Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-11

1967-1 C.B. 15

Sec. 71

Sec. 215

IRS Headnote

Where an absolute decree of divorce adopts by reference the provisions of a prior decree for maintenance and support, payments made pursuant to the final decree are within the scope of section 71(a) of the Internal Revenue Code of 1954. Where a lump-sum payment is made to satisfy the obligations under the original decree and the payment is smaller than the aggregate amount due, such payment is arrearages of alimony taxable to the wife and deductible by the husband.

Full Text

Rev. Rul. 67-11

Advice has been requested whether a divorce decree adopts a maintenance decree of another court where the divorce decree reserves for future consideration matters respecting maintenance, support, and alimony in the event of the failure of the husband to comply with the earlier maintenance decree, and whether a lump-sum payment made under an agreement to satisfy past, present, and future obligations under the decree is payment of arrearages of alimony.

The wife in the instant case was separated from her husband and obtained a judgment and decree on January 19, 1961, under which she was awarded custody of the minor child and 5 x dollars per month for maintenance and support, none of which was earmarked for the child. Later the wife obtained an absolute divorce from a court in another jurisdiction. In the final decree the court reserved for future consideration matters respecting the custody of the child, maintenance, support, and alimony in the event of the failure of the husband to comply with the provisions of the decree of the first court. As a result of various differences and disputes, the husband had paid some but had refused to pay the full amounts ordered by the first court, which resulted in arrearages under the order to pay maintenance.

Subsequent to the final decree, an agreement was accepted by the wife and approved by the court, wherein the husband agreed to pay the sum of 150 x dollars in full settlement of all differences between the parties, including the matters of custody, maintenance, support, and alimony whether past, present, or future. This sum was less than the arrearages in the support payments.

Section 71(a)(1) of the Internal Revenue Code of 1954 provides in part that, if a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the 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 or incurred by the husband under the decree or under a written instrument incident to such divorce or separation.

Under section 71(a)(2) of the Code, if a wife is separated from her husband and there is a written separation agreement executed after August 16, 1954, the wife's gross income includes periodic payments received after such agreement is executed which are made under such agreement and because of the marital or family relationship, except where the husband and wife make a single return jointly.

Under section 71(a)(3) of the Code, if a wife is separated from her husband, the wife's gross income includes periodic payments received by her after August 16, 1954, from her husband under a decree entered after March 1, 1954, requiring the husband to make the payments for her support or maintenance, except where the husband and wife make a single return jointly.

The judgment and decree of the first court provided for maintenance and support, but was not a decree of divorce or legal separation. However, the decree of the second court was an absolute decree of divorce, and this decree adopted by reference the provisions of the prior decree for maintenance. Therefore, payments made subsequent to the divorce decree are within the scope of section 71(a) of the Code.

Revenue Ruling 55-457, C.B. 1955-2, 527, holds that the part of the lump-sum payment made to a wife under an agreement with the executor of the estate of her divorced husband, representing arrearages in periodic payments required by an amended decree of divorce, constitutes `periodic payments' includible in the gross income of the wife in the year of receipt. Where a lump sum is paid in settlement of arrearages in alimony the payment retains the character of the original payments for which it is substituted and if the latter qualified as `periodic payments', the former does also.

Alimony payments are deductible by the husband under section 215 of the Code if they are taxable to the wife under the provisions of section 71 of the Code. Inasmuch as the lump-sum payment in the instant case is less than the arrearages in the support payments, this entire lump-sum payment will be considered settlement of arrearages. This follows the rationale in the case of Estate of Harold W. Ross v. Commissioner , 18 T.C. 1013 (1952), acquiescence, C.B. 1954-1, 6, consolidated for trial with the case of Jane C. Grant v. Commissioner , 18 T.C. 1013 (1952), affirmed 209 F.2d 430 (1954), where the court held that the full amount paid to the wife was deductible by the husband even though it was paid in settlement of future claims as well as in settlement of past and present obligations to pay.

Accordingly, the entire lump-sum payment of 150 x dollars, made in this case under an agreement to satisfy past, present, and future obligations under the divorce decree, is a payment of arrearages in alimony, which is taxable to the wife and deductible by the husband, since such lump-sum payment is less than the aggregate amount of the arrearages.