitioner.

Although neither on brief nor otherwise has petitioner specifically conceded the correctness of respondent's inclusion in her gross income of a $48.41 accident and health insurance premium payment by her former husband for her benefit, we read the last paragraph of her reply brief as such concession and do not pass upon that issue. Because of concessions on the part of each party,

Decision will be entered under Rule 50.

GLADYS G. WILKINSON, ET AL.,* PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 3025-63, 3066-63, 3067-63. Filed October 17, 1967.

In 1947 petitioners sold real and personal property to their own corporation and elected to report the substantial gain realized on such sale on the installment basis. In December 1958, when the remaining deferred gain on the 1947 sale was still about $275,000, the petitioners assigned the installment obligations to a partnership of which they were members, and in January 1959 they liquidated the corporation, receiving its assets and assuming its liability on the installment obligations. Held: The assignment of the installment obligations to the partnership in December 1958 may be disregarded. Hence, the merger of the estates of obligor and obligee as a result of the January 1959 corporate liquidation constituted a disposition in 1959 of the installment obligations under the provisions of section 453 (d), 1954 Code.

Jack M. Harrison, for the petitioners.

Richard L. Fishman, for the respondent.

James J. Cotter and Richard L. Fishman, for the respondent.

OPINION

MULRONEY, Judge: These consolidated cases involve deficiencies in income taxes as determined by respondent, without making any adjustment for the subsequently claimed net operating loss carrybacks from 1962, as follows:

The issues are (1) did the respondent properly determine that the petitioners realized taxable gain upon the satisfaction and/or dispo

*Cases of the following petitioners are consolidated herewith: Estate of Reed W. Wilkinson, Deceased, and Irene Wilkinson, Executrix and Individually, docket No. 3066-63; William C. Wilkinson and Berna L. Wilkinson, docket No. 3067-63

sition of their installment obligations pursuant to section 453 of the Internal Revenue Code of 19541 when the debtor corporation liquidated and they, as shareholders, received its assets in 1959, and (2) in the alternative, did the respondent properly determine that Gladys G. Wilkinson realized taxable gain upon the receipt of the installment obligations from the partnership in 1959?

All of the facts have been stipulated and they are found accordingly. The petitioner Gladys G. Wilkinson is an individual and resided in Calipatria, Calif., during 1959. Her Federal income tax return for the year 1959 was filed with the district director of internal revenue in Los Angeles, Calif.

Reed W. Wilkinson and petitioner Irene Wilkinson were husband and wife during 1959, and resided in Calipatria, Calif. during said year, and their joint Federal income tax return for said year was filed with the district director of internal revenue in Los Angeles, Calif. Reed died on March 16, 1966, and his wife, Irene Wilkinson, is the duly appointed and acting executrix of his estate.

The petitioners William C. Wilkinson and Berna L. Wilkinson were husband and wife during 1959, and resided in Calipatria, Calif., during said year, and their joint Federal income tax return for said year was filed with the district director of internal revenue in Los Angeles, Calif.

Ray Wilkinson, who died on October 2, 1955, was the husband of Gladys. William, Reed, and Ray were brothers.

On or about January 17, 1947, a corporation by the name of Wilkinson Bros., Inc., was formed under the laws of the State of California. The corporation issued 750 of its $100 par value shares as follows:

William C. Wilkinson___

Berna L. Wilkinson__

Reed W. Wilkinson_

Number

of Shares

125

413

41%

Irene W. Wilkinson_.

Gladys G. Wilkinson---.

Duane Wilkinson (son of Ray and Gladys) -

Gary Wilkinson (son of Ray and Gladys) –

Linda Lee Wilkinson (daughter of Ray and Gladys) ——.

On or about February 1, 1947, William, Reed, and Ray sold various items of real and personal property to the corporation for the total sum of $785,025.51. In satisfaction of the purchase price the corporation paid to each of the three brothers $11,657.17 in cash and issued to each of them its promissory note in the principal sum of $250,000, bearing interest at the rate of 3 percent per annum, with principal

1 All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise noted.

and interest payable in annual installments of $25,000 or more on July 1 of each year commencing July 1, 1947.

It is stipulated the gain resulting from the aforementioned sale as to each of the three brothers amounted to 70.46 percent of the gross selling price and each of the three brothers made an election to report said gain on the installment basis.

On October 10, 1952, at which time the principal balance of each of the aforementioned promissory notes was $200,000, with unpaid delinquent interest in the amount of $19,676.71, the three brothers, Ray, Reed, and William, each entered into a written extension agreement with the corporation incorporating the following terms:

(a) The $200,000.00 balance due on principal was to be paid in equal annual installments of $10,000.00 each, beginning on the 1st day of July, 1953.

(b) on or before November 1, 1953, the Corporation was to pay Ray, Reed and William the sum of $3,001.71 each on the unpaid delinquent interest and the remaining balance of the unpaid delinquent interest in the sum of $16,675.00 was to be paid to each in five equal annual installments, beginning July 1, 1953.

When Ray died on October 2, 1955, the principal balance of the promissory note which he held of the corporation was in the amount of $191,956.60. In the settlement of Ray's estate, a two-thirds interest in said note was distributed to Gladys, and a one-third interest was distributed to a testamentary trust created by the will of Ray.

On December 2, 1958, the principal balances due on the aforementioned promissory notes were as follows:

William

Reed

Gladys (% interest in Ray's note) ----

$147, 070.00

147, 070. 00

98, 046. 67

49, 023. 33

Ray Wilkinson Trust (% interest in Ray's note)--As of December 2, 1958, new promissory notes reflecting the aforementioned principal balances as of said date, rather than the original face amounts, were executed by the corporation to William, Reed, Gladys, and the Ray Wilkinson Trust. At the end of the promissory note payable to Gladys appears the following form of assignment executed by her:

ASSIGNMENT

I hereby transfer and assign to Wilkinson Brothers, a partnership, of Calipatria, California, all my right, title and interest, in, to, and under the within promissory note dated December 2, 1958. Said transfer and assignment is made in consideration of an increase in and in addition to my capital investment in said partnership in an amount equal to the value of said promissory note, including both principal and interest thereon.

Dated: December 12, 1958.

(S) Gladys Wilkinson

GLADYS WILKINSON

An identical form of assignment, dated December 12, 1958, executed by William and Reed appears at the end of their respective promissory notes.

Following the execution of the aforementioned promissory notes by the corporation and the execution of the aforementioned assignment forms by Gladys, William, and Reed, the combined documents were delivered to David Beauchamp, bookkeeper of Wilkinson Bros., a partnership.

Wilkinson Bros., a partnership, came into existence in 1935. Its activities consisted of farming, cow feeding, and custom cattle feeding. The partners and their proportionate interests in the partnership were as follows:

Gladys had held her interest in the partnership since October 11, 1957. On December 12, 1958, the following journal entry was made on the books of the partnership:

On January 2, 1959, the corporation adopted a plan of complete liquidation under the provisions of section 333 of the Internal Revenue Code of 1954, which plan provided, in part, as follows:

NOW, THEREFORE, BE IT RESOLVED, that the distribution of the assets of this corporation remaining after payment, or provision for payment, of the known debts and liabilities of this corporation shall be made within the calendar month of January, 1959, to the shareholders of this corporation, as shown by the books and records of this corporation, in the following manner: During the month of January 1959, all of its assets were distributed to its shareholders, including William, Reed and Gladys. Among the liabilities of the corporation assumed by Gladys as a result of the liquidation was the promissory note of December 2, 1958, in which she was designated as the payee, and in which she had assigned her interest to the partnership in 1958. Similarly, William and Reed each assumed the promissory note in which he was designated as the payee, and in which he had assigned his interest to the partnership in 1958.

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